Oct 23 Market Update

Weekly sales numbers courtesy of the VREB.

Oct 2017
Oct
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 146  289  453  735
New Listings 265  479  698  904
Active Listings 1990 1989 1978  1938
Sales to New Listings  55%  60%  65%  81%
Sales Projection  565  661
Months of Inventory  2.6

A surprisingly strong week at 164 sales which is 20 more than the first two weeks of the month.  I wonder if the stress test is pushing some people to jump in before they can’t qualify anymore?   A 25% buying power reduction is nothing to sneeze at.  We started out the month at a sales rate 30% lower than this time last year, now we are just off 10%.

I made the following graph last night before some of the early morning sales reports that made the week stronger, but regardless we should still end up with residential inventory above this time last year by about 5% for October.   You can see that it’s been a heck of a long time of inventory declines, so hopefully we will start seeing steady increases going forward (especially after the stress test).

 

And the current conditions:

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111 thoughts on “Oct 23 Market Update

  1. Don’t forget those boomer in public service that can retire early. We just had 3 retire at 60 last month in our department.

  2. Barrister, google is your friend.

    Or just look at the 2016 age graph I posted below, where you can clearly see the big blue jump at age 70.

  3. Sigh: I will repost this again. The baby boom in Canada (you know the country that we live in) did not start until 1952. The lead edge just turned 66. Yes the baby boom did start in 1946 in the US but Canada got delayed because of a major recession here. The boomers are just starting to retire here and, yes, that might have implications for Victoria real estate.

  4. Sure, a very small percent of the 10M boomers are starting to pass – leading edge is now age 71 (bulge still late 50s).

    But don’t overlook what typically happens when the man of the house passes. The widow usually can’t handle all the house maintenance herself, hence she looks for things like maintenance-free, security, and some $ to travel from the house-to-condo transaction. Just another factor that will shift the supply-demand balance towards condos for next ~20yrs.

  5. “So if you’re listening Tardeau & Moroneau, open the immigration floodgates!”

    You conservatives are funny. The Libs already are opening them and if the Cons were in power they would be slamming the door Trump style.

  6. Times are a changing. Looks like the kids aren’t alright, as they see through the ponzi scheme, and prefer to rent and have a life. More signs houses are on the edge of a cliff. Manias happen, then they don’t.

    Home ownership rates take historic dip as more Canadians opt to rent

    OTTAWA, ON. (NEWS 1130) – Not everyone wants to own a home these days, Evan Siddall concedes — not even his own millennial-age son. For the head of the Canada Mortgage and Housing Corp., that’s really saying something.

    http://www.news1130.com/2017/10/25/census-home-ownership-rates-take-historic-dip-as-more-canadians-opt-to-rent/

  7. Actually Michael that is a slight misinterpretation of the data. That’s a simple peak and they are dying out. The lower side has about the same overall volume as the upper side but those 0-5 year olds aren’t dying, they are becoming buyers. So I would call that side growing, not shrinking. Why do you think bike lanes are popping up all around the world? The boomers are no longer the largest voting or buying block and their relevance is dying because of it.

    I see it as a baby blob instead of a boom. It doesn’t have the peak of the boomers but the volume is there. It’s just more spread out. You are right about immigration though. IT will add to this side of the chart as odds are, not a lot of 60 year olds immigrating….

  8. Nice chart Mike. Great to see you back in the bear camp again showing house dumping of major proportions is coming. They are just waiting til it’s too late to max out as usual before a crash.

  9. But, other people love it (including Marko but even Marko will agree that a SFH is, on average a better investment).

    I definitively prefer condo living but hands down a SFH is a better investment; therefore, my primary reason for living in a SFH.

  10. Demographics may favor condos for a while – the last 17yrs of upsizing boomers are about to start downsizing, and 34 yr-olds (average age of housebuyer) are now starting to decline. So if you’re listening Tardeau & Moroneau, open the immigration floodgates!

  11. @Michael, or you know, the interest rate went up to deal with inflation, which is why the price of housing was going up.

  12. I spent almost a year living in a rented condo here in Victoria while I was house hunting. Personally I hated it. But, other people love it (including Marko but even Marko will agree that a SFH is, on average a better investment).

  13. Not this resident!

    I refused to live in a Condo. I did look (when we were looking), but we stuck to our guns and settled on a SFH. I would have maybe considered a Town house or Duplex, but then my standards were much higher. And they where not that great in 2012, even when there was more selection than there is now.

    Happy (mortgage free) Home owner!

    Or did you mean the core?

  14. New Zealand will ban foreign buyers from purchasing existing homes in the country in an effort to cool soaring property prices.

    Prime minister-elect Jacinda Ardern said the ban only applied to non-residents.

  15. Leo:

    Some numbers on the luxury market would be interesting to see. I am noticing that there seems to be a lot of inventory for the last little while in the Uplands.

  16. The luxury market is definitely active, will put up a post about this, but the article makes some claims that aren’t backed up. “More and more Vancouverites are cashing out” for example. That statement implies that the number is increasing. We should get the recent quarter’s numbers soon, but so far we have the first and second quarters.

    Percent of Victoria buyers from the lower mainland:
    2016 (full year): 11.9%
    2017 Q1: 10.1%
    2017 Q2: 9.3%

    Does that look like “more and more”? But of course, nothing like a planeload of agents in suits to put the fear of god into people.

  17. I see the CTV news tonight is still trying to pump the ” rich foreigners buying here” story putting out numbers of 10%. Problem is the the numbers are 7 months old. I guess Tony ran out of Asians with the yuan outflow choked and has to go fishing by flying agents in to keep the pump alive. Sad.

  18. LeoS, they had no choice to stop building . The money tree dried up and died overnight. Rumours of German money stepping in then Asian money were just that, rumours. Next time will be worse as this experiment in creating asset bubbles implodes.

  19. The construction boom is nuts. All of the engineering firms staffing up, crazy busy. It certainly is a feedback loop that can have quite some momentum. But if you think the big developers somehow know something that we don’t, that is not the case. Just like everyone else they panicked in 2008 and stopped building completely until well after the bottom was clear.

  20. Well I hope you’re wrong Barrister. Because not only are Vancouverites more wealthy than Victorians they are better educated, smarter and more attractive than Victorians.

  21. Michael, what is the point of this chart? What are you arguing? That if the bond market tanks, that residential real estate is going to spike?

    I feel like this chart is like the one that demonstrates a clear correlation between ice cream consumption and drowning.

  22. Sincerest apologies hawk. I feel like such a douche bag & clown for saying “70s”.
    Here’s the correction with ‘precise’ years:

    The bond market crash from ‘1965 to 1981’ saw Victoria prices increase 900%.

  23. Good time to be a construction worker, or any building trade atm.

    Maybe a contractor….I don’t see too many people advertising $40 per hour for carpenters, etc. Seems like prices are through the roof but if you are working for someone you aren’t getting rich.

  24. I have some tall ceilings on the second floor at the roof peak sure but it’s still 2500 sqft including the 462 sqft garage. $36,000 was the quote. Another for $32,000. No F’n way! I am putting wood on my walls if I have to pay a team of lawyers to drywall….

    Damn….that is more than double from 3 years ago. I paid 26.5k in early 2015 for more than double the sq/ft and almost entire house is 9′ ceilings with a two story entrance. I also had a quote for 22k but didn’t think the guy could do it quickly enough.

  25. That’s horrible. I guess you wouldn’t try a portion of it it yourself?

    Hanging it shouldn’t be too hard. Mudding and taping is a bit more of a practiced art, though.

    Good time to be a construction worker, or any building trade atm.

  26. @ Caveat, Thanks for asking. It’s coming along. It’s not as easy as my blog makes it look…. https://blackturtleredphoenix.wordpress.com/
    @Local fool. This is the relevance of the macro economics of drywall prices. That I am not going to have any…. I have some tall ceilings on the second floor at the roof peak sure but it’s still 2500 sqft including the 462 sqft garage. $36,000 was the quote. Another for $32,000. No F’n way! I am putting wood on my walls if I have to pay a team of lawyers to drywall….

  27. Hate to break it you Mike but 1964 is not the 70’s. Let’s take most of a decade plus and toss it in and count it as 10. More bullshit charts in an era of massive wage growth and limited household debt,very few had a credit card and HELOC’s didn’t exist. Its funny to watch a clown spin history.

  28. Wage inflation is the true inflation that will drive rates up.

    You’d think so, at least that’s what I understood the mandate of the CB to be. Lately though, I’ve been wondering how tightly they’re clinging to that notion – if their recent moves are not about controlling inflation (in the standard sense), but about trying to control asset inflation without wrecking an inflation-weak economy. Seems almost opposing goals, then again, I’m not a CBer.

  29. Fair enough local fool. Wage inflation is the true inflation that will drive rates up. Agree that that hasn’t moved much. The owners of the drywalling companies are making a lot more but their employees aren’t….

  30. I dont think that there is much in the way of hidden inventory being held by speculators in Victoria.If anything what i have noticed is that a number of formally rental houses have been sold to the flood of Vancouver refugees. (You know the poor unfortunates coming over on the ferry with bulging suitcases of cash).

  31. “Oh, so the next incarnation of the Conservatives will be more conservative”

    That’s not what Lore said. What he said was:

    “politically unpalatable reforms seem unlikely unless and until a conservative regime …”

    Note conservative with a small “c.”

    I agree with Lore. Moreover, I expect that there will be no reform unless and until the present racket of allowing the banks to print money subject to little restriction leads to an unmanageable financial catastrophe. Then there will be all kinds of shenanigans, as in 2008, and the system will be reset, though probably not along financially conservative lines.

  32. If interest rates rise meaningfully, the bond market will crash, with associated lasting and far-reaching impact on real estate.

    Indeed, the bond market crash of the 70s saw Victoria prices soar 900%.

  33. If you could force all the vacationers/part timers to sell their properties that might give a little bump in supply.

    No one can force you to sell. But the government can make it more profitable for some to sell sooner than later. In that way the government can entice more investors, speculators or hoarders to put the rental property up for sale.

    Right now half the proceeds from the sale of an investment property are subject to Capital Gains tax. By eliminating or reducing this amount for the next 6 months that would bring forward a lot of supply.

    And it would be a lot cheaper for the government and the taxpayer than building more condos.

    And it wouldn’t be an insignificant number of investors that would take advantage of this. It’s a hell of a lot in capital gains that can be saved.

    That’s just one idea to bring more re-sales to the market. You could do the reverse and announce an increase in the capital gains on rental properties for six months from now. There would be enough investors, speculators or hoarders willing to sell now than face a bigger tax bill later. I imagine that there are many other ways that this can be done.

    How it is done is less important than what can be accomplished by stimulating the re-sale market. And that’s is to bring down prices so more people buy. That means more property purchase taxes for the province too.

  34. What the heck is a “property hoarder”?

    If you own multiple properties not for their income producing potential but for appreciation. I would put most of the purchases into this category when they are being used as a place to store wealth while keeping the condo or house vacant.

    All hoarding accomplishes is to drive up homes prices while not adding to the rental market. This is what most people have been talking about in Vancouver. The tens of thousands of empty condos and houses in that city.

    Does owning an rental condominium or letting out your basement make you a hoarder? No

    You’re likely renting it out to make some additional cash that would be an investor. That’s good for the housing market as it stabilizes prices and helps with the rental market.

  35. Because the Harper Conservatives weren’t particularly conservative.

    Oh, so the next incarnation of the Conservatives will be more conservative. Got it.

    That’s a classic mistake people make: they think next time will be significantly different. The next government will fix things.

    A variant of this thinking is the next thing will be different: e.g., OSFI’s stress test will burst Victoria’s bubble.

  36. Thanks Dasmo, and no, I meant inflation.

    I was speaking more broadly not only in what people pay, but also what they earn (ie the cost of labor, not only consumer goods bought by households). For instance, home prices rising at a rapid pace would not be an issue if wages were doing the same. They’re not.

    In other words, the money is still in the economy, but it is concentrated in and inflating certain sectors at the expense of others. Hence I say, imbalance. I don’t see the macro significance of drywall.

    Also, I don’t think that either the CPI or resultant inflation calculation are “meaningless”, but I suppose that’s for another thread.

  37. What the heck is a “property hoarder”?

    Most property owners either (a) live in the property they own, or (b) rent it out. Both contribute to housing supply. Neither is “hoarding”.

    Are property hoarders those that own vacation/part time properties here? There are quite a few of those I guess. If you could force all the vacationers/part timers to sell their properties that might give a little bump in supply.

    Or are property hoarders those that own properties and run short term rentals? Victoria is on track to deal with those (though not the surrounding munis.)

    Or are property hoarders just that tiny number of people that own properties and have them sit vacant for speculation?

    Or maybe these are the true property hoarders – https://www.caprent.com/? Look how many properties those bastards own. And there are many others of the same ilk. But hang on they are renting out all their places too.

  38. To be fair. All levels of government would like to see prices lower so that more people can buy. What they don’t want to happen is for construction to slow down causing a spike in unemployment.

    And that’s what makes it tricky. Stimulate construction and prices increase. Reduce prices with higher interest rates and construction slows and people lose their paychecks.

    We are doing what every country is trying to do. Stimulating their economy through construction. Build it and they will come. Stop building and they will go.

    What the government should be doing is stimulating the re-sale market. Get those property hoarders to list their properties. Give them an economic incentive to sell today rather than wait for tomorrow.

  39. Um, why were those “moves that should have been made years ago” not made when the Conservatives were in power for that super brief period from 2006-2015?

    Because the conservatives were busy LOOSENING rules to set up our price run-up. “Conservative” these days tends to mean de-regulation and then having the taxpayer pick up the bill for the resulting mess.

    I think it should be taken for granted that politicians of all stripes will talk about house affordability but NONE want to trigger a large decline in house prices and piss off their voters.

  40. Lots of people pulling strings to prevent the bomb from going off

    Ya…that shouldn’t bring anyone a moment of comfort. Those efforts are almost always counterproductive. What we’re seeing domestically and internationally is a by-product of people pulling these strings for so long. They did it after the dot-com bubble, which created an even larger one. Then that one burst, and the world was subsequently flooded with more liquidity than anything seen in history. Now we have substantial asset mispricing everywhere, including several RE markets in Canada.

    But they don’t really have another alternative, do they? Inflate or die. But there really isn’t much inflation. So what do they do…yet again – or more to the point, what is the definition of insanity?

    Sooner or later, the only real solution to this mess is the same solution that always rebalances these variations. The larger the imbalance, the greater the correction will be. I would loathe to see GFC 2.0, but we seem intent in making it as likely as we possibly can.

  41. Lots of people pulling strings to prevent the bomb from going off. 2009 was a surprise as they were all drugged by the euphoria of the easy money. The same reactions won’t happen with this deb bomb. It’s not out there on it’s own waiting to blow so keep that in mind. I think there is ever mounting risk without question but don’t count an explosion to get into the market at big discounts. If such a thing happens who knows what the side effects are. In Hawks case the stock market crashes too and the algorithms will evaporate the penny stocks in seconds and you will wake up with nothing left to buy with…. In other words, careful what you wish for….

  42. Intorovert missed the news again that Harper bailed out the banks for $113 Billion of high risk mortgages that should have been called in and instead flipped them to taxpayers into CMHC.

    Its called saving your political ass, not conservative money management especially when creating 35 and 40 year mortgage to keep the bubble alive. This is the cause of 167% household debt bomb thats close to blowing up.

  43. If interest rates rise meaningfully, the bond market will crash, with associated lasting and far-reaching impact on real estate. So, while the central banks may talk in “hawkish” terms, it’s just talk.

    I agree with you Lore, banks are not leaders, they are not proactive but reactive tending to follow each other.

    As for JT being ornamental – aren’t they all? And I don’t mind him being that way and setting a tone for Canada with his easy going manner and interaction with the public, he’s the antithesis of Trump. Do I expect great things or innovations from him – No. But he’s a good ambassador to the World.

    Any “great” leader of any nation has had bad offsets to their leadership. It comes from being a megalomaniac.

    Here’s a video of someone I think should be the next President of the USA

    https://youtu.be/-ukv9v7IGZw

  44. “Why weren’t those ‘moves that should have been made years ago’ not made when the Conservatives were in power…?

    Because the Harper Conservatives weren’t particularly conservative. Like most political parties, they use labels as a matter of convenience, generally misleading the shallow electorate.

    “You’re out to lunch”

    Not so out to lunch that I would mistake a fallacious personal attack for a well developed counter argument. FAIL. Try again. I’ll make an effort to give your thoughts due consideration, but know that the weight of evidence is stacked against the just-think-positive-ignore-the-negative crowd.

  45. … so it follows that politically unpalatable reforms seem unlikely unless and until a conservative regime replaces him, at which point the moves that should have been made years ago will finally be carried out, and the conservative government will (mistakenly) be held responsible for the subsequent carnage.

    Um, why were those “moves that should have been made years ago” not made when the Conservatives were in power for that super brief period from 2006-2015?

    Lore, you’re clearly out to lunch, so it makes perfect sense that you’re

    … inclined to agree with Hawk.

  46. I think going forward even in slower markets deals will be harder to land due to the absorption of PCS accounts/flow of information, but situations will come up.

    Hasn’t PCS been around for at least a decade if not longer? Certainly looks like it’s from 2003.

    Also like you said, only the small minority even thinks to look for those deals. Most (me included) thought early 2009 was the end of the (financial) world and were just happy to hang on to their job rather than out looking for deals.

  47. Traditional market health gauges are presently undermined to some extent by extraordinary central bank activity (“QE,” etc.), which is having the effect of preventing corrections from unfolding and being measured as they would ordinarily

    Yup. And it’s not just RE. I’m not sure there’s a bear left anywhere in the US markets.

  48. When the market is composed of a large percentage of those people, they drive the market and it drops very quickly. Winter 2008 was such a time where we saw huge drops in a short few months, but even in less extreme scenarios there are deals as we saw 2011/12/13.

    I think going forward even in slower markets deals will be harder to land due to the absorption of PCS accounts/flow of information, but situations will come up. For example, totally okay houses that start out a tad high in terms of list price and then people start skipping over them due to DOM/Re-lists. Right now inventory is so tight people are looking at everything and anything.

  49. My point is that was almost a 50% drop that would not show up on the stats….

    This.. In every market there is a certain percentage of sellers that are desperate and absolutely have to sell. In a hot market those people just sell and for the same price as everyone else. In a slow market those people start to panic, especially if the property is one that appeals to only a smaller subset of buyers. When people start panicking they become more likely to act irrationally, and that’s where the opportunity lies.

    When the market is composed of a large percentage of those people, they drive the market and it drops very quickly. Winter 2008 was such a time where we saw huge drops in a short few months, but even in less extreme scenarios there are deals as we saw 2011/12/13.

  50. I’m inclined to agree with Hawk.

    Traditional market health gauges are presently undermined to some extent by extraordinary central bank activity (“QE,” etc.), which is having the effect of preventing corrections from unfolding and being measured as they would ordinarily. We’re in uncharted territory, with more debt and derivatives than real economies can support without ‘special help.’ If interest rates rise meaningfully, the bond market will crash, with associated lasting and far-reaching impact on real estate. So, while the central banks may talk in “hawkish” terms, it’s just talk. They aren’t stupid; they know how badly the consequences would look for the Trudeau government, never mind society at large. As a leader, Justin Trudeau seems largely ornamental, hence on good terms with the banking and financial sector, so it follows that politically unpalatable reforms seem unlikely unless and until a conservative regime replaces him, at which point the moves that should have been made years ago will finally be carried out, and the conservative government will (mistakenly) be held responsible for the subsequent carnage.

  51. “and btw, GE shot up for months after I suggested ”

    BTW Mike, you called GE a buy at 30 and it went up a buck then tanked. It didn’t shoot up for months. Can you keep your bullshit stories straight next time ? Your bear… I mean bull stock calls have been absent ever since.

  52. LeoM, posted something similar. Always worth a second read since you only read the Golden Head Gazzette.

    The Golden Head Gazette is a quality publication.

  53. Intorovert can’t handle reality of a global economy showing things starting to go south bigtime. Just useless repetitive posts about nothing as usual. Typical ignoramus homeowner pumper who will make the crash that much sweeter. 😉

    LeoM, posted something similar. Always worth a second read since you only read the Golden Head Gazzette.

    SOARING consumer borrowing could lead the world into another financial meltdown.

    That’s the new warning from the International Monetary Fund (IMF), which said the surge in borrowing by hard-up households could trigger another credit crunch.

    https://www.thesun.co.uk/money/4642473/how-your-household-debts-could-cause-a-devastating-new-financial-crisis/

  54. If you are cash flow negative on your rental home and you can’t rent it to anyone you are more likely to sell imo.

    I wonder how many amateur landlords are cash flow negative. I hear this a lot from people that think it is perfectly reasonable to hold cash negative rental property because the appreciation will still make it a good investment. And so far they have been right, but it could turn around.

    Highly unlikely to happen. I am just looking at history and likely next year we will have a huge supply build by end of summer.

    Hmm.. you’re more confident in the effect of the rule change than I. I wouldn’t be surprised to see some market segments to still be up next year.

    Construction right now is heavily restrained by shortage of labour which is probably a good thing. Will mitigate overbuilding in the event of a market slowdown which is likely.

    The shortage of labour is because everyone is building flat out. It’s not like there’s a shortage of labour preventing a ton of construction from going on. Rate of construction is huge (granted a lot of infrastructure too so not all residential housing)

  55. Here’s my best Hawk impression. See if you guys can tell the difference:

    Blah, blah, blah.

    Blah, blah, blah.

    Blah, blah, blah. 😉

    [Some URL that is supposed to validate all the crap above]

  56. It does make you wonder how much closer to the U.S.A. implosion we can get. https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/ “The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.”

    It’s been posted before but I find the above article absolutely amazing. For years we were told the US housing crisis was caused by those totally irresponsible poor people that couldn’t pay their mortgages and of course that will never happen here because our banks are so prudent. Maybe not the case at all…

  57. Is our mid-cycle correction over? ..most of the sales that came through my pcs today went over ask.
    Will the end result of the latest mortgage changes be any different than previous? I highly doubt it, but we’ll know soon enough.

    PS. hawk, i’ll only go long GE once you tell us you’re shorting it like the S&P in ’16.
    That way I’ll know for sure it’s about to double…lol.

  58. Last time i looked houses were very expensive in Victoria. Third most expensive in Canada. There were lots of rich people in the US in 2007 and it didn’t stop their crash. Only took 10% of owners defaulting to tank it.

    Credit crunches are beginning in Australia from blowing their brains out on housing debt. UK is close as well as the IMF warning of a global crunch. When the liquidity dries up no one is buying unless you got heavy cash.

    How quickly people forget 10 years ago.Same scenario but worse.

    “crunch time” for Australian households has begun

    “In early June, we expressed the view that the Australian consumer faces a domestic cash flow and credit crunch … Income growth has not recovered, ‘cost of living’ inflation is re-accelerating and ‘macro-prudential’-related tightening of credit conditions is extending from housing into consumer finance.”

    http://www.forexlive.com/news/!/morgan-stanley-says-australian-credit-crunch-has-begun-20171006

  59. There have been large changes in the past – I thought when they tightened up the CMHC rules from 40 to 35 to 25 for sure things would come down. I thought the insurance cap reduction would have things coming down. I thought the foreigner tax would make things come down. I also thought all the other changes over the last couple years would weigh on things as well but they didn’t do that much, In VICTORIA. This is the key thing. IN VICTORIA. the houses here aren’t that expensive for folks moving here and there doesn’t need to be that many of them to keep things up. I have co-workers that have million dollar houses and 1.5 hour commutes each way. People pay much more for much worse quality of life in other places. There are billions in RE equity out there and even if Vancouver and Toronto loses 50% of it’s value, most owners in those cities will still have enough to buy comparable housing in Victoria and end up with a Million in the bank. On top of that, most folks in Victoria benefit from the stable employment in the city. Even if the jobs here aren’t that well paying, it doesn’t matter – those jobs are stable, which is what lenders care about when loans are at stake.

    In summary, it really does looks like a perfect storm out there for Canada. I think average prices will come down across the country. But in Victoria, I think halibut is probably back on the menu. Just look at that chart – the average house price was 2-300k in 2001-2. Now’s it’s a million. These are more or less the same houses they were then and many of them are paid off. People that own have equity, people moving here have money and people with loans have stable jobs. I just don’t see a crash in Victoria. At best, probably Halibut, at worst we revert back maybe 20% to the pancake era of 2-9 years ago but I see that as an absolute floor.

  60. It seems the OSFI is stating new rules for appraising properties ? Does that seem correct ?

    There have been a few changes but mostly concerning the extent of the inspection on items like oil tanks.

    Although Garth alluded to the banks instructing the appraiser to lower estimates, that is not true. If a banker ever said that to an appraiser and the appraiser could prove that was the bankers instructions then the banker would be reprimanded.

  61. More like “about to”. The stars have never been in more perfect alignment. Historical debt bomb, a 2% interest rate hike via stress tests, plus 3 or 4 more hikes, tightening credit and income verification, money laundering clamp down, yuan outflow choked off.

    Vancouver mansions mysteriously burning down owned by foreigners, plus US rates pushing 5 year rates up, consumers struggling, and Poloz in a knot what do next as NAFTA has high odds of being severely revamped at the best.

    Yes, it’s just so “waning” to see common sense versus the pumpers attitude of Nevereverland. 😉

    Then you have Mike buying GE again before it tanks hard trying to average down again. Shame he didn’t listen. 😉

    Share price falls 6.3%, nearing a 30% drop this year, on fears of only second cut since Depression

    http://business.financialpost.com/news/ge-sinks-most-in-six-years-as-wall-street-sees-dividend-in-peril

  62. “Very true. Or, if your ideal place comes up, buy it even if it’s not a “deal,” and enjoy living in it for 10+ years. Chances are high you’ll make out very well.”

    It will take you 10 years to make it back to square one, if you have the stomach for it. Most won’t. Marriages will end, jobs are lost, as the cycle completes like every other business cycle in history. It isn’t different in Intorovert/Mike’s fantasy land. It’s Peak House Victoria.

  63. “Problem is when Garth has you so convinced that the market will tank your judgement is clouded and you aren’t buying the deal property at the right time as the market is always just about to crash or if dropping will drop much further and of course you’ll perfectly time it just like the 283 people did in March of 2009.”

    So you’re saying the 25% hits thousands are taking in Toronto can’t happen here ? Rates are coming off emergency levels when the emergency was over years ago and HELOC debt in the last year alone is through the roof which didn’t exist in 1981 and nowhere near the present in 2008.

    There never is a better time for a crash with mortgage demand tightening as more borrowers say screw it, I’m not buying the dump instead of what I want, I’ll just save my cash and weigh my options.

    The Greater Fool Chart

  64. We can’t be certain that the future will bring a price drop of X%. But we can be certain that at some point inventory will rise, DOM will increase and there will once again be the chance to find niche deals (hard to find lately when even crap is selling in days).

    Very true. Or, if your ideal place comes up, buy it even if it’s not a “deal,” and enjoy living in it for 10+ years. Chances are high you’ll make out very well.

  65. You should simply wait for a buyers market to return with higher inventory and then try to carve out your own deal.

    That is some of the best advice you will read on HHV. We can’t be certain that the future will bring a price drop of X%. But we can be certain that at some point inventory will rise, DOM will increase and there will once again be the chance to find niche deals (hard to find lately when even crap is selling in days).

    If you follow HHV for a while you’ll notice that people occasionally report getting a decent deal through “non-traditional” means. This could be buying from a landlord, buying from a neighbour, buying from an estate. It could also just be waiting for an unloved property where you see opportunity. or waiting for an (over)eager seller.

  66. Marko,

    What would you say to prospective FTBs right now who are wanting to take the plunge – and are just at the cusp of affordability?

  67. In all fairness I think it was job related.

    What a wuss.

    At that time I was like….hmmm, maybe the world isn’t going to end and we had a lot of discussion on the blog from 2011-2014 about how a SFH with a suite was cheaper than renting and the most common counter argument was market will further tank followed by why would I want a stranger in my basement; that’s not the purpose of home ownership.

    And what’s her place probably worth today, Marko?

  68. @Introvert

    “When thinking about Langford’s bid, I can’t help but recall that memorable moment in the Simpsons when Ralph shouts, “Go banana!””

    I actually lol’ed. But I do have it on good authority that Shopify is opening a local office. There’s an event tomorrow.

  69. Speaking of blog founder DavidL, he put together this chart before leaving showing 45yrs of Vic prices vs 5-yr mortgage rates.

    If you’re someone counting on prices crashing ‘immediately’ once rates start rising, you can see history may be against you. Potential crashes like late ’08 or ’81 seem to ‘follow’ a period of rising rates.

  70. You shouldn’t be looking for a 15% price reduction in the stats. Won’t happen. You should simply wait for a buyers market to return with higher inventory and then try to carve out your own deal. I’ll give my missed deal example for you.

    Problem is when Garth has you so convinced that the market will tank your judgement is clouded and you aren’t buying the deal property at the right time as the market is always just about to crash or if dropping will drop much further and of course you’ll perfectly time it just like the 283 people did in March of 2009.

    As I’ve said before the lightbulb went off for me when I had a single mother buy a SFH with a suite in the Oaklands area in 2011 just below 500k. Right away she rented the suite out and she was living in the house for less (on a monthly cash flow basis) than the condo she was renting.

    At that time I was like….hmmm, maybe the world isn’t going to end and we had a lot of discussion on the blog from 2011-2014 about how a SFH with a suite was cheaper than renting and the most common counter argument was market will further tank followed by why would I want a stranger in my basement; that’s not the purpose of home ownership.

  71. “Just another cautionary tale about anticipating the crash—and about underestimating Victoria real estate.”

    More like over estimating. Ask the bagholders in Toronto who are out hundreds of thousands in a few months and the sellers locked up in court battles because the buyers walked and their places can’t sell for 25% less, AKA the greater fool theory performed to a tee.

  72. LF,

    It should apply to all. I saw the words “should be treated cautiously” which means dig deeper than usual or suffer the consequences. Kinda like when Bearkilla meets the pavement soon as his hood keeps on slashing more than others lately.

    “…and loans in markets that have experienced rapid property price increases, which generate more uncertainty about the accuracy and stability of property valuations.”

    Says Victoria, Van and TO written all over it. Thus more deals to fall through.

    Steve Saretsky had another bit in his Monday email:

    ” This has some potentially substantial implications you need to pay close attention to:

    This will reduce borrowing power by upwards of 25%
    Borrowers are essentially stuck with their current lender upon renewal unless they want to be subject to the stress test
    This could disrupt the pre sale condo market as borrowers will need to re qualify through a stress test upon completion of the unit.

    Of course this is just the tip of the iceberg.

    Slowing mortgage credit growth is a function of demand. This has been highlighted by Professor Steve Keen and in the equally brilliant book ‘House of Debt’ which illustrates the function of credit in housing booms and busts.

    When you slow credit growth, you slow demand. Don’t forget banks create 97% of all money in the form of new loans.”

  73. After a few years with no crash, the founder of this blog (he called himself HHV) eventually threw in the towel and moved to small-town Shitsville, Alberta.

    In all fairness I think it was job related.

  74. Eventually, some bears fix their income problem and do buy but it takes time.

    Or they capitulate and hightail it out of here.

    After a few years with no crash, the founder of this blog (he called himself HHV) eventually threw in the towel and moved to small-town Shitsville, Alberta. (He actually wouldn’t tell us where he moved, even though he was anonymous. So we know the place was that amazing!)

    Funny thing is, had HHV just risked it and bought a place way back then, he’d have so much equity by now that he would be laughing.

    Just another cautionary tale about anticipating the crash—and about underestimating Victoria real estate.

  75. Instead of saying I won’t buy until prices collapse 15% you might as well say I’m not buying EVER. Because that’s what you’re saying here ok. Bears on this blog have had this opinion for over a decade and are still waiting for the crash that’s never coming. Eventually, some bears fix their income problem and do buy but it takes time.

  76. Borrowers relying on income from sources outside of Canada pose a particular challenge for income verification, and lenders should conduct thorough due diligence in this regard. Income that cannot be verified by reliable, well-documented sources should be treated cautiously when assessing the ability of a borrower to service debt obligations

    When you actually read that passage, you see it really doesn’t say anything. If I require a T4 or a T1 etc to facilitate sound underwriting principle, shouldn’t that rule apply to everyone?

  77. John Dollar,

    It seems the OSFI is stating new rules for appraising properties ? Does that seem correct ?

    “In general, FRFIs should not rely on any single method for property valuation. FRFIs should maintain and implement a framework for critically reviewing and, where appropriate, effectively challenging the assumptions and methodologies underlying valuations and property appraisals. FRFIs should undertake a more comprehensive and prudent approach to collateral valuation for higher-risk transactions. Such transactions include, for example, residential mortgage loans with a relatively high LTV ratio, loans for illiquid properties, and loans in markets that have experienced rapid property price increases, which generate more uncertainty about the accuracy and stability of property valuations.”

    Also the income verification seems to be pretty tight too, as well as having any gifted money documented as non paybable. Were those always there ? Seems like foreign buyers are getting more scrutinized.

    “To the extent possible, income assessments should also reflect the stability of the borrower’s income, including possible negative outcomes (e.g., variability in the salary/wages of the borrower). Conversely, temporarily high incomes (e.g., overtime wages, irregular commissions and bonuses) should be suitably normalized or discounted.

    For borrowers who are self-employed, FRFIs should also be guided by the sound principles listed above. In particular, FRFIs should obtain proof of income (e.g., Notice of Assessment and T1 General) and relevant business documentation.

    Lenders should also exercise rigorous due diligence in underwriting loans that are materially dependent on income derived from the property to repay the loan (e.g., rental income derived from an investment property).

    Borrowers relying on income from sources outside of Canada pose a particular challenge for income verification, and lenders should conduct thorough due diligence in this regard. Income that cannot be verified by reliable, well-documented sources should be treated cautiously when assessing the ability of a borrower to service debt obligations.”

    http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b20_dft.aspx

  78. I was just thinking that the osfi changes has allowed the BOC & Canadian banks to skip ahead on risk. I.e. before the rule change, the BOC couldn’t lower rates for economic purposes without creating bubble problems on the housing end of things. Now they can lower rates down to zero and still not be in the same position on risk they would’ve been just 4 months ago at 1%.

  79. You shouldn’t be looking for a 15% price reduction in the stats. Won’t happen. You should simply wait for a buyers market to return with higher inventory and then try to carve out your own deal. I’ll give my missed deal example for you. I know most old schoolers here have heard it before but it illustrates this perfectly. Looked at property circa 2010 on Saratoga beach after camping at this beach front place with a for sale sign. Turns out after having the property for sale since 2008 for 1.2 million they wanted out and it was now $690k. Well I’m a bridge player and offered lower on a Friday to the response “I’m not even presenting that and there is someone else” well, there was someone else and they bought it that weekend for $620k. (Probably because I became their someone else). An acre and a half on the beach. Turns out there was more for sale just not listed. Some did get listed on the mls eventually. I took jabs at a couple but no one else was interested in selling at a reasonable price like that. Then the market recovered and now shot skyward. My point is that was almost a 50% drop that would not show up on the stats….

  80. “Construction right now is heavily restrained by shortage of labour which is probably a good thing. Will mitigate overbuilding in the event of a market slowdown which is likely.”

    Didn’t they just add 10K to 15,000 construction workers in the last year or two ? With record amount of cranes in every direction it’s so obvious there is over building now unless you’re a blind man, or a salesman.

    Looks like many are already feeling the pinch and higher rates and new mortgage rules will definitely pop this bubble.

    1 In 3 Canadians Already Affected By Rising Interest Rates, Survey Shows

    “A significant minority of Canadians say they have already been affected by rising interest rates — despite the fact rates are still very low, and likely to head higher.”

    “It’s clear that people are nowhere near prepared for a higher rate environment,” said MNP President Grant Bazian in a statement.”

    http://www.huffingtonpost.ca/2017/10/23/1-in-3-canadians-already-affected-by-rising-interest-rates-survey-shows_a_23252568/?utm_campaign=canada_newsletter

  81. I’d love a price drop but what I’m looking more for is inventory. I really hope the next few years brings more houses onto the market. It already seems to be so much better in my price range than the last year.

    Marko I am surprised that your clients who can barely afford a SFH and are approved for 700k settle for 550k which most likely puts them into a townhouse when they could have been given a mortgage for a SFH. To me this seems a bit contradictory to the people that I know who have been in the same position. I get being able to afford 900k and dropping that amount down because you can actually find a house for 750k. I guess I just don’t get those on the cusp of SFH and townhouse.
    I know a lot of people looking to move up or buy second properties that will be affected by these rules but they don’t have anything to buy so they aren’t. The mentality that you just can’t lose in real estate blows my mind. It will be very interesting to see what happens with these new rules.

  82. I haven’t looked at the start statistics. Do you have a breakdown of what is being built?

    I meant supply in terms of active inventory.

    Construction right now is heavily restrained by shortage of labour which is probably a good thing. Will mitigate overbuilding in the event of a market slowdown which is likely.

  83. I am just looking at history and likely next year we will have a huge supply build by end of summer.

    I haven’t looked at the start statistics. Do you have a breakdown of what is being built?

  84. Comparing y-o-y may obscure some drops. For instance the 2008 – 2009 micro-crash

    It was close to 15% drop August 2008 to March 2009 based on the sales I’ve reviewed. It can happen but that falls into my macro event scenario (DOW drops 50%) or interest rates going up or act of god.

  85. I am not confident that we are likely to see a 15% drop in prices but I guess it is possible in some areas. On the other hand I would never depend on my ability to predict prices. We should watch to see if there is a uptick in houses being listed over the next few months.

  86. SFH dropped 20% from April to August but YOY i’m assuming that number would look less impressive.

    Up 1% YOY. Something doesn’t add up with the 20% April drop as there was a huge spike even in the few months prior to April.

    i mean prices could go up over the next year – thats certainly not out of the realm of possibilities

    Highly unlikely to happen.

    I am just looking at history and likely next year we will have a huge supply build by end of summer. I am predicting 4,000+ listings, yet there won’t be enough pressure on sellers to adjust to market conditions. We will go back to 50% of homes simply not selling as people stay put or rent them out.

  87. In the last 30+ years we’ve only had one drop in excess of 2.5% YOY and that was 1994 at 5% down.

    Comparing y-o-y may obscure some drops. For instance the 2008 – 2009 micro-crash shows up in the VREB’s data as a 0.5% fall in average prices between 2008 and 2009. This clearly understates the depth of the fall. Monthly data was indicating a fall of more like 10% in prices marketwide and presumably more than that for certain market segments.

    Of course it all went by pretty quickly.

  88. Go back just a few more years on your timeline. What happened then? Likewise

    Interest rates went up which is what I think this market needs in moderation. Interest rates worked well in driving out supply as well. If you are cash flow negative on your rental home and you can’t rent it to anyone you are more likely to sell imo.

    This morning I quickly went over my 35 buyers this year and I recall max qualification for about 20 of them…..a lot of qualified for 900k but bought 750k or qualified for 700k but bought for 550k. You do have people out there that just aren’t comfortable with massive mortgages.

    There are a ton of moving parts to this. If someone qualified for 900k all of a sudden qualifies for 775k do they still buy 750k or does psychology kick in and they look to spend 700k?

    When I see buying power reduced by 18% that would imply everyone is buying at current max qualification.

  89. Hey Marko,

    I agree that 15% is extreme – again i’m not saying i think that will happen i’m just saying i’m not going to strap myself to a mtg I can barely afford. I don’t have any mathematical reasoning as to why it would drop that much; that being said your YOY quotes presumably just measure jan 1 to dec 31 – as you know peaks and troughs don’t always work like that. For example if you look at Toronto, SFH dropped 20% from April to August but YOY i’m assuming that number would look less impressive. As well I believe we are at point in time with a few things coming together that could compound to have a greater impact then what previous peaks have experienced (reversal of all time low interest rates, having a huge run up in prices in the last two years, new mtg regulations adding 2% to new purchases, and who knows whats on the NDP budget for February) this could be a perfect storm. Nobody knows for sure which is why i like coming here to read different perspectives – i mean prices could go up over the next year – thats certainly not out of the realm of possibilities – however if someone told me i had to bet whether prices would go up or down following the 6 months after the new guidelines come Jan 1, 2018 i’d put my money on down. To what extent – who knows.

  90. For a 15% correction YOY I really think we need a macro shock or for actual interest rates to rise. Not sure if simply changing the qualification guidelines will cause a more than 5% drop in general.

    If I made a living selling houses, I would certainly hope the above was true. I suspect it will be for markets like Edmonton, Montreal, Winnipeg etc.

    But a 5% drop in Victoria, Vancouver or Toronto, would be pretty meaningless, IMO. While “we want this level of price reduction” is beyond OFSI’s mandate, such a small reduction might imply that their desire to curb reckless credit growth was not really working. Continued propulsion of this market is driven by new access to credit – stymieing it by stress testing people up to near 7% is a large change. Asserting or hoping for little more than a 5% reduction certainly is an optimistic slant.

    In the last 30+ years we’ve only had one drop in excess of 2.5% YOY.

    Go back just a few more years on your timeline. What happened then? Likewise, let’s say you’re having a conversation with a buying client several years ago – they’re almost in a position to buy, but can’t quite afford it yet. They say – “I’m concerned that home prices will go up by 40% in a few years”. So you say to them, “not to worry – Victoria does appreciate, but has never seen an increase like that. Just call me when you’re ready.”

    It’s all good and easy to quote the past, but I don’t think extrapolation is a useful tool to predict the future – especially now.

  91. Looking around this weekend it seems like there is so much more to choose from now. Even seeing signs “reduced” and “new price”. I’m not looking for a buyers market but a more balanced one would be great.

  92. I won’t buy into this market without a 15% drop in price

    In the last 30+ years we’ve only had one drop in excess of 2.5% YOY and that was 1994 at 5% down.

    For a 15% correction YOY I really think we need a macro shock or for actual interest rates to rise. Not sure if simply changing the qualification guidelines will cause a more than 5% drop in general. Some market segments, i.e., condos in Langord I could see more than 5%.

    Not everyone buys at max affordability (would be interested to see actual data on this).

    People fill finds ways to skirt the rules; as soon as you get past the qualification process affordability hasn’t actually changed.

    Doesn’t really drive the supply portion. If you have a rental property nothing changes. Rents increasing, interest still cheap, etc.

    What we really need is mortgage rates to increase 2% over two-three years so that the market doesn’t completely tank but comes down slowly.

    Making qualifications tougher is certainly a smart move and it should continue….I am in favor of a 10% minimum down payment but over the last 10 years of the blog the tightening hasn’t really done much to the market.

  93. Thanks Leo above and rush4life below. Really informative, and interesting to know that numbers reflecting mortgage originations now might start seeing changes.

    There’s a CBC article out today indicating that significant portion of the Canadian population cannot afford interest rates being any higher. While OFSI’s rules are not a true hike per se, in some respects it’s similar – as when we’re talking about “affording interest rates”, we’re generally talking about affording higher mortgage carrying costs. Can’t pass the test? You can’t afford it.

    It’s about time.

  94. I was wondering how the b-20 might impact the next few months – i wasn’t sure if it was going to apply on any house closing after jan 1 2018 or just mtgs started after jan 1 (so if you got the mtg before year end you had your 90 -120 day window to close.) i’m sure most of you already knew the answer but i wrote OSFI to check and here was there response:

    “The Guideline B-20 requires institutions to apply the new rules for mortgages closing on January 1, 2018 and after; however, as mentioned in the annex to our letter, where possible, federally regulated financial institutions are expected to comply with the principles and expectations set out in this Guideline as of October 17, 2017. Therefore, between now and January 1, 2018, this could differ from one institution to the other.

    Loan applications in process for buyers that already qualified (before October 17, 2017) will not be affected by the new rules, no matter when the house will be delivered.”

    So I would suspect we would see additional sales until December 31st at which point we will see the drop off. I’m hoping for some price drop with it. I won’t buy into this market without a 15% drop in price… once it hits there i’ll buy in and if it doesn’t then my wife, soon to be baby, and myself will look to move somewhere else – either Courtenay or Calgary (based on friends/family). Time will tell…