April 16 Market Update
Weekly sales numbers courtesy of the VREB.
| Apr 2018 |
Apr
2017
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Unconditional Sales | 158 | 340 | 885 | ||
| New Listings | 331 | 643 | 1270 | ||
| Active Listings | 1842 | 1921 | 1690 | ||
| Sales to New Listings | 48% | 53% | 70% | ||
| Sales Projection | — | ||||
| Months of Inventory | 1.9 | ||||
Sales picked up a bit last week. Still overall 17% below the level of last year but that’s better than the minus 30% we were at before (likely due to the long weekend). Inventory is still climbing, now at 16% higher than this week last year.
If you look back at the last weekly update you will see that the week of the 8th picked up more sales as we went along (properties that sold that week but were entered last week). While usually there are only a couple of those sales, last week there were about 10. Going forward I will likely move the reporting periods back a couple days to mitigate this problem of publishing a misleading picture due to delayed entry of sales. This is the downside of counting actual sales instead of reported sales (where we sometimes get a bunch of sales from months ago showing up in the current week). I’ll tweak this more going forward.
What’s interesting is the number of price cuts in a market that is still moving along. It’s slower than last year but properties are still selling at a reasonable pace. Right now for every 3 properties that are listed, 2 are selling, and 1 is getting a price cut. You can see this in the median sale price compared to the median list price, which for single family homes has been averaging around $75,000.
I believe what is happening here is not that prices are declining (they are about steady), but that people have not adjusted to the new reality in the market. Sellers are pricing for a rapidly appreciating market and in order to get a sale are having to adjust their expectations a bit.
Victoria Born
A house’s assessed price increasing doesn’t mean property tax goes up. It’s common misconception and been covered here repeatedly. If everyone’s assessment went up 50%, the mill rate would be reduced and you’d pay the exact same taxes. I had my taxes decrease one year when my assessment went up. You can also have your assessment decrease but taxes increase.
In order to fairly apply taxes a value must be applied to every home. What matters most is the value of your place relative to comparable homes. Sometimes they make a mistake and over-value a place (e.g. if your house and a neighbour’s were basically identical but yours was valued 10% higher). In that case you’d be paying more tax than your neighbour when you should be paying the same. That’s why there’s an appeal process.
Assessed values are based off recent sales. They aren’t just made up to “increase taxes”. Not only are they based off actual sales data, they tend to be a bit conservative in their estimates (which prevents a storm of appeals). The assessment authority apparently wasn’t always so cautious and had mass appeals in the late 70s or early 80s (an inlaw worked there at the time). The next year they were told to make sure assessments were under the actual value.
Interesting article from last November. Seems not everyone likes this place. Good to read an outsiders perspective than the tourism department/weathermen pumpers.
That’s it, Victoria, B.C. I’m leaving!
Goodbye, Victoria. It’s time to break up. Find out why residents are leaving read our city break-up letter for Victoria, B.C.
https://www.zolo.ca/news/city-break-up-letter-victoria
“CMHC’s 4-mth-old phony BS is far more reliable than your swanky padmapper BS ”
Great to see 2 bedrooms tanking as they are the trend setter for demand.
Since you all want prices to keep going up forever, it will be so awesome when people start leaving here and the empty suites cause the market to crash inward cause their greed ate themselves up.
Folks will head to places with half the cost of Victoria like they are in the US. I know of a few that are considering international moves.
The San Francisco housing market is so dire that people are leaving in droves
http://www.businessinsider.com/san-francisco-housing-so-expensive-people-leaving-2018-4#9-salt-lake-city-utah-2
LeoS:
How are SFH doing as opposed to condos.
Pretty strong sales week again. Likely only about 10% below last year. I’m surprised
http://www.cbc.ca/news/canada/british-columbia/real-estate-anxiety-hits-b-c-divorce-court-1.4629631
“A real estate agent from West Vancouver has brought housing market uncertainty into his divorce proceedings, arguing a slowdown caused by government policies has made his family’s jet-setting lifestyle unsustainable.”
Lets see what the numbers bring this week. Any guesses on SFH.
Oh they are known to be effective – at supporting inflated prices. Such “affordability” programs exist for the purpose of making housing more expensive and putting taxpayers’ money in the pockets of the RE industry. Just read the commentary on the interest free first buyers’ loan introduced by the previous government, and now sensibly dropped. But dropping such programs gets harder the longer they’ve been around. Property tax deferral should be dropped too but there are now too many people dependent on it.
Australia is in the same boat as Canada, worthwhile read if you have time…conclusion:
https://grattan.edu.au/wp-content/uploads/2018/03/901-Housing-affordability.pdf
…………..
But mostly, governments have responded with programs that are
popular but ineffective. They have largely avoided the politically difficult
changes to planning laws that would increase density and make a real
difference to affordability.
These are not policy secrets.
But governments have continued both to promise improved affordability,
and to prefer the easy options. It is no surprise that trust in government
continues to fall.
If governments really want to make a difference, they need to stop
offering false hope through policies, such as first home-owners’ grants,
that are well-known to be ineffective. Governments have no chance
of bringing the community with them when they keep telling voters
that the easy policies will do the job. Instead they need to explain the
hard choices to prepare the ground for the tough decisions that need
to be made. Either people accept greater density in their suburb, or
their children will not be able to buy a home, and seniors will not be
able to downsize in the suburb where they live. Economic growth will
be constrained. And Australia will become a less equal society – both
economically and socially.
Nice pictures. How do I embed photos in a post?
Explore Victoria: Then and Now.
http://onthisspot.ca/victoria.html
Inhabited for thousands of years by First Nations peoples, the modern city of Victoria was founded in 1843 as a Hudson’s Bay Company trading post. In the 1850s and 1860s the population of Victoria exploded in response to the Fraser and Cariboo gold rushes. Soon the city was a thriving port and staging point for prospecting expeditions into B.C.’s largely unexplored interior. For decades after Victoria remained the centre of the region’s growing European population until it was surpassed by Vancouver in population and commercial importance (but not in political importance) at the turn of the 20th Century.
Douglas and Yates, looking north. 1890.
Summer sunrise, Wedgewood Point
First light, Shawnigan lake
Blenkinsop Valley, August 2017. Sky color is due to smoke from wildfires.
Pat Bay Highway in 1974, looking north. Royal Oak exit/overpass visible.
Holy moly, was it one hell of a beautiful Victoria day today!
Loving Life:
I dont think that human nature is about to change any time soon. But there may be something to be said for the argument that dishonesty has become more normalized and accepted in our society.
But it is too nice a day to worry about it.
I have noticed that there are even more houses for sale in the Uplands this week. It strikes me that there more this year than last but I could be mistaken about that.
1754 Lee Ave. 1,050,000.
Think it will sell for over a million?
Love this comment..” surprised the realtor was frank and admitted” geez surprised someone was being honest and telling the truth.. not the usual load of b.s….how sad that this behavior is “ surprising “
I fear for our future when all people care about is greed and money… there is so much more to life than what your bank account looks like… maybe a visit to a hospice unit would change your mind regarding priorities…
I went to an open house in Uplands this weekend and was surprised that the realtor there was very frank and openly admitted that the high end market has virtually frozen and is not selling.
Some sellers are asking close to double their post-2010 purchase price…doesn’t surprise me the market has stalled out.
For years ago you could buy a livable house in the Uplands for around $1 million….this one sold for $1.025 -> http://www.dharvey.ca/property-details/336388
Padmappers attempt at stats is hilarious
@Marko
Guess what… not sure I agree with you 😉
Your logic sounds good except that 2016 SFH assessments tended to be higher than 2017 SFH assessments in the high end parts of Van.
CMHC’s 4-mth-old phony BS is far more reliable than your swanky padmapper BS 🙂
ie. Padmapper’s latest has 1bd’s up 17.5% at the same time as 2bds are down 9%??
@Barrister
Thanks for the laugh!
Meanwhile in Van, it’s still a bloody horror show of price slashes. Richmond average hack of $179K. Just another sign along with Andy’s examples that the HAM has gone AWOL for good.
https://www.myrealtycheck.ca/
Numbers out a month ago show Chinese US investors have gone AWOL as well.
Chinese investment in Los Angeles and U.S. real estate plunged in 2017 on new restrictions
http://www.latimes.com/business/la-fi-chinese-investment-falls-20180327-story.html
6 months old news as usual Mike, rents are dropping in Victoria but keep up the bullshitting and phony charts.
Rental Rates Are Finally Falling In Canada And Here’s The Cheapest Place To Live
https://www.narcity.com/news/rental-rates-are-finally-falling-in-canada-and-heres-the-cheapest-place-to-live
With how fast rents are inflating, that’s a risky proposition dasmo 🙂
https://vancouverisland.ctvnews.ca/average-rent-in-greater-victoria-sees-biggest-increase-in-26-years-report-1.3697977
When used to buy a revenue property, not a personal residence. And yes CRA does care about this. If you lived in house A, and borrow against house A to buy house B, and move into house B and rent out house A, the interest is not deductible.
You are a visionary and very supportive parent. But not-negative-cash-flow rental property is very hard to find now days, even if one doesn’t mind doing rental management work.
That is the beauty of Victoria city and region: diverse, also vibrant and friendly (to friendly people 😉 ). New comers do need to spend some time to find a hood that fits their needs best. One or two day trips or reading online may not cut it.
Let’s go with 10% down. Suites not allowed. Short term rental not allowed.
Don’t even have to sell. HELOC and invest and interest is tax deductible.
Might want to add a few qualifiers into that Dasmo… it is still possible to have a house with a suite meet all expenses in rare situations. Not sure about condos because I don’t follow that market. Plus the bigger your down payment…
Vibergs are pricey. The point could be made with a pair of caterpillars from Marks Work Wearhouse.
Besides, your bet is nothing like the one John McAfee recently made if Bitcoin didn’t hit 1 million by 2020. Let’s just say, I hope he finds a good wine to go with it.
Viberg….
@Barrister, find a cash flow positive rental in Victoria and I’ll eat a pair of Viberf steel tow work boots….
What a truly pedantic statement.
I have equity in a house. I sell. I have cash left in my account. I invest that cash. Ergo, I have invested the equity I had.
Thanks Ben for the informative post, I really appreciate as much insider info as I can get. I did see the really aggressive growth plans they have for the Mill Bay area, and I also heard that new development was on hold until the water issues are resolved. Relying on well water isn’t as good of a situation as having a reservoir.
And you’re right as a non local I am conflating Victoria living and real estate with Mill Bay. Somewhat apples and oranges. Since there is no perfect fit for our needs and wants it’s a matter of trying to understand what each area truly offers and then picking the one that is the best fit.
@Barrister – for the most part I haven’t typically considered my home as an investment, rather owning has just always been perceived as the smarter financial choice for me (and it has worked out that way too.). My wife and I both spend so much time in our home, working, entertaining, that we really value what it brings to our quality of life. This is primarily why we’re considering Mill Bay because the quality of house for our budget is pretty good, even in a market of inflated prices.
Fair enough, I didn’t read that far. I stopped reading when I noticed you hadn’t mentioned the amount of the down payment – which you still haven’t mentioned.
Also you can’t invest equity, which is just the difference between the market value of some asset and the debt against it. You can invest cash.
And I explicitly mentioned the income from investing my equity and using it to offset rental costs. And that the numbers still didn’t work. So you’ve completely cherry picked what you need to support your argument. That’s pretty weak and incredibly transparent.
@Grant
I thought I should put in my 2 cents about Mill Bay. I moved to Shawnigan Lake from Victoria five years ago, and then bought closer to Duncan. I have my boat moored in Mill Bay so I’m down there quite a bit. I really enjoy what the Cowichan Valley has to offer, and Mill Bay is a sweet little spot, but in my opinion it doesn’t have much to do with Victoria. It’s quite easy to get to Langford to access amenities on an irregular basis, but for regular shopping I find most people go to Duncan. Mill Bay is quiet. There is a nice beach along Mill Bay rd to walk along. If you like nature and wine, boating, or scuba diving, the Cowichan Valley is a beautiful place to be, and the food scene is growing quickly. It seems like there is a lot of development planned for the Malahat/Mill Bay area, limited at this time by difficulties with water sources, but that will likely be resolved by someone who is creative.
I, personally, don’t have much interest in going to Victoria. I go down for work once a week and schedule my travel time around the rush hour peaks, but that too will end in the near future. It is nice to know that there are city resources to access for my kids if they are interested.
Getting to the airport is a pain, and we’ve started to use the Nanaimo airport when possible. Flying out of Victoria means giving oneself lots of lead time in case there is an accident on the road or traffic. There is the option of taking the Mill Bay ferry when going to the airport, but that brings its own set of issues.
“Isolated” is not how I would describe Mill Bay, but it is a completely different experience from living in the city or on the peninsula.
Dasmo:
What type of shoe are we talking about here? Sandals, slippers, work boots or army combat boots?
I wonder how long people will hold on to negative cash flow properties if there is a serious market decline. If there is a 25% decline in prices how many peoples investments will actually be underwater?
I went to an open house in Uplands this weekend and was surprised that the realtor there was very frank and openly admitted that the high end market has virtually frozen and is not selling. I was half expecting someone from the VREB to rush in and stick him with an electric cattle prod.
Grant:
I would remind you that my original suggestion to rent was not predicated on the assumption that the market price will decline and that you would be financially ahead. In some ways it depends if you are looking for a house or a home. Victoria’s neighbourhoods vary dramatically and in ways that are not obvious until you get to know the city.
Someone mentioned Rockland and it is true that if you buy within a couple of blocks of Fort and Cook Street you have to deal with the homeless. On the other hand if you are near government house you virtually never see the homeless. Personally I would pick Sidney, Brentwood Bay or John Dean over Mill Bay but it really depends on your comfort level with being a bit isolated.
I would remind you that buying a home is not the same as buying an investment. But I am of an older generation that seems to have different values than some younger people.
Find a cash flow positive rental to buy in this town and I’ll eat my shoe…
As far as buying a rental property with the idea that your children will be able to live in it later in Vancouver or Victoria, this seems extremely practical if you can afford something to rent out that doesn’t lose money each month and later plan on holding the mortgage for your children on better than commercial terms. Not sure how our children would be able to stay in Victoria near us should they wish to without this type of assistance and if they don’t the asset can be sold.
It would not say it is bogus, you just need to account for LOC when comparing the rent v. buy. There is a calculator on this site for this.
Shared home ownership – absolutely – have done it with a usage agreement. Plan on co-owning something in the future. I agree things could not work out as well so choose your partners carefully and discuss everything up front and put it in writing. I also recognize this is not for everyone and I would not do it if it there wasn’t separate time usage (vacation property) or separate living space (suite).
FWIW this is done all the time with stratas and co-ops already. You can see there are problems that can arise, but for a family group or set of business-minded folks with good credit and ethics you basically increase your leverage and decrease your risk dramatically. And there are template co-ownership agreements available and co-ownership mortgages. My guess is that this will become more common over time in high value markets.
Yeah, don’t recall saying that as I don’t actually believe this to be true. Maybe you can repost my statement on this as I suspect you are misinterpreting it or I was unclear.
I’m talking about now and the unknown future. I’m guessing that the future will be more similar to the past long-term than not, but this could be wrong. Not sure how this is apples and oranges or incorrect as an explanation for my views – which don’t have to be right or shared by anyone else – I’m the only one who experiences the economic consequences. So far it has been okay.
Because the money you put into the down payment could be invested somewhere else. That’s called opportunity cost. If you don’t allow for that you can “prove “that buying is a better choice than renting regardless of prices just by choosing a big enough down payment.
Although expensive by US standards, New York is actually cheaper than Vancouver. Sure you can point out $10M penthouses next to Central Park, but let’s look at where real middle class people live. For example:
https://www.zillow.com/homedetails/4528-196th-St-Flushing-NY-11358/32049667_zpid/?fullpage=true
Bear, bull, or halibut Owen Bigland is a pretty straight shooter on the market.
“Why you need an 8-10 year holding period especially when you are buying in the late stages of an unprecedented bull market.”
https://youtu.be/_LnObLnP1tM
@patriotz
Why is that bogus? I have equity from a house sale that I can either roll into a new property or invest, and rent. The question is, what is the smarter decision? Well on the one hand there are inherent advantages to ownership. Principal residance exemption for taxes is a huge one. Having part of your payment go to principal is another. So it comes down to a comparison between how much you are “throwing away” in your mortgage payment versus the 100% you throw away on the rental market PLUS what you think will happen with the RE market. As it happens the rental market is just as whacked as the RE market, $4500 for that place in Brentwood Bay is hyper expensive. And that brings us back to the RE market and their values. If I was to buy and hold for 20 years there is likely to be no scenario where renting makes more sense. However if Hawk can 100% guarantee me (gee even 70% would be enough) that the house in Mill Bay that is listed at $800K will be available for $640K in 2-3 years, then HELL YA, sign me up for that $4500/month rental for two years.
Do you mean you are going to buy a second house as a rental investment? Or you don’t have a house now because you sold the one that you bought before?
I think that “shared home ownership” is a brilliant idea that was dreamed up by someone in the litigation bar. It should provide years of joyous litigation and make a number of lawyers able to afford really nice homes in the Uplands.
I can think of ten disastrous outcomes while just sipping my coffee.
If one with limited fund but really has to start home ownership in current market, I would think it is much easier to rent out your basement and share with a stranger, than to share with friends co-owning the house.
That is not the only scenario. Bought in the wrong hood is a biggest risk for any new comers, as Andy7 also mentioned. For example, someone on this blog complained quite bit about the homeless people around his house in Rockland area, while that is a well known fact for that hood for a long time. But how could you know that for a new comer without relative or friend or a good realtor? Rent in the hood first is the only way to be sure.
But I have to agree with you, $4500/m for a just-okay house in Brentwood Bay is quite expensive. We used to help friends (who moved away for work) managing their SFH house in Gordon area, so had a good idea about the rental market until about a year ago. That Brentwood Bay house would be $3000/m max then. If they did get $4500 now, maybe we should rent our much nicer house for $6000 and go see the world. 🙂
“shared home ownership”
Are they F’n crazy!!!
40% of adults have an impossible time sharing house ownership with the person they ‘love’!!!
This insane concept gives new meaning to the phrase ‘divorce court’.
Over to you Barrister!
This is where I agree with Garth. Only buy with someone you’re sleeping with (and no, saying you’re willing to covet your co-owner’s spouse doesn’t count).
Co-ownership is a a silly idea and an attempt by realtors to keep business going when just about no one can afford it anymore. It undermines the purpose of a SFH, and carries complicated and potentially ruinous consequences if one side decides or is forced to do something different down the road.
You can sign any binding agreement you wish to “mitigate” the risks, but if one side cannot or will not pay their share, you can take them to arbitration or court all you want. That will take time and in the interim, you have a lender demanding payment you don’t have, in full and on time. The bank won’t care about your circumstance and they won’t decide to repossess half a house. Worse, no contract can really address the social complexity this arrangement would create – like a tenancy, if it works, it can be great. But if it doesn’t work, you’re seriously stuck. It’s not like you can kick them out because they have late night parties, a baby or dog that won’t shut up, or they’re generally of ill temperament.
This tactic by real estate agents is a symptom of overvaluation more than it is a durable market solution. If the internet was around 40 years ago, you would have probably seen the same site in the early 80’s. It’s almost as silly as this link below, just with more litigation potential:
https://www.condosforkids.com/
Good grief. If we lived on the outside of this circus, we’d see how ridiculous all of this really is.
Could be hard to sell your share when it was time to move on, so you might not realize as much gains as you are expecting. Plus I have seen friendships lost over shared property ownership (recreational)
Thoughts? http://sharedhomeownershipvictoria.com
Didn’t we just agree the risk is higher at low rates? As for the math I do not agree with your example as you are comparing apples and oranges and making assumptions about market conditions that did not exist.
If bond rates and hence fixed rates go up but BoC doesn’t tighten could people just migrate to variables? Or do the discounts to prime also get reduced?
Certainly not based on affordability which you have said again and again doesn’t matter, However when you look at the pattern, the best times to buy have always been when affordability was good.
I can’t claim that i entirely understood this in 2013 when we bought but from other measures it felt like most of the risk we saw a few years prior had left the market, so we bought.
When affordability returns to this market we may buy again
Bingo. It’s not about when boomers are all dead, it’s when they become net sellers. That happens at about age 70. Then the whole bulge becomes a drag on the real estate market rather than a boost
Not sure if there is an HHV position, I happen to agree with you. Macro bad, micro good. Could cancel each other out
Yes, it’s “huge” if you look at it with no context. So, let’s add some context by going to that source and having a look at the whole data-set for comparison (I will accept your 3.4% for the sake of argument):
As you can see, real wage growth in BC for 2017 declined about -0.4% in aggregate. This is actually worse compared to the national average of 0.0%, and much worse compared to BC’s average of +1.1% from 2008-2016. Yet home prices here continued to rocket upwards in 2016 and 2017. Clearly, a force other than wage growth is driving house price inflation.
Yes, the last five months have seen real growth, but they’re consistently less than that of rates. And, the atypical nature of that growth relative to historical data makes me wonder if the last few months are an aberration. Time will tell.
Michael, your premise is that our wages are “strongly outpacing rates”, ergo house prices will continue to rise. Not only do I not agree with you for the reasons I alluded to earlier, but your own data source isn’t supporting your premise either.
@Marko
I don’t think we’re going to ever see eye to eye on this, and that’s fine. There’s a reason why West Van is priced higher; you may not see the value, but other people do. Just like why Uplands is priced higher. As for 10 pm at night, give me a break, you can get over that bridge pretty quick if you time it right during the day. Similar dynamic to the Westshore. Absolutely Gorden Head is nicer than North Burnaby; completely agree with you there
There is a reason that New York is more expensive than Vancouver and so on, but a $10 million New York condo, assessed at $9 million, that drops down to $7 million because the high-end market stalls out doesn’t help me out despite it being a “deal.”
Making it over the bridge is one thing but then you still have to make it through downtown. Here you make it to downtown and it is four blocks long 🙂 I drove to Squamish and back two weeks ago testing an electric car and in the middle of the day and there was congestion getting through downtown both ways.
I am saying, look at the patterning that’s happening; a shift is occurring. Again, we can agree to disagree on this and watch what the market does.
Yes, the high-end market in Vancouver has dropped in terms of market value but assessments went up so obviously there will be more homes selling below assessed. They are still ridiculously expensive when we are taking $2 million for a tear down that is a longer commute than the peninsula in Victoria.
I’ll spare you the suspense as March CPI numbers were released yesterday.
So, in real terms 3.4%. That’s huge.
In real terms, people didn’t get a 6% wage hike. While Michael’s used the most up to date provincial data, he decided to depict the increases using the current dollar valuation vs constant (the current dollar valuation ignores the erosion from a year’s worth of inflation, whereas the constant takes this into account). Here are both data sets using Michael’s source. Note the real increase depicted in constant dollars to right:
You’ll note that we don’t have the March data points yet. But you can see at least as recently as February, our real wage increases have been actually very small.
Wage increases are indeed the fundamental basis for house price gains, but the house price gains here have so vastly eclipsed wage gains, and for so long, that I don’t think it’s reasonable to surmise that house prices will continue their trajectory of the last few years, based on wage gains. In fact, RE prices would have to stagnate in Victoria for years for wages to catch up, and for decades in Vancouver. Houses have grown more on an orgy of debt than actual wage gains.
Assuming a rate of 3% (which I’m not sure you can get any more) and 25 year amort that’s a mortgage of about $450K. It appears you’re assuming a down payment of almost 50%. It’s bogus to compare mortgage payments against renting with such a large down payment.
@Grant
I don’t disagree, BUT what you’re not factoring in is if you buy somewhere that you end up not liking (whether that turns out to be the location/ neighborhood etc) and then sell because you don’t like being there, and all the costs associated with that. That’s where renting could put you ahead in terms of peace of mind – you may pay a little extra cash for it, but it may save you money and energy in the long run; then again, if you end up buying in the perfect spot for you right off the bat, ignore everything I’m saying.
@Marko
I don’t think we’re going to ever see eye to eye on this, and that’s fine. There’s a reason why West Van is priced higher; you may not see the value, but other people do. Just like why Uplands is priced higher. As for 10 pm at night, give me a break, you can get over that bridge pretty quick if you time it right during the day. Similar dynamic to the Westshore. Absolutely Gorden Head is nicer than North Burnaby; completely agree with you there.
As for assessments and market value — When houses are being listed and selling for over the assessed value for years and then the pattern starts to shift to being listed and selling below the assessed value, that’s significant. I am not saying assessed value determines market value. I am saying, look at the patterning that’s happening; a shift is occurring. Again, we can agree to disagree on this and watch what the market does.
As well Mike, you may have missed the news but the credit cycle is ending, not starting. I see why you’re an ex-economist.
“Morgan Stanley thinks the evidence is mounting that “spreads have hit cycle tights – in other words, that bigger fundamental challenges in credit are 6-12 months away, not 2-3 years down the road.”
“Finally, here is Morgan Stanley’s checklist of “late credit cycle” indicators, which leads to the bank’s troubling conclusion:
In terms of timing, we think that enough signals are flashing yellow and cracks are forming to indicate a credit cycle on its last legs: For example, looking at credit markets more broadly than just corporates, we have seen signs of weakness and tighter credit conditions in places like commercial real estate. Additionally, consumer delinquencies have risen in various places (i.e., autos, credit cards and student loans). And in corporate credit, one sector after the next has exhibited ‘idiosyncratic’ problems (e.g., retail, telecom and healthcare to name a few). All this is consistent with other signals we watch, some which have been discussed above (i.e., a flattening yield curve, falling correlations in markets, rising volatility, a trough in financial conditions, narrowing equity breadth, rising stress in front-end IG and much weaker credit flows).”
https://www.zerohedge.com/news/2018-04-19/only-question-matters-credit-cycle-about-crack-two-banks-respond
Canadian Real Estate Offices See Largest Decline In Output Since 2008
https://betterdwelling.com/canadian-real-estate-offices-see-largest-decline-in-output-since-2008/
Mike must be trying to dump his shacks. ICYMI Mike, once again hands up how many here got a 6% wage hike this year ? Wage hikes like that happened were comparable to those at the peak of 1981 before the crash.
Your charts are all bullshit. Your low points are starting out at historical debt levels that never existed at previous low points.
47% have to borrow to pay their monthly bills, HELOC borrowing off the chart in past year, and 1/3 afraid of going bankrupt, 1 in 5 can’t qualify for a mortgage, large syndicated mortgage broker getting offices raided, massive foreign money laundering exposed, etc etc. Stick those in your garbage charts.
Then you’ve solved your dilemma. What are you waiting for then? If you plan to buy and hold, believe there will be little to no correction here (or don’t mind if there is), and can afford what you want, the only question is do you want to wait until you have potentially more selection, or go in now.
Yes.
Another question is whether the market has been exceeding average returns over the medium term when you buy. If it has you’d better be prepared to hold longer to manage risk. We are probably due for a downturn or flat period.
I don’t believe that first-time buyer incomes are going to put a leash on multiples of income for house prices. Type and location for first-time buyers is more likely to change when the multiplier becomes too great.
Those with more than five year’s of equity can likely hold or move up barring an economic recession, more government intervention, or really significant mortgage hikes which would cause a dip in prices and also shock the economy.
Case in point: most fairly large cities in desirable areas of the US West and East Coast, Vancouver, and Toronto.
Thanks Freedom_2008 I had seen both of those. The Brentwood Bay place is ok, but not wow. I looked at the rent of $4500/month and then compared it to the mortgage on a very sharp $825K (tax in) house in Mill Bay (not the same location obviously but let’s ignore that for now).. the mortgage for me would be about $2100. So it’s over twice the cost in rent for a less desirable place, plus I’m not getting any equity. Now if I also invested my current equity, the returns at 7% a year would help offset the additional rental cost by about $1500/month (after tax.. if I didn’t have to pay income tax on the gains it would basically make up the difference. Damn tax man. And this assumes 6-8% which is never a sure bet). So 4500-1500 is $3000 – renting is still looking unattractive. The only scenario where renting is smarter is if within 2-3 years there is a 15% drop in housing values. Some on HHV seem willing to bet their first born child that the market is about to implode, and if they are right renting would be the smarter choice. Originally I thought that may happen but as I’ve researched more I’m not at all convinced such a market correction is waiting on the wings.
Lol, Marko I’m not going to get into this with you again. If you’ve ever spent any time in West Van, you’ll know it’s one of the nicest and safest communities in BC and in Canada. That area is a 15- 20 minute commute to dt Van, no traffic. In rush hour, heck of a lot longer. The point is those houses are now being listed below the assessed value. That’s really significant.
I spent a year renting in North Burnaby…. commuted to Royal Columbia for 8 months, 4 months to BC Children’s, every weekend went down to Commercial or d/t and g/f at the time lived in West Van. Sorry but I don’t see the value in the crap boxes selling in North Burnaby for $1.6 million in relation to the crap box selling in Gordon Head for $800,000. There wasn’t anything super appealing about North Burnaby…. Hillside Mall is 5x better than Brentwood Mall.
Same with West Van…. the peninsula here is 60% less in cost and certainly a shorter commute to d/t. Langford is a short commute too….at 10 pm at night if you are going to use the 15-20 min argument to dt Van with no traffic.
The fact the individual houses are selling below assessment is not significant. It is completely meaningless. I’ve blogged about this before -> https://www.youtube.com/watch?v=b_QCV4EjM3Q&t=22s
There is a house in my neighbourhood that is very similar to mine (same size, same lot size, 1 year old versus 3 years old, etc.) and somehow there is a $500,000 spread in the assessment, but the market value is for sure within $100,000.
If we throw out the individual house argument and the average house is selling below assessment big deal. If the assessment goes up 20% one day you are selling a house 10% above assessed and literally the day after the assessments come out you are selling the same house, same price at 10% below assessment minus any errors in my math.
And finally, who cares that a teardown that was worth $2.5 million is now $2.0 million? I still can’t afford it. What I can afford is the crap-box 15-year-old 600 sq./ft condo with laminate counters that gets listed for $699k and has 10 offers settling out at $790k.
Hey all, I have a practical question: how much would it approximately cost right now in Victoria to build a two-car garage with a simple loft space over top? Cheers.
But is it fair to assume the same rate of appreciation whether you buy the asset at a low price or a high price? Looking at the stock market for an analogy I’d say that’s only true if the holding period is really long.
Looking at Victoria housing price history I guess it’s there hasn’t been a bad time to buy in recent history if you held for the long term and were able to weather recessions and rising rates (70’s early 80’s)
How about these two:
http://www.usedvictoria.com/classified-ad/Comfortable-4-Bedroom-Furnished-House-for-Rent-in-Brentwood-Bay-796V_30825364
http://www.usedvictoria.com/classified-ad/House-for-Rent-in-Gordon-Head—4-Bed-2-Bath-Fully-Renovated-Avail-Sept-1st_22251286
Economic fundamentals do not support house prices in Victoria or Vancouver – the Fentanyl drug-money laundered through the casinos does. Good report in news today about the data on this.
Leo: I have been really interested, sticking locally, on the high-end markets in Victoria [these are the wealthy professionals and “old” money]. Take a look at the flood of new listings in Uplands and the price drops. There have been so few sales there in the last 2 months that one is hard-pressed not to see that high-end buyers are on the sidelines or left the City. There are a few priced now below the “assessed” [inflated] values. What are your thoughts on the Victoria high-end market as it cools.
Lastly, let’s talk about the property tax assessment numbers. Homeowners allowed the authorities to pump up values in 2016 – the big 2016 pump up coincides with the huge, hug property tax value assessments being pushed up 50-plus %. No one complained believing the Kool-Aid talk that prices only go up. It is time to point the finger at these authorities for fueling the fire, all for more tax dollars. Shame on them. Now, as interest rates rise and folks drown under-water, everyone looks for a scapegoat. Greed did it.
TIL:. Mortgage stress test rules do not apply if you renew your mortgage with your existing lender.
Is there any hard data or anecdotal evidence of the amount of empty homes in Victoria or is that primarily a Vancouver phenomenon?
“The behaviour we see in Vancouver is actually slowly moving out to other parts of the region,” Andy Yan told CTV News.
In Surrey, there were 11,195 homes deemed non-resident occupied (vacant) in the 2016 census. There were 5,829 in Burnaby, 4,021 in Richmond, and 3,068 in Coquitlam.
Some municipalities saw dramatic increases last year: 27 per cent in North Vancouver, 35 per cent in White Rock and 79 per cent in Delta.
White Rock and North Vancouver are among the suburbs with the highest percentages of non-resident occupied homes.
https://bc.ctvnews.ca/mobile/vancouver-s-empty-home-problem-spreading-to-suburbs-1.3368133
Maybe this is why real estate agents are freaked out by the new speculation tax on empty homes.
Buying at low rates is best. You may even want to lock in for 10 years while entering a 70s-like inflationary period as we are now. Just make sure you go variable once you renew.
Everyone’s overlooking wage inflation (6%, likely higher Vic) among other factors.
As long as wages are strongly outpacing rates, prices will climb.
ie. Prices went up 900% as interest rates tripled between 1965-81.
Josh:
You are right, there does seem to be a lot of listings for 21 Dallas. It still strikes me as a lot of money for a sky coffin. But different strokes for different folks.
Yes.
You forgot the lower interest rate and use of leverage bit. It all works together in calculating ROI. Put a high interest rate on a high purchase price or a bigger down payment and your ROI goes down, really down if prices decline.
The question asked was a pretty simple one though, is it better to buy higher rate and lower price or lower rate and higher price. Assuming there will be about the same rate of appreciation long-term, I prefer the higher price and lower rate based on the math and risk. I can control risk with a ten-year low rate mortgage, I can’t do this in a high rate environment where I also qualify for a lower mortgage amount ie. less leverage.
That argument boils down to the trivial fact that 7% of a bigger number is more than 7% of a smaller number. True but not useful in determining whether ROI is good in a low rate environment.
Appreciation rates have also slowed down and not been constant over that 60 years. It is extremely likely they will slow down more in the future..
“Very true. $600K loans are not for average households, neither as SFH in the core. Only top earners can afford SFH now, a sad but true fact.”
But they are for the thousands who maxed out on low down payment a few years back to buy the big house/toys and are still eating Kraft dinner and who will have to renew. 2.5 % to 7% stress test is $1500 a month pop if your credit has wavered. Most households would crumble. Low 60% affordability in Victoria is about to kill this market.
As Morgan Stanley just said this credit cycle is on its last legs. Watch for projects to stall on lack of ability to finance.
Toronto is the canary in the coal mine. 18% hit there very fast and to think it can’t here for starters is sticking your head in the sand.
See what I mean about the assessments being a dollar value? These have had a big impact on house prices IMO. It’s about perception….. should be an index number….
@Marko
Lol, Marko I’m not going to get into this with you again. If you’ve ever spent any time in West Van, you’ll know it’s one of the nicest and safest communities in BC and in Canada. That area is a 15- 20 minute commute to dt Van, no traffic. In rush hour, heck of a lot longer. The point is those houses are now being listed below the assessed value. That’s really significant.
And potential ROI. If I have a small down payment my ROI is magnified in an appreciating market exponentially. If I have all cash I’m better off with high rates as this will depress prices.
ROI for those with a small down payment is way better in low interest high appreciation – or even minor appreciation – period than high interest low appreciation to negative periods of the past. We can’t predict short-term what will happen, but long-term if we use 7% appreciation not adjusted for inflation you can do the math and see this has better ROI with a small down payment and low rates.
Ex. 5% down on 300k property at 7% interest and 7% appreciation over 7 years = 15k down – net proceeds after sale at 7 years is plus $213,000.
Ex. 5% down on 700k property at 3% interest and 7% appreciation over 7 years = 35 k down – net proceeds at year 7 is $497,684
Using the NYT rent vs. buy calculator and assuming selling costs are minimized
So you turn 15k into $213k or 35k into $497,684 in seven years. Tax exempt – minus CMHC fees.
I do agree that the issue is risk. But then you have to live somewhere and life is time limited. After thinking on it for a long time I thought the risk vs. return was better than unleveraged stocks with with a ten year mortgage. Add in a suite and there is part of the reason people continue to buy now.
Yes.
Marko:
Most people are far more married to their ideas than their spouses. It is also mere coincidence that their ideas coincide with their self interest. More often than not where someone stands on an issue depends on where they sit to eat.
Generally speaking, the more I understand human nature the more that I like dogs.
Its about risk. When rates are 20% they really can only go down. Current affordability is as bad as its going to get. Zero interest rate risk. When rates are 2% they can only be flat at best but likely will rise. High interest rate risk.
As for ROI we have no evidence it is higher in low interest rate periods. We have only seen the results from declining rates. Remains to be seen what happens with rising rates
I’ve never seen so many places at 21 Dallas for sale. They’re usually over a million and there’s a few at the mid 800’s.
$2m and you get to install half the floors and a new deck and garden yourself. Looks like roof needs work too. What an “opportunity”…
Most of my clients are now getting 3.34 to 3.49% 5-year fixed mortgage rates and strangely enough not hearing a lot of complaining. Last year it was in the mid 2s. You would think the jump from mid 2% to mid 3% would have put pressure on prices but no signs, yet.
Asking 2M (562k or 22% below assessed)
Assessed 2017: 2,562,000
https://www.realtor.ca/Residential/Single-Family/19150195/4626-CAULFEILD-DRIVE-West-Vancouver-British-Columbia-V7W1E8
Looks like a steal…..only a 40 minute commute to dt Van too.
Plumwine: “Very true. $600K loans are not for average households, neither as SFH in the core.”
<<<<<<<<<<<<<<<<<<<<<<<<<<
Very true, Plumwine but it would appear that the average mortgage in Victoria is probably close to $380,000. So what is the calculation on that?
http://www.rew.ca/news/what-s-the-average-value-of-a-new-mortgage-in-vancouver-1.21714564
“The numbers told a different story in Victoria, where the average value of a new mortgage in 2016 increased to a record $370,431 – up from $362,404 in 2015.
On a $380,000 mortgage at 2.85% your payment is $1769.21.
But a $380,000 mortgage at 5.14% your payment is $2240.48
How about those renewing/refinancing mortgages. Let’s say $300,000 just for giggles.
Renewing a $300,000 mortgage at 2.85% is $1396/month but refinancing that mortgage at 5.14% is $1768.80
https://tools.td.com/mortgage-payment-calculator/
@Grant
Yes, I’ve actually spent time up in the Yukon and although it was COLD, it was dry cold, not damp cold that chills your bones, and it was sunny in winter, which I really appreciated. I’ve also spent years living in BC areas where there’s snow on the ground 8 months of the year and you rarely see the sun; that is brutal. Another friend moved from Northern BC to the Wet Coast and had a really rough time due to the grey and the rain. I remember a January one year in Van where it rained every single day. People don’t realize this, so no, I’m not trying to keep you out of BC lol, but it is a good idea to know what you’re walking into especially if you’re used to somewhere very bright and I believe Calgary is the sunniest place in Canada.
totoro, the RBC chart shown that the bottom of the affordability in Victoria was 30% in the mid 80s, 40% in the late 90s early 2k, and 50% by 2015. The data suggest that the affordability scale has change, therefore it is likely that affordability would be at 50% to 60% in the near future.
If anyone here wants to calculate affordability, and I think Totoro needs a refresher, here is a place to start. The Bank if Canada has a formula for calculating the Housing Affordability Index:
https://credit.bankofcanada.ca/financialindicators/hai
Totoro doesn’t seem to understand that the affordability in Duncan or Mill Bay is different than the core of Victoria.
For those that are saying the market shift won’t happen here… I took a quick look over at the West Van market to see what it was up to as that market is leading this one. I know their sales are in the dumps.
Looks like asking prices are all over the place, with many listed significantly over assessed, but also noticing a noticeable amount being listed under assessed value. So my guess is you’ve got some sellers holding out hopes on old prices and other sellers being more aggressive with their pricing. So a shift is definitely at play.
Granted the house prices are higher in WV, but I would bet money this same dynamic is heading towards Vic.
I know up island houses are currently being listed 10-50% above assessed and up island was a year behind what Van was doing on the way up. I think Vic was about 6 months behind.
I know people like to think their particular location is different, or this time is different due to this, that and the other, but at the end of the day, these markets seem to follow the leader.
I think the only exception would be if areas that don’t have the spec tax/FBT had a large influx of capital – that’s likely going to be the only reason for an outlier.
Examples of the asking prices below assessed:
Asking 1,888,000 (100k or 5% below assessed)
Assessed 2017: $2,041,000
https://www.realtor.ca/Residential/Single-Family/19231400/5718-BLUEBELL-DRIVE-West-Vancouver-British-Columbia-V7W1T3
Asking 2,459,000 (200k or 7% below assessed)
Assessed 2017: 2,654,000
https://www.realtor.ca/Residential/Single-Family/19128694/4720-WOODBURN-COURT-West-Vancouver-British-Columbia-V7S3B3
Asking 2,198,000 (433k or 17% below assessed)
Assessed 2017: 2,633,000
https://www.realtor.ca/Residential/Single-Family/18999184/4663-RUTLAND-ROAD-West-Vancouver-British-Columbia-V7W1G6
Asking 2M (562k or 22% below assessed)
Assessed 2017: 2,562,000
https://www.realtor.ca/Residential/Single-Family/19150195/4626-CAULFEILD-DRIVE-West-Vancouver-British-Columbia-V7W1E8
I lied, I was just out front and they are 3 feet in some spots.
Cold? Andy7 have you ever lived in a place like Calgary? Specifically a northern prairie city in winter. And not just for a little while, but many years so you can really have that winter hate settle into your core. If it only got “cold”, that might be ok. But it’s winter for 6 friggin months. Do you know I still have piles of snow 2 feet high on either side of my driveway in front of my house? It’s April 20 ferchristsake. But you’re right some people are more solar powered than others. I lived in the SF Bay Area for 9 years and some years it was solid soaking rain December through February. But even so I relished being able to go walking in January with my dog with just a light rain jacket. As opposed to Calgary where you absolutely must bundle up and look like a stay-puffed marshmallow or else you could quite literally die. Victoria is certainly not the same climate as SF Bay Area but my God it’ll be marvelous for the winter haters like our family is.
That’s definitely the conservative choice and I’m still open to that idea and looking. If anybody can get me that rental with 4 bedrooms, an office, that allows dogs, is really quite nice and doesn’t cost $5000/month to rent, I’ll take it.
I appreciate the comment though – even if you may just be trying to keep more Albertans out
LOL. /jk
Hawk is entirely correct. If the US Fed tightens 7 times [as expected] by the end of next year, and given that mortgage rates are set and fixed in the bond market, a 5 year mortgage will run at close to 5%. So, don’t kid yourself. Poloz may be afraid to pull the trigger, but that matters little given how rates are actually set.
Also, as noted, HELOCs rates will be much higher [likely 2 full points higher that the 5 years mortgage rate] and those go up incrementally not on maturity of the underlying mortgage. If home prices continue to correct downward, which is the aim of policy makers, there won’t be room for HELOC based on dwindling equity, particularly if you bought in the last 2 years. Let’s be serious, Victoria’s home prices rose steeply in 2016 and kept rising at a slower pace in 2017.
The math is all about household income levels – as we sit, average incomes do not support these prices. So, unless you are bringing in a trunk full of money for that down payment or paying cash flat out for the home, you are at the mercy of the bank-lender. They only care about making sure you can make the monthly payments.
We should define the core in Victoria. Geography matters.
Bears vs Pumpers – I have to side with the bears. The pumpers day is done. Sell now along with all of the others looking to cash in – but then where to you go? Nothing out there to rent. Perhaps Tent-City? Nanaimo is still hot – prices are rising faster than in Victoria – a builder friend says Chinese money is flooding in to Nanaimo.
As for Victoris, buyers should sit back and let it burn. Let it burn. Roast those marsh-mellows and let it burn.
Thanks and I see the differences. Last two years have really impacted affordability here. We bought in 2012 which was considered a bad time to buy back then, but looking at the chart it was actually the most affordable time since 2005 and similar affordability to much of the 1990s.
Very true. $600K loans are not for average households, neither as SFH in the core. Only top earners can afford SFH now, a sad but true fact.
There are plenty of options living in a SFH or in the core for average incomes, just not a SFH in the core without a suite.
“Getting consecutively run over by 3 locomotives in a row is also a sure fire death knell, but 5% is likely to be years away.”
Grant,
Years away? Try by end of next year as US raises rates 7 more times. Canada 5 year rates will be in upper 4’s at least.
As per Patriotz, HELOC’S time bomb could soar much higher.
“TD’s move is a reminder to HELOC holders that banks can act individually on rates, and don’t always follow in lockstep with the Bank of Canada.”
“My credit cycle: buy and hold in Victoria; do really well; take credit for not being a fool who never buys; and repeat.”
When it tanks soon you’ll be the fool who didn’t cash out at the top and crying all the way down.
“Bears love doomsday scenario. They won’t admit they were wrong. They want to see the world burn.”
Pumpers never admit the math don’t work. 1.75% increase on a 5 year for average $600K mortgage is totally unaffordable on average incomes / house prices. Banks dont lend when the math don’t work. Most could not afford a $1000 plus a month increase let alone qualify for it.
The math doesn’t play into the “never go down” pumpers and salesmen fantasy island senerio where common sense doesn’t exist.
@Grant
A lot of people from other provinces don’t realize how rainy and grey the West Coast gets, including Victoria. I know people that have moved out from Ontario and couldn’t handle the rain and lack of sun so moved back East after one year.
Alberta may be cold, but it gets significantly more sunshine than the West Coast.
As for BC, plenty of nice places, just depends what you’re looking for. For more sun and warm summers, the interior is better. For lack of snow, Victoria, Squamish, Parksville, Vancouver are better. For small town feel, active outdoor lifestyle, small interior towns like Nelson are great. Sounds like you think Victoria is best, but I still think you’d be wise to rent for a year.
The difference between affordability for “Canada” and affordability for Vancouver and Victoria is quite stark. Peruse the RBC housing affordability report for Canada which uses quite similar methodology. http://www.rbc.com/newsroom/reports/rbc-housing-affordability.html.
For Canada as a whole affordability is not quite as bad as previous peaks. For Vancouver and Victoria SFH affordability in particular is the worst it has ever been. http://www.rbc.com/newsroom/_assets-custom/pdf/20180405-ha.pdf#page=3. Easy to see why condos have been strong. Affordability for them has not yet gone to insane levels.
Consider also that the denominator in the affordability indices (both BOC and RBC) is household income. Over this period of time household income experienced a huge one time boost from increasing female labour force participation. Very roughly for couple families with kids we now average about 1.7 incomes for family while at the beginning of the time series we averaged about 1.35 incomes per family. So not only is affordability worse, we are working more to achieve that level of affordability.
Bears love doomsday scenario. They won’t admit they were wrong. They want to see the world burn.
You really underestimate how much cash some locals are sitting on here in Victoria. They can navigate in down market much better than 1st home buyers. Reading this blog shows me how emotional people can get in front of their computers. I have no idea how they can make sound decision in stressful situation.
How about you pick any year between 1986-2016 on this handy dandy affordability chart I’m posting for the third time on this thread?
http://www.moneysense.ca/spend/real-estate/housing-affordability-declining/
Thanks.
What I know for sure is there is only the deal of the day. The past cannot be revisited. The fact that house prices would appreciate faster than inflation was not a sure bet in 1985, nor is it now. I would say that a 50-year history of 3.74% is a pretty good indicator, but nothing is for sure.
Some of our posters here sold their homes, held their cash, and banked on prices falling – I think you might be one of them? You could have been right, but you were not, at least not so far and a decade is a long time to wait. A lot of appreciation to lose and home equity payments put into rent.
You might be right in the future, but maybe not. What if prices keep going up or stay flat and rates stay pretty low?
Yeah, now that is a good point 🙂
Babyboomers that are alive currently have a much higher life expectancy than 80 as they’ve already made it to their existing age. For example, a 90 year old has a life expectancy of approx 1.8 years or so.
A 60-year-old would be around 86ish last time I checked.
This has to be the weirdest placed home I have seen in Victoria.
https://www.realtor.ca/Residential/Single-Family/19252700/3733-Winston-Cres-Victoria-British-Columbia-V8X1S2
Google Maps link
https://www.google.ca/maps/place/3733+Winston+Crescent,+Victoria,+BC/data=!4m2!3m1!1s0x548f73bde234f42f:0xdf55821b69cfd9f0?sa=X&ved=0ahUKEwjsuf3O28naAhVr2IMKHbkZCwwQ8gEIKDAA
My credit cycle: buy and hold in Victoria; do really well; take credit for not being a fool who never buys; and repeat.
The Andex chart shows the prime rate back to 1950.
https://www.thewealthcoaches.com/single-post/Andex-Chart-Canada
A good 20 years around 5% until the 70s. I think it was under 5% from the depression until this start too.
Pretty hard to tell from that graph, because it’s the 5 year fixed mortgage rate versus the bank prime rate. Anyway:
“TD’s move is a reminder to HELOC holders that banks can act individually on rates, and don’t always follow in lockstep with the Bank of Canada.”
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-how-the-interest-rate-vise-is-closing-on-people-with-home-equity-lines/
W/R to ages.
Here’s the latest census data for BC(2 years later):
http://www12.statcan.gc.ca/census-recensement/2016/dp-pd/dt-td/Rp-eng.cfm?TABID=2&LANG=E&A=R&APATH=3&DETAIL=0&DIM=0&FL=A&FREE=0&GC=59&GL=-1&GID=1235635&GK=1&GRP=1&O=D&PID=109523&PRID=0&PTYPE=109445&S=0&SHOWALL=0&SUB=0&Temporal=2016&THEME=115&VID=0&VNAMEE=&VNAMEF=&D1=0&D2=0&D3=0&D4=0&D5=0&D6=0
There are 848,985 people over 65 (over 67 now) out of 4,648,055. 18.2% of British Columbians.
So basically 9.1% of the province is guaranteed to die in the next 12 years.
Even looking through the 2011 census and comparing the drop off, it starts to become a lot steeper starting in their 70s and that’s without taking into account people moving here.
Depends on your definition of significant there. Looks like it’s currently double, which would be significant.
Real question is have bank rates diverged from the US overnight lending rate?
Or the Bank of Canada’s rate has diverged from the US rate?
Because the US rate is going up.
Marko
Interesting thought experiment, but impossible to implement due to modern building codes. My house had no insulation on the main when we moved in. It wasn’t as bad as you’d think. Victoria is pretty mild.
One thing I haven’t seen mentioned here is gentrification and how that affects future prices.
Above average income earners are being pushed into all areas of Victoria by pricing and then are spending big bucks renovating to get the home they want. Tillicum area is a great example of this. Ker, Davida, Obed, Walter etc. When I grew up that was “working class” (I hate that term) or lower middle. Below median income is a safe bet, how much below I have no clue. The listings I’ve noticed in that area recently have been heavily renovated and are priced into a range that’s not affordable to the occupations that used to inhabit that area. With current prices the types of families that used to be able to afford that area would be lucky to afford a SFH in Langford these days.
Technically true but irrelevant. Please demonstrate where on the graph (link below) bank rates have significantly diverged from the BoC’s overnight lending rate:
http://www.canadianmortgageadvisor.ca/finance/prime-interest-rate.html
My mother’s about to turn 65 and she’s been retired for more than a decade. Lots of her friends and old co-workers are dying around her. Plenty at 72 will be just fine, but about half of them will be dead in the next decade.
This should hit Victoria harder than other places in Canada because we have a higher proportion of seniors.
Bank of Canada doesn’t set bank rates.
Getting consecutively run over by 3 locomotives in a row is also a sure fire death knell, but 5% is likely to be years away. In fact, if the debt bomb is such an imminent danger, and if so many Canadians will be at risk of losing their homes and thus restrict other discretionary buying, then exactly in what parallel universe will the the BoC be raising rates? That is not their mandate, 2% growth is.
I dislike how much I’m having to defend the bull position, because I’m not bullish on the market. I’m a halibut, and that’s my favorite fish, so I’m sticking with it. But bears can’t have their cake and eat it too when it comes to debt/interest rates/economic growth/stagnation/recession.
Where, the US? Not at these exchange rates and only if you’re prepared to be a snow bird and come back for 6 months of the year. I’m decades away from retiring but I’m in the same boat – able to move where I wish. My wife and I had this discussion, if we want to stay in Canada, have a decent climate and good lifestyle, what options do we have? Uhm, Victoria is pretty much it.
1946 + 65 = 2011. So the oldest boomers are now 72. I guess all the 72+ year olds on this forum have one foot stuck in the grave, sorry guys. The oldest boomers won’t retire until 2030.
http://www12.statcan.gc.ca/census-recensement/2011/as-sa/98-311-x/98-311-x2011003_2-eng.cfm
“Rates aren’t going to 10% anytime soon so it isn’t like anyone in the near future will every have the option of buying in such an environment.”
A 7% stress test will kill this market with credit cycle ending and borrowing ability tightened like a vise. Toss in the HELOC time bomb and you don’t need 10%. When will the salesmen actually get this economic fact ? 2% mortgages renewing at 5% is a death knell to the entire sector.
47% are borrowing to pay their monthly bills now. What happens at 5% ? Wake up FFS.
I agree and sort of not agree depending on how far you zoom in or out. Meaning, low inventory and supply are indeed bullish indicators in themselves, but they are actually transient symptoms of a current market condition. It would be like saying 3 years ago, that the market doesn’t look strong because it’s been stagnating for years and prices are actually experiencing declines. But then it changed, as they do. Toronto right now is a home-grown example.
Now your baby boomer remark is different, in that it may be a longer term trend. Some things immediately come to mind:
Firstly, their market effects are more quantifiable than things that are transient and reflections of psychology – you can measure that demographic, its size, its pattern of movement, and even what they’re buying. Since that demographic’s retirement has already been well underway for some time, are we seeing large numbers of boomers migrating here and buying, beyond the long term trend?
Secondly and there is some disagreement on this, but I don’t believe they will be a substantially inflating force in this market. People retiring tend to view connections with their friends and family above all else, not cherry blossoms and snow drops. An island would enhance that sense of isolation from their long established connections. Skype is nice, but isn’t a substitute.
Thirdly, the value for dollar here is comparatively low. If you’re inclined to come to VI for the pleasant climate and access to amenities, there are IMO, better markets to spend your retirement money on than this one. If they’re after condos, you can make an almost limitless amount of them. You would need a massive wave boomers to just suddenly overwhelm the market for years and years on end. I don’t think we’re going to see that, for the aforementioned reasons.
Finally, and I am certain some don’t agree, but I really don’t think boomer “wealth” is going to be a major, long term boon for RE either. I don’t doubt it has an effect, but transfers of wealth like in that manner are actually very similar to arguing the sustainability of an equity-based RE market. It only lasts until the people at the bottom and without access to that equity, can’t support the market. Then as it always happens, equity is wiped out. Getting an inheritance? Spend it on something other than houses.
Another factor behind rising prices is the more or less continuous increase in size, luxury, and complexity of houses over the past 6 decades.
Also add bureaucracy to the list of factors above driving costs up…..every other tear down in the core I drive by is wrapped in a bubble (asbestos abatement) and a bunch of other crap no one is really even aware of (owner-builder exam, useless engineering requirements, etc).
I think someone should replicate a 1950s house and see how much it costs today. One bathroom, one plug per room, no insulation, no open staircases with railings, etc.
Into the cycle where they start dying yeah…
buying now at high prices and low rates is worse off than somebody who bought in the past at low prices and high rates
What exactly is the point of this discussion? The low prices/high rates scenario took place before I was born. Rates aren’t going to 10% anytime soon so it isn’t like anyone in the near future will every have the option of buying in such an environment.
Absolutely LF, and the corollary to that is if Victoria continues to be a big draw to new buyers, Victoria’s RE market is going to be very resilient. That’s becoming my beef on HHV. The macro picture looks shaky, but Victoria still looks pretty strong – inventory levels bear this out and the supply picture (for SFH in particular) looks pretty tight. And we’re just getting into the cycle of retirement for the baby boomers (1946-1965)
Yeah, hopefully Poloz will grow a pair and annihilate Canada later.
???
I don’t recall totoro ever guaranteeing anything. Also, she seems to have done OK* based on her assumptions.
*quite well
Might want to check your website there. It says that the 5 year fixed rate is at 4.99% today. Guess how much I trust it.
I know people who’ve been permanent residents for over a decade. If they get Canadian citizenship they have to give up their Chinese citizenship, which means applying for a Visa everytime they need to go back to China. Since their parents are old, they want to be able to get back at the drop of a hat.
When the major US banks/brokerages are telling you the party is over, you just might want to pay attention. Reality sucks sometimes.
Bank of America: “The Last Time We Saw This In The Market Was 2007”
Morgan Stanley’s credit team made the following ominous observations:
“We continue to see evidence that argues in favour of a very late-cycle environment. When we think about a turn in the credit cycles, we tend to break it up into two phases. First, in a bull market, leverage rises, credit quality deteriorates and ‘excesses’ build. These factors provide the ‘ingredients’ for a default/downgrade cycle. But they don’t tell you much about the precise timing of a turn. Leverage can remain high for years before it becomes a problem. In the second phase, these excesses come to a head, often triggered by tighter Fed policy, tightening credit conditions and weakening economic growth.
The bank also made a rare timing forecast of when it expects it to crack:
In terms of timing, we think that enough signals are flashing yellow and cracks are forming to indicate a credit cycle on its last legs: For example, looking at credit markets more broadly than just corporates, we have seen signs of weakness and tighter credit conditions in places like commercial real estate. Additionally, consumer delinquencies have risen in various places (i.e., autos, credit cards and student loans). And in corporate credit, one sector after the next has exhibited ‘idiosyncratic’ problems (e.g., retail, telecom and healthcare to name a few). All this is consistent with other signals we watch, some which have been discussed above (i.e., a flattening yield curve, falling correlations in markets, rising volatility, a trough in financial conditions, narrowing equity breadth, rising stress in front-end IG and much weaker credit flows).
Morgan Stanley concluded that “evidence is mounting that spreads have hit cycle tights – in other words, that bigger fundamental challenges in credit are 6-12 months away, not 2-3 years down the road.”
https://www.zerohedge.com/news/2018-04-20/bank-america-last-time-we-saw-market-was-2007
Amen.
You can pick individual points in history where it was also tough to buy, but overall Vancouver and Victoria RE was much more affordable for average earning families in most of the 70s and 80s than it is in 2017 or 2018. Not even sure why that is up for debate.
Once investors realize that Victoria SFH are guaranteed* to appreciate at 3.74% annually plus inflation in perpetuity prices are going to go nuts.
*totoro’s law to folks in the know
Once again Poloz is too chickenshit to raise the rates because he knows the debt bomb is going to soon explode.
ICYMI, RBC affordability index for Victoria surpassed 2007 and 2009 levels past 60% and highest since 1981. With 7 rate hikes coming it’s not rocket science prices are going nowhere but down. Many price slashes past few days, too many to list.
“Inflation rate spikes in March
Statistics Canada says the Consumer Price Index went up 2.3 per cent in March on a year-over-year basis. That is the largest increase since October 2014 “
The trailer in the picture is palatial compared to some living accommodation I have seen on the islands. The housing crisis on the islands is totally artificial. There is TONS of land. It is zoning, NIMBY, and also NIMBY. Permit one small trailer park on each island and you’d go halfway to solving the problem. Chance of that happening – nearly zero.
patriotz. You are right about affordability. The difference between back then and now. Is in the 1980’s most of those homes were bought on one salary. These days two decent salaries are the only way a family can afford a house, which would partially explain the jump in house prices.
Sheesh. If you could buy, it’s not debatable it’s better to buy something cheaper than more expensive. The cost of borrowing was a variable where the money you spent is a done deal. We also have the evidence of how well the boomers have done in real estate even having to go through the 80’s.
Somebody buying now at high prices and low rates is worse off than somebody who bought in the past at low prices and high rates, and will be worse off than somebody buying in the future at low prices and high rates, assuming that happens.
But you are entitled to your preferences.
Which just happened to be the highest rates in history. But someone who couldn’t buy then could buy a couple of years later, right? I worked out an example with credible prices and rates, how about you doing one for another year if you think “most” were more affordable.
We don’t have to guess about affordability – there is a BoC chart Patriotz. https://www.bankofcanada.ca/rates/related/inflation-calculator/
1985 happened to be slightly more affordable than now – most of 1975-1995 was not. Pick most other dates between 1975 and 1995 as your start and see what happens – 1981 for example when a five year fixed was 21.75%.
Remember that as a buyer with a mortgage you don’t know how future appreciation or interest rates will progress. Just like now. I prefer now with higher prices and low rates vs. high rates and lower prices.
I agree that now would not be a better scenario if prices drop and inflation rises a lot, or if you would have had cash to buy outright back them, but we don’t have a crystal ball and it was a struggle to get a down payment when we first started out and had it been 1981 I don’t think I would have felt comfortable with the numbers.
Also, adjusting for inflation in 1985 dollars 1102 a month is 2354.29 in 2018 dollars. There is a handy calculator here: https://www.bankofcanada.ca/rates/related/inflation-calculator/
I know that you could buy the benchmark house in Vancouver for $125K in 1985 so let’s say one in Victoria would cost $100K. Let’s say you put $25K down, that’s a 100K mortgage at 25 year amort, 13% payments are $1102 a month.
Today a benchmark house in Victoria is $710K. You put $53K down (same DP inflation adjusted), that’s a $647K mortgage at 25 year amort, 3% payments are $3062 a month. The 1985 payment inflation adjusted would be $2347. And that’s not going into the interest rate trends which we know helped the past buyer – think they will help the present buyer?
You don’t really have to do the math if you were in the market yourself back then or knew people who were. Every such person knows that it was easier to buy in those days. It just wasn’t the issue that it is now.
Totally false dichotomy.
No-one knows when rates will rise or fall and this is simply not the scenario you face when you buy.
If you look at the data you’ll see rates were above 10% for almost 20 years (1975-1995 – except 1992-94 when they were 7.75-9%) for a five-year fixed: https://www.ratehub.ca/5-year-fixed-mortgage-rate-history. Plus you would have experienced some falling values during that period. Affordability on a monthly basis was worse than now. No thanks, the stress of that scenario on a first time buyer would have been enormous with likely no extra cash to “throw at the mortgage” and a real fear of losing their home.
Given that I don’t have a crystal ball, as a starting buyer I would prefer low rates and the appreciation we have experienced. I would take a fixed term low rate mortgage until we had enough equity to risk a variable. A much more peaceful existence.
The ones who will buy in a downturn are those who have cash, not debt. Many present investors are up to their ears in debt. Remember the higher rates go the more a given amount of cash helps you buy.
Here are complete new houses in a major Canadian city for < $200 sq/ft. If it can be done there it can be done in Victoria. It’s the amount that the buyer of the house is willing to pay that ultimately determines the cost of inputs (land, materials, labour) to the house, because those inputs have no other market.
https://mattamyhomes.com/ottawa/Quick-Move-In-Homes.aspx?comm=77ca4f7c-81b1-4dfe-961d-cbd6930fa7d3
New SFH costs ~$300/sqft to build, tell me again how SFH (esp. in the core) will drop to “affordable” level even if the rate rocketed to ~10%?
Skyboxes, yes. They can crash and burn in bad economy. The older wood frame, no rental, no dog, no kid, no bbq, no washer buildings no one will want them. Only crazy lady (and gent) with cats will stay there.
High rate, even with much lower price, will hurt the 1st buyer, working families the most. The slumlords, investors are the one who will scoop up the cheap RE in downturn. Be careful what you wish for.
I honestly think that almost no one understands this elementary concept, or, they think it can be substituted in some way. Sometimes things are simpler than we make them out to be.
Housing crisis amplified on Denman Island
High home and rental prices and a shortage of housing stock have led to island-wide struggles
While housing problems on the main part of Vancouver Island are well-documented, the Gulf Islands have experienced their own set of challenges related to availability and affordability.
Housing issues on the Gulf Islands are often amplified due to their size, isolation, rural culture, and housing regulations.
https://www.comoxvalleyrecord.com/news/housing-crisis-amplified-on-denman-island-2/
$40-million residential complex planned for Nanaimo
http://www.timescolonist.com/news/local/40-million-residential-complex-planned-for-nanaimo-1.23271264
So you would have preferred a $260,000 mortgage at 3%? Or was that $82,000 mortgage relatively easy to pay off once you renewed at a lower rate every time?
OH BOY WHAT A MESS !! BUYERS JUST KEEP TAKING IT ON THE CHIN……
Buyers of 40 homes in Langley learned the hard way earlier this month that buying a pre-sale contract for a home in B.C. comes with the risk that a court will break the pre-sale contracts if the developer goes into receivership.
“BC Supreme Court Justice Shelley Fitzpatrick ruled April 4 that receiver Bowra Group Inc. should sell the 40 homes at Langley’s Murrayville House at market value to raise additional capital to pay lenders that lost money by financing insolvent developer 0981478 B.C. Ltd.
Original buyers of pre-sale contracts will have first right of refusal to buy the homes, which have each risen in price by an estimated 46%, or more than $136,525, since the pre-sales were signed two years ago, according to the judgment.”
Move up equity supports house prices in the same way that existing participants keep a Ponzi scheme going: i.e essentially not at all.
What supports house prices is a steady stream of new (first time) buyers. Without those prices collapse. Eventually they decline far enough that investors move in to stabilize the market.
Totally agree with you Totoro. Carrying houses at high interest rates was a total struggle. How’s this from memory lane…..I had a $82K mortgage at 21% with PI 25yr Amort Mort pymts of $1499/month. I’ll never forget it. That was 1983, no pleasure there.
Yes I like it too. The only measure that shows any kind of mean reversion. Also note it stops at 2016 I will update it soon for another article on this
@Leo
Yeah I noted they were different measures. But they didn’t even remotely align when thinking about them. Just seemed weird.
I trust the numbers and comments here over the media, For better or worse. Even hawk has some fair points.
I look at it differently. I would hate to pay 15% on a mortgage in a flat or declining market when I could get 15% on my equity elsewhere easily. As a first time buyer I would have been very uneasy about investing at high mortgage rates which really impacted affordability in the 80s – I probably would not have qualified in that market and renting, saving and investing would have looked better to me.
Appreciating prices and low rates have resulted in greater ROI in a seven year period than high rates and low prices would have. I guess it depends on your window of ownership and how much extra you can put down after paying on a mortgage that is super expensive vs. income.
Pyro.
What areas are you watching? Mine is SFH North/Central Saanich. 10 new ones.
In fact the Assessment Act requires that a property be assessed at market value (to the extent possible).
“”actual value” means the market value of the fee simple interest in land and improvements;…
(2) The assessor must determine the actual value of land and improvements and must enter the actual value of the land and improvements in the assessment roll.”
Since an immigrant can become a Canadian citizen after 3 years, one would expect that the great majority of them would already be citizens anyway.
I have noted in my PCS site that the number of new listings are rising almost geometrically. At the same time, sellers of the existing inventory are indeed lowering selling prices. I have noted that the “ask” price is getting closer and closer to the inflated tax assessment value. People live with a delusion that the tax assessment value is related to the fair market value – it is not. Simply put, the assessment value is almost arbitrary and is used to apportion property tax obligations between home owners in that area.
Let it burn.
VB
Has everyone seen this…
We thank Global News for the proper reporting of this key issue that will play out in the election THIS YEAR.
“…Vancouver city council has asked the provincial government to let permanent residents vote in civic elections….
…more than 19,000 members of [Investor Immigrant] class have come to the City of Vancouver over the course of three decades, according to Statistics Canada.
If B.C. lets permanent residents vote in Vancouver’s elections, then investor immigrants will have that right, too….”
https://globalnews.ca/news/4154259/vancouver-permanent-resident-vote-investor-immigrants/
The interests of a potential buyer and a potential seller are opposed. 🙂
Likely stats from 2017
@Leo S.
Asked some questions earlier.. really interested in the response. Sorry to bug you.
Different measures. Sales to actives ratio is the same as Months of Inventory but inverted. That said, months of inventory is 2 for March (50% sales to actives ratio) so I have no idea how they got 83%.
So nothing substantial to add, no rebuttal at all.
Victory is mine.
https://xkcd.com/386/
100% disagree. Low prices with higher rates is way less risky and even at the same affordability levels (mortgage payment to income percent) is way more affordable in real life because any additional principal payments are much more effective
Any chart of Canada as a whole is basically meaningless. You’re lumping together Vancouver with Moncton and ending up with a meaningless output
London ain’t so hot any more: https://www.theguardian.com/business/2018/apr/12/london-house-prices-falling-fastest-rate-nine-years-halifax
Why are Seattle-area home prices so high?
https://www.seattletimes.com/business/real-estate/why-are-seattle-area-home-prices-so-high/
I wonder how Victoria’s residents-to-homes-for-sale ratio compares.
This article makes me see that BC is addicted to outside cash, much the way that people are addicted to drugs. The detox period is going to be extremely painful.
I can see why so many people are against the spec tax and other controls. It harms a number of people who had nothing to do with the current issues. However, I don’t see many other ways to reign in the problem. Regulating shadow lending is really hard.
This, combined with cheap interest and too much debt have put the province into a corner. Will there be financial pain? Almost certainly and I don’t look forward to it.
That said, as Leo S has pointed out, things can keep going up much longer than you expect. As long as the US economy is being stoked up, the full financial effects on Canada will be blunted.
Recessions are also good for the planet: less economic growth = less GHG emissions.
Aaagh, it is starting to look ominous.!!
“As of February, 143 condo projects that are at least 70 percent pre-sold hadn’t started construction yet, ”
“Homebuyers who have had their projects scrapped will be back in the market again, increasing demand even further, said Mike Czestochowski,”
So those buyers who have been hard done by a cancellation get first dibs on the slim picking left overs of remaining projects….how wonderful!!
I see what you did there.
How Chinese gangs are laundering drug money through Vancouver real estate
https://globalnews.ca/news/4149818/vancouver-cautionary-tale-money-laundering-drugs/?utm_source=GlobalBC&utm_medium=Facebook
That makes more sense. When nearly everyone has five year mortgages it never made sense to me that half would come up for renewal in one year.
They certainly have a tendency to clean out any market tomfoolery and hubris.
https://blogs.imf.org/2018/04/10/for-home-prices-in-london-check-the-tokyo-listings/
Global RE Value Correlation — Very Interesting and factors pushing Global RE Values ever higher.
If house prices are rising in Tokyo, are they also going up in London?
Increasingly, the answer is yes.
In recent decades, house prices around the world have shown a growing tendency to move in the same direction at the same time. What accounts for this phenomenon, and what are the implications for the world economy? These are questions that IMF economists explore in Chapter 3 of the latest Global Financial Stability Report.
Our study of 44 cities and 40 advanced and emerging-market economies shows that the growing integration of financial markets plays an important role. As a result, housing markets in one country are more sensitive to swings in another. Policy makers should pay attention, because the heightened tendency for house prices to move in tandem may signal greater odds of an economic slowdown. An economic shock in one part of the world is more likely to affect housing markets elsewhere…..
A recession? I love recessions. I hope we’re in the thick of one right when I renew my mortgage!
Late night, I watched part of the press conference with BOC yesterday. Inflation expected just over 2% for this year and 2% next. Warned of interest rates rising, don’t know when or by how much (cagey). The 47% of renewals is actually only about 25% renewals and the rest are variables. House prices expected to moderate but not decline significantly because of demand (from where, one can only speculate).
Funny. Nothing wrong with a good bird bath, as long as they aren’t seagulls. Mrs. Fool almost had to fight with one downtown last week to keep her sandwich. Bold little buggers.
Real estate bears warn a housing slump could cause next recession in Canada
As a portfolio manager at Richardson GMP Ltd., Chris Kerlow is always scanning the horizon for economic tailwinds and headwinds that might propel or hamstring the stocks in his team’s funds.
“We have long felt that our housing sector, and thus banks, could be in real trouble during the next recession,” he says in a research report titled Cracks in the Foundation are Widening. In a phone interview he adds: “Now our thesis has pivoted to, housing possibly causes the next recession.”
For the Big Five, roughly half of their loans outstanding are mortgages, Mr. Kerlow says. And of those mortgages, approximately 70 per cent are concentrated in the Toronto and Vancouver regions, he cautions.
A prolonged slump in housing would have repercussions for the country’s economy if developers are no longer enticed to build more homes, he says, adding that construction jobs currently make up for 7.8 per cent of the Canadian labour force.
In a downturn, real estate agent commissions would drop and so would government revenues from land transfer taxes. If fewer people buy new houses, the flipping and renovation businesses could also go into decline.
https://www.theglobeandmail.com/real-estate/toronto/article-real-estate-bears-warn-a-housing-slump-could-cause-next-recession-in/
Soper has been extra argumentative of late. Perhaps we’re noticing that the number of cranky days increases with each successive year of being priced out of the market.
“47% have to borrow to pay monthly bills. ”
Hey let’s cancel project and jack up prices. Bankers say no such luck borrowing from us with syndicated mortgages under major legal scrutiny. Big hole in the ground makes for a large birdbath for next 5 years.
“at higher prices”
Good luck with that with 1 in 5 not qualifying and rising with every rate hike.
As per Victoria private lender:”They should be bankable… but they’re not”
Charlie, more holes in the ground here than in 2008. Wouldn’t want to be owning a presale right now.
What’s the deal with The Wade where Fortress is one of the partners ? The sidewalk is still gone and one lane blocked hassle at Johnson and Cook for over 4 months now. Got a bad feeling on that one.
Not too likely yet. Here’s what the cancellations are really about:
“With the intense demand for housing in and around the city, many new projects are bound to rise and canceled ones to be revived — at higher prices.”
Coming to a city near you! ….holes in the ground.
“That Gorgeous Toronto Condo You Signed Up For? They Just Scrapped It”
https://www.bloomberg.com/news/articles/2018-04-19/builders-scrap-pre-sold-toronto-condo-towers-as-costs-escalate
Meaningless. Vacancy rate is mostly determined by metro wide rental supply and demand, since few people have to live in a particular area. Langford gets such a large % of new housing simply because the lines on the map that define it contain a lot of undeveloped land. Merge Langford with Esquimalt and magically Esquimalt gets 40% of new housing, but the facts on the ground remain unchanged.
Totoro said: “Yes, short term. Been the same over time. Your greatest risk happens if you don’t have much equity…”
Do you mean like when prices decline and 40% of mortgage holders need to refinance? It’s not just a short term issue.
Yeah, there is some good jibber jabber going on there. Again, the vacancy rate in Langford dropped even though they are building 40% of all housing in Greater Victoria. It is not a theoretical kind of thing.
James:
You are just being argumentative. Have you noticed that the number of cranky days increases with age? With some exceptions proximity to the core increases demand as a city grows.
Definitely not. More people living in an area doesn’t even constitute greater demand. If they’d built double the number of houses in langford and the vacancy rate dropped instead, would that lead to an increase in price or greater demand?
It makes a median dwelling in more desirable areas increase in price and greater demand contributes to increased prices as well. I guess it depends on how you are defining “median dwelling”.
Yes, short term. Been the same over time. Your greatest risk happens if you don’t have much equity and have to sell before you’ve have a chance to experience gains which sometimes don’t happen for seven or eight years. Hold for longer than that and you will likely have enough equity to ride out all future ups and downs. This is the reason fixed rate mortgages are so popular despite the statistics. It is the reason we took a ten year fixed and ended up paying more. Some of don’t sleep as easy taking on that risk.
The core of any urban area is built up already by definition so new shelter (except some amount of high density) is going to have to go up on the periphery. All that means is that the urban area is growing. It’s just that in the case of Victoria the area is fragmented into various municipalities so at any given time you’ll have one or two that have a high growth figure.
Growth in itself will not make the median dwelling more expensive, but it will move the median dwelling further out from the core.
Yes, and your affordability measure will be proved meaningless for those who bought before rates rose and prices fell. For them, as rates rise, their purchase may well become unaffordable, and certainly it will not be profitable. On the contrary, it may drive them into bankruptcy.
But that is a reality that the house porn pushers will never acknowledge.
Local Fool:
Interesting article but I had to wonder who in their right mind takes out a mortgage at almost 12% these days. What sort of convoluted thinking is involved in deciding that this is a good idea.
Unless you view the demand in Langford as coping with the unmet need for housing in the core. And that sort of demand will generally lead to appreciation.
In 2011 the vacancy rate was around 2.5% in Langford. In 2017, it was 1.5% despite 963 new units coming on the market. I guess what that means is that even though Langford is building more residential units than anywhere else (about 40% of all new construction), they can’t keep up with demand.
http://www.westerninvestor.com/where-to-invest/langford-impressive-growth-rate-drives-up-commercial-and-housing-starts-1.23180903
http://www.housing.gov.bc.ca/MarketHousing/pdf/UBCM2011_Langford.pdf
https://vancouverisland.ctvnews.ca/average-rent-in-greater-victoria-sees-biggest-increase-in-26-years-report-1.3697977
http://www.timescolonist.com/business/construction-booming-but-market-still-bleak-for-renters-report-1.21366040
Where, exactly, rising interest rates may leave Canadians in danger of losing their homes
As the census showed us last fall, hundreds of thousands of Canadians painfully stretch their budgets every month to keep up with housing costs.
The census revealed that just under half a million Canadian households with mortgages spend over 50 per cent of their household incomes on shelter costs – taxes and utilities, but also mortgage payments.
It’s not surprising where homeowners are spending more than 50 per cent of their pre-tax income on shelter costs. Stressed households are concentrated in cities where real estate is most expensive – Toronto and Vancouver, but also noticeably in Barrie, Hamilton and Victoria.
If households are that stressed, how will they cope when interest rates push their mortgage payments higher? Experts are not optimistic. The answers are bleak: lose the home, or severely cut spending.
“For some households … that could mean that they have a bit less money to spend on other goods and services in the economy, assuming that they’re going to stay in their home, which I’m assuming most Canadians will. That could have some sort of negative side effects for the broader economy, if there’s less spending on goods and services.”
https://globalnews.ca/news/3951652/interest-rates-canaa-housing-underwater/
And still has nothing to do with anything since presumably they all moved into a house of some sort, meaning langford had 20% more accommodations in those 5 years. It’s not like the vacancy rate has tightened considerably in the area since 2011.
Yes, tx, misread this. It was the change between 2011 and 2016 – not all in one year.
https://vancouverisland.ctvnews.ca/census-population-of-metropolitan-area-of-victoria-outpaced-national-growth-rate-1.3278184
Now that was refreshing, regardless of your stance on up/down. +1+1+1. Not sarcastic.
No it didn’t.
Another factor behind rising prices is the more or less continuous increase in size, luxury, and complexity of houses over the past 6 decades. So new homes have become more expensive which exerts some pressure on the prices of near-substitutes like existing homes. I am not sure this trend has finished.
I do agree with you on the other factors though. The historic confluence of factors that supported ever rising prices do appear to be weakening/ending. OTOH there is the wild card of money pouring in from elsewhere.
You’re right Barrister, a medium income has rarely been enough to buy a medium priced house, but that’s not really the point, the ratio of medium household income to medium priced house is just a metric for establishing a baseline of affordability. From that baseline it’s possible to establish the overall affordability of specific real estate markets, such as Victoria. It can also be used within specific neighbourhoods. For example, South Oak Bay could be assessed using the specific numbers from that neighbourhood using StatsCan data:
StarsCan
I think there are other factors too:
move-up equity that has also increased much more than the already higher than inflation rate of house increases due to mortgage leverage
family help from this equity for new buyers whether through loans, gifts or inheritance
secondary suites in SFHs
population growth that exceeds the national average (6.7%) due to desirability
retirement and downsizing desirability for those with primary residence cash-out equity from higher value markets like TO and Vancouver
limited land base in the core – fwiw Langford’s population increased by 20.9% in 2016
I’m not saying prices can continue to increase at the rate they are with no link to the long-term average, just that the long-term average of 3.74% inflation adjusted (about 7% prior to the adjustment) seems like it could continue long-term unless things change a lot.
There is only the deal of the day, tomorrow is a bit of a crap shoot as we have seen on this blog year after year. We’ll see what happens next. The biggest factor I’ve seen with housing appears to be public perception. When the market starts to rise people jump in, when it drops they wait for more of a drop and the snowball goes either way.
On the other hand, vast amounts of foreign capital have poured into Vancouver for the past 10 or 15 years, producing a spill-over effect in Victoria as some now-house-rich Vancouverites cash out and buy here. All this capital won’t disappear overnight, and neither will the spill-over effect it creates.
In fact, I would argue that this foreign capital will never fully disappear from Vancouver, and so will never stop affecting the Victoria market (unless our prices eventually match Vancouver’s, which I think is unlikely).
The problem is when it isn’t, “certain neighborhoods”, as much as it is most of them. Especially when it occurs so suddenly and without a corresponding change in the economy.
Funny your comment about 10 Mile Point. I know a family up in Wedgewood Estates, that bought their house new in 1984 for $250,000. That’s 1984 dollars (about 550k in 2018), at roughly 14% out of the gate. It’s why I say, this isn’t “new”.
But if a Gordon Head home 5 years ago was say, 550k and is now “worth” 800k – this is another matter entirely. That’s price inflation, and the kind of market movement that makes me call shenanigans.
House prices rising faster than inflation have been supported by three important trends.
Real wages were rising until around 1980. Not any more.
In 1963 the one income family was the norm. Women’s participation in the workforce has since more than doubled. Today the two income family is the norm. The labour participation rate is now actually declining.
Since 2001 price increases have been supported by falling interest rates. That trend also now appears to be over.
I don’t see an end to this phenomena within my lifetime. Forever is a long time. It has been like that for 55 years so far. No question that short-term beyond average gains are likely to be balanced by future flat or declining market prices but prices outpacing inflation – that can keep going at greater than inflation (about 4% per year) due to equity accumulation plus desirability.
Between 1989 and 1994 prices rose about 12% a year. And then dropped and remained flattish for about eight years. I remember when we bought in 2003 that prices were also escalating rapidly – I think around 14% per year. And then again when we bought in 2009 they had escalated the same before flattening out for about six years or so. We’ll see what happens next.
I don’t think we’re in a new paradigm; it’s more that certain neighbourhoods have become unaffordable to average-earning folk and these areas aren’t going back to prior levels of affordability.
It happens over time, in every city.
Once upon a time, Ten Mile Point was affordable to regular, one-income households. But, over time, prices in Ten Mile Point increased more relative to most other neighbourhoods, such that today only the wealthy and those who have never sold live there.
Oak Bay, too, is now largely out of reach of ordinary folks. So is Fairfield. There are probably a few other neighbourhoods in this list, with a few more right on their tail.
How is that even…possible? 😛
No. As a market densifies, lower density units become more expensive due to increasing scarcity yet enduring desirability. The principle is common sense, and common to any housing market that grows. That’s not inherently unsustainable, or necessarily even problematic IMO. It’s also not a new dynamic in this city. You can expect that given the significant bias towards building multi-family units that we’ve seen over the last 40 years, it will continue. Now how much deterioration in affordability is too much? That’s much harder to say, because in that microcosm, you could have purchasing that relies more on equity relative to other segments or locations. I don’t think that equates to bungalows that will continue to command multiple millions, while condos will go for 300k henceforth. That’s only intuition on my part, though.
Any argument that says that the prices in the market writ large can continue to outpace inflation and wages forever is false. Our economy simply doesn’t generate enough production and income to keep pushing prices ever higher from current valuations. People getting mortgages at 450% leverage or greater is madness. Raiding HELOC’s at the pace we’re doing is daft. A provincial GDP that’s biased to FIRE as much as ours is lowers real production, impoverishes consumption and magnifies inequality. I am further arguing that a lot of the dynamics that have enabled the kind of appreciation we’ve seen have either passed, or, the market has now priced it in.
Here’s another way to look at a housing market’s relative health: long term averages vs current. If the current prices deviate significantly from the long term average, then I would wonder, how quickly did that divergence occur? Over decades? Years? Months? In general, the shorter that interval is the more likely, IMO, that the shift (broad market perspective – not micro) is not going to be sustained. As well, I’d want to know if there any monetary policy changes that would support that shift.
I don’t have a chart atm, but from memory, Victoria deviates from its long term average now by quite a lot. Vancouver, hilariously so. A lot of that over the last 20 years IMO, is explainable via declining rates. But the magnitude of the change of the last 2-3 years, and the magnitude of the growth in mortgage related debt during that time is what suggests to me that what’s largely driven the market activity is exuberance.
Yes, there’s low supply, high demand, tight rentals, everyone wants one etc. But that’s not a normal state of condition for our market. It’s a symptom of a population, foreign and domestic, that thinks Canadian homes are the ticket to riches, and a naive segment of buyers desperately trailing close behind convinced that if they don’t buy now, they will be “priced out forever”.
In the “who does this hurt section they identify those affected
hard working Canadians with seasonal retirement properties
land owners who will pass the holding costs onto eventual buyers
Cities that benefit from tourism
In other words:
Rich people who don’t live here that have multiple houses when many people who do live here don’t have one
Rich land owners that think they can pass their holding costs (i.e. speculation costs) onto buyers (they can’t because the housing market doesn’t care what your holding costs are. If they are too high to make a profit, sell or develop it. Would anyone pay more for one unit versus another because the developers holding costs were higher? not likely)
this one makes the least sense – since when is owning a house somewhere even called tourism? Going somewhere, seeing the sights, spending in local establishments etc is tourism. Owning a house that you go to sometimes in another city while you pay your taxes where it is convenient to you to the detriment those that live there is called “being rich”. Complaining about it when you understand this is called “being selfish” If BC is so great either move here and contribute to the tax base or come back and feel free to stay in hotels or maybe even relatives who can now afford to live here because you gave up your speculative stake in a city you don’t live or pay taxes in.
I have been following real estate for over 15 years and I have never seen this kind of response from the RE industry to any change in interest rates, lending rules, CMHC policy, etc. In other words, the speculation tax is working which is why that website exists. Bravo NDP – keep it up.
Yes, although I am a big fan of affordability to determine price reasonableness, this is not to be overlooked.
https://househuntvictoria.ca/2017/02/16/equal-affordability-but-some-affordability-is-more-equal-than-others/
I believe buyers today have largely been able to overcome that barrier by mom and dad ponying up the down payment. But the monthly remains.
Real estate industry rolls out anti spec tax site: http://scrapthespeculationtax.ca
Rush4life I would also add to the BoC decision:
There clearly is no rush for the exits. My bet is the rate will be 2.5 +/- 0.25 at the end of 2020. The higher the rates go, the more of a drag on the economy from Canadians having to service high debt loads.
I largely agree with what your wrote Local Fool. The real question is how new entrants to the market respond and what impact this has on prices. So far we see people buying condos instead of houses, moving outside of the core, and getting family help to buy a first home. This means that modest SFHs in the core are only going to be open to those with existing move-up equity or family help.
I think we may differ on how we view this shift. I see it as a more permanent shift and your view, if I understand you correctly, is that it is an unsustainable shift. As far as buying more RE goes, long-term I do not see this as a bad bet for a primary residence. If interest rates rise prices may drop a bit, and we can’t keep going up at over average rates imo, but overall and over time they are likely to continue to rise if the past is a good predictor of the future – which in this case I believe it is.
“Bank of Canada keeps interest rate steady at 1.25%. Better than 50/50 odds of a rate hike next month.”
Next policy rate announcement is May 30th just FYI.
http://www.cbc.ca/news/business/bank-of-canada-rate-decision-1.4624580
Canadians are just barely hanging on. This will not end well.
“Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes”
https://betterdwelling.com/congrats-canadians-just-set-a-new-record-for-borrowing-against-their-homes/
I’m younger than Barrister and I bought my first property, a detached house in the City of Vancouver, on one income with no family assistance. Note that a given down payment (i.e. same number of $) gives you a much bigger boost in affordablity when prices are low and rates are high than when prices are high and rates are low.
No it was not a median house but a median house was affordable for a median 2 income family.
Yes it sure would be, since markets don’t move on a “theory of multiplier based affordability”. That’s merely an abstraction, a simple measurement of how affordable homes are. Of course it’s affected by prevailing interest rates. I do agree with you that monthly affordability is one of the most critical factors for affordability, whether that’s enabled by a low principle or low rates. And no, homes aren’t magically going to “350k” unless something truly significant happens.
However, I think you’re conflating the last 55 years of observation with the last 2 or 3. The reality is, it’s not “more of the same”. What we’ve seen in the last 2 years is abnormal and has nothing to do with Victoria’s long term growth prospects at all. Yes, Victoria is one of Canada’s more desirable RE markets. That is not what caused the last 2 years of exuberance, unless Hamilton and Trenton and Abbotsford are desirable too.
We’ve had nearly three decades of dropping interest rates that have allowed prices to escalate faster than wages. Readers should decide if keeping that momentum in a rising rate environment is a reasonable proposition. We’ve also had nearly 5 decades of increasing workforce participation by women, giving greater and greater rise to the dual income family. You’ve also had the growing and now common local practice of adding suites to homes as a mortgage helper – which the market has responded to by further growing prices. And finally, you’ve had a greater willingness in the last 2 years of the population to devote more of their incomes toward housing.
What I’m saying to you is that the gains in this market in the last 2 years are so large and aberrant, that the market has taken advantage of all of these tailwind dynamics and overshot it on an orgy of exuberance and debt. In other words, there’s little else left to drive it other than ever increasing amounts of outside capital and debt. Existing market participants can’t sustain it in perpetuity on equity based trading alone; you need new entrants at the lower levels and segments.
If you recall the chart that Leo posted recently:
I love this chart. Because it shows that this market does respond, quite readily, when affordability is lost. I don’t believe that has changed, and I don’t believe it ever will. If you think we’re in a new paradigm where incomes don’t matter, affordability is merely academic, and RE debt is always good debt no matter the amount – then go buy yourself some more RE. There’d be no reason not to.
Maybe it is because I grew up in Toronto but I dont recall a time when a medium income could afford a medium priced SFH. You needed a medium income to afford a starter home and sure as hell not close to downtown. The bottom forty percent (or thereabouts) of incomes could afford to rent and never could afford a SFH.
A portion of Victoria, such as Oak Bay or Fairfield, resembles Whistler more than Duncan in terms of the real estate market. That portion of Victoria that is the focus of retirement properties is both detached from local incomes today and in the future.
In terms of local affordability, based on local incomes a more realistic analysis is just how affordable is the west shore including Sooke if one is looking at SFH. Sorry the flower count campaign to attract
retires to Victoria has succeeded. Prices in the more desirable parts of the core will likely go down in the next few years but local incomes do not comprise the floor for these areas since many if not most of the buyers are not relying on a local income and often are paying cash.
No, it is just more of the same. What would be different is if houses lost half their value based on the theory of multiplier of price-based affordability creating some market force instead of looking at what prices have actually done in Victoria long-term.
Prices have appreciated at 3.74% per year inflation adjusted for the last 55 years – or about 7% not adjusting for inflation. That exceeds inflation and results in prices moving up faster than wages here.
Doesn’t mean it will be a straight line or that major ups won’t be followed by some down or flat periods. After all, when you have 10% in a year that exceeds the long-term average and seems unlikely not to be followed by some under average or negative periods.
More accurate in terms of what actually affects whether a family can pay their mortgage.
Yes. You’d likely find if rates go up and prices come down affordability will be about the same as it was before unless there were dramatic hikes or price drops (ie. boom town to bust).
I know, it’s different this time. 🙂
“Affordability based on price is defined like this but affordability based on disposable income vs. monthly cost is not and is likely a better measure.”
Better, in what way?”
If interest rates are about to go up and prices are about to come down, is it still a better measure?
Affordability based on price is defined like this but affordability based on disposable income vs. monthly cost is not and is likely a better measure.
At 2.99% and 20% down you are paying $3,146.57 a month for that 850k house. That, with a suite, is pretty affordable on a monthly basis for many families willing to take a risk on interest rates.
The shift is that 20% of 850 is 170k – that is a lot to come up with plus the overall mortgage requires more than a median income to qualify at the BOC rate even if you can count some of the suite income. Without parental help getting into a SFH as a first step has become much harder, even if the monthly payment is not. And so condos become a much more desirable first option. Those that have equity no longer have to scale this barrier to entry and the impact of the shift at entry vs the retained equity of homeowners overall is not enough to shift the balance back to price-based affordability imo.
I’m not suggesting our market is affordable or “AOK”. I’m pointing out facts based on the data – is Victoria’s data so different from the chart I referenced? Where is the data you are referencing for Victoria?
Our market is objectively more affordable based on how the bank of canada calculates affordability (monthly cost vs. disposable income) than it has been at many points in the past. This does not mean that qualifying for a mortgage is easy or that taking on a large debt with a risk of a rise interest rates is a reasonable risk for everyone.
Misunderstood what? If you were a young couple in the mid-80s good luck qualifying for a mortgage. My parents couldn’t but these conditions encouraged homeowners who wanted to sell to hold private mortgages because the rates were so high and market was a buyer’s market. The amount of the monthly payment to disposable income was higher than now to own.
There is no doubt that there is a risk in taking on a large debt in our system which does not offer us-style fixed term rates for 25 year periods. We were so concerned about this we took out a ten year mortgage – which meant we paid more than we needed to in retrospect. This doesn’t mean that I would not have preferred this large mortgage with a ten-year low rate to a 1980s double digit interest rate on a smaller mortgage. In my view the risk of double digit rates prior to significant pay-off of our larger mortgage is worth taking. I would not have been so keen on buying had rates been what they were in the 80s – that is when renting seems like a better bet.
I just don’t think you are going to see this in Victoria or Vancouver based on median incomes ever again. Maybe something will happen to reduce a SFH to 350k, but I really doubt it. If it is double-digit interest rates that will have its own spin-off effects on those with their affairs in order just starting out and from a monthly cost the difference between high value and low rates and lower value and higher rates may be moot. Monthly cost is the bottom-line issue re affordability for people with mortgages and lower cost and higher rates often don’t help someone who lives in a reasonable fashion to qualify for a mortgage or make the monthly payments.
Studio Ghibli is great.
Poloz must raise rates. The following provides the reason why.
Donald J. Trump
@realDonaldTrump
Apr 16
“Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!”
Totoro,
Again. If you want to debate data, perfect. When you debate by comparing apples to oranges or leave dis-confirming bits of data out, it doesn’t help you and it gets noticed. I apologize if you really just misunderstood, but you do not strike me as some who is careless and inattentive.
Not trying to be disrespectful here, but there’s honestly something about that statement that makes me wonder if you live in some kind of social bubble. It’s just disconnected from the reality in which so many others in this city who live amongst you, experience. I think others may prefer an economy and a housing market that is sustainable, and permits anyone who works hard, plans ahead, restrains impulse and has their affairs in order to be able to make reasonable shelter choices.
Totoro, maybe I’m reading your last post incorrectly, but you seem to be saying that our affordability is currently AOK based on the chart you linked to.
This blog is about Victoria, not Canada overall; albeit this blog includes some implications from the Vancouver market spillover; but this blog is mainly about Victoria.
To suggest that Victoria’s market is “affordable” sounds like a 1%er’s perspective.
Comparing Victoria’s family income to overall Canadian SFH prices will indeed give the impression of “affordability” but it’s a meaningless, erroneous impression.
Victoria’s median family income is about $80,000
StatsCan
Victoria’s “benchmark” SFH is about $850,000
VREB
That’s a 10.5x ratio. Affordability is usually deemed less than 5x
Compare Victoria’s median family income to the chart in this news article, you’ll see that most of Canada is affordable based on Victoria’s median family income; unfortunately, based on Victoria’s median family income, SFH’s in Victoria are not affordable.
Global article
BCREA: sales-to-active-listings ratio = 83.4%
HHV (Leo): Sales to New Listings (last week) = 53%
hmm…
That’s a Canada-wide average. Especially meaningless for BC in the 1980’s because BC saw a huge bubble and bust in that decade unlike the rest of the country except Alberta. Absolutely Vancouver was far more affordable from 1982 going forward than today. I know because I bought in that decade. A friend of mine bought a house in West Point Grey for $150K. And those who bought then saw declining rates going forward, which made it even more affordable in total.
Difference Totoro is that you’re doing Canada, Local Fool is doing Victoria.
This is what I’m trying to figure out, how much really is a lot? Is it 2% more based on what people currently paying for housing? We’re already at the average and interest rates can’t get much lower.
p.s. I really like the movie your name’s based on.
I don’t know about that – we must be looking at different data somehow. In the 1980s prices were less affordable all years except three based on the bank of canada affordability records – I posted the link to the chart but here it is again. Prices have been a lot more affordable than all the years prior based on the chart since 1995 – so more than 20 years – except for 2008 based on this chart.
http://www.moneysense.ca/spend/real-estate/housing-affordability-declining/
I agree if rates rise a lot this will see affordability negatively impacted pretty quickly. I personally prefer high value and low rates – way better ROI than low value and high rates. Where this turns is if there is a real risk of high rates. I personally don’t think we’ll seen 1985 rates in the near future.
BC residential real estate values predicted to keep climbing as seller’s market persists
The region with the strongest seller’s market was Victoria, with a sales-to-active-listings ratio across all property types at a whopping 83.4 per cent.
http://www.westerninvestor.com/news/british-columbia/b-c-residential-real-estate-values-predicted-to-keep-climbing-as-seller-s-market-persists-1.23264667
The 40-year average share of disposable income spent on a home is 35%, am I reading that right!? That’s well over double what I’m paying in rent + utilities. I consider 20% to be affordable and over 30% to be insane. Do others have a rule of thumb for what’s “affordable” as a % of disposable income?
I’d support a return to 20-25% required for a downpayment, but I know that would dangerously tank construction markets. That valve is particularly hard to restrict after opening it full blast. Was that Harper’s brilliant idea?
Victoria’s tallest building, at 26 storeys, gets approval
http://www.timescolonist.com/business/victoria-s-tallest-building-at-26-storeys-gets-approval-1.23267097
I must be misunderstanding, because there’s no way you’re not aware of the answer to this. There’s actually a very good reason the ratio has been increasing the last 20 years:
If you’re indeed meaning, “overall”, that statement is generally false. When we talk affordable, we’re talking about the burden the average household has to bear to buy and hold a SFH, not prices or interest rates. For a brief period of time in ’81, it was way, way less affordable than now. But most of the 1980’s wasn’t that bad. Prices bottomed in that cycle in about ’85, with interest rates also dropping precipitously. Then it started a run up, and the cycle peaked again about five years later.
But there’s another salient point in all this.
In the 1980’s scenario, you’re taking on a small mortgage with very high carrying costs, in a multi decade, falling interest rate environment. Today, you are taking on a very large mortgage with very small carrying costs, in an environment where rates are already rising.
To each is own, but I’d rather be in the 1980’s scenario.
@josh
The historic affordability ratio has been between 2-4 in Canada. With the local median income of $77,820, that would translate to median property prices of $233,460 to $311,280. Even the condo median is at $378k right now. That’s a pretty simplistic picture of things but it’s accurate to say that generally, locals can’t afford local property right now.
Money has to come from somewhere.
in 2008, there were about 680 Canadian Experience Class immigrants landed at the Vancouver Island. I assume every single year the number does not change much, that the population grow of 7000. Any of them would have brought one home if not more. Keep in mind, those guys came from somewhere rich( who could afford to spend 120k in their 4 years in YYJ or YVR etc).
While people are rush into bigger city like Beijing, locals who live witin Round 3 road, are running out to YVR or Seattle. Believe it or not, their home in Beijing now worth about 30000000 rmb or 6.0 million in Canadian money. Out of my own curiosities, I wondered how many of those guys have brought as far?
You could be right, but I think most young will likely be caught in a bigger head wind than the present if they sit on the sideline to wait for a dip of 4:1 or less ratio, because IMHO that time has long gone.
To me the only thing that might bring price prices back to earth is if the government bring back the 20-25% down payment instead of 5%, and kicking the prime rate up to at least 7-8%. And, such drastic measure would absolutely destroy the Canadian economy.
If purchase prices haven’t been within 3-4 times of gross family income for the last 20 years and over time the ratio has been increasing while would it reverse? Interest rate hikes?
Also, affordability needs to factor in interest rate changes so the median multiple isn’t a great measure anyway.
Here is a chart going from the 80s – similar to Leo S’ below but a bit more detailed: http://www.moneysense.ca/spend/real-estate/housing-affordability-declining/
Once interest rates are factored in houses are a lot more affordable now than in the 80s overall.
True, but 25 year fixed mortgages aren’t a thing. Low rates, as long as we’ve had them, aren’t here to stay. If someone bought in 2009, I imagine the average rate over their term would be historically low, but not 2% low. Does someone want to dig up that chart for me, pretty please?
Seoul’s population has actually been declining since 1990 and no appreciable growth is projected for the next few decades. South Korea has a very low birthrate and next to no immigration so there basically isn’t anywhere for new people to come from. The only prospect of this changing would be reunification with the North. Taipei is similar in many respects.
http://worldpopulationreview.com/world-cities/seoul-population/
Shouldn’t all the graphs on the market summary page be showing data a little past the 2018 line like the March MOI history one?
Josh,
Ratios of greater than 4 are sustainable at current rates. An updated version of Leo’s chart showing proportion of mortgage payment to disposable income would be a more telling metric to observe.
@leo
For that graph, what does the percentage look like at +.5% and +1% and 1.5% high interest rates? Because there’s a big spike there that’s tied directly to interest rates rising by 0.75% in the past 8 months. At what point w/ current prices do we get to 58%, or the high of 73%?
The historic affordability ratio has been between 2-4 in Canada. With the local median income of $77,820, that would translate to median property prices of $233,460 to $311,280. Even the condo median is at $378k right now. That’s a pretty simplistic picture of things but it’s accurate to say that generally, locals can’t afford local property right now.
Even Vancouver is a backwater in that list. Victoria is non-existent.
It is borderline unethical, but IMHO the fault for eating that up lay mostly within the gullible buyer. North America is the land of buying with credit and the mentality of buying more than we can afford is what driven the economy. Just take a look at the volume and the junk that people buy at Costco, Walmart, or financing cars at 72 to 96 months.
Based on what historic data?
I think cities and society is much more complex than that. And, the trend is that people are constantly moving into big cities such as Beijing, Mumbai, Singapore, London, Tel Aviv-Yafo, Rome, Moscow, Seoul, Taipei, Paris, Toronto, Vancouver, etc…
https://www.numbeo.com/property-investment/rankings.jsp
That’s just gross. How many people take that info from a REALTOR® and just swallow it? At what point does lying to people become criminal?
I agree that demand here is high – I’m willing to wait and sacrifice to own here, but that floor won’t support current prices. The numbers just don’t work out.
Not a very reassuring article on Fortress and the syndicated mortgage bizz. I smell some major pain coming in the coming condo crash.
Fortress Real fiasco underscores FSCO’s impotence
“We were on a conference call with various FSCO people and we talked about all the red flags,” continued Butler. “We talked about the insane amount of commission being paid—in our business it typically ranged from 50 basis points to 100 basis points, half a percent to 1%; these guys were being paid 8%, being spread out between mortgage brokers and brokerages. That’s 800 basis points.”
“Why are these guys so incredibly different than everybody else in the business?” asked Butler. “It turned out in the end that the front companies like FDS (Broker Services Inc.) would offer syndicated mortgages to investors, and what was unknown was between 35 and 50 cents of every dollar invested was going to Fortress. I think Fortress just existed to raise money and that was their sole contribution to the development. I believe that, but I may be wrong.”
https://www.mortgagebrokernews.ca/news/broker-networks/fortress-real-fiasco-underscores-fscos-impotence-241075.aspx
It’s not about timing, it’s about rich guys having too much money to buy high end properties because they can.
West Side Vancouver sales under assessment or large price slashes tells us exactly the same story, the rich are tightening up their spending or have blown it already and are backing off waiting for real deals to show up.
Grant, I think what the article is saying makes sense, but one of the more obvious things it fails to mention is why this is occurring. My little keyboard commando theory is that a global environment of rates that have been among the lowest recorded in human history has promoted a situation where people will go anywhere they can to find yield on their principle. There’s a few other reasons, such as restrictive investing policies and people being scared of sticky fingered governments, but by in large I believe the issue is low rates.
The other point is, price inflation must end at some point for a city to actually be a city. If no one can afford to live in it, it falls apart. No if’s and’s or but’s about it – a city’s social economic stratification functions as a pyramid. Lots of blue collar worker bees, a fair bit of middle, white collar workers, a small bit of top earners, and then the elite. You cannot have a city that is non-stratified to the extent that the elite are 40, 50, 60% or more of the city’s composition, to say nothing of whether there’d ever be enough elite buyers to purchase multitudes of entire cities. It just doesn’t work, unless our societies plan to regress to feudalism. We’d be rioting long before we ever got there.
The worst case scenario I can see for something like what the authors describe is a city that is subject to violent booms and busts on a regular basis, which in and of itself is a problem.
First of all there just aren’t enough wealthy buyers to support whole metropolitan markets. Look how London has fallen in the last year, even at the high end. And that fall is in UKP which itself has fallen against USD. Also wealthy people are sensitive to interest rates as it affects the opportunity cost of holding RE. Finally corporations aren’t interested in buying individual residential properties.
https://www.theguardian.com/money/2018/mar/12/london-property-prices-plunge-as-brexit-effect-deepens
Which translates into the big money isn’t buying.
The high-end market was crap 2010-2015 so I don’t buy this theory that big money is any smarter than little money when it comes to market timing.
The largest companies that live and breath real estate in BC like BOSA can’t predict the direction of the market.
LF, simply go and check out some of the forums for Vancouver over on reddit and you’ll see lots of (typically younger) people screaming about how they can’t afford it anymore. Here’s an example:
https://www.reddit.com/r/vancouver/comments/8cwtnm/explain_like_im_5how_do_people_afford_living_in/
Speaking of the crazy condo market in Vancouver here is Owen Bigland’s video on it
Bigland makes some great points but he needs to cut down the lenght of the videos.
$790,000 for a 600 one bedroom condo with laminate counters….makes Victoria look cheap 🙂
Wow.
I think everybody needs to stop and re-read (or read for the first time) the article that Leif posted below on the global housing crisis.
AND
I think those who are predicting with near certainty that the housing market is going to crash because of affordability issues or interest rate increases are ignoring the elephant standing on the pile of cash in the middle of the room.
On the graph I posted, how would you rent at market on 48 large a year? What if you had a kid or god forbid, two of them? That’s either a nice LL, or bus passes, food banks and room-mates. This is just wrong. It’s not like 48k is minimum wage or something.
There’s got to be a lot of people here in very significant straights, to say nothing of Vancouver which is worse still. I’m no socialist, but how long can we have an economy based on selling houses to one another at ever higher prices?
On a little soapbox this morning, forgive me. I just find that level of greed and stupidity to be a complete head-shaker.
Household Income, Victoria CMA: Renters, Homeowners & Households
In 2006, median renter before-tax household incomes in Victoria were $48,500 and $81,200 for owner households. By 2016, those numbers had grown to $51,700 for renters and $95,200 for owners. That represented growth of 6.6 per cent for renter households and 17.2 per cent for owner households.
For Steeve Mongrain, an economics professor at Simon Fraser University (SFU), one statistic was particularly concerning: that homeowner incomes in Vancouver are growing at a slower rate than that of renters, even if they’re over twice as high.
In an email to Global News, he said this is likely happening because many homeowners are retiring — and thus their incomes won’t grow as fast. But another, more likely reason is that young professionals in Vancouver simply don’t — or can’t — buy homes there.
Incomes may be growing steadily in Vancouver and Victoria, but none of that was fast enough to catch up to the pace at which home prices grew in the same period.
Data from the Teranet-National Bank Home Price Index shows Vancouver property values growing by 126.4 per cent in the same period, while Victoria home values grew by 42.6 per cent.
https://globalnews.ca/news/4143426/vancouver-victoria-income-growth-home-prices/
I would agree with that LeoM.
So market is about half as active as this time last year.”
Which translates into the big money isn’t buying.
We saw that floor from 2010-2015 more or less. But that was with historically low mortgage rates. Leo S’ graph suggests that the sustainable payment rate is about 40%. That’s where the floor is, not under prices themselves IMHO.
Local Fool:
I would tend to agree with you that there will be a slow motion decline in house prices over the next few years but I am less sure that I would call it a melt down. Ultimately the housing market in Victoria has a pretty solid floor that local demand alone will support. But, obviously, not at the present price point.
More later since I have a number of chores that were waiting for the rain to stop.
Very interesting article on global affordability.
“Nearly half of all renters across America are “cost burdened,” spending more than 30 percent of their income on housing. And nearly three-quarters of households earning less than $15,000 per year devote more than half of their income to housing. ”
“The UN report estimates the total value of global real estate to account for 60 percent of global assets, with a value of $217 trillion, three-quarters of which is housing. That’s nearly three times the world’s total economic output. Since the Great Recession (which, ironically, was caused by real estate speculation), real estate markets have grown at a faster rate than many other financial markets.”
” in 2015, corporations purchased $1 trillion in real estate in the world’s top 100 global cities. Sovereign banks from countries like China, which recently relaxed its foreign investment rules, as well as oil-rich countries looking to diversify their portfolios, like Norway and Qatar, are also notable players in the global real estate market. Laurence Fink, CEO of the private equity giant BlackRock, said apartments in cities like New York, London, and Vancouver have begun to replace gold as the primary store of wealth for the super-rich.”
” We must confront the fact that the global housing crisis is not something that is affecting one part of the world or another. It is baked into the very structure of our fast-urbanizing world. While factors like NIMBYism and land-use restrictions certainly exacerbate the housing supply and affordability problems of superstar cities, nearly all global cities are falling short on building enough housing, and enough functional, affordable housing, for those who need it most.
In order to correct this, we must no longer see housing primarily as a financial instrument or investment vehicle, but as a basic human right.”
https://www.citylab.com/equity/2018/04/the-global-housing-crisis/557639/?utm_source=twb
Speaking of the crazy condo market in Vancouver here is Owen Bigland’s video on it
https://youtu.be/lj81Y_OGB3U
@Vancouver Based – condos are more active than single family at the moment here as well. Bit of a catch up still as single family accelerated more quickly 2 years ago although it feels the mania is slowing a bit now as well. Inventory still very tight.
I really enjoy this site and have been reading for a few years. Very informative. I wanted to give some perspective as someone looking to buy a townhouse or condo in the lower mainland. The market is insane all the way from West Van to Langley. Prices are going up consistently about $10,000 per month since the beginning of the year in the $400k to $600k market. Too many people in that range looking for housing. Do you think that will be the hot area of market in Victoria too, because honestly there doesn’t seem to be any desirable sfh under a million in Vic. What are your thoughts? No slowdown here, trust me and no chance of getting a presale as only insiders get those.
That’s true when there isn’t a lot of inventory and you have every seller clutching their evalueBC letter telling them their house is worth one million dollars. Now if we had a glut of condos built for $250/foot not selling for long enough it wouldn’t take so long to simply sell them at $400 vs $1000 and boom things start moving again and the builder would have just made a little less money.
At last, I understand. So we have bulls, illusionists, delusionists, bears, bears in closets, and hairy halibuts.
Also, I agree with your rebut there, though you won’t get reduced prices unless activity really slows – and to make them affordable (connect with fundamentals), activity would have to drop to the point of prolonged starvation. Vancouver will never achieve affordability (in relative, Vancouverish terms) without serious pain which we’ll feel over here.
I’m not sure a market implosion based on a huge glut of luxury condos would be so devastating to the general economy. They would simply sell at a reduced rate and provide some luxury affordable housing with our vacancy rate and pent up demand for such a product. What is worse is a frozen market where people stop buying and places stop selling. Less activity is a much bigger problem.
In the past I coined myself a halibut because I was neither bull nor bear and felt the market would remain flat (like a halibut). I was right until 2016 rolled around. Mind you around then I did say I was growing horns, so a horny halibut. Now, I’m starting to grow hair, possibly claws but I have yet to fully transform into a bear and thus the hairy halibut.
Um…go Rennie, go? 😛
Seriously, I’m not a fan of broad-based market implosion. That’s good for no one. I’d like myself and Mrs. Fool to remain employed in Victoria’s economy. More practically, I have too much tools and equip to do a condo anyways, but I’d consider a rowed unit if it met our needs.
Incidentally, I’m still not understanding what a “hairy halibut” is. I’m sure I wouldn’t want it to form part of my fish-n-chips meal, though. Cough, cough. Hairball?
Re: ” Is there an affordability index to compare to today taking into the very high interest rates of those times?”
There is a big difference in future outcome at a particular mortgage interest to income ratio when interest rates are at a peak and when interest rates are at a low.
In the former case, the interest cost relative to income will likely diminish with time, in the latter case it will likely increase.
Moreover, times of high interest rates are usually times of high inflation in both prices and wages, whereas times of low interest rates are usually times of low inflation in both prices and wages.
Therefore, the outlook on borrowing to the max when interest rates are low, is much less favorable than when interest rates are high.
Funny, I thought you were looking to buy? You should be saying it’s too bad we haven’t built endless amounts of luxury condos….
What we want is the red area, and yet I haven’t seen a survey ask about it.
Yeah 2016 was just the first real uptick after the best affordability 2013-2015.
Yes, definitely
Q1 2017: Average of 98 active listings and 28 total sales.
Q1 2018: Average of 104 active listings and 15 total sales.
So market is about half as active as this time last year.
Whatever does happen, I’d like to add that any decline is not likely going to be consistent moment to moment. You’ll have pushes back up, perhaps even aggressive ones (however, I think Vancouver is more likely to see this than Victoria), but the important consideration will be the overall trend over a 3 to 6 month period.
One thing, is thank goodness we haven’t built ourselves endless amounts of “luxury condos”. At some point, people are going to realize that paying $1,500 a square foot for a condo isn’t financially sensible, and developers will have tower after tower of empty units that are too expensive to sell.
Hawk said: “It all starts at the top and works it’s way down.”
I agree with you Hawk that is typically how it starts, but I think it’s different this time.
In my annual prediction I guessed that we will have a slow motion meltdown over the next 24+ months with the market decline accelerating towards the 24 month mark. What I didn’t mention in my prediction is the reason I am guessing that will happen. This is what I’m guessing will happen:
The extreme runup in prices over the last four years accelerated up to the current market conditions, based on seasonal averages. Why? Because of the unusual number of speculators and investors who jumped into the market. Where did these speculators buy? They bought in every neighbourhood but they bought in some neighbourhoods more than others and they bought houses where they could add a suite or two suites or a house they could AirBnB.
So Hawk, I think it won’t just be ‘top-down’ but rather the decline will include the top first followed by neighbourhoods where investors/speculators bought.
I think if we watch specific neighbourhoods we will see a big difference in the decline between neighbourhoods. For example, south Oak Bay will decline less than the overall average, whereas a neighbourhood with a high percentage of rental accommodations will decline faster at a higher percentage than the overall average, as speculators/investors panic as they try to preserve equity by selling as they realize their equity is evaporating. But we will only know late next year if my predicted pattern emerges. I’ve only known a few investors/speculators but their common trait is a deep aversion to equity loss.
@Caveat Emperor
I think it’s simpler than you’re making it. This particular market started/took off in Vancouver on the West Side, in the high end areas (ie Kits/ Point Grey and West Van) in SFH’s. Then it spread out in Van, off to the burbs and then came over to the island. It started in SFHs and then spread into condos. It’s looking like it’s going to retract following the same pattern. This market was already slowing prior to the NDP measures and the B20 (which blipped it temporarily). Hawk’s sentence sums it up pretty accurately I think.
P.S. It’s already started.
Over the life of the blog we have heard:
It starts at the top and works its way down.
It starts at the bottom and works its way up.
It starts in the burbs and works its way in to the core.
It starts in the core and works its way out to the periphery.
Assuming anything “starts” at all, where it starts will depend a lot on the triggers. What areas are going to be hit hardest by the NDP measures? What class of buyers is hit hardest by the mortgage rule changes? What market sector saw the most “speculative” activity? the highest percentage of foreign buyers? the most laundered drug money? etc?
Assuming it all starts from the bottom, or all starts from the top based on one or two historical examples is likely to be misleading.
FWIW in the US housing crash it seemed the marginal areas fell more than the already desirable expensive places
Another red flag from a global perspective.
China May Be Headed for Rare Property Defaults, Neuberger Says
https://www.bloomberg.com/news/articles/2018-04-16/china-may-be-headed-for-rare-property-defaults-neuberger-says
@Gwac
Over exaggerated or not?
Everywhere (Alberta, BC, Avg Canada, Australia etc) seems to be 1/3 cant get $1000 together or don’t have any rainy day savings saved up. This leads me to believe these people are going to need LOC against their homes (HELOC’s) and then what happens when they have another slip or 2.
I just find it crazy to here realtors like the one at the open house the other day tell me if I get a place with a 2 bedroom suite I can buy a $900k place vs $600k. The thing is how many people go all in for that? Whats another 300k on a probably 500k mortgage right????? 🙁
Thanks for the report. Inventory continuing to increase and sales continuing to slow, will be interesting to see what the market looks like come July and August.
Thanks LeoM.
So if we are saying income to average SFH was 3x in 1977 to about 11x in 1981.
What is it currently from say 2013/14/15/16 to now? I think part of 2013/14 might have been the same.
When I look back, 2016 levels seem totally affordable to my current situation and I would feel comfortable buying at those rates.
Does anyone have stats on what is happening in the high end market, say above $2MM? Are there considerably fewer sales this year in that end of the market than 2016/17, or does it just seem like it to me?
Kinda jives with the 47% that need to renew this year. Interesting stat.
Canadian Household Debt Poll: 47% Will Need To Borrow To Pay The Bills This Year
“Forty-seven per cent said they do not believe they’ll be able to cover all living and family expenses in the next 12 months without going into further debt.”
https://www.huffingtonpost.ca/2018/04/16/consumer-debt-poll-mnp-canada_a_23412459/?utm_campaign=canada_newsletter
They do love to grab more money, but the overwhelming majority are very responsible. When a mortgage lender qualifies you, it takes into account your credit history, your income, your current debt load, your other assests and any other outstanding financial commitments (things like child support etc.).
From that they’ll come up with a max that this individual can borrow, and for the most part they get it right. That’s not to say some individual couldn’t also be spending far beyond their means, for instance via excessive discretionary spending. There are also other instances where variable rates on things like HELOCs, or even credit card debt can get someone into trouble. But again, at loan origination time they are working with the numbers they have.
Anyone who lives on the bleeding edge of their income and doesn’t save is at risk of putting themselves into this position. Mortgage lenders bear no responsibility to protect the people who borrow from them. To add to this, it’s in their best interest to ensure people can pay back their debts – a bunch of defaults isn’t going to be so great for their bottom line.
One big expensive lesson on reneging on a housing contract.
https://www.thestar.com/news/gta/2018/04/11/couple-ordered-to-pay-470000-after-reneging-on-stouffville-home-deal.html
From BNN: “46% say they are now $200 or less away from financial insolvency.”
Good grief. On one hand, I have limited sympathy for people who extend themselves to such an extremity, but on the other, where are the restrictions against loose lending? Are Canadian mortgage lenders nothing but a bunch of irresponsible, money-grubbing scum? Are there no restrictive criteria for lending, or is this country as bad as America, where you qualify if you breathe?
2179 Beaverbrooke St in South Oak Bay slashed $75K to $1.090 million.
767 Helvetia Cres in Cordova Bay on slash #2 for a $150K total whack to $1.499 million.
4932 Cordova Bay Rd slashed $100K to $1.699 million
It all starts at the top and works it’s way down.
“Over exaggerated or not?”
It’s not rocket science to know the answer when rates are going to scream higher.
Dudley sees three or four Fed rate hikes in 2018: CNBC
https://www.reuters.com/article/us-usa-fed-dudley/dudley-sees-three-or-four-fed-rate-hikes-in-2018-cnbc-idUSKBN1HN20M
https://www.bnn.ca/1-3-of-canadians-fear-bankruptcy-amid-debt-trap-warning-survey-1.1058013
Over exaggerated or not?
It’s almost like even sellers believe we’re living in a RE bubble.