April 22 Market Update
I hope everyone had a great Easter weekend. Given the statutory holiday, it’s not surprising that the sales pace last week slipped further behind last April. We’ve got 7 business days left (6 for most of the public sector that is off today as well) and that will likely give us another 250 sales or so for the month to end just above 700.
Weekly numbers (as of April 23rd) courtesy of the VREB:
| April 2019 |
Apr
2018
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 136 | 310 | 479 | 774 | |
| New Listings | 346 | 681 | 980 | 1291 | |
| Active Listings | 2517 | 2598 | 2649 | 2002 | |
| Sales to New Listings | 40% | 46% | 49% | 60% | |
| Sales Projection | — | 735 | 715 | ||
| Months of Inventory | 2.6 | ||||
Price wise, so far it looks like much the same as March for single family prices, coming in roughly flat year over year with perhaps a small decline in certain segments (single family in the core). Condo prices are still up slightly from a year ago but the gap is getting narrower every month.
So it looks like once again we’ll have a month where sales drop a bit from the same month a year ago, and what strikes me is how absolutely consistent it has been. Ever since 2013 when the market bottomed, the market has been changing extremely smoothly, for lack of a better term. Activity ramped up so slowly and steadily from 2013 that it was like boiling a frog: most people were taken by surprise when the market took off in 2016, but that situation was 3 years in the making. Similarly on the way down, every month for over 2 years now we’ve seen drops in the activity level, but it was so gradual that most people thought our market was still insane.
Even the big leadup to the stress test’s introduction in 2018 was just enough to introduce a little wiggle in the sales numbers. Before 2013, it didn’t seem that the market moved that consistently. If you look at the mid 2000s, you see some sharp changes of direction and general noise in even the averaged sales numbers. I don’t think this has any particular significance, but these kind of gradual moves do often slip under the radar of news coverage (“Sales decline modestly from last year” just isn’t front page material). There’s no two ways about it: This market is boring. Look at it every week or month and it will seem like nothing is changing at all, but come back every year and you’ll be surprised at the change.
The “circus” is only in SFH prices, not multi-unit. The multi-unit prices are affordable to median household incomes.
These SFH prices are not based on average household income, they are based on large down payments and very high household incomes. They aren’t about to fall, and will keep on rising IMO. There are lots of rich people in Victoria able to pay for these houses, and only 1/1500 mortgages is delinquent.
New post: https://househuntvictoria.ca/2019/04/23/mitigate-risk-by-holding/
Beancounter. If you had a blog, I’m pretty sure I’d pay to hear your thoughts.
Having said that, slow wage growth over the last 2 or so decades is a real issue that is separate from the RE bubble. A lot of that is shifting manufacturing and automation, and perhaps a changing preference for employment.
And to say in advance, the wage growth we have seen in BC over the last few years is by in large spin-off effects from RE-related industry (ie, you will notice how that growth is now reversing), so we’re not immune to it here any more than anywhere else…
This is viewpoint is naive, wrong, and dangerous. If you haven’t noticed there is a disconnect between the price of RE and wages (in Vancouver this disconnect is essentially metaphysical). In other words, RE prices are not reflecting what is happening with the local economy. To suggest the reason for this gap is due to lack of willingness of employers to raise wages is patently absurd. Cheap money, loose lending, and foreign capital are the culprits. To expect employers to pay the price for this RE circus is beyond absurd.
Detached over ask sales in April
15% of detached sales went for over ask (30% same period last year)
Median price of the over-ask sales was $775,000 vs $780,000 for those going under ask, so no difference there although that doesn’t take into account region.
Saretsky is the Gretzky of realtor-pseudoeconomists.
Steve Saretsky has an interesting video out this week. He discusses the appetite for excessive debt, alternative lenders and sellers stubborness (example is a seller who walked away from a $2.5million deal over $25k). I find it interesting that he discusses debt as Alice Kluge did in her latest video.
https://www.youtube.com/watch?v=FXsjhnk6LyQ
PS: Whoever was the one who kept mentioning Saretsky to the point where I started to watch – thank you! Interesting to see stats, figures, and other tidbits of information. While Saretsky’s marketspace is Vancouver, the overall trends and bits of information cover a much broader market.
I’m going to order a MCREBA with a side of fries and a diet coke then watch the dull start to the spring RE season in Victoria.
Yes, if you population adjust this data it looks quite different. I did this a number of years ago. https://househuntvictoria.ca/2016/03/24/what-was-going-on-in-1991/
In terms of the mood of sellers, has anyone factored in the impact of legalized pot?
Maybe mellow should be on the list.
Low end definitely the most active. But, what’s the price? If they were warned that the market had slowed usually the next thing out of the agents mouth is a recommendation to sharpen their pencils on the list price
Anecdote alert:
Friends are just selling a relatively low priced SFH in the core.
Looks like it will go for about 4% above asking in a multiple offer situation. They had been warned the market had slowed down. But apparently not so much in their market segment.
There seems to be a lack of gradation between hopeful and depressed.
As for the mood of a seller 8 months from now, I suspect it will depend on how long that person has owned the place. If they have only bought it recently, they might be quite stressed about the sale. If they’ve owned for a few years they probably aren’t too concerned that it won’t sell for top dollar.
Let’s play a game. Pretend that you are an owner of a house in Victoria and you MUST put it up for sale in 8 months time on January 1, 2020. And, of course, you want to sell the house for maximum dollar. Pick the one line below that best describes your personal feelings about the current Victoria real estate market based on where you think it will be on January 1, 2020. Then look at the Graph below to see where that word fits into the RE cycle.
You are excited by the current RE market
You are hopeful about the market
You are despondent about it
You are thrilled by it
You are depressed by it
You are anxious about it
You are optimistic about it
You desperate about it
You are in fear about it
You are in denial about it
You are euphoric about it
You are panicked about it
You are relieved by it
You are ready to capitulate
https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=2ahUKEwjNnYuIsuXhAhUEr54KHZwKBeEQjRx6BAgBEAU&url=http%3A%2F%2Fwww.realestateinvestingmadereal.com%2Fcycles-of-the-real-estate-investing-market-and-why-now-is-the-time-to-buy%2F&psig=AOvVaw3hFy_N9jKZaI3lUjAKDOAm&ust=1556080474624831
Let’s not do anything that will stop the proliferation of Starbucks, please. There are so many now – if I find myself in an unfamiliar part of town they are very handy to dash into and get directions to a good coffee shop.
“Only buy something that you’d be perfectly happy to hold if the market shut down for ten years”
That is if you can afford to finance it for ten years. If not, don’t buy it.
Bloomberg reports:
46% of Canadians on the brink of insolvency as rates rise: Survey. For most, the cause of trouble is thought to be long term accumulated debt, with many survey respondents having so little wiggle room that any increase in living costs or interest payments could tip them over the edge.
Thing is, cost of living increases are virtually certain, with Victoria’s inflation rate, at 2.4%, running above the national average. What that suggests is that even if interest rates remain low, house prices will have to continue on down. The decline may be gradual for now, but if people see where things are headed, gwac may be in for a surprise.
Thanks, Warren Buffett nails it again! Another great one of his, relevant also to housing, is “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years” https://www.ruleoneinvesting.com/blog/how-to-invest/warren-buffett-quotes-on-investing-success/
and here comes automation
Price is what someone is willing to pay. That’s not my opinion, it’s the definition used in economics and finance. As for the difference, Warren Buffett put it thus. He means that value is what the asset returns to the buyer, not the seller.
“Price is what you pay, value is what you get”.
Ya I hear you on that. I love to use it too, but it’s not always clear what it means. It’s rather like saying a person is “not normal”, and another person asks, “well what is normal then”, and you say, “normal is what everyone else is, and they are not”.
Helpful, isn’t it. Haha.
A home has intrinsic fundamental value, but it’s always a challenge to put it in monetary terms. You can say, “value is what someone is willing to pay”, but that’s a bit of a hollow explanation and ignores things like cap rates and other proxy metrics to indicate whether a RE product is likely overvalued.
Generally I consider the term “affordable” to mean that a buyer doesn’t need to spend more than 35% of their gross income on reasonable housing. Of course some say 30%, others are as high as 45%, and what does “reasonable” mean, so on and so forth.
I am a little mystified about the elastic and rather ethereal use of the word “affordability”.
Rush, you might be earning more dollars, but the sad reality is that your employer has not raised your salary enough to keep up with the real cost of living in Victoria. Basically what you do is less valuable today than it was five years ago to your employer.
Somebody is bound to point out that housing needs to remain affordable so that there is someone to serve my Starbucks coffee (Last trip to Starbucks was about six years ago). The real life answer is that Starbucks will raise wages (and coffee prices) until they get someone. It is possible that people dont value Starbucks enough to pay the freight and they will close.
On the most basic level houses are affordable because someone is still buying them. Of coarse the preferred solution for Starbucks and McDonald’s is subsidized housing so that they can happily continue paying less than a living wage.
PS another kick in the pants to those of us who live in Victoria – https://www.vicnews.com/news/victorias-march-inflation-rate-higher-than-any-other-canadian-city/
We had higher inflation than any other city in Canada last month – making houses even less affordable (yes i’m being dramatic) – here is actual info:
Victoria had the highest inflation rate of any Canadian city last month – reading at 2.7 per cent, its March inflation rates were above Victoria’s 2018 yearly average of 2.4 per cent.
Vancouver came in second at 2.5 per cent. And overall, B.C.’s inflation rate was at 2.6, mostly thanks to the inflation in food prices (4.3 per cent ) and shelter (3.4 per cent).
Graham Voss, chair of the department of economics at UVic, said South Islanders might be feeling a pinch at the grocery store, but the reading isn’t something to worry about at, at least not at this point.
READ ALSO: Victoria sees highest gas prices on record
“It’s certainly interesting, but you would want to look at it over a longer period of time before you get worried about it,” he said, adding that historically B.C. has had, on average, a lower inflation than much of the rest of Canada.
Voss said calculating inflation is a volatile practice, especially at more micro levels – the Bank of Canada pays attention to the national rate, but the numbers become increasingly unstable when you calculate month to month changes in provinces and cities.
“It’s not irrelevant in the fact that it’s an accurate measure in a basket of goods Victorians are buying,” he said. “It does mean that we’ve seen an increase over the years.”
GWAC i do believe affordability is crucial – how can it not be? Admittedly i wasn’t at the blog back in 2014 or 2015, and perhaps people were SAYING things were unaffordable back then – but in the strictest sense of qualifying for a mortgage I would disagree that they were truly unaffordable. At the time I worked at a bank and had run the numbers to see how much my wife and i would qualify for if we purchased a home with a suite. We qualified for much more than the median house price at the time but didn’t have the down payment to go with it unfortunately. A few short years later (with a solid down payment) and a pinch of b 20 guidelines and i definitely don’t qualify for the median house price anymore, and i certainly don’t qualify for as much as I did despite the fact that both my wife and I are making more income and are above the median family income in Victoria.
Again i am sure people have always been talking about an impending declining market in Victoria and usually would be wrong historically speaking but in order to sustain these prices, based on median family incomes in Victoria, there needs to be a sufficient prolonged external force holding up these prices in Victoria – more than just the normal amount of retirees that we get. Previously numbers would point to Vancouver homebuyers and “out of towners”, as Leo called them, pushing these prices up but that well is running dry.
Bulls were so quick to point to Vancouver home prices flying high when Victoria prices started to climb but are now quick to dismiss any correlation as Vancouver prices start to drop.
I can’t say for certain whether prices will drop with any force over the next year or two but i can say that i’m betting on them not going up seeing as i’m waiting to buy. Just my two cents.
Maybe “boring” is what we should be striving for, wrt real estate. I can see a new political star on the horizon… although “Make Canadian Real Estate Boring Again” probably won’t fit on a ball cap, and “MCREBA” sounds like an unappealing fast food sandwich.
Ya other people should read it instead of posting their market is crashing BS. 🙂
Market can take a lot of inventory and few sales and not budge is my main take away. Same comments about unaffordability over and over and the market is going down. Wealth of insight on people and their views and insights.
Marko hated condos in the Westshore. 🙂
Introvert and Leo before they purchase was interesting.
Time moves on but peoples comments are the same.
GWAC: Any initial thoughts after reviewing the old blogs?
Barrister went through a lot of the old posts and it was interesting have the perspective of how the market was doing with different sales and inventory or the past 10 years. The old blog is a keeper in my view. A tremendous amount of valuable info.
Thanks for this chart which I also find extremely telling as to what is happening in the market. The thought struck me that we have also added a lot more housing units in Victoria in the last five years so as a percentage of units the decline is even a hair more than before.
I still dont think that we have reached that threshold of inventory were we are likely to see price declines. At a guess we will need to see somewhere between 3000 and 3500 before there is a noticeable decline. But I am just guessing.
Your description of the market made this “boring” update one of the most interesting ones I’ve read in some time. Good work.
Interesting what we’re seeing, isn’t it? We’re currently stalling out in a slow grind downwards, and VanRE is in a seemingly perpetual deep freeze. I wonder if viewing this dynamic in the future will reveal that this disparity was VanRE’s way of restoring the correlation of the markets, which has been disrupted over the last few years.
Personally, I’m glad this market has never been as volatile as Vancouver’s, but the emergence of a reversal trend continues to be unmistakable.