Napkin math on forced selling

This post is 4 years old. The data and my views may have since evolved.

With the worst of the lockdown behind us, the biggest concern is no longer about the market locking up (it isn’t) but how it will look in the fall when income and mortgage supports expire.   The National Bank wrote an excellent analysis, where they predicted that house prices would fall 10% nationally in the next year.  They expect Toronto and Vancouver to be worse hit at 13% and 12% declines respectively, and the risk of higher declines if immigration drops substantially or the CMHC tightens credit availability (which they did, but likely not in a particularly consequential way).

Another thing to note in the National Bank forecast is the home ownership rate by industry which I haven’t seen before.  As I’ve discussed before, the employment impact has hit hardest in occupations and age groups that are less likely to own, which should reduce the impact on the forced selling side compared to a more broad based increase in unemployment.   Now we have some numbers to put to that statement, and that allows us to take a stab at how many owners may be affected by job losses right now, and what that could mean for the fall.   Multiplying the number of people that lost their employment between February and April (peak unemployment) in each industry by the percentage of people that have a mortgage in that industry, we get the following numbers.

That adds up to just under 13,000 households with mortgages that may have lost their jobs in Victoria.  Job loss does not automatically mean a mortgage deferral, but it’s relatively likely.   The latest estimates are that about 15% of the mortgages on the books of the biggest banks are in deferral, and based on the estimate above if every job loss amongst mortgage holders turned into a deferral it works out to 13% for Victoria.   We’re possibly in the right ballpark.

Now, most of those households will defer their mortgages, get their job back or another job, and be perfectly fine come October.   National Bank estimates that 10% of current owners with deferred mortgages will end up needing to sell, which would be about 1300 properties in Victoria.   If such supply were to hit the market, it would likely be spread out over at least 6 months as some see trouble coming and list proactively, while others go through the relatively lengthy foreclosure process.  I would also hazard a guess that supply from forced selling would come more on the condo side.  1300 new listings would be substantial, but because we are starting from a pretty strong base, it wouldn’t bring us into unprecedented territory as far as inventory goes.  Even if they all piled on in a relatively short time period, it would bring us back to about 2013 levels of inventory.

Compounding errors alert

As you can tell from the title of the article, this is a back of the napkin estimate, and not a particularly robust projection about the size of the deferral cliff in the fall.  There are many assumptions here any of which could turn out not to be accurate for our market.  If I had to guess I would say the numbers represent a high estimate for number of households that will be forced to sell. High priced markets like ours likely have a lower rate of home ownership in lower income sectors, job losses are concentrated in younger ages so those without work may be less likely to hold a mortgage than the industry average, and BC seems to be one of the leaders in terms of managing economic impact which could help us compared to the nationwide average.   This is an exercise to put a national forecast in terms of our local numbers to get a sense of the order of magnitude of impact, but take it with the appropriate grains of salt.

What do you think?  Will the deferral cliff that the CMHC is concerned about have a big impact in Victoria?

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Patrick
Patrick
June 15, 2020 10:10 am

CERB to be extended. Taxes to pay for this profligacy are going to be insane.

Yes. CERB costs $17bn per month. Total revenue for the government from all taxes is $26bn per month (see link,that was 2018, it will be much lower in 2020). They would need to almost double all taxes just to pay for CERB, yet alone all the other programs like CEWS and CESB. They should cut CERB back, with a means test, as it’s being abused, and we simply can’t afford it.

(Govt revenue sources) https://www.canada.ca/en/department-finance/services/publications/annual-financial-report/2018/report.html

James Soper
James Soper
June 15, 2020 9:53 am

That’s the beauty of a log graph. It does show any 40% drop as an equal slope downward, making comparisons easy. If you want to ignore all that, and consider that USA rates for CoVid are falling as fast as Canada, go ahead.. but they aren’t.

The graph doesn’t show a drop at all, as per Leo’s comment.
It’s not useful for what you say it’s useful for.
I didn’t say once that the USA rate was falling as fast as Canada’s, I didn’t make a comment on rates of change at all. I said the graph wasn’t useful except for obfuscation. I’ve made it abundantly clear what my point is, and you continue to miss it.
So i’m done here.

Patrick
Patrick
June 15, 2020 9:49 am

Tell me how the [log] graph is useful when it doesn’t show a 40% drop

That’s the beauty of a log graph. It does show any 40% drop as an equal slope downward, making comparisons easy. If you want to ignore all that, and consider that USA rates for CoVid are falling as fast as Canada, go ahead.. but they aren’t.

James Soper
James Soper
June 15, 2020 9:13 am

nm.

Sideliner
Sideliner
June 15, 2020 9:08 am

Shocker. CERB to be extended. Taxes to pay for this profligacy are going to be insane.

James Soper
James Soper
June 15, 2020 9:06 am

That’s only because you mistakenly think a drop in cases per million from 100 to 60 (USA) is equivalent to a drop from 50 to 12 (Canada). But it isn’t, the drop in USA is 40% and in Canada is much more at 76%. Just like a drop in cases from 100 to 60 or a 0.4% drop from 10,040 to 10,000 wouldn’t be as significant as a 100% drop from 40 to 0.

It is equivalent in terms of cases per million.
Tell me how the graph is useful when it doesn’t show a 40% drop.

Deb
Deb
June 15, 2020 8:58 am

Actually just refreshed the browser and cleared cookies and it works now.

Deb
Deb
June 15, 2020 8:57 am

Voting is working here. What browser? What happens when you click the thumbs up button?

Safari browser and nothing happens when I hit the thumbs up button.

James Soper
James Soper
June 15, 2020 8:56 am

Those drops aren’t equivalent. The drop in Canada has resulted in cases at 24% of the peak. The drop in US is 60% of peak. A logarithmic scale shows these trends better.

Except it doesn’t.

This is what Leo S said when he posted the graph:

One of the few countries that has not managed to bring the curve down after flattening it

60% of peak is bringing down the curve.
It doesn’t show in that graph.
Hence, graph isn’t useful for what you all seem to be claiming it is useful for.

Patrick
Patrick
June 15, 2020 8:50 am

That’s bullshit. I’ve already pointed it out. The numbers are bigger so it’s hiding the US decline even though it’s been the exact same as Canada’s decline. It also won’t show the increase as the US goes from 20 thousand cases a day back up to 40 thousand either. So by looking at that graph it’ll look like the US has it under control and are maintaining a flat line, or small increase until it really really doesn’t.

No, here’s what you said (post 70970), which was wrong then and is wrong now too.

It makes it seem like the US didn’t drop at all, when it has by quite a bit since second week of April when it peaked. It’s [USA] gone from around 100 cases per million to just over 60 cases per million, Canada topped out at around 50 cases per million and has dropped to around 12. So they’ve dropped around the same amount, but US is flat, and Canada isn’t.

That’s only because you mistakenly think a drop in cases per million from 100 to 60 (USA) is equivalent to a drop from 50 to 12 (Canada). But it isn’t, the drop in USA is 40% and in Canada is much more at 76%. Just like a drop in cases from 100 to 60 or a 0.4% drop from 10,040 to 10,000 wouldn’t be as significant as a 100% drop from 40 to 0. Log scale graphs show that nicely.

James Soper
James Soper
June 15, 2020 8:30 am

This is because the exponential graph is much more informative, without it they all would look similar, hiding the changes in growth rates that are critical to following a virus pandemic.

That’s bullshit. I’ve already pointed it out.
The numbers are bigger so it’s hiding the US decline even though it’s been the exact same as Canada’s decline. It also won’t show the increase as the US goes from 20 thousand cases a day back up to 40 thousand either.
So by looking at that graph it’ll look like the US has it under control and are maintaining a flat line, or small increase until it really really doesn’t.

freedom_2008
freedom_2008
June 14, 2020 8:52 pm

a claim that Canada ex Montreal+Toronto performed like South Korea. Not that I think such a comparison is meaningful anyway, as I said.

It was not a claim for purpose of comparison (at least not what I thought when I wrote it). I just wanted to point out that two cities with high numbers distorted the curve of the whole (otherwise much less dramatic and more peaceful) country. But sorry for the unintended confusion. 😉

Deb
Deb
June 14, 2020 6:26 pm

Hi Leo, I don’t seem to be able to upvote any comments since the site was updated. Any way to correct this?

totoro
totoro
June 14, 2020 5:25 pm

Thanks, looking for something post-1950 with some privacy and a south facing backyard likely in Oak Bay or nearby for family reasons. I can see why Rithet may be a hard sell at anywhere near assessment, and covid wasn’t really a thing when it was sold in February for a discount. It is surrounded and overlooked by apartment buildings on all sides and is pretty shabby looking with questionable renos. You need a special skill set and interest to maintain and renovate this era of home. We are in no hurry to move but so far seems pretty competitive – might wait until fall.

oopswediditagain
oopswediditagain
June 14, 2020 4:46 pm

BC Assessment

533 Rithet Street, Victoria, BC, V8V 1E4

Total value $1,092,000
2020 assessment as of July 1, 2019

Land $958,000

Buildings $134,000

Previous year value $1,110,000
Land $986,000

Buildings $124,000

533 Rithet Street, Victoria, BC, V8V 1E4

Sales history (last 3 full calendar years)

Feb 18, 2020 $825,000

oopswediditagain
oopswediditagain
June 14, 2020 4:38 pm

Totoro:

We’ve been actively looking in the 1-2 million range and it is not a buyer’s market imo.

Here’s an opportunity for you. It was purchased in February of this year for $825,000. They got the covid discount and are still trying to get out. It is apparently listed for $839,000, now.

533 Rithet Street, Victoria, BC, V8V 1E4

$1,110,000 2019-11-04
$998,000 2019-11-18
$899,000 2019-12-03
$849,000 2019-12-20
$839,000 2020-01-13
$829,900 2020-02-06
Overall Change= -$ 280,100.00
Percent: -25.23

Patrick
Patrick
June 14, 2020 4:16 pm

It was a mistake. The research is very clear. Here is the study of all studies (literally) on it just released by the WHO which confirms this:
https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31142-9/fulltext#%20

Agreed. If we do get an uptick in cases here, I expect that our excellent Dr. Henry changes her mind and makes masks mandatory in public. As you pointed out, the studies have conclusively found that mask wearing reduces infection rates, as summarized in that Lancet review article.

btw, the ferries are requiring masks starting tomorrow (mon jun 15) , and they won’t let you on without a mask, even if you plan to stay in your car. They aren’t providing or selling them, so you may get turned away if you don’t have one. It is a federal agency (transport Canada) requiring the masks, I don’t think BC Public Health would have done this.

Patrick
Patrick
June 14, 2020 4:03 pm

I was saying it didn’t make any sense when the graph is cases/million.

The “per million” part is irrelevant to what type of chart is used, yet you refer to that as if it’s significant. It is the number of viral cases that are best (and typically) represented with a log chart. It is because of the exponential nature of growth in virus cases. Lots of exponential data in science is represented this way – viral cases, sound levels (decibels), earthquakes (Richter scale), pH (acidity) etc. etc.
This is because the exponential graph is much more informative, without it they all would look similar, hiding the changes in growth rates that are critical to following a virus pandemic.

totoro
totoro
June 14, 2020 2:59 pm

I just was pushing back against people that said BC was making a massive mistake by not requiring masks.

It was a mistake. The research is very clear. Here is the study of all studies (literally) on it just released by the WHO which confirms this:
https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31142-9/fulltext#%20 Warning – if you read the research you will run the risk of sounding like a broken record like me.

Our public health officer is excellent, but we got lucky in some ways and it could have been even better with full masking asap. Social distancing in not enough on its own to stop a second wave in the community and one can only hope that the education campaign on prevention measures ramps up if our numbers start to rise. Right now the majority of people are not wearing masks where I shop and there is a lot of misinformation circulating and people who feel like they are being “shamed” for their “personal choice” because it is just a recommendation.

My view is that when your personal choice impacts others risk of getting covid and mask or visor (for those with breathing difficulties) wearing is incredibly easy to do – and available at all major retailers now – London Drugs, Canadian Tire, pharmacies, Staples – this is a public safety issue. Right now our numbers are low but if there is any increase I am in favour making masks mandatory in all public inside spaces until this risk has been managed. Social distancing seems to be enough outside given the research on UV light and its effect on the virus. We should make mask use part of a mandatory public education campaign in the schools come fall imo – like they do in Asia.

Back to real estate. We’ve been actively looking in the 1-2 million range and it is not a buyer’s market imo. It is maybe slightly better than pre-covid for properties with issues. Desirable places are selling quickly.

James Soper
James Soper
June 14, 2020 2:46 pm

For a linear Y scale you’d need to make the graph about 20 times taller to make all countries clearly readable.

Disagree.

Log scale graphs are commonly used in engineering as they show exponential relationships clearly. An exponential growth or decay is indicated by a straight line.

I’m not against log scale graphs.
I was saying it didn’t make any sense when the graph is cases/million.

James Soper
James Soper
June 14, 2020 2:20 pm

Nope. One of the few that wore masks in the grocery store. I just was pushing back against people that said BC was making a massive mistake by not requiring masks.

Only way masks will happen is buy making it mandatory and enforcing it.
Same with Quarantine on Entry.
If this pandemic has taught me anything, it’s this.

Introvert
Introvert
June 14, 2020 2:12 pm

Hi, Leo. I see that paragraphs separated by a line of empty space are prohibited under the blog’s new formatting. Any way to fix that? It would help with readability.

Introvert
Introvert
June 14, 2020 2:07 pm

If we get our masking game up for the second wave we could completely quash it without substantial restrictions.

Speaking of that, does anybody have any suggestions for where to purchase reusable cloth masks or good inexpensive single-use ones? (I don’t want to make my own.)

BC Ferries is now requiring passengers to have a mask in their possession for times when physical distancing is impossible.

Former Landlord
Former Landlord
June 14, 2020 1:36 pm

It’s gone from around 100 cases per million to just over 60 cases per million,
Canada topped out at around 50 cases per million and has dropped to around 12.
So they’ve dropped around the same amount, but US is flat, and Canada isn’t.

Those drops aren’t equivalent. The drop in Canada has resulted in cases at 24% of the peak. The drop in US is 60% of peak. A logarithmic scale shows these trends better. Similarly comparing how well 2 stocks are performing, if one dropped by 40% vs 76% drop. Comparing them by saying one dropped by $40 vs $38, so both have dropped by the same amount, would be misleading.

James Soper
James Soper
June 14, 2020 1:18 pm

With some luck BC will pull out of this with less economic impact than most. If we get our masking game up for the second wave we could completely quash it without substantial restrictions.

I thought you were anti-mask Leo?

I don’t know that our economy does that well if only BC does poorly.

Our major industries are mostly export, or aren’t really going to happen with closed borders:

Agriculture.
Construction.
Film and Television.
Fisheries & Aquaculture.
Forestry.
High Technology.
Manufacturing.
Mining.

Other than High Technology, I see everything there being effected.

Patrick
Patrick
June 14, 2020 12:06 pm

The point still stands: comparing a whole country to another country minus the hot spots is bogus. No matter which two countries are chosen.

Yes I agree. Was just pointing out the Seoul information.

patriotz
patriotz
June 14, 2020 11:52 am

Seoul has only 9% of total South Korea cases CoVid cases, hardly the “bulk”. And less than expected given Seoul is 20% of SK population. The bulk of SK cases (57%) are in Daegu region

Fair enough, wrong hot spot. The point still stands: comparing a whole country to another country minus the hot spots is bogus. No matter which two countries are chosen.

Yes. Here is BC vs ROC and other countries.

Yes it’s clear BC did better than ROC and many countries. But you were responding to a claim that Canada ex Montreal+Toronto performed like South Korea. Not that I think such a comparison is meaningful anyway, as I said.

YeahRight
YeahRight
June 14, 2020 11:17 am

comment image

Patrick
Patrick
June 14, 2020 10:34 am

Seoul … not surprising had the bulk of South Korea’s COVID cases.

No.

Seoul has only 9% of total South Korea cases CoVid cases, hardly the “bulk”. And less than expected given Seoul is 20% of SK population. The bulk of SK cases (57%) are in Daegu region, which is the opposite end of the country to Seoul.

Next time, you might want to do a few seconds of research before posting.

Source: https://en.wikipedia.org/wiki/COVID-19_pandemic_in_South_Korea “COVID-19 cases in South Korea by region”

patriotz
patriotz
June 14, 2020 10:13 am

If we make separate curves: one for “Montreal + Toronto” and one for “the rest of the country”, our (rest of) country curve would likely be similar as South Korea, for this wave.

Seoul is bigger than Montreal and Toronto put together, and not surprising had the bulk of South Korea’s COVID cases. So suggesting Canada ex Montreal+Toronto has done as well as South Korea is really an indication of how badly Canada has done compared to SK.

The Canada ex-M+T curve wouldn’t be similar anyway, because the peak in SK occurred much earlier than in Canada or any part of Canada – as you can see from the graph posted below. End of February.

Patrick
Patrick
June 14, 2020 10:09 am

In Canada, If we make separate curves: one for “Montreal + Toronto” and one for “the rest of the country”, our (rest of) country curve would likely be similar as South Korea, for this wave.

Yes. Here is BC vs ROC and other countries.

http://www.bccdc.ca/Health-Info-Site/Documents/BC_Surveillance_Summary_June_5_2020.pdf

Page 11comment image

freedom_2008
freedom_2008
June 14, 2020 8:58 am

Yes, the Covid case number is not that important as they are not accurate anywhere, but the curves/trends are.

In Canada, If we make separate curves: one for “Montreal + Toronto” and one for “the rest of the country”, our (rest of) country curve would likely be similar as South Korea, for this wave.

QT
QT
June 14, 2020 5:05 am
patriotz
patriotz
June 14, 2020 3:52 am

You can easily fit them all on the same graph. Just go up by 10s.

For a linear Y scale you’d need to make the graph about 20 times taller to make all countries clearly readable.

Log scale graphs are commonly used in engineering as they show exponential relationships clearly. An exponential growth or decay is indicated by a straight line.

James Soper
James Soper
June 13, 2020 9:30 pm

Because it allows you to compare countries with very disparate case rates. The point on that chart was to compare chart curves, not absolute numbers.

When you take out the outliers, no one has very disparate numbers in terms of cases/million in 7 days.
You can easily fit them all on the same graph. Just go up by 10s.
It makes it seem like the US didn’t drop at all, when it has by quite a bit since second week of April when it peaked.
It’s gone from around 100 cases per million to just over 60 cases per million,
Canada topped out at around 50 cases per million and has dropped to around 12.
So they’ve dropped around the same amount, but US is flat, and Canada isn’t.

James Soper
James Soper
June 13, 2020 8:22 pm

May seem “weird,” but log scale charts are standard issue in public health. They should be familiar, even to “armchair “ epidemiologists.

Blah blah blah.
Apparently quoting actual epidemiologists makes you an armchair epidemiologist.
Why would you have a log scale graph on a cases per million? doesn’t make any sense unless it’s used to obfuscate.

James Soper
James Soper
June 13, 2020 8:15 pm

BCREA predicts flat prices for Victoria out to 2021

They also have prices rising in Vancouver this year.
Either they admit they were wrong now or admit they were wrong later is their only two options right?

Patrick
Patrick
June 13, 2020 5:15 pm

On a logarithmic scale? seems weird.

May seem “weird,” but log scale charts are standard issue in public health. They should be familiar, even to “armchair “ epidemiologists.

James Soper
James Soper
June 13, 2020 4:47 pm

Nope.

Sarcasm.

Patrick
Patrick
June 13, 2020 4:24 pm

That’s why we have 0 cases on Vancouver island, because they reduced testing.

Nope. They’ve averaged about 250 tests a day since the start, and for example did 300 on June 11. In the last 30 days that’s about 7500 tests with zero positives. They just don’t have enough people with flu symptoms to test more. In March, April they had lots of people known with CoVid symptoms that weren’t tested, only a few of those in May/June. Zero people in hospital or ICU and no active cases argues against large numbers of undetected cases..
https://experience.arcgis.com/experience/a6f23959a8b14bfa989e3cda29297ded

James Soper
James Soper
June 13, 2020 2:52 pm

More testing equals more cases and if suddenly testing doubled tomorrow cases would increase considerably but really we wouldnt be in a worse position even though people would think it.

Totally. That’s why we have 0 cases on Vancouver island, because they reduced testing.

James Soper
James Soper
June 13, 2020 2:50 pm

As it says in the title. Daily new cases per million people, 7 day rolling avg

On a logarithmic scale? seems weird.

Rush4life
Rush4life
June 13, 2020 2:50 pm

Cases aren’t really all that relevant. More testing equals more cases and if suddenly testing doubled tomorrow cases would increase considerably but really we wouldnt be in a worse position even though people would think it. Deaths is the better indicator and US is down considerably from the peak and so is the world (though I question how accurate numbers are in places like India and Brazil etc)

freedom_2008
freedom_2008
June 13, 2020 1:42 pm

One of the few countries that has not managed to bring the curve down after flattening it

Nice picture. But wondering why there are two curves for Germany?

James Soper
James Soper
June 13, 2020 12:15 pm

One of the few countries that has not managed to bring the curve down after flattening it

What is that y-axis even supposed to be?

patriotz
patriotz
June 13, 2020 11:50 am

There’s already a second wave starting in the US, they were up to 27000 cases yesterday. Texas, California and Arizona seem to be hot spots right now.

Texas and Arizona are really still in first wave – cases have been increasing almost continually since March. Also true for a number of states in that vicinity I think. It looks like a second wave when all cases in the US are added up.

maygowest
maygowest
June 13, 2020 11:09 am

New poster here (although I’ve been reading a while).
CMHC sales predictions don’t seem that pessimistic. Toronto sales were down from pre-Covid levels by 67% in April, 54% in May, so Toronto sales still need to increase quite a bit to get to the 19%-29% drop from pre-Covid levels that CMHC is predicting this year.

April sales were suppressed in part by people having to adapt to the shutdown and that effect is already going away but other impacts of Covid, less travel and economic impacts can be expected to take longer to recover. I hope we end the year with sales close to pre-Covid levels as that would mean things recovered well, but I think too many are relying on government funds and pre-Covid income to be confident of that.

totoro
totoro
June 13, 2020 10:52 am

That’s less than 1% of all owners

Yes, poor word choice on my part. I think it is likely high and 10% of owners who deferred will not be put into a forced sale situation. I also think covid impacts may prompt non-forced sales among those who have not deferred but are worried about job security and price declines.

James Soper
James Soper
June 13, 2020 10:18 am

On sales, I will say there is zero chance their prediction will be correct. Q2 sales will be the bottom and they will rise after that, not keep declining until Q4.

This seems predicated on there being no second wave.
There’s already a second wave starting in the US, they were up to 27000 cases yesterday. Texas, California and Arizona seem to be hot spots right now. The US won’t lockdown, that much is clear, but people will stop going out regardless of what their government is telling them if their hospitals are full and people are dying in the streets. Regardless of whether we get a second wave or not, our biggest trading partner doing badly is going to have an economic effect. Not to mention the majority of sales in this country are in 2 provinces that are harder hit than here.

patriotz
patriotz
June 13, 2020 9:08 am

I suppose I’ve never understood the importance placed on housing sales numbers vs housing prices.

 
CMHC cares about sales volume because that’s where its revenue comes from.

Patrick
Patrick
June 13, 2020 8:54 am

On sales, I will say there is zero chance their prediction will be correct. Q2 sales will be the bottom and they will rise after that, not keep declining until Q4. I have no prediction on prices per se, other than what I’ve written about not being that bearish. The future is too uncertain. However CMHC’s big gaffe on sales predictions does not exactly inspire confidence in the rest of their forecast.

 
OK, backing off the “price” part of the objection to the CMHC prediction seems to negate the whole point. Because who (other than RE industry) cares about CMHC prediction about number of sales?
 
I suppose I’ve never understood the importance placed on housing sales numbers vs housing prices. If I asked you to predict where the stock market will be a year from now, would you think I was talking about average volume of shares traded per day?
 
Yes I know, we are told by “experts” that home sales are such a great predictor of prices, and lower sales mean lower prices. Except when they don’t, like right now with a collapse in sales and no change in prices, so maybe they’re not such a great predictor of prices after all. 
I think the important prediction on most people’s mind is where housing prices will be a year from now. I think they’ll be 10-30% lower, depending on what’s happened with the virus. I have no idea where sales will be. MOI is a better predictor and I expect it to be way up.
 
 

patriotz
patriotz
June 13, 2020 8:45 am

I was surprised because all I have been reading on the forums Is the world is ending

 
Nope, just the biggest economic downturn since the 1930’s. But we made it through that didn’t we?

Introvert
Introvert
June 13, 2020 6:35 am

I was surprised because all I have been reading on the forums Is the world is ending

 
Always take the pessimism on this blog with a grain of salt.

Patrick
Patrick
June 13, 2020 5:40 am

Future CMHC market outlooks will be amusing. They have painted themselves into a corner with that last market outlook which made no sense. Admit they were wrong now or admit they were wrong later is their only two options.

CMHC forecast is for Canadian home prices to decline by 9-18% from pre-Covid in the next twelve months (to June 2021), and for sales to decline 19-29% from pre-CoVid in the next 6 months.
 
Are those the predictions you find laughable (“amusing”) and certain to be wrong (“wrong now or wrong later”) ? If so, what are your predictions?
 
 https://assets.cmhc-schl.gc.ca/sites/cmhc/data-research/publications-reports/housing-market-outlook/2020/housing-market-outlook-canada-spring-61500-2020-en.pdf?rev=5288445e-bf20-4289-aa36-9330383bc4fc
 
“Our [CMHC] forecasts indicate that the average MLS® price will decline by 9% to 18% from its pre-COVID-19 levels before beginning to recover in the first half of 2021, 
 
[Existing home] Sales are likely to register a decline in the range of 19% to 29% from their pre-COVID levels before beginning to recover in late 2020. “
 
 
 

totoro
totoro
June 13, 2020 5:22 am

Good point. Although for the lower wage earners who this has disproportionally affected so far, doesn’t it stand to reason that they’ll have less savings to fall back on than average? Also first time home buyers were encouraged to milk their RRSPs too for a downpayment.

Lower wager earners are less likely to own in Victoria and it would depend when they purchased and how low their mortgage is currently imo. They also still have had to qualify for a mortgage so if the entire household income is 50k they won’t qualify for more than a 280k mortgage – which is currently $1021/month – cheaper than rent in most places although maybe slightly ore with strata fees and property taxes (est. an additional 300-500/month).
First time recent home buyers may be at higher risk if they used their savings to buy – which is common. I would expect the government to provide some assistance – hopefully with stringent criteria instead of after the fact enforcement.
As always, people who have to sell will probably be those who are experiencing divorce, addictions, and permanent job loss that they don’t believe they will recover from such as is caused by disability, but now imo also by covid in some circumstances ie. older workers who will have difficulty finding new jobs and business owners who may need to declare bankruptcy and provided a personal guarantee.
I’d guess that an additional 10% of owners will not have to sell because of Covid impacts once deferrals end. I think the number will be lower. I’d expect more Airbnb units to come onto the market though.

Sideliner
Sideliner
June 12, 2020 10:08 pm

“You usually don’t sell your house as a first step because of transaction costs unless you believe you won’t be able to recover. The average amount held in RRSP plans was 101,155 in 2018 and 42,000 in a TFSA.”

Good point. Although for the lower wage earners who this has disproportionally affected so far, doesn’t it stand to reason that they’ll have less savings to fall back on than average? Also first time home buyers were encouraged to milk their RRSPs too for a downpayment.

totoro
totoro
June 12, 2020 9:37 pm

That would mean the 90% are made up of a combination of households who took the deferral as a precaution and those people who get their job back with enough hours to cover the mortgage.

 
Or people have savings in a combination of both in registered and unregistered accounts and equity they can access. And/or family help. And/or they rent out a room. And/or rent the whole place and move in with the folks until this passes. And after CERB there is EI for those who qualify and some incentive programs for employers to hire.
 
You usually don’t sell your house as a first step because of transaction costs unless you believe you won’t be able to recover. The average amount held in RRSP plans was 101,155 in 2018 and 42,000 in a TFSA.
 
 

Viclandlord
Viclandlord
June 12, 2020 9:33 pm

Rents Dropping

We are a small landlord ( 10 units ). I can say that we have managed to get through this so far without one late or missed rent payment. We also offered all of our tenants 200$ off of April’s rent with no questions asked, one tenant took us up on that offer and the rest thanked us but said they were fine.

One tenant gave us one months notice because they bought a house and we couldn’t be more happy for them 🙂 we listed the unit a 2/bed & Den basement suite on May 29th, we had the lease signed @2100+utilities on June 3. We most likely could have raised the rent with the amount of interest we had.
I was surprised because all I have been reading on the forums Is the world is ending and rents are dropping fast with all the short term rentals hitting the market.

It will be interesting to see what happens in the next few months, as usual half the inquiry’s we had were from out of province Alberta or Ontario…

Sideliner
Sideliner
June 12, 2020 6:54 pm

Thanks Leo. The ‘10% of current owners with deferred mortgages will end up needing to sell’ feels way too low. That would mean the 90% are made up of a combination of households who took the deferral as a precaution and those people who get their job back with enough hours to cover the mortgage. Seems like a overly optomistic assumption to me. I read their analysis and didn’t see how they arrived at that number.

Between the disparity of employment numbers, optimistic mortgage deferral hopes, and hurting airbnb/residential property investors, my guess is that the estimate of 1300 new listings is 3x-5x too low.

Keeping an eye on the Vancouver daily stats (zealty) where inventory is building quickly now. Pent up supply incoming.

Rush4life
Rush4life
June 12, 2020 6:00 pm

Leo are we still seeing a more listings than sales?

patriotz
patriotz
June 12, 2020 4:22 pm

Its should also be noted that Leo’s tables are based on the occupation of the “primary household maintainer”. Most home owning households have two people in the work force, and a still-employed engineer may be married to a now-unemployed service industry worker or owner of a now-bankrupt small business. Not as bad as both losing their jobs, but if both their incomes were needed to buy, it matters.

Sideliner
Sideliner
June 12, 2020 4:08 pm

Would you not need to include some percentage of people who haven’t lost their jobs but have had their hours cut? For households where they rely on 2 full time incomes to make ends meet, a cut in hours may force some more folks to sell.

A CBC article I read recently said the millions more have had their hours reduced.

patriotz
patriotz
June 12, 2020 3:29 pm

All in all, it will be uncertainty from the deferrals and lack of confidence that will push people away from being active RE market (holding in place) no matter the strength of income or belief in their job security.

 That’s what a lot of people – including myself – thought would happen after 2008. IMHO as long as RE is seen as a safe haven, people will keep putting as much money into it as they can. The only thing that will change that is a crash.
 

Baba Yetu
Baba Yetu
June 12, 2020 2:19 pm

Assuming peak unemployment in higher wage sectors is a major assumption. I think a smaller “second wave” of high wage unemployment is more likely than not. If so, then a manageable supply increase runs into soft demand in the fall too.

There are way too many uncertainties still.

totoro
totoro
June 12, 2020 1:40 pm

but I have started putting significant effort in preparing for the post Covid tax scenarios and where money will need to positioned in ordered not to be clawed away

We also have been considering this. We sold on property partly out of concern for future capital gains tax rate increases but it is likely we will end up buying a more expensive primary residence – seems unlikely this will become a tax target however reasonable it might be to remove some of the capital gains exemption.
 

Umm..really?
Umm..really?
June 12, 2020 1:33 pm

What do you think? Will the deferral cliff that the CMHC is concerned about have a big impact in Victoria?

I believe the deferral cliff is likely to have more of an indirect impact on the Victoria market. As much as all markets are local for RE and Victoria has many factors that differentiate it from others in Canada. The risk RE in Victoria has, is getting caught in a national mindset of a recession and the possibility of more people becoming uncomfortable carrying large debt levels as the see others go under. Yes, there is insulation with higher income and stable employment in demographic owning SFD, but people can become risk adverse and protective rather quickly that may lessen the desire to perpetuate increasing debt in the chase for housing. I don’t know about others, but I have started putting significant effort in preparing for the post Covid tax scenarios and where money will need to positioned in ordered not to be clawed away. If others are doing this as well, it may be taking some funds away from real estate investment to be used in other areas before opportunities are closed off by taxation. All in all, it will be uncertainty from the deferrals and lack of confidence that will push people away from being active RE market (holding in place) no matter the strength of income or belief in their job security.

Introvert
Introvert
June 12, 2020 11:34 am

I read that the government is concerned that the longer programs like CERB are in the place, the harder it will be to eliminate them, as those programs become increasingly normalized.
 
I personally think it’s time for a Universal Basic Income!

totoro
totoro
June 12, 2020 10:33 am

if a serious and prolonged second wave occurs 

 
The federal government will need to provide some additional assistance should this occur to stop the greater costs associated with extended unemployment for otherwise employable people – imo.
 

LeoM
LeoM
June 12, 2020 10:27 am

If the ‘pandemic’ is over then the 13% number is high but if a serious and prolonged second wave occurs then the number is too low.

YeahRight
YeahRight
June 12, 2020 10:26 am

comment image

totoro
totoro
June 12, 2020 9:56 am

13% seems high, and I’d think that you’d also see an effect through all the property price brackets. It is not just about losing a job at the low end although these homeowners may have fewer resources to tide them over, some people at the higher end may be ex. business owners affected by covid or concerned about how long the recovery will take. People may also be concerned about projected price drops and that may bring more homes onto the market as well.

Patrick
Patrick
June 12, 2020 9:49 am

Nice to see that Germany has only 138 CoVid cases today.
Since Germany population is 15X BC, thats a similar number to B.C. per capita.
 
And Germany has opened up…
 

 
Hopefully BC sees similar results as we continue to open up.
 

Barrister
Barrister
June 12, 2020 9:40 am

Introvert: Doubt that will be another lock down, but I would point out that neither Vancouver or Victoria have actually even experienced the first wave of Covid. I suspect that BC is like a dry stack of kindling waiting for a few sparks.

Barrister
Barrister
June 12, 2020 9:37 am

I am running your numbers through my head and something seems to be missing (possibly just my brains). Must be all the rain this morning.

Introvert
Introvert
June 12, 2020 9:34 am

BTW, Leo. After the latest blog changes, when one uses a blockquote it automatically blockquotes everything one writes underneath the initial blockquote (see Soper’s comment as an example)
 
And the only way to avoid this is by editing one’s comment and manually removing the unwanted blockquoting, which is tedious and annoying.
 
 

Introvert
Introvert
June 12, 2020 9:30 am

With the worst of the lockdown behind us,

 
With the worst of the first lockdown behind us…
 
 

James Soper
James Soper
June 12, 2020 9:13 am

What do you think?

 
I don’t think that we’ve seen peak unemployment.
I think that this is just the first wave.
 

Nate
Nate
June 12, 2020 9:12 am

This analysis looks about right to me. I still think there’s a secondary concern with rental suites, as rent prices drop income from suites drop and that will also nudge some people into forced selling. Likely a fraction of the 1300 you’re predicting, but I think still big enough to be a factor.