New listings drought while out of town buyers stay high
Buyer origin data is out for the second quarter, and we’ve seen a continued growth in the percentage of buyers from out of town. The proportion of all deals year to date rose to 26.4% from 22.9% in 2020. It’s not at record levels (that was 28.4% in 2016) but it’s substantially elevated from the roughly ~20% average between 2004 and 2012. Remember that out of town buyers are one of the categories of pure demand and any increase has a much bigger effect on the market than an increase in buyers that already own locally (i.e. market turnover).
Zooming in to quarterly data, the impact of the pandemic is abundantly clear, with a very sharp uptick in out of town buying activity starting in Q3 2020.
Some have attributed this to our low COVID case numbers but I doubt any significant number of people made long term living decisions based on temporary conditions during a once in a lifetime pandemic. More likely that the increase is from early retirees, people cashing out of Vancouver due to that market having gained steam again, and or newly remote workers no longer as strictly tied to their jobs. I believe the latter may swing back more than many expect, but it’s clear that many had made the bet that the flexibility will remain.
I’ve mostly talked about the increase in buyers from the lower mainland on this blog. It’s not that the numbers of out of town buyers from other regions didn’t also increase during busy times in the market. For example, it looks like we’re on track for about 900 buyers from other provinces this year, which is about on par with 2016 and 2017. But as a ratio of all out of town buyers, it’s those from the lower mainland that have really gained ground. Before 2016 they were about a quarter of out of town buyers, but since then they’ve been pretty consistently 40%.
In total it’s been about 2000 out of town buyers a year for the last 5 years, while previous to that it was an average of just over 1500 per year. That means 70-80% of buyers are still local, and constraints like affordability remain key to the market. However it’s certainly possible that the in-migration from buyers primarily into the detached market is one of the reasons that prices have been so sticky even at high months of inventory. There are an average of 4000 single family home sales every year in the region, which means it’s likely that between a third and half of sales in that segment are going to out of town buyers.
Meanwhile the listings drought continues, along with the somewhat unprecedented synchronization between markets as Vancouver’s new listings are on track for the slowest July in 20 years. Compared to 2019 levels which we were closely tracking up until the start of July, we are now missing about 200 new listings for July to date.
That means active inventory remains stuck at the effective lower bound which we’ve been bouncing around all year. That’s 49% lower than this time last year, but that was already a pretty low year for inventory. Compared to 2012 we have 74% or 3800 fewer listing on the market.
| July 2021 |
July
2020
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 253 | 435 | 621 | 979 | |
| New Listings | 325 | 590 | 794 | 1480 | |
| Active Listings | 1391 | 1417 | 1384 | 2653 | |
| Sales to New Listings | 65% | 74% | 78% | 66% | |
| Sales YoY Change | -12% | -14% | -15% | ||
| Months of Inventory | 2.7 | ||||
Sales have slowed and we should see another drop in activity with the July numbers. There’s also a small increase in the average time to sell in July for both condos and detached properties, while the average sale price to list price ratio for houses has steadily dropped from 103.6% in March to 100.0% in July. That’s largely due to more realistic list prices though as sales to assessment ratio has not budged much in that time. The market is slowly losing steam, but the emphasis here is on the slowly and we are still a very long way from a balanced market.
That’s how I see it. Depends on the condition of it currently. Is the paint literally peeling from the walls? Then I’d repaint. Windows moldy and falling apart? I’d replace them. But decent shape original windows in a house that’s also mostly original? Maybe just leave it.
A more scientific backing that in general the return on renos is negative, especially when they are major renos.
“The second result is that there is on average excessive investment in improvements by optimistic homeowners, which can be measured by either the recoup value, defined as the difference between resale value of improvements and construct costs, or the recoup ratio, which is the resale value over the construction costs. We show that the expected recoup ratio is less than one on average and the expected recoup ratio is lower the higher the level of home improvements. This result is consistent with the view among professionals that such activities are on average not profitable.”
https://doi.org/10.1016/j.jfineco.2013.11.011
July roundup: https://househuntvictoria.ca/2021/08/02/july-new-listings-disappear-and-constrain-sales
Do you know what show or movie they were filming?
Kenny G. – If you are at all interested it is worth following up. We got one of those letters recently. Didn’t bother following up because I thought – “they must send out dozens of these letters”. Imagine my surprise when a neighbour’s house was chosen as a main location and multiple other neighbours got some money as well for things like using a storage shed or parking a cherry picker or some lights on their property. Being the primary house would not have worked for us (they fully take over you place and you move out), but they had other houses that were used for just some exterior shots.
The main house on our street did pretty well. I don’t know how much they got paid but they got a complete interior paint job, partial exterior paint job, sod repair, new fencing on one side of property and a handful of other minor repairs/upgrades. Someone on our street got 500/day for a shed plus some driveway storage.
Agreed. And it already seems to be happening.
Up island this weekend. Super busy everywhere. Every place at capacity, medium heavy traffic all the way up and back.
I think it could change now, some of those communities are getting big enough to support more jobs + remote workers. It will also get increasingly difficult to build new housing around Victoria, but tons of room in the mid island.
The headline doesn’t really match the stats in the article. Small reduction in sales, still a busy July historically speaking. Still super low inventory. Much the same as here.
Point Grey mansion sets record in Greater Vancouver with $42-million sale
https://theglobeandmail.com/real-estate/vancouver/article-point-grey-mansion-sets-record-in-greater-vancouver-with-42-million/
I’m not seeing this on the island. Our inventory is still incredibly low and anything halfway decent goes quickly in a bidding war.
From: https://www.straight.com/news/vancouver-real-estate-sales-of-detached-homes-tumble-in-sign-of-covid-19-driven-mania-finally
Not sure of the quality of the analysis, but something to see a change on narrative creeping in. Seems to missing seasonally adjusted numbers and consideration of lack of selection. However, more and more support for housing being past peak.
Kenny G- Don’t get too excited, they send out dozens of these letters. I know someone in Winnipeg who rented their business location for a Hallmark movie. Granted, loss of income had to be factored in, but they were happy with what they were paid, I never got a hard number, they thought it might get more exposure for their business although it was completely changed for the shoot. You could be looking at $5000-10,000 for a month, a lot cheaper than building a set. Plus relocation costs.
Anyone know what the going rate is for a film crew to use a house in film. While we were away we received a letter from a location scout expressing an interested in using our house for a hallmark Christmas movie at the end of this month
Boy if I was a Calgarian mulling retirement on Vancouver Island, these more frequent and long smoky summers would surely be influencing my decision-making.
https://twitter.com/YYC_Weather/status/1422164776038318083
The majority of houses I’m outbid on go unconditional. Some are surely paying in cash and others I guess are just taking the chance it’ll all go through.
Gone are the days when banks threw money at investors. I thought it was my age when I couldn’t get $300,000 to buy a commercial building in Winnipeg worth twice that. Many investors in real estate, especially self- employed business owners, have to go to alternative lenders and pay 8-13%. Those 2% and less interest rates are not given out like candy. I know a retired mortgage broker who always complained that it was getting more and more difficult to process each application, requiring hours of amassing paperwork. The delays were at least weeks. It is worse now. I can’t see people putting in unconditional offers without cash in hand. Even being pre- approved means nothing, they still put you through the wringer.
+1, you need a lot of income/documentation for rental properies from my experience especially if a corp. I’ve asked for mortgages from TD that are 1/5 the value of my RSPS/TSFA (also with TD Waterhouse) and it’s taken a month plus and 50 documents later to process. Not to mention cash flow positive with a conservative rental figure.
The banks have been tightening up on lending tons of cash for investment properties for several years now. I can’t see many people having the income the banks like to see to lend millions of dollars, even taking into consideration rental income. These investors have deep pockets.
Ultimately, you are competing with the renters.
Sure they would. They would just be paying a lot less for them. In any case, you can get a 4.56% yield on Telus stock right now, and that’s tax advantaged. I don’t believe at all that people are buying investment RE because they have a lot of spare cash lying around. I think they’re borrowing like anyone else.
At the least I think the government should disallow tax deductibility for operating losses on investment properties. If you’re running one you’re a speculator by definition.
“A Vancouver lawyer has been suspended for three months after effectively allowing an overseas client to use her firm’s trust account as his personal bank account, letting him deposit millions into the account.
Florence Esther Louie Yen, 52, who practices predominantly in the area of real estate conveyancing, was found to have committed professional misconduct in relation to a number of transactions involving a client only identified by initials in a decision of a Law Society of B.C. disciplinary hearing panel.
Over a period of 22 months, deposits of $1,275,000 in Canadian funds and US$9,950,000 were made by the client into the trust account of Yen’s firm.
It was determined that only US$1.5 million was used for legitimate transactions connected to four of the client’s files.
The funds deposited came from a variety of sources including Panama, Singapore and a Singapore bank via Luxembourg, yet Yen made no inquiries about the source of the funds.
…..During the hearing to determine whether she’d committed misconduct, she maintained she’d done nothing wrong. But at the disciplinary stage of the proceedings, she acknowledged the misconduct, respected the decision and apologized.
The Law Society sought a suspension of at least six months. Yen argued that an appropriate penalty was a significant fine in the range of $20,000 to $25,000 or, in the alternative, a shorter suspension than that sought by the Law Society.”
She got three months suspension and had to pay 35k. And she is still keeping that person as a client. Also all the funds have already been disbursed. Whoops.
https://vancouversun.com/news/b-c-lawyer-suspended-after-millions-deposited-into-her-firms-trust-accounts
If people were getting 4-5% on their money in the bank, they wouldn’t be buying investment properties. The low interest rates also translates into low mortgage rates, so I guess the main culprit is super low interest rates driving prices higher. The stock markets would also come down quite a bit. What or who will institute higher interest rates? Would that cause economic chaos? We’ll probably find out one day.
Unfortunately they will get that rent. I feel the pain of being outbid by investors. I’m also constantly seeing houses that I don’t win being rented out top and bottom shortly after they sell. This is the first time I’ve felt investors need much stricter regulations as they’re taking homes away from families during a housing crisis. I know some people like to go on about how we should be thankful for the rentals they provide but I don’t want to rent from them. I want to buy and having to compete with them is brutal.
People are getting those rents.
Here are some ultra affordable housing that can be had for people who find Victoria SFH unaffordable.
https://www.realtor.com/realestateandhomes-search/East-Cleveland_OH
B.C. housing projects run up against suburban opposition
The issue goes beyond metro Vancouver IMHO.
Growth projection from 2021 to 2041:
49.53% Sooke
1.00% Parksville
Growth projection from 2021 to 2041:
0.23% Oak Bay
British Columbia – Population Projections — https://bcstats.shinyapps.io/popProjApp/
Growth projection from 2021 to 2041:
28.94% Greater Nanaimo
49.53% Western Communities
To the folks that bought houses that I was considering purchasing and now I see for rent between $3000 and $5000 per month now…. Best of luck to you on that.. lol…
Re disaster talk, tsunami risk in Victoria is not guess work. It’s been heavily evaluated by experts and tsunami risk is relatively low for most of Victoria. https://www.victoria.ca/EN/main/residents/public-safety/emergency-preparedness-victoriaready/tsunami-preparedness.html
Our earthquake resiliency leaves a lot to be desired though. Our rubble will largely be spared from a tsunami.
It always has been this way for at least 4 decades, but the growth north of the Malahat hasn’t match the CRD during the time. IMHO, it won’t be any different now because growth is base on jobs and services.
https://globalnews.ca/news/8074879/canada-labour-shortage-worker-incentives/
It look like the heat on housing is not going to died down anytime soon, because employers are offering financing to their employees.
Same. I think we’re going to see rapid growth in the mid island, Nanaimo to Comox. In many ways parksville is nicer than Victoria
Yikes. Probably another inventory drop to end the month.
Yes, and I think it has lots of appeal to all generations.
I think COVID has moved much of society a lot closer to what you are describing… namely focusing on “travelling, recreating outdoors, and doing more of the stuff they love.”
In the blink of a “COVID” year, most people capable of working from home are now working from home. It happened instantly because the government ordered it to happen instantly with the lockdowns, and I think that’s permanent.
That’s a huge, sudden transition, from office to “home”. Because “home” is wherever you are, and that can fit right into what your friends are looking for, namely traveling, recreating outdoors and doing stuff they love.
If your friend, the accountant, told you they travelled through Alaska for the last 8 weeks, and saw the sights, and kept on working for the clients back home, nowadays no one is going to be surprised. If they need money, what’s so bad about them spending 6-8 hours a day sitting wherever they want at a screen. Me and the people I know are staring at a screen much of the day, regardless of if they are working, retired, or traveling. What an incredible luxury we have with technology to be able to be flexible in how we balance those.
We won’t thank Covid-19 for much, but perhaps we’ll thank it for showing us that “working” or “enjoying life” isn’t an “either/or” proposition. We can “have it all”, by “working” and being “home” doing what we love, and society keeps on functioning.
Of course that doesn’t apply to everyone, just people that are able to work from home. But I notice recently that the jobs requiring physical presence (restaurants etc) are the ones with the acute job shortages. And maybe that’s an encouraging sign that those workers will be valued higher in the post COVID economy.
https://www.timescolonist.com/news/local/victoria-exploring-ways-to-encourage-construction-of-townhouses-duplexes-1.24347465
Looks like they’re trying to push for all single family zoning to accommodate upto a 4-plex without a rezoning.
Would change things considerably.
Some Chinese shun grueling careers for ‘low-desire life’
https://www.latimes.com/world-nation/story/2021-07-07/some-chinese-shun-grueling-careers-for-low-desire-life
This article was in the Times Colonist print version this morning.
I’m a millennial and can think of a couple people I know who might fall into the North American equivalent of the “low-desire life.” They are priced out of SFH-ownership and shun what it would take to buy. Careers that pay handsomely don’t appeal to them because of the stress and time involved — and because earning big bucks isn’t necessary if you don’t have big debt. Instead, their focus seems to be on travelling, recreating outdoors, and doing more of the stuff they love.
This approach also has to appeal to lots of Gen Z-ers, I would think, since they are arguably even worse off than millennials.
As Patrick has pointed out, prices in the Okanagan are pretty high. I would expect a bigger influx to areas north of Victoria where prices are less expensive and that this will become an even more popular retirement destination for people from Alberta who had been considering the interior.
Some BC interior prices are similar to here… Greater Victoria prices are 5% higher than Central Okanagan. And Westshore (Langford) is 10% cheaper than central Okanagan . Of course prices in other parts of BC are lower. (Prince George $450K).
Central Okanagan (Kelowna) SFH benchmark $829K (March 2021)
greater Victoria SFH benchmark $868K, Westshore $746K (March 2021)
https://www.kelownanow.com/watercooler/news/news/Level_Up_Central_Okanagan_Business_Report/Record_high_house_prices_in_Kelowna/
“In March, the benchmark price of single-family homes sold in the Central Okanagan was a record high $829,400, up a staggering 23.4% from $672,000 in March 2020.”
https://www.vreb.org/media/attachments/view/doc/stats_release_2021_03/pdf/stats_release_2021_03.pdf
Greater Victoria SFH benchmark price 868,700, Westshore $746,000”
To where? They can’t afford the coast. You might well see more Albertans, who are the primary outside demand for the Interior, staying put. They can’t afford the coast either.
“… and if looks like the BC ban on evictions ended July 10, 2021 and landlords can evict tenants for unpaid rent. Does anyone know if this affects many people here in Victoria?”
Not likely to have much impact at all. The eviction ban ended last September, and if you were given a repayment plan and didn’t make payments as required you could be evicted…so most covid-related evictions/midnight runs have already happened.
That’s actually pretty crazy that the eviction ban in A-merica is just ending now. And landlords think they have a rough time in BC…
I don’t know about weakness there, but I do believe we will see people with health issues or concerns about the smoke moving out of the interior. Too many years in a row of poor air quality for consecutive months in the summer. I also have concerns about climate change and the impact overall on that area in terms of drought/heat. Grateful to have had so many wonderful summers there in the past, but it just isn’t the same anymore.
As for an earthquake, that is our big risk here. San Francisco values recovered very quickly after each major earthquake. I’d expect the same here but it is a financial and life-threatening risk for those of us living through it.
Depressing article about expected evictions in the USA…
https://www.cnn.com/2021/07/30/homes/end-of-the-eviction-ban/index.html
“The eviction ban is ending, putting millions at risk of losing their homes”
… and if looks like the BC ban on evictions ended July 10, 2021 and landlords can evict tenants for unpaid rent. Does anyone know if this affects many people here in Victoria?
https://www2.gov.bc.ca/gov/content/housing-tenancy/residential-tenancies/covid-19
“Rent repayment plan
Effective July 10, 2021, the requirement for landlords to give their tenants a repayment plan for unpaid rent or utilities due between March 18, 2020 to August 17, 2020, is repealed.
All unpaid rents and utilities should be repaid by July 10, 2021, unless the parties agreed to an alternative arrangement to extend payments beyond July 10, 2021.
If there are unpaid rent or utilities and there is no repayment plan in place to extend payments, a landlord may issue a 10-day notice to end tenancy for unpaid rent or utilities.”
I wonder if we’ll start seeing weakness in the interior real estate market due to the smoke. Would just increase demand here, although I wonder if we’re only a few years behind on the forest fire front as the island dries out.
re natural hazards. Victoria is actually pretty good. Few tornadoes, no hurricanes, minimal lowlying areas to flood, icestorms unlikely, heat waves rare, seasonal drought ends with winter rains.
Earthquakes are a real concern. At some point either one of the faults right underneath us will go significantly (M7.0) or the Cascadia Subduction zone will let go (M8 or 9). Both would be similarly destructive in Victoria with major destruction and some loss of life. Probability is not that high in your lifetime, but could happen anytime.
Forest fire is a threat to places like Highlands and Metchosin
Plenty of Fairfield is on solid ground, some even directly on bedrock. There is a worrisome band through the middle of Fairfield where soils would be a concern in an Earthquake.
Check out the maps here http://cmscontent.nrs.gov.bc.ca/geoscience/PublicationCatalogue/GeoscienceMap/BCGS_GM2000-01.pdf
On the Northern Junk public hearing. CEO of Devon properties called in to give the current rental stats.
They own 6000 purpose built rentals in Greater Victoria. Currently 18 of them are vacant, for a vacancy rate of 0.03%
If there was a major earthquake we’d end up looking like Christchurch. Most of Fairfield would sink into the ground, and you’d be buying something you could no longer insure.
Fair enough. There’s a correlation there for sure.
We need to replace our roof. We got some quotes back in May and they weren’t dramatically higher than normal. However, because of the price of lumber at the time, anyone who needed to replace or get plywood sheeting was getting clobbered. Not sure whether that’s still true today; I know the price of wood has settled down a bit since then.
Luckily, we have existing plywood sheeting that’s not in need of replacement.
The other thing we noticed is that most roofers are super backed up. We signed on the dotted line in late May and the guy said that we are probably looking at an August installation.
What would a new roof cost these days with such an increase in building supplies? What if you had a 1600 square foot rancher with an attached 23X22′ attached garage?
If you want to do the new owners a favor, get the electrical system updated to a 200 amp panel. You can’t go wrong improving mechanicals. I’ll repeat myself and recommend a nice new roof. Windows, paint, cupboards, flooring, etc… are all very personal choices, don’t waste time, it might all get ripped out.
One problem with doing even a moderate amount of renovations is the length of time it could take and the high costs these days. Most buyers can recognize shoddy work and materials. Who’s to say what you do will be what the new owners would even remotely want. People are primarily buying a piece of land and the structure can be replaced or renovated properly. Don’t waste your time or money, it’s not worth the aggravation, most of the value is in the lot.
Should you sell a house “as is” or should you renovate then sell.
The answer is like most things in life…. it depends.
Depending on the current condition of the home you might want to limit your renovations to paint and floor coverings. They are usually the least expensive when it comes to renovations. If you spend too much then while the home increases in value you run the risk of lowering your net profit after factoring in the cost of the renovation.
If your home has a lot of deferred maintenance then you might be limiting the amount of prospective purchasers. First time house buyers are typically cash poor. They can’t afford to buy and renovate and are looking for homes that they can finance to the hilt. If you have a lot of deferred maintenance in your home then you might want to consider doing more than paint and floor coverings and look at items that need replacing in the near future of say within five years, such as windows, roof, appliances, furnace, etc.
A home that is a “turn key” usually gets a bit of a bump in value of a couple of percent, as long as the renovations are recent. If you chose to renovate and live in the home for the next six months or more, then you lose that bump.
To help answer the question regarding appraisals and home improvements here are my thoughts, as an appraiser. By upgrading an older home you are changing the depreciation of the home. The land value stays the same. For example if you have an original 1960’s house that exhibits 40% depreciation from its replacement cost new by installing new windows that would reduce the depreciation to 35%.
2,000 square feet x $275 per square foot = $550,000 (cost to build new)
less 40% depreciation or $220,000 = $330,000 (depreciated value of house)
Upgrade with new windows
2,000 sq.ft. @$275 = $550,000
less 35% depreciation = $192,500
Depreciated value of home with new windows is now = $357,500
The value added for installing all new windows in a 2,000 square foot home would be the difference ($357,500 – $330,000) or about $27,500
And just for giggles. What if you went crazy on the renovation and stripped the home down to studs, and upgraded the exterior to the point that you had an almost new house? Then that would reduce the depreciation down to 5% since the home is not 100% new and would be competing with new homes in the market.
Then the difference would be $522,500 – $330,000 = $192,500 value added.
The problem is if you can keep your actual costs of the renovation under $192,500 or say under $100 a square foot. That’s not easy to do today because of the high cost of labor and materials. You would have to be willing to do a lot of the labor yourself. Then you could bring the cost of the renovation down by half or three quarters but it will take you longer to do the renovation and you are not paying yourself for time and labor.
If prices dropped precipitously in the aftermath of a major earthquake I bet many people would take advantage of the once-in-a-lifetime massive discount on Victoria RE — similar to when the stock market drops 30% the most disciplined/savvy investors “buy the dip” rather than freak out and sell.
Another good read: Times Colonist. Insurance study warns Canadians unprepared for carnage of next big earthquake.
“Heritage Buildings in downtown Victoria would crumble. Victoria would be ravaged by fires and homes in Esquimalt, Gordon Head and Cordova Bay would be destroyed.”
Don’t put all your eggs (real estate) in one basket.
Re- Natural disasters: Someone was thinking when they settled Victoria on the southern east side of the Island. I’m no earthquake expert but I think Victoria is in a sweet spot when it comes to a major quake and tsunami. I might be wrong. I do know that I would never invest in Southern California or San Francisco areas, there is a 100% probability that something will happen in the next 50 years or less. Also, the fires and drought conditions do not bode well for the Southwest U.S. Any educated person should realize that given its history, Victoria is in a relatively safe place. Rising sea levels might be a problem in the future. It definitely is for Miami and other coastal areas. Having said all that, I’ve always been reluctant to buy waterfront property.
Indeed, Victoria IS different than the rest of the country. Google: Capital Daily, Sept. 15,2019. “The Most Doomed City in Canada”
Unfortunately, I guess we will find out one day.
Not an obvious wobble in Christchurch in 2011, although they are now on the lower end of values in the country.
Selling out: America’s local landlords. Moving in: Big investors
https://www.reuters.com/article/usa-health-landlords/insight-selling-out-americas-local-landlords-moving-in-big-investors-idUSL8N2P332H
To answer your question, how well has California real estate done after any one of its — sometimes extremely damaging — earthquakes?
To change the subject a tad. People on here were talking about ever increasing forest fires in the interior resulting in purchasers/investors preferring to buy real estate in the Victoria area in order to get away from all the smoke.
There was a powerful M8.2 earthquake of the coast of Alaska last evening. It was the strongest occurrence since 1964. No after Tidal Wave event yet anyway but a couple of strong after shocks.
It is not “if” it’s “when” a big one will hit this island. Say if this one in Alaska had caused a horrific tidal wave and done much damage to a community/communities on Vancouver island. What then? Would that scare enough investors to back off and purchase in a “safer” zone? I would think so.
Why does that sound bad? Sounds fine to me, and I never said it’s bad, that is you creating a straw man. I’m presenting the data which show a correlation between affordability and price gains to prove that affordability matters. That’s it.
Patrick, what if your 5 year window was between 2008/9 and 2013/14?
Even just the past five years!
As I see it, by inflation adjustment of prices, you are not correcting a distortion, you are introducing a distortion, since the investment under consideration is highly leveraged (affordability using an 80% mortgage is 5X leverage, so a 2.5% inflation in the house becomes a 13% return on the downpayment in 5 years).
For example, look at one of your “worst cases”, where you show a 0% inflation adjusted 5 year return on the house price. That sounds bad. In reality, someone has put $200K down on a $1m house. And 5 years later, with 2.5% inflation, the house is worth $1,130K. That’s a gain of $130K that you are hiding in your chart. And $130K is a return of 65% on the $200K down payment investment. And that’s the worst case. The others are all higher returns than that. Imagine someone that looked at that 0% return on your chart, and decided to wait. Even if you’re correct, they lose out on $130K tax free gains (+ five years equity they would have built up).
And of course the person that bought at the worst time gets the lowest 5 year returns on your chart. But they still own the house, and they get to ride the next 5 years which may be the highest returns. For example, the supposedly sad story of the 2011 buyer, who had 0% inflation adjusted returns, really had 13% nominal returns to 2016. But they still own the house, so they get to ride the next 5 years 2016-2021 and have enjoyed another 40%+ appreciation on their house. Change your chart to showing 10 year returns and you’ll see what I mean. The up/down nature of the returns is smoothed out, and your observed co-relation theory is spoiled. What’s so special about 5 years of returns, and not 10?
If you see the need to remove inflation from the prices, you also need to remove inflation from the affordability calculations. If you do that, you will see that affordability is much better than you present, because mortgage rates have an embedded inflation premium in them. People are paying for the inflation in their mortgages, so they deserve to see it in the price rises of their house.
Better still, just present the price data as it is (nominal prices), and give the reader credit for being able to see these things for themselves.
Simply post a chart showing nominal house prices (spoiler alert: prices look like a rocket ship up), and then superimpose the up/down of affordability, and let them decide if there is a meaningful correlation.
Infrequent- Basically, in my opinion, in this market, doing some minor renovations won’t translate into a higher price, even recouping the investment. A major renovation making the house move in ready will result in a higher price, but might also only get the investment back. I don’t think banks look at the windows, mostly electrical. I do think a new roof makes a huge difference, just don’t skimp on the shingles. Too many options when it comes to windows, better left to the new owners.
That’s a great link Leo, thanks. Interesting concept about “maintaining worth”, and they have windows in the category of renos that maintain the house’s worth. They don’t get into explaining it, but I guess that means old windows could be a detractor from a houses value, and new windows are sort of “normal”? I guess I don’t really get it.
Overall it sounds like in my example, spending $35k for new paint and windows would not be expected to result in a $35k+ lift in the value of the house, but paint and windows have a certain lifespan and if they break down enough it will drag down the value of a house, including potentially though damage from water etc. Is that fair?
Thanks Frank. I should have clarified, my question isn’t related to marketing the house in that sense of what would a buyer like – just, is the house worth 20k more with new windows versus old ones. I guess I’m more thinking about bank financing valuations at a refi, which may be based on an appraisal. Good comment though, thank you.
In general you don’t get your money back on renovations. I think the exception is things like paint or simple cosmetic updates.
Here’s an article from the appraisal institute of Canada https://www.aicanada.ca/wp-content/uploads/AIC-How-to-Value-Your-Renovations-web.pdf
The chart shows price change which is the correlation I’m asserting. When affordability gets strained prices stop growing and vice versa. Inflation adjusted or not doesn’t change anything other than that using nominal prices distorts the picture in times of high inflation compared to times of low inflation.
Re: Appraisals. Many people advise to sell as is, so the end buyer can put in what they like. People assume you put in the cheapest windows on the market and they are probably right. Also, the flippers like to see houses in original condition so they can put in the cheapest windows on the market.
Question for the appraisal-savy persons in this group:
Suppose you have an old house in Fernwood with original windows and in need of a fresh coat of paint but it’s otherwise in okay shape. You have it appraised today and are given a present value of $1,100,000. If you then proceeded to spend $20,000 on new vinyl windows for the whole house and $15,000 for a fresh coat of paint all over and then turned around and got another appraisal the next day, would you expect any increase in the appraised value of the house as a result of that $35,000 worth of work? How much of a change would you expect to see in relation to the value of the work?
Any thoughts appreciated.
Thanks for everything Leo.
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The answer is:
The explanation is that you claim these are showing “prices”, but instead you are showing “5 year price CHANGE, adjusted to inflation”. So how can your chart show a correlation with prices, when nominal prices aren’t even on the chart.
Victoria nominal house prices have been a one-way ticket to riches for the last 50 years.
You know, the stories about buying a house for $50K that’s now worth $1.5 million.
If you want to make a co-relation to affordability, let’s see you post a chart with nominal house prices and affordability. If you do, you’ll see little correlation with nominal house prices and affordability. Nominal house prices are what people care about the most.
As an aside, I can’t recall you ever posting a long term chart of Victoria nominal house prices.. It would be helpful to see one.
What case? It seems you are arguing either
Which is it?
I’m glad that out of town buyers are staying high, but it seems like that would make it harder to read a contract or a disclosure form.
I know that, but that only strengthens my case.
Because I included the VREB buyer survey maximum that local FTB could be (24%), and assumes they were all locals. If some of that were out of towners that would just lower the first time locals and keep the out of towners totals the same. That would mean an even greater percent of buyers are out of towners compared to locals.
There is no survey that asks about “local first timers” so that data doesn’t exist.
Also you forgot about investors and second home purchasers.
“Other cities (Vancouver, Toronto) have high immigration, but actually lose more Canadians than they gain.”
Patrick: you mean they lose more Indigenous peoples?
No.
In a typical year, Vancouver:
https://www150.statcan.gc.ca/t1/tbl1/en/cv!recreate.action?pid=1710013601&selectedNodeIds=1D70,1D142,1D144,4D1&checkedLevels=1D1,2D1&refPeriods=20150101,20190101&dimensionLayouts=layout3,layout2,layout2,layout2,layout2&vectorDisplay=false
I like the stability of a fixed rate. Usually go for 3 years. It’s nice when they phone you months before renewal and offer you the going rate ( hopefully lower). 1.89% is easy to live with, especially when it’s a home line plan that you can tap into as you repay the principal. Pay it off as slow or as quick as you like. If I need money, I just go to the teller and the money is in my account, no jumping through hoops.
I like variable. Low rates, low penalty. Massive debt loads means that hugely higher rates are unlikely. Depends on the spread in any given week though which is better.
“Other cities (Vancouver, Toronto) have high immigration, but actually lose more Canadians than they gain.”
Patrick: you mean they lose more Indigenous peoples?
Well let’s play a game. There’s a first time Victoria buyer, they are either a local first timer or a Canadian out of towner moving here. You need to bet on which they are, which do you choose?
Would you correctly guess that they would be more likely to be an out of towner than a local?
The VREB survey tells you should bet on them being a Canadian moving here. Since 27% of all buyers are Canadians moving here, and only 24% are local first timers. So the exact odds are 27/(27+24)= 55% of them being a Canadian moving here, and are 45% of them being a local Victoria buyer.
Now you’ve defined “pure demand” above as someone buying but not selling an existing home here, which includes these out of towers and our local FTB. And you’ve explained the importance of this pure demand on the market, compared to the rest of the market that are buying and selling ( market turnover) . And as I’ve showed above, most (55%) of that pure demand is from these out of towners. Hope that clears up your “Huh?”
First-year UVic students scrounge for housing amid shortage of on-campus spaces
https://www.timescolonist.com/news/local/first-year-uvic-students-scrounge-for-housing-amid-shortage-of-on-campus-spaces-1.24346844
As many as 300 first-year University of Victoria students, who in any other year would have been guaranteed on-campus housing for the fall session, are beating the bushes in a region with a very tight rental market to find a place to live before classes start in September.
Albers said one of her clients chose to buy a condo in a strata property managed by Complete, rather than rent, just so their first-year student would have a place to stay.
“It was cheaper to buy the unit, even with strata fees, than rent,” she said.
Renewal time – fixed or variable?
20 to 30% = most?
Victoria: 3rd most expensive market, 3rd most debt. Not a coincidence.
https://househuntvictoria.ca/2018/01/18/the-wealthy-buyer/
I’ll believe it when I see it. So far whenever affordability becomes strained for locals the market has slowed down. When I see it keep going past that point I’ll believe that the market is detached from local means, but so far that hasn’t happened.
Huh?
Strange distinction to draw. What does it matter where the growth comes from? Also it’s a very odd example, given that Ottawa is much cheaper than Victoria, and Vancouver & Toronto which as you say lose “Canadians” are more expensive.
“Next do rental demand. Our 2 bedroom unit got 100 interested parties and was rented within a week for September move in date.”
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Why on earth would you leave an ad up long enough to have 100 people apply, you’re just wasting yours and other peoples time. Did you reply to all 100, which is the polite thing to do?
When ever we posted an add for our rental we removed it after we got 10 responses which was far more then enough.
The large numbers of out of town buyers (55% of the pure demand) indicate to me the irrelevance of typical affordability metrics to our market.
The data presented here points to most (55%) of the pure demand (buying a Vic home without also selling a Vic home) coming from out of towners, more than from locals (45%). Since the affordability metrics here are designed to measure affordability for locals, why should they be considered so relevant, let alone “key to the market”?
Your chart (VREB survey) reports 27% out of town buyers.
Your previous chart (also VREB survey) reports 24% first time (local) buyers.
This means that there are more out of town buyers than first time (local) buyers. This is incredible. The rest of the buyers are just locals trading homes, with no net demand. Of the “pure demand”, most 55% (27/51) are out of towners, compared to local first time buyers 45%. (24/51)
As youve pointed out, “Remember that out of town buyers are one of the categories of pure demand and any increase has a much bigger effect on the market than an increase in buyers that already own locally (i.e. market turnover).”
Very few cities have this “Canadian out of towner” demand for houses. Only Victoria and Ottawa have big numbers like this (5,000 net Canadian out of towners move to Victoria per year). Other cities (Vancouver, Toronto) have high immigration, but actually lose more Canadians than they gain.
The point here, is that the typical “pure demand” buyer here isn’t the one presented in affordability charts (which assume average Victoria income, 80% mortgage).
Since most are out of towners, shouldn’t the metrics on the Victoria affordabiiity charts be updated to reflect the most common “pure demand” buyer, namely the out of towner, who moves here and wants to buy a house? Maybe out of towners don’t need an 80% mortgage, they only need 50% – that changes affordability metrics dramatically, and helps to answer the question asked here often – “who can afford these prices?”
Lol yes that is true. But I have faith that there are some realtors looking after their clients best interest.
Both the buying and selling agents want a sale. Both the buying and selling agents get a % commission.
Any more questions?
I’ve seen some over the top bids on houses lately and it got me curious how the buying agents deal with these scenarios. Any realtors on here I’m curious how do you navigate these situations and do you advise your clients when they’ve gotten too caught up in the bidding and are going to pay way too much? I can’t help but wonder when the adrenaline wears off if some of these buyers have regrets?
Leo,
Great article. Thanks.
Sidekick- There is a lot of money across the country. If you were educated, had a profession and didn’t have any addictions, you could amass a sizeable fortune anywhere in Canada. If you’re a boomer and haven’t accumulated a net worth of at least one million, you’re a complete failure, all you had to do was work every day. Now all these successful people, including educated millennials, have their sights on the Island. Don’t forget all the money people are inheriting from their parents. I have friends that are getting nice six figure inheritances. Must be nice, my single mother provided nicely but could not amass much wealth.
The out of Towners may move here to escape the fire smoke though. Our westerly winds and high pressure areas are protecting us again, as the smoke blows east, now covering much of Canada and USA. If smoke is an important consideration in where you live, one look at the current fire smoke map would tell you that Victoria would be a smart choice.
https://firesmoke.ca/forecasts/current/
100%
The new rentals in Langford are great, but every other municipality needs to step up. Either streamline the approval process to get them through faster or reform zoning to allow rentals everywhere. Very easy moves that could be made, for example letting rental projects that conform to the OCP defer zoning approval to staff and avoid the political process.
I had to take my ad down after an hour. Too many applicants to be able to respond. My impression is that the return of students has turned a low vacancy rate into a desperate one. I’d say the lack of purpose-built rentals for families and affordable subsidized rentals is the number one housing issue.
In 2016, I definitely noticed a flood of buyers from the mainland. The general theme (for the people who moved into my area) was the big run up in prices over there.
Have noticed a similar trend over the pandemic, although the theme I’m noticing this time is family. New neighbours on the street had existing family in Saanich. Short-term tenants (still looking to buy) had kids that went to UVic and decided to move here. Adult kids moving back because they wanted granny and grampa to help raise the kids. Definitely enabled by the remote working conditions.
On a side note, I did a quick browse of rec property last week and came away with the impression that there is a lot of money on the island.
Next do rental demand. Our 2 bedroom unit got 100 interested parties and was rented within a week for September move in date.
Post Civil War immigrants to the US moved largely to the cities. NYC went from 1.2 million in 1860 to 5.6 million in 1920. It’s 8.4 million today.
What enabled the rapid growth of cities in that era was technological innovation – telephone, water/sewer, electricity, and electric transport.
Leo- Regarding the ability to accommodate the rising population with a place to live, it would be interesting to know how many new immigrants built their own homes with their own hands. Over a hundred years ago people were a lot more capable. My grandfather built our cottage in 1950 with a little help from others. He poured the concrete for the foundation, and built the structure all without any electricity! Thousands of immigrants had the skills and work ethic that were necessary if you wanted to improve your life. I know I’m close to useless when it comes to building something like a garage. Maybe our housing crisis is our own fault.
On the growth discussion, the US went from 31M people in 1860 to 106M in 1920. Avg growth of 1.25M people a year. Odd we somehow can’t accommodate a fraction of that growth rate today.
They’re lucky. Nationally we’re at 2 months of inventory as of June.