April 19th Market Update

Sorry to be a broken record here. Nothing anyone says here matters unless it has a QE backdrop.
So we printed 4 X the $ … House prices need to be 4 X what they were in 2019. Is everyone just forgetting about QE?
Please take a look at money printing and asset valuations. They are exactly coordinated.
Grab an M2 Money supply chart. Every comment is trumped by the M2 chart unless your statements involve fractional reserve monetary system,
That trumps QE.

Former Landlord:
“You saw the same happening with doctors and nurses being quoted at the start of the COVID pandemic spreading false information and used to peddle snake oil.”

Which you determined was snake oil by listening to “professionals” or perhaps you listened to the voice of authority in B.C., Dr. Bonny Henry.

I believe the expression is “you can’t suck and blow at the same time”.

You do realize that in the context that you are utilizing this strange argument that you would be questioning your doctor, dentist, realtor and pretty much any other professional.

Correct, I am saying arguing something based on their authority is a fallacy (= a manipulative way to try and win an argument).
You saw the same happening with doctors and nurses being quoted at the start of the COVID pandemic spreading false information and used to peddle snake oil.

Local Fool
“Ergo, I’d argue you’re not going to get to Mr. Monster’s 40% drop with rate hikes alone and almost certainly not in the first year. You’d need a catastrophic rise in unemployment and for a sustained period of time. There is no sign of that yet, in fact it’s still the opposite.”

You’re interesting, Local Fool. My quote was ” I’ll say 40+% in some of the “hottest” markets. I’m saying 20 months and the bank is saying 12 months. If Macklem goes cowboy on June 1st and raises the prime by 3/4%, I might shorten that timeline.”

Former Landlord:
“is an argument that relies on the status of the person cited instead of their ideas.”

You do realize that in the context that you are utilizing this strange argument that you would be questioning your doctor, dentist, realtor and pretty much any other professional.

Leo S:
“The founder of Betterdwelling has always had an insufferable “I am very smart” vibe despite writing some absolute nonsense over the years”

Lol, definitely true, but the context of the article was taken directly from Douglas Porter. You can read the same think in the Globe and Mail.

Excited to see where those new 1 million Canadians will be squeezed into over the next 2 years.

If a severe downturn in the economy occurs, immigration to Canada will not seem a pleasant prospect. Immigration has dropped notably in previous recessions. I’m not sure how attractive Canada is even now, as the cost of living is so high.

Excited to see how inflation will impact those housing build costs. Excited to see what Canadians do with their inflation raises.

That’s really talking about nominal values. In the end it’ll probably be a wash. I presume inflation isn’t really impactful on the RE market in real terms unless demand is goosed by lots of people seeking to hedge. Plenty of that in the 70s and 80s. Not sure about now, especially in this market.

For now, I just don’t think rates are going to be the issue. Yes, they’ll hike, break something, call it as overshot and drop it back down.

IMO, employment is probably the most fundamental lifeblood of a RE market and as everyone knows, at the moment there’s a labor shortage. The counter there is to doubt whether the existing labor market can support the valuations. While I don’t think they can, some also think they don’t entirely need to.

I’d argue you’re not going to get to Mr. Monster’s 40% drop with rate hikes alone and almost certainly not in the first year. You’d need a catastrophic rise in unemployment and for a sustained period of time. There is no sign of that yet, in fact it’s still the opposite. If the market is truly turning, that will be a net negative for employment and for sure, things could very well snowball. But if they do, we know the CBs are now heavily interventionist, which undermines a lot of the premises for certainty and conventional analysis. There could actually be further price increases related to this interventionist dynamic, terrifying as it is to consider.

But if the market does completely fall off a cliff, think about this: Even a 40% haircut would still leave a extraordinarily expensive RE market. If they fell 60% it would still be higher, in real terms, than what many were paying less than 3 years ago.

Debt dude I tire of you already.

Well you’re no fun today, are you. 🙁

Leo

Just my prediction based on rising interest rates/ building material price increase and large immigration. No one really know. Just guesses like any other period. This period ending with large price increases does not automatically mean prices decreases. That’s where in my view people are incorrect. When we get to 3 to 4 k available homes maybe will change my view. And call for decreases.

…most prominent economists really wants you to stop blaming high home prices on supply.

The tried and true fallacy: argument from authority.

An argument from authority, also known as an appeal to authority, is an argument that relies on the status of the person cited instead of their ideas.

Claiming that supply has nothing to do with prices, and the only factor is interest rates, would mean that the price of houses would be the same no matter what the location.
Prices are higher in more desirable locations (think downtown), because there is less supply (relative to demand).

Debt dude I tire of you already. Same old stuff.

Enjoy the trip. Later.

being a murderer been awhile don’t remember that…lol

Oh ok i think I remember now. Not going there. Horrible stuff..

Debt dude…. Been on here 11 years dealing with you dreamers. Always the same crap. Interest rates/ 1980 all over,,,,going to crash. You all just disappear under a rock after you buy a house. Some actually stay though. You are just another one that needs to understand the simple economic term of Supply and Demand. Try googling it and there are youtube video also with a nice interactive chart for you.

whatever happen to our bear house evaluator. He had about 10 aliases. Could it be……Could it be him back. He was very wordy.

That is so cute.

Ahh thanks, you’re just downright adorable. However, I like to consider myself more striking than cute. As for the horror movie, I tend to be the one that’s just fine because like when running from the cops when you’re a kid, you just make sure to bring a fatter slower friend with you that gets caught first. I hope it works the same way for debt….

Livelihoods were threatened and the financial damage was colossal — not to mention the emotional damage suffered by victims of the crisis.

Congratulations, you must be new to the blog. I don’t believe I have ever stated that debt, over borrowing and being single illiquid assest dependant is not a problem. Yes, many people are over exposed and for some reason don’t see the recession on the horizon in the next 6 months to a year. I hope people don’t get hurt, but any negative consequences are really just self-inflicted.

I’m just happy a true bear is back in the comments.<

I miss Hawk as his posts were much shorter. The Debt Monster's posts are so long, I don't even bother to read them.

What’s your phrase in bold “and thus for price” supposed to mean if you’re not referring to falling prices?

Of course I mean falling prices and by your own data prices went down. Are you disappointed I didn’t supply a number?

What did 197 Caspian go for? Tx!

Who would have thought that prices drop every spring during the hottest selling time of the year? Go figure.

No problem. The market has to crack sometime, and you’ll likely be among the first to spot it. Time will tell.

I didn’t make any specific claims about aggregate construction costs,

You sure did make a claim about construction costs. You said demand would crash “and thus price for labor, construction”…

What’s your phrase in bold “and thus for price” supposed to mean if you’re not referring to falling prices? That was the phrase you “needed to remind us about one more time”. And now, you want us to forget about it?

>patriotz: if there’s a RE crash demand for labour and materials will crash too. One more time I have to remind that demand and thus price for labour, construction materials, and yes land, is endogenous”

Umm..really

“all of which are a long way off according to the stats that matter”

Those stats that matter indicate what has happened, not what will happen.

“There might be multiple properties for sale in the neighborhood and the seller might have to clean the and mow the lawn before showing! Oh the humanity!!!”

That is so cute. You’re usually the first character killed in a horror movie as you’re laughing about the possibility.

Here’s the reality.

http://www.businessinsider.com/heres-where-those-who-lost-homes-during-the-us-housing-crisis-are-now-2018-8?op=1

“After the real estate bubble burst in 2008, many families living in the US found that the cost of running their homes was no longer affordable, resulting in many of those people losing their homes.

The widespread consequences were that, between 2006 and 2014, nearly 10 million homeowners in America saw the foreclosure sale of their own homes, which entailed having to give up their property to lenders or selling it as quickly as possible via an emergency sale, according to the Süddeutsche Zeitung.

Livelihoods were threatened and the financial damage was colossal — not to mention the emotional damage suffered by victims of the crisis — a 2014 study shows a correlation between the crisis and an increased suicide rate.”

Great conversation if the market flips I think it will be quickly I’m surprised at all the interest rate chatter would never have thought that they would raise them as quickly as they have househunt got a whole bunch more interesting good to see monster putting up a good fight cheers

I’m not disagreeing but fact is completions have tripled since then. There is flow between cities and regions in Canada.

There is also flow between industries. An electrician currently working on a condo tower in Vancouver may have previously been wiring a potash facility or working at the dockyard. I don’t buy the argument that if completions drop 66% the construction cost would drop a huge amount and there would be an abundance of tradespeople. Too many moving parts. I can think of a lot of strata corporations, for example, that have been putting off large capital expenditures because they can’t find companies to do the work. If oil sustains at around $100 companies will start investing again in the oil sands, etc.

Patrick:
“For example, construction costs fell 10% during the 2007 US housing/GFC. That is something, but 10% is hardly a “crash”, as it just set the construction costs back to where they were two years previous.”

Patriotz was correct in his assumption except for construction costs and he was still right to a certain extent. In reality, builders absorbed the construction costs of building new homes. In 2007, “nationally”, new home builds cost $247,900. They then dropped in price until 2013.

“Historical Time Series

The following data are for new, single-family houses only. The Survey of Construction does not collect sales information for multifamily buildings or for existing homes.

Note – beginning in November 2019, these tables will be available only in Excel format. PDF versions will no longer be produced.”

http://www.census.gov/construction/nrs/historical_data/index.html

Perhaps, builders are making a fantastic profit right now and are blaming everything and everyone for their prices.

if there’s a RE crash demand for labour and materials will crash too. One more time I have to remind that demand and thus price for labour, construction materials, and yes land, is endogenous to the RE market.

Are you at least able to provide a single example where construction costs have crashed during a RE crash, or are we expected to take your word for it?

For example, construction costs fell 10% during the 2007 US housing/GFC. That is something, but 10% is hardly a “crash”, as it just set the construction costs back to where they were two years previous. And inflation was 1% during that time, unlike now ~8%.

I’m not sure how people predict a crash when construction costs both labour and materials are going through the roof.

If there’s a RE crash demand for labour and materials will crash too.

One more time I have to remind that demand and thus price for labour, construction materials, and yes land, is endogenous to the RE market.

Totoro:
“I’d be wary of maligning “investors”

I’m just basing my conclusions on information my friend. Oh, by the way, the RBC worst case scenario was determined by stress testing the market in their quarterly report to stockholders. I’m sure the media version provided a pleasant

http://www.livabl.com/2022/01/investor-appetite-driving-canadas-housing-boom.html

He said it’s become clear that investors are driving demand – offering some key data points.

Sales were 30 per cent higher than the 10-year average, marking high demand. But new listings were the same as the 10-year average. He says that “flies in contrast” with the idea that there aren’t enough houses on the market.
After staying steady for a decade, expectations of price house growth is trending higher according to a weekly poll conducted by Nanos/Bloomberg.
The Bank of Canada published findings last week, based on loan-level data. The data show that, as of June 2021, investor demand is up just shy of 100% y/y, well outpacing increases among repeat and first-time buyers.
By August 2021, Canadians began taking on more in variable-rate mortgages as opposed to the long favoured and more risk averse fixed. “The reason? Fixed mortgage rates backed up, and buyers had to shift to still-low variable rates in order to meet affordably and/or qualification criteria. That seems like a market that has been forced to stretch.”

Totoro:
“At most they are predicting a modest decrease of 2.3% for 2023.”

C’mon the next page tells the story. As Patrick pointed out the USA housing crash resulted in National home prices dropping 19% but … Phoenix – down 54%. Think of British Columbia as Arizona and Victoria as Phoenix.

Outlook varies across the country

“Every buyer across the country will feel the pinch of rising rates. But those in the most expensive markets that will feel it most. We expect downward price pressure to be more intense in Vancouver, Toronto and other pricey markets. This will translate into larger annual price declines in 2023 in British Columbia and Ontario. By comparison, we expect activity and prices to be more resilient in Alberta, where local markets have more catching up to do following a prolonged slump before the pandemic.”

QT:
“Fast forward to the present. We are not seeing anywhere near 20% interest rates, unemployment rate is at 4.9%, and we will see an additional 20-24K of Ukrainians immigrating to BC in the coming months.”

…and you seriously believe that it would take 20% interest rates??? Unemployment doubled during the last crash, my friend and it was only 6.8% prior to the crash.

Make it 40,000 Ukrainians if you want .. they are all single mothers and children. Did you forget that all of the men between 18 and 64 were conscripted for battle.

royal-bank-of-canada-2124.docs.contently.com/v/housing-affordability-spiraling-to-worrisome-levels

Higher sensitivity to interest rates to add stress
Canadian homebuyers are a lot more sensitive to interest rate changes than they were 10 or 15 years ago as today’s sky-high prices
amplify the impact on mortgage payments. A one percentage-point rise in rates currently would boost payments by $315 per month
for a standard home in Canada (valued at $775,000), or roughly double what the increase would have been 10 years ago. Relative to
household income, the impact is two-thirds larger now. Everything else equal, a 150 basis-point rise in rates—our call for the Bank of
Canada—would propel RBC’s composite affordability measure for Canada by more than 7 percentage points (a rise represents a loss
of affordability). While income gains will provide a partial offset, it’s entirely possible RBC’s measure could spike to all-time highs in
the year ahead. A shock of this magnitude would severely stress homebuyers and exert significant downward pressure on demand.
Vancouver, Toronto and Victoria more sensitive to rate hikes

Every buyer across the country will feel the pinch of rising rates. But buyers in the most expensive markets will feel it most. That’s
because interest rate fluctuations affect mortgage payments more in Vancouver, Toronto and Victoria where mortgage sizes signifi-
cantly exceed the national average. RBC’s aggregate affordability measure could easily surpass previous peaks in all three markets.
Buyers in Montreal, Ottawa and, to a lesser extent, Halifax also face further material erosion of affordability. Most of Atlantic Canada
and the Prairies, on the other hand, are relatively less sensitive, containing downward pressure on demand.

Garth Turner making a come back! If he lives another 50 years eventually he will be correct.

The somewhat arbitrary number I have heard over the years is a “crash” is a sustained drop in an asset price of at least 20%. Less than that is considered a “correction”.

By that metric, 30% would be a huge crash, regardless of whether it would “only” take us back to recent valuations or not. It would be even more devastating if it occurred all in a 12 month period, and I hardly mean just for homeowners. If the knock-off effects from that also killed off employment, then that will amplify the problem. It’s not like we can do CERB again, at least not if we want to have a functional currency in the next few years.

I believe the worst precedence in Victoria for RE valuation drops is just over 40%, which occurred after a very swift rise in valuations as well as interest rates, and at far smaller real debt levels. We’re not well positioned as a country at the moment to weather such a storm…not that it will matter one way or another when the time comes.

Unfortunately, it’s not a belief, it will happen … by the end of next year.

If it is about the future of the real estate market appreciation/depreciation, it is a belief or an opinion – and mostly a guess. Lots and lots of factors affect RE, including those outside of our control or expectation – like a pandemic or war.

The best a person could reasonably say right now is that price increases have been way above average and historically this doesn’t seem reasonable or sustainable. Looking a the past we’d expect a long period of flat or slight decline in prices. Interest rates are a powerful factor in consumer confidence so maybe there will be a bigger dip – not sure. 34% of Canadians are mortgage-free and a lot don’t have that big of a mortgage so rate increases don’t hit everyone the same way.

Also, we need rentals. Our vacancy rate is less than 1%. More than 30% of Canadians rent. We aren’t building enough purpose built and subsidized housing to keep up with the need. Until we address this situation, I’d be wary of maligning “investors” who rent out a home or apartment. I’d be in favour of a capital gains tax on primary residence sales over a certain amount to fund affordable housing.

That’s a tough one Leo, right now the margins are so high with some developers and financing soo cheap they have a lot of wiggle room. Costs also vary so drastically from building to building they can do some value engineering to bring things down if needed.

When the condo market softened around 2016 it was the general contractors in town who took a bath. Between Farmer and Campbell they lost hundreds of thousands of dollars on individual projects while developers only left a bit on the table when prices rise shortly after. Historically the GC and the trades are the ones who gets squeezed.

Del

I’m not sure how people predict a crash when construction costs both labour and materials are going through the roof. How much can the land values really fall? And the cost of a home is only going to get more expensive with the step code and other government initiatives. Bureaucracy and red tape is only going to get worse.

The one thing that’s really amazing right now is wages are going up like crazy in the private sector. Never seen such wage growth in my life, it’s finally an employee’s market. Except in the government…

Similar to Totoro and Local Fool, my house is my home. The turning of homes into commodities is just plain wrong.

Debt Monster,
Thanks for the reply. A follow up, how long have you held the belief that Canadian house prices are overvalued, and about to crash? There’s HHVers here that have been predicting (on various boards) a house crash since 2001.

Similar to Totoro and Local Fool, my house is my home. The turning of homes into commodities is just plain wrong.

It ought to be pointed out that Totoro is also an investor. Not that there’s anything wrong with that, I used to be one myself.

You’re suggesting that investors will be net sellers in a crash.

Well not necessarily. Think about this. Everyone in the stock market is an investor. So in the stock market investors comprise both 0 net buyers and 0 net sellers.

How come stocks have gone down over the past week then?

Totoro
“It is not like buying a depreciating asset with credit.”

Frankly Totoro, I have no desire for a housing crash. Everyone will be impacted. It will happen, unfortunately and our kids will be the biggest losers in the game. I will hang on to this quote for a while, with your permission, because I believe that it has come at just the right moment as the housing market turns over.

The self employed people who are incorporated (that I know) usually pay themselves a low wage to avoid paying a lot of tax. They are usually writing off expenses such as their vehicles, gas insurance, repairs, etc.. through their business. Even part of their home for business use. Advantages salaried people do not have. Then when they go for a loan, their declared salaries do not meet the threshold to qualify.

up-and-coming:
“You mean they are an anomaly in your experience. I don’t know very many over-leveraged people, so maybe you’re basing your opinion on the not so savvy people you surround yourself with and I’m simply doing the same.”

Being retired, I would think that everything was rosy as all of my friends have paid off mortgages. Confirmation bias for consumers and plausible deniability for banks and governments.

“While over half of those surveyed are concerned about their ability to repay their debts should rates increase, 59 per cent still believe now is a good time to buy things that they otherwise might not be able to afford thanks to those low rates.”

http://www.ctvnews.ca/business/half-of-canadians-within-200-of-not-being-able-to-cover-bills-debt-payments-survey-1.5379871

…. and here’s one from a less followed blog for anyone that is interested in “anecdotal stories”. I’m sure the resident realtors could chime in.

http://www.greaterfool.ca

“This note came on the weekend from a blog dog in Victoria – where the average property in March traded for $1.23 million, a 27% year/year hike. But that was last month. April’s cruel.

We listed our house in one of Victoria’s most coveted neighborhoods on April 14th, just before the Easter long-weekend. Lots of optimism to go around. The weeks just prior to listing saw no end to jammed appointments for visits, bidding wars, multiple overpriced or bully offers, and a one-week turnaround from listing-to-sale. In the areas we look at for comparables (up to $2.5M) there were multiple “Sold” per day. Suddenly, and just after the CB rate hike of 0.5% on April 13th, there are crickets. It’s all people talk about now. Only one “Sold” sign in the area since April 16th. We had hoped to catch a buyer with pre-approval from earlier this year when rates were much lower. People seeking mortgage approvals now are dealing with a new reality. And suddenly there’s so many more listings to consider.

For us – one very low offer, only seven visits in nine days, and a deluge of other new listings in the neighborhood. Optimism has been replaced with reality and dread. It’s official. The same shifting factors that affected the GTA market in March are finally here in Victoria. And it’s only just beginning…"

” You don’t live forever and if you are 55 plus, and particularly if you have RSP room to cover the capital gains taxes, it seems like a pretty good time to sell to me.

This is my situation. I sold some property this year for these reasons as well as to prevent OAS clawback when I have to take OAS at 71. I also cannot use the RRSP deduction after age 70 since my spouse is older even though I have plenty of contribution room. It also makes sense for probate purposes.

but I’m not sure that investors will have the same motivation to keep a property that’s burning a hole in their pocket

There is a big difference between choosing to sell and having to sell because you can no longer afford it. Agree that very few will have to sell because they cannot afford to keep the home.

As for second property owners, people sometimes age out of this if it is not a family cottage or bought for a family member’s use.

Someone not wanting to hang on for 7-10 more years might well consider selling right now. There have been two years of startling appreciation and it looks like it is going to slow down. You don’t live forever and if you are 55 plus, and particularly if you have RSP room to cover the capital gains taxes, it seems like a pretty good time to sell to me. I would classify this as a good business decision rather than some sort of hardship.

I don’t know very many over-leveraged people

What is an over-leveraged person btw?

We need a definition for homeowners if you are going to apply it to the data successfully because lenders apply affordability criteria quite thoroughly in my experience and having to qualify at the posted rate means that new buyers have been professionally assessed as not being overleveraged and have some room to weather some variable rate increases.

For buyers who have owned for longer, they are sitting on a lot of equity that provides a big cushion should mortgage rates rise a lot and they then decide to sell. And by longer I guess that is only two years or more in our market given the appreciation over this period of time.

Housing is good debt historically speaking if you can hold through the flat and down and are in a market like Victoria. You need to live somewhere. It is not like buying a depreciating asset with credit.

Research shows that the people who get into trouble with housing purchases in our market are most often those experiencing uninsured illness, that stops them from being able to work, divorce, or addictions issues like gambling/spending.

Well friend. the Local Fool is the anomaly and I am happy for him.

You mean they are an anomaly in your experience. I don’t know very many over-leveraged people, so maybe you’re basing your opinion on the not so savvy people you surround yourself with and I’m simply doing the same.

I am guessing currently probably a year +/- to obtain a garden suite permit in COV.

Problem is if they think a window facing a neighbor is too big instead of emailing you back comments in a day or two like a normal private organization it takes three months. Designer makes the change in 10 minutes and then you wait another 3 months for next set of comments.

I’ve become bullish on real estate long term as I don’t believe the beauracy issues will be addressed in my lifetime. It will just get worse and worse and zero appetite to fix.

https://www.timescolonist.com/local-news/victoria-to-raise-garden-suite-fee-but-faces-bigger-obstacles-in-pushing-small-homes-5294209

However, the rate is not guaranteed for years down the road for the completion.

I’ve seen lenders partner with the developer and guarantee rates, but usually >2% higher than going rate at the time of contract.

The U.S. housing crash was completely avoidable. Greedy financiers lent money to unqualified borrowers at a temporary low rate and then when the real rates kicked in, the were immediately in trouble.

Well, we do have a lot of people here that weren’t well qualified that skipped high ratio insurer scrutiny by recieving down payment gifts to reach 20% down. Those folks weren’t even able to manage their money well enough to save a down payment…. So, how much of a rainy day fund will they have in place weather increasing rates and inflation costs? Since their families have already tapped out to help them buy, they might not be able to go back to the well for more cash. Also, if market goes even into a flat state, that HELOC they were counting on probably won’t be there either. Multiple generations of some families in the last few years may have committed fully to a single illiquid asset class in Canada and I hope that people don’t get hurt because of it.

That is not the case today in Canada.

Not the case in Vancouver circa 1982 or Toronto circa 1990 either. But we got busts anyway.

Busts are caused by affordability exceeding sustainable limits. Different ways to get there, but that’s why they happen.

I was wondering on the purchase of a prebuild condo which is very common right now, if one receives a pre-approved mortgage…..is the interest rate guaranteed by the bank?

You do the initial qualification at the time of your purchase agreement and deposit. However, the rate is not guaranteed for years down the road for the completion. Once completed, you would need to qualify again and have a mortgage written at the rates available when possession is available to you.

I was wondering on the purchase of a prebuild condo which is very common right now, if one receives a pre-approved mortgage…..is the interest rate guaranteed by the bank? Especially if the completion date is a couple of years away. If it usually is, would the banks still give a guarantee with the rates so uncertain right now?

The U.S. housing crash was completely avoidable. Greedy financiers lent money to unqualified borrowers at a temporary low rate and then when the real rates kicked in, the were immediately in trouble. They took advantage of some pretty stupid people that did not realize what they were signing, but were lead to believe they could afford a house. It was a scam. That is not the case today in Canada. Not everyone can qualify for these low rates. Self employed people are usually shunned by the banks and have to pay higher rates from secondary lenders. Once rates get to the 5% GIC levels and people start dumping their dividend paying stocks for a guaranteed rate, stocks will plummet, the public will scream and politicians wanting to be re-elected will produce the data that shows inflation slowing (miraculously). That will happen long before house prices decline. I believe, for every over-extended home owner, there are two buyers to take their place. Watch the markets tomorrow, they’re poised for another steep decline, but there will still be bidding wars on properties.

Chart:

Patrick:
“You’ve run-off-the-rails there Debt Monster.”

Lol. So much for the kiss principle. Even further off the rails – 420.000 people do not have an average $477,0000 mortgage. Clearly that’s per mortgaged household. The last census stated that there were 176,676 private dwellings in Greater Victoria.

The message is still similar though, as pointed out by Local Fool. If 1/3 of those mortgaged households have a balance under $100,000 and another 1/3 has a balance under $300,000 …. yes, Victoria has a mortgage debt problem as highlighted by the headline. The 5th highest in Canada.

I will defer to Local Fool’s analysis.

Let’s make it simple. If there are 420, 000 people in Greater Victoria and the average mortgage is $477,000. Simply subtract the mortgage free home owners and guess what? If it is 1/3 mortgage free then the rest are picking up that share of the mortgage burden. The average moves up to over $715,000 for those homeowners

You’ve run-off-the-rails there Debt Monster. That study you quote that found $477,128 average Victoria mortgage specifically excluded mortgage-free homeowners, and also excluded anyone over the age of 69. So your conclusion about “moving up” the average mortgage for those with mortgages to $715,000 is nonsense.

https://borrowell.com/blog/costs-of-living-canada-homeowners-vs-non-homeowners

“Report findings are based on credit report data of 874,111 Borrowell members in Canada between the ages of 20 and 69 for August 2021. For this study, homeowners are considered to be consumers with active mortgages on their credit reports. For this study, homeowners do not include consumers who have fully paid off their mortgages. “ “Victoria $477,128 mortgage debt”

I think Leo is a great moderator!

Agreed!

This is absolutely true and it makes things even worse in Victoria. So, presuming that 1/3 of the home owners in Victoria are mortgage free then the other 2/3 are mortgaged up to their eyeballs.

I don’t think that’s a fair conclusion. It’s not that simple.

Let’s presume “up to their eyeballs” means owing more than 450% of gross income. Let’s say 2/3 hold a mortgage, with an average amortization period of 25 years. That means that current mortgage holders generally consist of buyers from 1997 up until today.

Across that spectrum, there is a huge variation in leverage used, and balances owing. I think a fairer thing to say is buyers that have purchased at <450% within the last six years, and especially the last two, represent a cohort that is more highly leveraged (and, higher risk). However, it's not clear to me how much of that cohort is at <450%. I do believe there is data that indicates such, although it might exclude private lenders.

You could rebut me by pointing to the US housing bubble in 2008, which had massive foreclosures and nearly brought down the financial system. I raise that point because only a tiny fraction (I think 5-6%) of mortgage holders ran into trouble but it was enough to end the party for everyone. Will that happen now, in Canada?

The comparison isn't really apples to apples, there hasn't been a lot of NINJA loans and B20 will probably have some measure of protection. But in terms of national consumer leverage, the pervasiveness of RE and its related industries in the economy, and its now-grotesque share of GDP, we are IMO much worse off than the US housing market was in 2008. Even so, the reality is it's virtually impossible to know until the party stops and you have the benefit of hindsight. I've been sure myself so often in the past, but here we are and somehow the deck chairs are still getting shifted with buyers getting shafted.

There have been anecdotal reports starting to pop up that some RE markets have gone "lights out", rather than the moderation everyone talks about. Hmmm…

I think Leo is a great moderator!

I bought in 2019 with about 15% down. First renewal in 2024. At 2.69% fixed right now, I have zero concerns about renewal time; if it’s 4, 5 or 6% – whatever. We didn’t over-leverage. Like I said I don’t think we’ll get to normalized rates anyways. Not interested in what the prices will be when I retire. We bought this house to live in, not to make money with. I just wish renos weren’t so damn expensive.

For all the hawks, bears and monsters out there: this is your average homeowner. Smart, measured and in control. Are there overleveraged people out there that could suffer and have to sell due to rising interest rates? Sure, but you’re not going to benefit from their misfortune because someone with much deeper pockets will, so stop wishing/hoping for “The Crash” so you can get into the market at a price you think you deserve

If it’s like the 1970s (replacing boomers with millennials) we may see the same trilling.

Can’t wait to be a demonized millennial by the Covid-Kids much like the current crop of whiny millennials like to blame the boomers!

but “doomed” is subjective.

Ha. Not if you’re Hawk it isn’t.

Clearly before your time. But, no worries: Spice up your rhetoric a bit, get a hate-on for Introvert, use that graph with regulatory and there’s at least a few of us that would welcome the nostalgia. I miss the guy, personally. One example for you.

“Hilarious reading the homeowners panicked posts trying slag those who hold zero risk as the bubble starts to leak its noxious fumes. Saw a lot of “new price” signs out there today. All their wives will be screaming “why didn’t you get us out when they were lined up around the block and stuffing our mailbox pleading to sell?” “Because I’m a greedy bastard dear.””

As long as your mortgage is under $500,000 and you weren’t planning on using your home equity for retirement, you should be able to ride this one out. Maybe?

I bought in 2019 with about 15% down. First renewal in 2024. At 2.69% fixed right now, I have zero concerns about renewal time; if it’s 4, 5 or 6% – whatever. We didn’t over-leverage. Like I said I don’t think we’ll get to normalized rates anyways. Not interested in what the prices will be when I retire. We bought this house to live in, not to make money with. I just wish renos weren’t so damn expensive. 🙁

Local Fool

“You’re all doomed. For old times sake.”

Lol, I’m not sure of the reference, but “doomed” is subjective.

As long as your mortgage is under $500,000 and you weren’t planning on using your home equity for retirement, you should be able to ride this one out. Maybe?

.

DebtMonster: So says the boomer trying to cash out on his $1,400,000 home next year when he retires. Sorry Frank, very few buyers want to catch a falling knife when price drops start to accelerate.

Have we found a new ‘Hawk’?

Patrick:
“ So the question is: Can anyone provide their best example, anywhere/anytime in the world, where mortgage rates rose to fight inflation, and house prices quickly fell.”
. Debt Monster: How about Canada, last month, when interest rates went up .25%. Yes, there was a whole myriad of reasons, I’m sure. Nobody buys in March, all the good homes sold in February… but a “best” example of interest rates going up and the market responding negatively, immediately

I appreciate the reply. I don’t want to rain on your “prices fell 2% in March 2022 vs February” parade. But you should be aware that Victoria benchmark SFH prices rose 3% MOM in March 2022 ($11-9k->$1142k), and median SFH rose 1.5% In March 2022 MOM ($1293k->$1312k) https://www.vreb.org/media/attachments/view/doc/stats_release_2022_03_2/pdf/stats_release_2022_03_2.pdf

So I want to confirm, is that 2% price drop that you reference your BEST example of rising rates lowering prices? I say that because you seem to have decades of statistics at your fingertips, as well as google. And your example of price drops is a little underwhelming, since it isn’t being seen in Victoria at all.

If you’ve got a better example, with a bigger price drop, take a mulligan and post it.

Patrick
“So if rate rises cause immediate drops on house prices, why did it take ten years of rate rises for prices to fall?”

Okay, my friend, I will explain it to you as simply as possible why today’s jumbo mortgages are so interest rate sensitive.

http://www.superbrokers.ca/tools/mortgage-rate-history

Interest rates on 5yr. fixed mortgages went down from 12% to 10.25% in 1976/77. Let’s use 1978 as the starting point when rates started to actually climb the next year. If you took out an average suburb $60,000 mortgage in 1978 at 10.25%, it would take 2yrs of mortgage hikes before you saw a substantial 4.25% hike in mortgage rates and your mortgage would cost you an additional 24%.

https://tools.td.com/mortgage-payment-calculator/

Today, with a mortgage of $800,000 secured at 2.59% in 2017 …. yes, cheaper mortgage rates were certainly available, a 24% hike in your payments would only require a mortgage rate of 6.4%. (after 5 yrs of principal repayment) Currently, the Bank of Nova Scotia’s 5yr fixed rate is 4.99%. 2 months ago it was 3.99%. Do you have any guesses where that 5 yr rate will be after June’s rate hike … or more scary after what happens this Monday at the end of QE.

Leverage is so much fun going up and not so much so coming down.

Patrick:
“So the question is: Can anyone provide their best example, anywhere/anytime in the world, where mortgage rates rose to fight inflation, and house prices quickly fell.”

How about Canada, last month, when interest rates went up .25%. Yes, there was a whole myriad of reasons, I’m sure. Nobody buys in March, all the good homes sold in February… but a “best” example of interest rates going up and the market responding negatively, immediately.

https://www.crea.ca/news/february-home-sales-rise-as-buyers-scoop-up-first-of-the-2022-spring-listings/

“The actual (not seasonally adjusted) national average home price was a record $816,720 in February 2022, up 20.6% from the same month last year.”

“The actual (not seasonally adjusted) national average home price was $796,000 in March 2022, up 11.2% from the same month last year.”

Nominal wages were rising at the highest rate since the end of WWII.

I agree with your points.

However, my point isn’t that rising rates make the house prices go up. They have a negative effect on prices. It’s the hot economy that makes the prices go up despite the rate rises.

It’s the good economy that inflates all prices including house prices, and the rising rates are an attempt to slow down these price rises.

My point is illustrated by exactly what you’ve said here about rising wages. Because rising rates are a response to good (hot) economies and falling rates are a response to bad (cool) economies.

If we see sustained inflation in the 2020s, we will see rising rates. And chances are that means a hot growing economy as well. If it’s like the 1970s (replacing boomers with millennials) we may see the same trilling.

I’m tired of repeating myself so I’ll let 1981 victoria real estate board spokesperson take over. “High interest rates have changed everything”

That 5-10% price fall in 1981 wasn’t when rates started to rise. Rates had peaked and started to fall in august 1981. It was after 10 years (1971-81) of rising rates when house prices tripled. And the economy was headed to a recession in 1981. So it wasn’t the example I asked for , which was an example of an immediate effect when rates rose. In fact it’s an example of the opposite of what I asked for …rates falling from 1982-86 and prices falling during that period.
So if rate rises cause immediate drops on house prices, why did it take ten years of rate rises for prices to fall?
If the same thing happens here in 2022, rates will rise for ten years, prices will triple by 2032, and then fall back a little (5-10%) in 2032 , … and someone will say in 2032.. ”you see!.. I was finally right about rising rates lowering prices!”

On the chart we can see the 10 year rise of rates in the 1970’s, which also saw nominal house prices triple and GDP triple. Interest rates and prices peaked in 1981-82 and then there was a recession, where house prices and interest rates fell back 35% from 1992-86.

Many people here seem convinced that rising rates will have a near immediate impact on lowering house prices. I understand the theory behind that. But to be so convinced, there must be plenty of examples to show of where and when this has happened.I’m not aware of any, so you’ll be educating me on the topic.

So the question is: Can anyone provide their best example, anywhere/anytime in the world, where mortgage rates rose to fight inflation, and house prices quickly fell.

tomtom- I’m not aware of any price declines (except Calgary) across the prairies. The last house I bought in Winnipeg in 2011 has doubled. Yearly increases were modest but never decreased. The last 2 years has been crazy.
I remember hearing (can’t remember the exact source) that Alaska was 80% government employed.

“Regardless of how sympathetic they are or aren’t, they simply are not going to get very far with their rate hikes before the economy tanks and they are forced to drop again. I don’t mean just RE – I mean everything. This is precisely what happened the last time.”

…. and that pretty much sums up where Canada is headed.

Local Fool, you are absolutely correct, the BOC will absolutely drop rates after we go into a severe recession. Tiff Macklem is well aware of the fact that he is chasing inflation. Half of the recent events stoking inflation haven’t even been measured yet. It doesn’t matter whether he gets to a neutral rate or overshoots because the Housing Market is doomed after the next several hikes. 40% of Canadians are renewing mortgages over the next 2 years and they will be seeing a substantial increase in payments.

The big 5 banks have moved mortgage rates up again today. 5 yr closed mortgages are now over 4 percent. Let’s see what next Friday brings after Monday when QE officially ends.

“IMO, they essentially have the option today of yield curve control or, a swift and severe currency crisis. The former is bad, but the latter is worse.”

Except yield curve control could create the currency crisis as the USA is also moving rates up and ending their QE. Yield curve control might stabilize a lower interest rate but the cost would be increased inflation and a sinking dollar as bond investors moved south. There is a reason the BOC seems to mirror the USA Fed.

“The Fed will officially end the latest round of QE on Wednesday. The schedule below shows that on March 9th, the Fed will make its last QE purchase of about $4 billion of shorter-term Treasury notes. Since March 2020, the Fed’s balance sheet has risen by nearly $5 trillion due to QE. The Fed will still purchase bonds but only to offset maturing bonds and keep its balance sheet stable. Given the new monetary policy regime, we must focus beyond the Russian conflict. This entails better risk management as a key source of liquidity is now officially ending.”

The central bank will have as much sympathy for home owners today as they did for home owners in 1982.

Regardless of how sympathetic they are or aren’t, they simply are not going to get very far with their rate hikes before the economy tanks and they are forced to drop again. I don’t mean just RE – I mean everything. This is precisely what happened the last time. I don’t believe they will pursue ~2% inflation if it means breadlines, a crushed economy and the prospect of sovereign defaults. With debt levels being where they are, Volcker’s policy choices 40 years ago are simply not going to be on the table. The fact is, higher inflation technically helps outsized debt levels – but comes with a heavy social cost. Good thing those guys aren’t elected.

The second hammer falling will be on the 25th of this month when the gov’t ends their Quantitative Easing program. We will see what kind of interest there will be in these bonds on the open market. Expect more rate increases for fixed mortgages sooner than later.

In the immediate sense, this is probably true. However, they aren’t just going to continue to let bonds rip on the open market if it results in a credible threat to the financial system. And my point is, yields won’t have to go very high for that threat to manifest.

The fact is they haven’t allowed a free market to operate in the monetary system for a long time, and this would be about the worst time I could imagine to suddenly abandon that interventionism. IMO, they essentially have the option today of yield curve control or, a swift and severe currency crisis. The former is bad, but the latter is worse.

This implied mantra of “things going back to normal soon” is IMO, not observant of the monetary policy precedence or emerging realities of the last couple of decades. Going back to normal would be beyond the Great Depression. Victoria is hopefully going to be entering a correction in the next little while, but overall don’t expect they are going to simply terminate the dog and pony show just because of some inflation. Indeed the entire monetary system is, and has been, hopelessly dependent on that show continuing. We both know they can’t pull it off forever. A reckoning is undoubtedly coming – we know from history that this is the case. But, not today. And tomorrow doesn’t look good either.

Local Fool:
“Your certainty is not justified IMO. You may end up being correct, but if you are counting on the CB continuing to hike aggressively, I have a feeling you are going to be disappointed.”

There won’t be disappointment, unfortunately. The central bank will have as much sympathy for home owners today as they did for home owners in 1982.

The second hammer falling will be on the 25th of this month when the gov’t ends their Quantitative Easing program. We will see what kind of interest there will be in these bonds on the open market. Expect more rate increases for fixed mortgages sooner than later.

http://www.theglobeandmail.com/business/article-bank-of-canada-ends-quantitative-easing-program-moves-forward-timeline/

“It also announced the end of its quantitative easing (QE) program, a measure launched at the start of the COVID-19 pandemic that has seen the bank buy hundreds of billions of dollars worth of federal government bonds and quadruple the size of its balance sheet in an effort to hold down interest rates.”

“Clearly, there are several major markets where affordability (prices versus average incomes) are grievously mismatched and have been for a long time now. ”

…. and a $1,000,000 mortgage at 1.95% is how much? Affordability is determined by the monthly payment for today’s cohort. A $1,000,000 mortgage at 5% will give you a much better idea of affordability, very soon.

But that wouldn’t affect condo affordability where there is fundamentally not a fixed supply. You’re also implying that people from Calgary, Toronto, or Vancouver somehow have unlimited money and aren’t constrained by the carrying cost of real estate. I wouldn’t hang my hat on that.

True on the condo supply, that’s another reason why some of the current sales for a 2bed/2bath under 1000sq/ft condos right now seem really high to me. And wasn’t trying to imply they (Vancouver/Toronto) have unlimited money, just a lot more of it to spend than the average person that’s already here if they’ve cashed out and relocated to the island.

Interesting stat Leo. I am still guessing more or less flat prices while rates go up to 6. Mind you I am a lot better at predicting the past than the future.

There is only one controlling factor in housing costs in Canada and that is affordability. Interest rates down – prices up, interest rates up – prices down. End of story.

Interest rates is only one the factors, and it isn’t the most important one.

Further, rising interest rates are paradoxically associated with rising home prices, not the reverse. What’s going on now is a bit of an aberration, in that they are hiking into a weakening economy. It’s also an economy that has experienced substantial misallocation of capital in a segment that does respond to the cost of borrowing (RE).

You’re right, affordability is traditionally the stabilizing metric, but in the last 14 years there has been another one – that is excessive money printing. Clearly, there are several major markets where affordability (prices versus average incomes) are grievously mismatched and have been for a long time now. I doubt there is a rational argument that can say Vancouver has been affordable in any recent period of time, and ditto in many areas in Toronto. Victoria has almost always been tightly entwined with affordability, but that dynamic is less certain while central banks continue to interfere with virtually all the traditional metrics in a market. As yield-hungry oceans of capital with no place to go continues to weave into our RE, it going to be difficult to guess what happens next.

I’m with you as far as perpetual affordability being ultimately unsustainable, and sooner or later something is going to break. I think we
are getting there, as monetary policy becomes increasingly ineffective towards what I think are the twilight innings of the latest debt supercycle. I also find the oft-repeated “not enough supply” argument to be spurious, especially when contextualized with history (ie there’s always “no supply” in an overheated market, until it turns over).

Leo is correct and unfortunately a lot of people will be experiencing this within the next several months.

Your certainty is not justified IMO. You may end up being correct, but if you are counting on the CB continuing to hike aggressively, I have a feeling you are going to be disappointed. With our over-reliance on RE in the economy, a housing market tipping over in Canada would devastate far more than newly minted, highly leveraged homeowners. The economy structurally cannot withstand aggressive hiking, and this applies to consumers, corporations and governments alike. They’ll hike a bit more, but given the last terminus point was 1.75% before the system puked, I don’t think it’s reasonable to presume they are going to get higher this time around with systemic debt levels much higher still.

It’s a lot uglier than many people realize, and the room for monetary policy to address the issue has been vaporizing for a while now. If they end up continuing to hold rates to the floor and print to oblivion, that is actually compatible with further price increases. I certainly hope that doesn’t happen. We’ll see, I suppose.

There is only one controlling factor in housing costs in Canada and that is affordability. Interest rates down – prices up, interest rates up – prices down. End of story.

“One of Canada’s most prominent economists really wants you to stop blaming high home prices on supply.”
https://betterdwelling.com/canadas-oldest-bank-begs-could-we-please-stop-with-this-supply-myth/

patriotz- Let me rephrase that: When the majority of home owners have jobs in the public sectors, it’s hard to see prices falling. There are millions of jobs in retail, restaurant services, grocery clerks, security, etc… But I don’t think many are homeowners, most struggle to get enough hours to make a living that compares to public sector jobs. The Federal government is the largest employer in the country. Start a business and try hiring someone, it’s very difficult.

Patrick:
“If you remain a homeowner for 25 years (in different houses), the results are the same if you own one home over 25 years, or more than one (other than RE fees for sell/buy to change houses).”

The premise of your assertion is that a homeowner could basically avoid real estate cycles by staying in a home/homes for 25yrs. The challenge is in staying in the housing market during a market crash. Can you imagine the carnage in the housing market today when house prices drop by half?

Telling the banker that you intend to stay in HIS house for 25 yrs won’t absolve you from having to repay the balance of your $800,000 mortgage when you’re forced to sell it for $600,000 because of a divorce.

Leo is correct and unfortunately a lot of people will be experiencing this within the next several months.

In Vancouver, those gifts were an eye-popping $180,000 and $340,000 on average among first-time buyers and existing homeowners looking to buy again.

Wow. Wish I had an account at the Bank of Mom and Dad.

patriotz
April 22, 2022 12:27 pm
“Well that sort of proves Cad’s point.”

Lol, yes you’re right .. to a point patriotz. My point was that the Bank of Mom and Dad has facilitated a good portion of home buying in the last few years so there wasn’t this ongoing savings happening.

This thread went off on a tangent after Patrick intimated that a home buyer would be well off after 25yrs in a home. It is definitely rare that this happens.

Cadborosaurus
“I don’t see average homeowners owning 4-5 homes in a lifetime now that it’s taking so much longer to save up a downpayment.”

I would tend to agree if the average homeowner was actually saving up to buy a home. lol

PRIMARY SOURCE OF DOWN PAYMENT

For homebuyers who received gifts that form the bulk of their down payment — that’s two-thirds of first-time buyers — the average gift amount rose even higher to $104,000. Among existing home owners using a gifted amount to cover most of their down payment, the average jumped to $157,000.

The average gift size for markets like Toronto and Vancouver are even higher, with first-time buyers in Toronto receiving an average of $130,000 during the first three quarters of 2021, and $200,000 among non-first timers. In Vancouver, those gifts were an eye-popping $180,000 and $340,000 on average among first-time buyers and existing homeowners looking to buy again.

http://www.ctvnews.ca/business/parents-gifted-10b-to-adult-children-in-past-year-to-buy-homes-cibc-1.5637498

Leo is absolutely correct … crashes come after strong gains!

Canadian housing prices have surged during the COVID-19 pandemic, with the average cost of a home rising more than 50% over the last two years, according to data from the Canadian Real Estate Association.

Leo:
“Doesn’t really matter for the definition of a crash though. Generally crashes come after strong gains, not after flat periods.
I am betting more on a long stagnation than a crash as well though. But I think if rates really do keep driving up we could get a pretty sizeable pullback in prices. We’ll see.”

http://www.oakbaynews.com/news/homeownership-a-1-million-dream-in-most-of-greater-victoria/

“By breaking the $1-million barrier, Sidney officially joins North Saanich ($1.481 million) and Central Saanich ($1.171 million) as communities on the Peninsula where a single-family home costs in excess of $1 million. For the Peninsula as a region, the benchmark was almost $1.234 million in March, an increase of 3.4 per cent from February and 32.7 per cent from March 2021.

Across the region, the benchmark price stood at $1.141 million in March 2022, up 30.4 per cent from March 2021. For the core and West Shore (as defined by VREB), the corresponding figures were $1.233 million (up 27.4 per cent from March 2021) and just over $1.001 million (up 35.5 per cent from March 2021). These figures mean that the West Shore remains the ‘cheapest’ region in Greater Victoria when it comes to real estate, but this assessment becomes increasingly relative.”

feel free to tell me what it is and I won’t bother posting the chart.

Patrick is clearly about to bust out Hawk’s chart. (With an outside chance he’ll add in some Info style ascii graphics).

And so you cannot imagine a scenario that you describe above where prices continue to rise faster than incomes

In fact his chart shows exactly that. The upward slope of the constraints indicates gentrification. The issue is what happens when affordability exceeds those constraints. Add rapidly increasing interest rates and mix.

Feel free to explain how people will pay for these mortgages as rates rise and prices rise at the same time. The only way that happens is if incomes rise much faster than either of them and keeps affordability reasonable.

You have a long standing narrative that Victoria SFH affordability is constrained (in general) by the lines on your affordability chart. And so you cannot imagine a scenario that you describe above where prices continue to rise faster than incomes, as it would worsen affordability which can’t continue to happen forever. The reality is that we are seeing just that, and it is a process called gentrification – where wealthier people from outside Victoria are moving in, who are not bound by the average Victoria income metrics.
You have explained the cycles on your affordability chart by explaining to us that un-affordability peaks when “People simply become less willing to stretch to buy real estate”, so that “affordability doesn’t just stay at those strained levels, it improves for several years”. After years of improving affordability, people get interested in RE again, and affordability starts to worsen as prices rise – and so the cycle continues. The theory sounds great. If your theory is correct, then yes affordability is destined to run in cycles and we are due for a return to more affordable prices.

But I happen to disagree with that theory.

Because there are simpler single variables that have a better correlation to the ups/downs of Victoria affordability, that don’t involve the sentiment of people becoming “less willing to stretch to buy RE” at unaffordability peaks. I’ll post a chart later today of one of these variables that co-relates with all of the peaks and valleys of the affordability chart. If you or any other HHVer knows what this variable is, feel free to tell me what it is and I won’t bother posting the chart.

Lol government jobs are high paying now?

When the majority of jobs are public sector, high paying, secure, lots of benefits, etc…, like Victoria and most large Canadian cities

Where did you get the idea that the majority of jobs are public sector in “most large Canadian cities”? It’s not even true in Victoria, or other capitals.

It’s the very reason why RE is cyclical

Nominal house prices aren’t cyclical. Start at any buying point, and see where you’d be 25 years later when the mortgage is paid off.

Tiff channels his inner Volcker:

Wonder what he’ll say when we hit 8% inflation for April.

Has anyone had any dealings with 360 Comfort Systems? Had a friendly visit for a heat pump quote but the prices are intimidatingly high.

Tiff channels his inner Volcker:

The Bank of Canada might consider hiking its benchmark interest rate by more than 50 basis points in a single move as it pushes borrowing costs higher to try to quell runaway inflation, Governor Tiff Macklem suggested on Thursday.
.
“I’m not going to rule anything out,” Mr. Macklem told reporters when asked whether the central bank would ever raise rates by more than half a percentage point in a single rate decision.
.
“We need to normalize monetary policy reasonably quickly, and we’re prepared to be as forceful as needed,” he said from Washington, where he is attending the spring meetings of the International Monetary Fund (IMF) and World Bank.
…
“If we don’t keep inflation expectations well anchored, if we let them become unmoored, then inflation will just get stuck at a new higher spot, and we really will have to slow down the economy a lot to get inflation back to target. That will be much more painful,” he said.

https://www.theglobeandmail.com/business/article-bank-of-canadas-tiff-macklem-wont-rule-out-even-larger-interest-rate/

Leo do you know what the months of inventory were back in the 80s?

Well that sort of depends on the final digit. I don’t know the exact numbers but I can tell you that circa late 1980 the market was completely nuts. Didn’t last though.

Will be interesting to see what wage discussions are happening with government, I’m used to 1% increases but strawberries are up 30%.

At this point BCGEU is discussing a 5% wage increase (aka a wage cut), and the Government is offering up 1.75%.

Yes the goal is to not be underwater or if we are, just keep swimming. Will consider student rooms or RV storage if it gets dire. I wanted a variable rate and spouse wanted fixed, we went with fixed and are now pretty glad we did although it just feels like kicking a high rate down the road to our first renewal so need to prepare for that too. Glad that huge CMHC cost will at least help us a bit with future rates.

Will be interesting to see what wage discussions are happening with government, I’m used to 1% increases but strawberries are up 30%.

Open bidding is the same as auctioning a property. This will help with transparency, however, given my experience with auctions, it will result in even higher prices. Two people butting heads turns into a battle of egos and irrational prices.

1986 was the bottom of a bust, as Leo’s graph shows. Plus proportionally we’ve already seen a larger increase in rates with more to come. Hardly comparable to today at all.

Ah yes, the 1982-86 price bust, during which rates FELL steadily from 20% to 12%. And prices had tripled in the previous ten years (1971-81) when rates were RISING.

The key to understanding this is to forget the idea that rates are the major factor determining house prices. They are a minor factor, where the major factors are supply and demand (population, economic/GDP, income growth). If our economy turns bad (recession), rates will fall again and so will prices. If it stays hot, rates will rise and so will prices.
Yes, prices have risen during period of falling rates . But they’ve risen MORE in periods of higher rates, because those are periods of great economic growth. That’s what history shows. Young people here have never lived through rising rates, so they should study periods of high GDP growth and rising rates like the 1970’s where GDP tripled and so did house prices (despite rising rates).

the ~25-30% reduction in prices brought prices back to where they were like 8 months before the peak. Hard to argue that wasn’t a crash though.

My math says 38% reduction in prices.
38% reduction in prices now would result in your typical GH box dropping in price by 500k.

leoS: I see it unfolding more along the lines of prices drop 5 to 10% and than go flat for 10 years while everything catches up.
James: Historically has that ever happened?

I would say “yes” to that question. It happened in Victoria 1994-2001. A 5.4% fall, followed by flat nominal prices for 6 years. That’s what Leo is predicting (only small difference is he says flat for 10 years, and it was 6 years flat in the ‘90s).

First there was the big price runup… 1987-94 prices more than doubled in 6 years $110,000 to $256,000
1994 $256,025
… then the drop
1995 $242,012 … prices fell 5.4% from prior year (within Leo’s predicted range if a 5-10% fall)
… then flat for 6 years
1996 $241,910
1997 $248,921
1998 $246,018
1999 $249,930
2000 $251,398
2001 $259,138 … (2001, finally after 7 years came back to 1994 prices)

.. and then they took off again, doubling in 5 years 2001 to 2006 when they got to $527K
https://www.vreb.org/media/attachments/view/doc/3_2021_historic_summary_of_single_family_detached_sales_by_year/pdf/3_2021_historic_summary_of_single_family_detached_sales_by_year.pdf

btw) A cautionary tale for people here that are expecting rising rates to lower house prices. During 1986-90 period , 5 year posted mortgage rates rose steadily, from 10% to 14%. Yet Victoria prices rose 77% during the period ($102k to $179k), and continued to rise for three more years , https://www.ratehub.ca/5-year-fixed-mortgage-rate-history The same thing happened in the 1970s – rates rose throughout the decade, yet Victoria prices tripled 1971-81). Why?….Rates rise typically during good economic times, raising wages and bullish consumer sentiment, and this has led in the past to higher house prices, despite the rising rates.

As an aside, I bought my first Victoria house in 1994, likely signed the purchase within hours of the peak! After buying, I didn’t keep track of any RE prices (too busy with a young family, and there was no HHV ), so I was “blissfully unaware” of this flatness in prices until many years later.

https://docdro.id/QrcS1U7

https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-why-variable-rate-mortgage-borrowers-are-biting-their-nails-after-the/

does that “discount” carry forward to the renewal at 5 years?

No, every renewal is basically a refresh and you negotiate at the current rates upon your renewal – previous discounts etc don’t matter.

If you’re CMHC insured due to high ratio, and subsequently get a better fixed interest rate as a result, does that “discount” carry forward to the renewal at 5 years?

Can l pls ask what was the sale price on 1517 Mt Douglas X rd if either Leo or Marko knows.
Thank you

Historically has that ever happened?

No

New Listings March

1990 – 1,437
1991 – 1,119
1992 – 1,382
1993 – 1,596
1994 – 1,356

2018 – 1,188
2019 – 1,284
2020 – 1,084
2021 – 1,419
2022 – 1,217

and in the meantime, the absolute number of out-of-town buyers has gone up 3x probably. Just this week three accepted offers on my listings all out of town retires (Toronto, Edmonton, Surrey) and two have Victoria addresses as they are renting here. I am not one of these Victoria is the Hawaii of Canada best place on earth believers but it does seem it is quite a desirable place in Canada. Surprised prices, homelessness problems, and doctor shortage haven’t started to dent out of town demand.

It’s often mentioned that it would take an economic shock to take down the housing market because how people view housing and will seek to protect it as much as they can. Could inflation and the measures to get it under control develop into a significant economic shock?

Residents’ group aims to uproot long-serving Langford council

https://www.timescolonist.com/local-news/residents-group-aims-to-uproot-long-serving-langford-council-5280991

Also it is possible that some might identify as garden tractors.