Will investors set a floor on prices?
Prices are set by supply and demand, but in the resale market that demand is not as simple as how many people want to live in Victoria. Though part of resale demand is certainly just the number of people looking to buy, it can also fluctuate quickly based on credit availability (regulations and rates) and consumer sentiment. If money is cheap and prices are rising, people rush to buy and parents have no problem handing out big gifts to help them do it. When credit gets expensive and prices fall people are more reluctant, as we’ve seen in recent months.
The rental market on the other hand is a much purer reflection of how many people are actually coming here versus the rental supply available. No one speculates on the rental market by renting multiple units, and you can’t take a loan to pay your rent. That means rents simply reflect the supply of rentals and the number of people wanting to live in Victoria at a given price. Rents rise when the vacancy rate is less than about 3%. According to the last official stats from the CMHC, we currently have a 1% rental vacancy rate in Greater Victoria and rents are unsurprisingly increasing quickly.
That has led some to speculate that investors will likely stabilize the market or already are. That could happen in two ways. Firstly, if rents are high and rentals insecure, then people will be more motivated to continue to strive towards ownership. At the same time sellers that may have wanted to unload their investment properties due to higher carrying costs may decide to rent them out instead. It’s a reasonable theory, but does it make sense for investors to buy at today’s prices even with high rents? Let’s take a look.
Victoria – like most high priced markets – generally has low cap rates for rentals. That’s expected, but most prudent investors will still want to have their investment properties cash flow month to month or at least break even. In other words their rental income should cover hard costs like the mortgage payment, strata fees, insurance, maintenance, and vacancies. Some more speculative investors are OK subsidizing rental properties every month on the expectation that prices will appreciate and they will still make money when they sell. This is fundamentally a risky position, since it depends on a continual income to subsize the rentals and puts the investor at risk from increasing costs which they have no inherent buffer to absorb. However in rising markets this risk has paid off for Victoria’s condo investors quite often in the last couple decades. That said, even at negative cash flow investors will at least expect to cover the mortgage interest and other hard costs.
Given that prices are down and rents are up, one would think that carrying costs should be quickly converging on rents and attracting investors back into the market. Houses are renting from $3000-$5000 a month, and rentals.ca reports the average 1 bed apartment is advertised for $2100/month.
On the cost side of the equation, I looked at the last couple years for houses and 1 bed condos which are often purchased as rentals. Hard costs (money that goes out the door every month) include interest on the mortgage, taxes & insurance, strata, and maintenance. Median taxes and strata fees are pulled from listings, while maintenance and insurance are estimated. Not accounted for are any contingency for vacancies, nor consideration for the opportunity cost as I find real estate investors tend to discount it. Principal is included to show the full monthly cost, but greyed out to show monthly outlays for investors looking for positive cash flow versus those just looking to cover their hard costs.
What’s interesting is that for both house and condos, costs are at record highs as of July due to rising interest rates. That’s despite dropping prices and an unusually low median for 1 bed condos in July ($440,000) which has since bounced back. At today’s high market rents, a speculative investor could buy and cover their monthly hard costs if they ignored opportunity costs, but it would be pretty difficult to get a positive monthly cash flow unless you were buying a unit at a substantially lower than median price, or a layout that could collect premium rents.
So while strong demand in the rental market will certainly provide a floor for prices at some point, I don’t believe we’re there yet. We’d have to see lower prices, lower rates, or higher rents to make the investor math work out first. That’s born out in the VREB Realtor Survey, which shows a decreasing rate of investor purchases since the peak of the market in February. While the data is noisy and appears to have some seasonality, the decline in observed investor activity does seem to match the deteriorating returns in the market due to rising costs and falling prices.
What are your thoughts? Are you looking for an investment property right now?
Also the weekly numbers courtesy of the VREB.
| August 2022 |
August
2021
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 83 | 189 | 304 | 420 | 831 |
| New Listings | 236 | 468 | 686 | 887 | 894 |
| Active Listings | 2157 | 2190 | 2178 | 2164 | 1120 |
| Sales to New Listings | 35% | 40% | 44% | 47% | 93% |
| Sales YoY Change | -42% | -43% | -44% | -44% | |
| Months of Inventory | 1.3 | ||||
The last two weeks have seen a bit of an uptick in sales. That combined with the reports of increased buyer activity in Vancouver and Toronto is worth looking at closely to see if some buyers are getting used to higher rates and returning to the market to take advantage of lower prices. However it’s also the end of the traditional summer quiet period, so it’s possible that it’s just normal buyers returning from vacation and getting a jump on the traditionally busier September market. Certainly the increase in the last couple weeks is quite similar to what we saw last year, but is it normal? To check I pulled sales in the latter half (15th to 28th) of August compared to the first half (1st to 14th) over the last 10 years. It shows no clear seasonal pattern (averages between first and second half are identical), which would indicate what we are seeing right now is an actual uptick in demand. However it’s too early to say if it’s meaningful or just noise. The increase doesn’t seem consistent even in strengthening markets, so I wouldn’t read too much into it just yet.
On inventory, active listings dropped slightly putting us now at the same level as where we started the month. We’ll lose a few more listings this week and to end the month, so expect to be down another 50-100 in the end of month figures. That’s normal for the time of year though, with the average August losing 86 listings during the month. It does indicate though that if the market is still cooling, it’s not doing so strongly enough to overcome the normal seasonal trends.
September will be interesting to watch to see if buyers return to the market during our traditionally more active fall market. On the one hand fixed rates have stabilized, but on the other hand variable rates will be heading up again next week. At that point we’ll see substantial numbers of variable rate mortgage holders hit their trigger rate, which will lead to payment increases for existing borrowers. I don’t expect this to lead to a flood of distressed sellers, but it will magnify the impact from rate hikes and drag on demand. As I’ve mentioned several times, I expect we are near the top of this rate hiking cycle, but that doesn’t mean the market will come bounding back. About 2% of fixed mortgage rate holders renew every month, and most will be facing substantially higher payments even if fixed rates don’t rise further. Again I don’t expect that to destabilize the market, but it’s an ongoing drag on demand that could persist for quite some time.
Stay tuned for updates on price movements and the full month’s numbers later this week.
New post: https://househuntvictoria.ca/2022/09/02/august-dropping-prices-attracts-some-buyers-back/
If an investor’s rental property needs to bear a mortgage, it simply needs a positive cash flow to be doable. Many investors with big capital use a very simple but practical math to calculate the investment return: Annual Rental Income / Property Value, or more accurate way: (Annual Rental Income – Insurance – Strata/Maintenance) / Property Value. For example, if the monthly rental for a 1-bedroom condo is $2100, and the cost of buying it is $440,000, the simple way to calculate the investment return is 2,100 x 12 / 440,000 = 5.7%. To be more accurate, we need to deduct the insurance & strata from the rental income, and add the purchase cost to the cost of the property. As a general rule, 10% return is considered a good return, while under 5% is not a good investment.
I’ve never understood how every other household seems to own an expensive SUV in this city. I’m pretty sure we’re on the higher end of the income scale for Victoria and yet we drive the same used car we bought togethe when we were in our early 20s (now in mid 30s)… and although our car is in pretty rough shape, I have no idea when we’ll feel ready to upgrade, it never feels like the right financial choice…. Are all these people over extending to get nice cars? Or is this all the out-of-town money people always talk about?
Isn’t this what we want re environment? Why does everyone need a full size SUV or F150? As for cloths aside from socks I haven’t bought any new clothes this year. If you watch my YouTube videos I am often wearing 5+ year old H&M shirts.
If Canada is deteriorating so badly there is something in Croatia will call “vote with your feet;” move to a different country.
When my parents came to Victoria in the mid 1990s they both worked 6 days a week. Sunday we had two flyer routes, one in Oak Bay and one in Saanich. At one point a dog bit me as I was trying to climb a car to get away from it 🙂 Rented a crappy 1 bed + den attic suite on Roseberry St, I slept in the den. First car was a 1981 Volvo diesel for $1,500. No vacations.
A couple of years later original house purchased in Oaklands area. First few years every single penny went towards putting in a suite in the basement. It wasn’t until 15 years later my parents renovated the 1948 kitchen and bathroom upstairs. Upstairs is 803 sqft 2 bed 1 bath and I lived with my parents until 25. It was an upgrade from the 500 sqft one bedroom soviet style apartment in Croatia. At least I had my own room.
My parent’s house was in similar condition as to the house currently listed on Scott Street for 799k and they’ve spent 25+ yrs fixing it up.
Does the current situation suck. Yes housing and healthcare are just brutal but there are options. You can make sacrifices, you can move to Edmonton, you can buy less real estate, etc.
We live in one of the best countries in the world, in arguably the best city in that country, that is very anti-development surrounded by water on three sides. Who knows what happens next two years but 10 – 15 yrs out situation will only be worse in terms of affordability. I am 99% confident the government will not solve housing problems. There are just so few examples in history of countries/societies reducing beaurocracy to makes things more affordable. Even if the politics turn favorable for housing the beaurocracy won’t.
We had a 13.6 million sale so that pulled up the average quite a bit. Median was flat.
There seems to be a sweet spot. When we bought, the bottom end of the market was $650k to $750k (e.g., small and outdated, maybe not very well built, or in need of major work). Houses in the $800 to $850k range were noticeably better (e.g., outdated 60s split).
I would say now, there are decent houses out there in the $1.05 to $1.1 range. Maybe a little outdated, but solidly built. That’s the tier that I would stretch to get into. Good solid house with opportunities to add value.
One good thing about my spouse and I both coming from lower-middle class families is that standard was easier to achieve in our careers. We’re still (largely*) living that lifestyle, which has allowed us to invest more either getting us to retirement sooner or having a more comfortable one.
* we buy much better food than we were raised on, lots of fresh produce and quality proteins as opposed to freezer meals and fast food
It is? Well, then our numbers on immigration should start to decline while emigration increases I guess. Seems like we lose about 30k to emigration each year and this number is declining. The majority of emigrants are foreign born (ie. were immigrants to Canada). Also many emigrants who leave for work eventually return.
vreb.org has August 2022 median SFH price for a greater Victoria at $1,111 K , up 2.3% MOM (from July at $1,087k)
( Average price up 7.5% MOM, skewed by some large ticket sales. )
https://www.vreb.org/pdf/VREBNewsReleaseFull.pdf
Both of those monthly numbers (average, median) mean nothing! They are too volatile due to small sales numbers.
To illustrate… With 230 SFH sold in a month, a single house selling for $4.6m above average would skew the average by $20k, about 2%.
fwiw) benchmark SFH Greater Victoria is down 2.5% MOM, down 12.5% since a Feb 2022, and up 17% YOY.
I’m waiting for Leo’s “price to assessed value” which seems to be much better (less volatile) than all these metrics
According to citified prices are going to the moon! 6% in one month, the market is on fire.
Totoro – the difference is that the massive wealth and bullying of America’s corporations and military industrial complex can still subsidize the poor whereas canada is lost without real estate, construction and raw materials exports. A skilled developer or medical professional can double or triple their salary and pay less tax . Our old age security, immigration programs and healthcare system are all unsustainable.
The trajectory for Canada is deterioration whereas I see things improving in the wealthier states.
Right. It sounds like your family is having plenty of fun!
From your description, It sounds to me like you should borrow more than 550-580 if possible. You would seem like the ideal candidate for someone that needs a nice house for a long term ownership, and can pay for it. You’ve mentioned some of the techniques (credit union to bypass stress test etc., suite ). As youve likely noticed, the houses get exponentially better as the prices rise.
So if you’re budget is $1m, but you find the right house for $1.1m, you want to know how you can do it.
Have you talked to a mortgage broker(s). It’s free to talk to them, and pick their brain about what you can/can’t do. They don’t deal with the big banks, but they deal with other banks and usually get you better rates. They would know about all the ways around stress tests etc.
Perhaps there are others here that can point to other ways to borrow more
Literally the exact opposite of what they were saying has happened.
Hey Patrick!
Thanks for the advice. Indeed, family time is precious and kids never get younger. Although we pinch and we don’t go to Hawaii, there are some benefits that come with an academic job that give pretty nice alternative experiences. This summer we got to spend a month in Paris and Italy; I was at various scientific meetings, and we were able to swing it so that the family could join but the whole trip was cost-neutral, thanks to a large pot of frequent flyer miles from previous work trips, institutions hosting us in apartments thereby taking care of housing, and generous per diems. Lovely memories for all, that’s for sure. Our personal travel is usually things like that, where I’m working a relaxed schedule but the whole family comes too, and after creative planning we end up cost-neutral. It wouldn’t be possible if it came out of the pocket.
Beyond trips, the other nice benefit of academic work is that hours can be moved around. I generally get a lot done while kids are sleeping and spend less time in the office, so as to have more family time. Definitely worth the fact that I make less than say working in tech.
That being said, when it comes to down payment, we’re totally open to comments/advice on that front. If we were to play by the rules (meaning pass the stress test, go with a major lender), then at current income (which btw our new contract won’t be negotiated until well after BCGEU completes their negotiations, so salaries are still at 2021 levels; I don’t think anybody is expecting raises to keep up with inflation) we would qualify for 550~580k of mortgage with 30y amortization. 400k down payment is basically what would be needed then to be able to get to 1m of house, which is around the bottom of the detached market for our hopes (2000 ft^2, 3 bed, 2 bath) in the suburbs but not on the Westshore. (If we can we’d like to try to stay near where we are now, up the Peninsula, where we’ve made friends and a life and better deals can be had than in Town.)
We’re also completely open to getting a home with a suite and renting it out, which would allow us to go further..
To be more direct, one of my concerns is whether we would even be able to qualify, which makes the down payment loom larger in importance. Every contribution to it seems important, especially when the market has been so volatile. One option is to go with our credit union Vancity so as to avoid the stress test and thereby increase our reach, but is that a risky move? Anyway that’s a smattering of what’s on the mind.
PS With three young boys we are always, always, always outside in the winter, rain snow or shine. Sanity depends on it. 🙂
I think the original comment was 120k/80k.
The original point was that there may be a significant portion of household income redirected from discretionary to debt-servicing (once we hit the trigger point). That, coupled with product inflation may be enough to tip the scales.
We didn’t start skiing until we could afford it. I didn’t feel deprived.
I would work harder on the income side than to penny pinch just me
Great! You did say that kids will “ appreciate time spent with you no matter where you are.” So it’s good to hear that for you that didn’t mean staying home pinching pennies during your “accumulation phase”. And it meant spending money taking them skiing. Yes, that’s a great family sport.
We ski, but each to her own.
We have beaches and sand here, best place on earth right?
It is 48k. My error – sorry. Plus you will receive Child Tax Benefits of $2,618.40 (annual total).
Total income
$100,000
Total tax
$27,121
Total income
$80,000
Total tax
$21,204
You seem to be on top of this kind of thing but that number looks low to me. Online tax calculator shows 80k/120k would be 53k income tax.
Well sure. But the point is to realize that family time is precious, and it may result in you spending money to make it happen – wherever you are. And the reality is that typical family time in January in Victoria is likely going to be everyone sitting in the dark watching Netflix, while checking their phones. Nothing like a vacation in Hawaii. I ask my (now grown) kids about fun memories from their childhood, and many of them were family trips (which we still go on together).
When you’re breathing your last few breaths, will you be thinking that you wished you had less fun vacations with your young kids?
I think it is fine to do this if it is worth it for you, but your kids will appreciate time spent with you no matter where you are.
Sorry, had no idea that those were not your numbers or situation… maybe because you did not say this and portrayed it as your own situation?
The math doesn’t lie. What is shows is that your fictional 200k family should not be under financial stress even with their new $600/month car payment and a $1500/month mortgage increase.
Not sure about that. Show me the numbers. In my view we aren’t in the danger zone if you have qualified based on the stress test and bought unless:
– your marriage breaks down
– your health or your child’s health causes you to not be able to work
– you have untreated addictions that cause uncontrolled spending
Is it harder to buy a SFH these days? Yes. How much? That would require some specific calculations that account for wages and appreciation. I think Leo has done this already, but I’m not going to search it out right now. Are there ways of compensating? Yes. People are doing this by substituting townhouses for houses or houses further from the core.
I’ve never pinched pennies. You only live once. Your kids are only young once. Taking trips with your kids might reduce your down payment from $400k to $350k, but you and your kids will have those happy memories for a lifetime. And you can’t recreate them when they’re grown and gone.
My advice: Take the family to Hawaii for a couple of weeks in the winter. You’ll see your kids running around on the sand and in the water, and be very glad you did it.
Market22 and Totoro: You’re missing the point. I’m a huge money mustache convert, and have been for 10+ years. I’m not struggling at all because when I bought my house I built the worst case scenario into it, and I don’t have children. What I’m saying (and what Kristan points out) is that a lot of people who are not in the situation of being young and having to buy a house or afford a MODEST type of living are struggling to understand what it’s like, hence Barristers comment “yeah I had it tough too”. It’s a fallacy of relative privation. Specific, acute difficulties at some point in time are not the same as a whole generation or two’s future looking worse than their parents had it.
Could my network of friends cut back on booze, eat beans, and stop buying lattes? Sure. It would help. But it misses the forest for the trees. But let’s be honest, Mustachianism and the like is not for most people, though I have converted a few friends. For many, although as Totoro has pointed out, being in one illiquid asset class isa problem, their house is the only way they can save, and when housing and associated costs are so high compared to wages, we are hurtling towards some very negative outcomes.
The overwhelmingly bigger problem is that costs relative to wages have soared, and that the excess capital and profit that comes from upping those costs is going into the hands of very few, and some on this board are more ready to blame the individual to pad their ego (I had it tough too, harumph!) than they are willing to do work about the systemic issues facing all people with concern for having an aggreable quality of life over the next decades.
A lot of people?
Canada is a pretty good place to live overall. And we pay lower taxes than a lot of European countries.
FYI, more than half of americans contribute less in taxes than they take in. Plus the declining lifespans there and high rates of gun violence. You might be able to save more money in the US and maybe you’ll love it.
https://moneyandmarkets.com/more-than-half-americans-more-welfare-pay-in-taxes/#:~:text=A%20recent%20report%20by%20the%20Mises%20Institute%20says,Security%20than%20they%20pay%20in%20taxes%20each%20year
Except they really do, especially if you invest the difference and are still in the accumulation phase – plus you don’t have to trade hours of your life for the extra money. You can’t always just get a better job, and some higher paying jobs are that way because they are way more stressful.
The way money works is that it is very hard to accumulate when you are starting out and it all matters to a degree because the sooner you obtain income producing assets the sooner you benefit from compounding gains and it becomes way easier to make money. Given that life is time limited I’d rather go all in for a few years and have the long-term payoff.
Pretty normal situation for the first approx. seven years of home ownership for FTBs. And it has worked out well for lots of people. Of course, if you don’t have a pension you need to create something more for yourself for retirement most likely.
Not sure about that. Happiness counts for something too. I am happier to live frugally if it means I (mostly) get to dodge the rat race. For me, small sacrifices (making most trips by bike, owning a 14 year old car, no restaurant meals, no $10 pints of beer, no European vacations) are worth it, if it means not taking a job I hate.
Bluesman, ahh, that was you! Well, good for you. 🙂 Lord knows the craft beer is good around here. I usually get a growlito from Category 12 (just down the road from us), and man, they know what they’re doing.
Yeah well, Kristan, we took a break fixing up our crap house with improvements this summer and put some discretionary spend back into the $500 monthly booze fund. It’s been hot, the craft beer is cold and yummy and there are some really nice top shelf tequilas these days. I hope this beautiful weather extends into September. Kinda wanna keep up these times before picking up the tools again.
Come on, are you being facetious or trolling a bit with this one? Being single asset committed especially an illiquid one does not account for having a savings and investment plan for retirement. It just invites risk and exposure and can end in people not being able to access funds when needed in times where job loss might occur, someone falls ill and can’t work or a death. “Oh, we need money now? let’s sell into a down market (maybe months to sell) or borrow against it, but interest rates are high and we already have a ton of debt”. There is no situation where going all in on one asset class is a good idea.
Kristan – very enlightening, I don’t think many of the small sacrifices really make much of a difference. Many people pinch Pennies when switching jobs can catapult them up the wage ladder.
Totoro- If taxes rise higher than they already are with the absence of any benefits for a high income earner in canada I’ve already decided to move to the states. I wonder who is going to want to stay behind to pull the weight of the elderly and 50 percent of people who contribute less than they take in benefits
https://financialpost.com/personal-finance/taxes/trudeau-is-right-40-of-canadians-dont-pay-income-taxes-which-means-someone-else-is-picking-up-the-bill/wcm/a85dd34f-2c80-41e9-8061-ca94e8e24961/amp/
At the risk of sound a little mean, the honest truth is that 90% of the time when an employed person says the "just can't afford" to pay the bills, the truth is that there are privileges they don't want to give up or sacrifices they don't want to make. There are so many ways to cut expenses and make money with a little ingenuity and limit setting. Eat more produce less junk food; go out to dinner no more than once a month; rent out a room or two for $900 a month cash; go camping instead of flying to Mexico; workout from home instead of the gym; shop at value village; etc etc etc etc
Ironically, most people will be happier living more efficiently if you approach it with a positive mindset. This shows up in studies and anecdotally don't we all know people who have so little but live so fat.
Mr. Money Mustache Man has a lot of interesting ideas about this.
https://www.mrmoneymustache.com
There is a big difference between facts and feelings.
I get that you are feeling stressed, but if you are making $200k per year as a couple there are many things you can do to make things more workable.
If you are making ex. 80 and 120k respectively your total tax burden before deductions (dependents and child care) is $40k. This means your after tax income is 160k or $13,300 per month. Less 5k mortgage and 2k daycare you still have $6,300 a month. If we factor in the deductions for the lower income spouse you have $6,700 a month after tax after paying daycare and your mortgage. Am I missing something?
A corollary to what SaanichAdam is describing is that things are harder downstream. Don’t forget that median (!) household income in Greater Victoria is 55k/year.
To give a sense of where things stand in our family (nowhere near that end of the income distribution, but still doing well above average for the region, saving for a home):
– I’m e-biking (instead of Corolla-ing) from Central Saanich to/from UVic to save parking fees and gas.
– In the last three years we’ve taken one three-day off-season trip to Ucluelet, with a total cost of ~800 CAD. We generally go camping/hiking/backpacking instead.
– A meal out for the family (of five) is usually take-away in the 35-45 CAD region once every two weeks.
– My contribution to the food budget is ~ 150 CAD/monthly.
– Alcohol comes in at ~ one beer/week total (I remember once seeing how a HHVer had to lay off 500 CAD/month alcohol budget for the family after buying a home, and just had to laugh).
– We split internet with the neighbours through Shaw, take advantage of Shaw’s mobile phone service (~ 10 CAD/month for the two grown-ups), no cable.
– We generally give 10% of income to charity.
– Thankfully we have an incredibly wonderful rental situation where the rent is stable and dependable.
All savings for our adult lives has been going to assemble a down payment in the 300-400k range, hopefully culminating in us buying a SFD before I turn 40 in two years. (Being an academic we’ve had to move around plenty over the past 20 years, and mostly for our kids’ sake we want to just plop down in a place for the next 20 years.) And it will be a fixed rate let me tell you. :p
I’m not complaining at all, mind you, just painting the picture. But:
Listed just past the peak, but even in February I doubt it would have sold for over $2M.
Interest is only tax deductible if it is a rental or partially deductible if you rent a portion of the house and then also subject to capital gains tax after selling
976 Milner Ave was originally listed for 2.4 million. It’s now relisted at 1.7 million. Nice little 700K drop there! Fairly ugly house and small yard in my opinion.
SaanichAdam: sounds like your life is better than mine was at your age. If your parents were taking one or two vacations a year than they were richer than most of my friends. I still have never bought a new car and the one I drive was built in 2002.
I’d say the financial stress is all about decision making between fixed and variable rates. I also know some people who bought in 2022 and 2021 with five-year and four-year fixed rates, all of them are extremely happy and enjoy their new home.
That’s not needed if you’re paying off a mortgage. In 25 years the paid-off house will be your “savings for retirement”.
How much is your total mortgage payment now (after the increase)? How much is currently going to interest vs principal? For example, $1 million mortgage at 4.2% interest would see you paying $3,500 per month interest. The rest of the mortgage payment is towards equity and is the “forced savings” that you were complaining that you don’t have. Lots of people here are paying $3,500 in rent and they aren’t “barely making it” like you.
I’m new to this, but if interest paid on the mortgage is tax-deductable, wouldn’t the overall cost be much lower?
My opinion is that we’re past peak inflation (8%). Inflation will fall somewhat (to 5%), which is still way above the bank targets. So rates will keep rising, for at least another year.
Totoro: The source of the financial stress is that people only plan for monthly payments. So when your $1M house payment has jumped $1500 a month, your daycare goes up $500/month per kid, taxes went up $100 a month more, food costs another $200 per month and you (maybe stupidly) bought a new car that’s $600 month, as well as gasoline being more $$$ you start to feel like you can just barely make it. And putting 10-20% in savings for retirement? Forget about it. There are many people on this blog that have paid well or fully into their mortgages or have multiple properties that don’t, in my opinion, fully appreciate how difficult it is for younger people to even live a modest lifestyle now.
I don’t discount the fact that older generations had hard times too, we all do. What I do think is there is enough of the “I got mine” in the older generations to make them apathetic about doing what needs to be done to get their children and grandchildren adequately housed.
Barrister: I think mostly my friends/network are worried about attaining the quality of life that their parents had. Generally, that group is well educated upper middle class people that thought they might be able to take a vacation or two a year or buy a new car every 5-10 years, but because of housing costs and childcare costs they don’t do vacations, don’t eat out, have old crappy cars etc.
Let’s be clear, there’s no crocodile tears here – I and my network realize we have it good relative to many others, and even come from a place of privilege compare to many but – if people with incomes over $150k a year combined are foregoing modest vacations, buying new clothes and modest new vehicles, we have a bigger problem on our hands.
I think some of my network don’t know how to be frugal either, so there’s that. But the bigger issues is that many many young(ish) people are now realizing they will not have the life their parents had, and that in fact, energy prices, home prices etc are poised to get worse, along with environmental degradation, drug crisis etc. Many people in my age bracket and younger don’t have much hope for the future. And before any boomer jumps in talking about how it was hard in the 80s too, don’t. Relative to wages, everything is much much more expensive now in real terms.
What is the source of the financial stress?
It is hard for me to understand how this is the case even if you are now paying, ex. $5000/month for a mortgage.
It is disturbing to see so many of our young people in such financial stress. They, oftentimes, have been encouraged to take on un-repayable debt by money lenders, RE agents and well intentioned relatives and friends. The whole dream of home ownership turns into a nightmare. Let us hope for a return to affordable shelter costs.
Saanich Adam: What is your group of friends likely to cut back on? Travel, restaurants? Is your group worried about the fact that they may end up with little or even negative equity?
James, 75 by the Fed seems reasonable to expect. The US has less of an issue with variable rate mortgages and having about a quarter of all mortgages coming up for renewal every year than we do.
But we mostly have to follow their lead.
Starting to look like a 75 point increase in the US this month. I completely misinterpreted lower for longer.
According to VREB, median sale price is 200k less than it was in February.
I wish investors would set a floor on the price of my stock portfolio right about now… lol
I think what we sometimes fail to remember is that most people look at their monthly cashflow only for affordability. It’s the same they do when they buy a car at 6% over 8 years and get sold on the $400 monthly payment and think “Yeah, I can afford that”. Many people don’t think of total obligation, total price etc, they just see what they can squeeze in monthly.
Yes, they may have had to pass the stress test (as I did in 2020), but our monthly payment after this rate hike will be up over $1300 a month this year alone. For a lot of people, that is too much to bear because in the meantime they live right at their means, save little because their house is their savings, and the rate hikes are probably seeing them close to or over their monthly budget.
Of course my experience is anecdotal by the group of people I spend time with (early-mid 30s professionals bought in the last 3 years, many in late 2021 or early 2022, near the top of their budget) are stressing a lot right now and putting that productive, young group of professionals under financial stress means less discretionary spending, so it’s just another sign of an impending recession. BTW we all bought crap houses that we are fixing up because apparently that’s what two working professionals making $200k a year combined can afford these days……
August numbers:
Sales: 478 (down 42%)
New lists: 980 (up 10%)
Inventory: 2137 (Up 91%)
So far I am not really seeing much of a drop in either asking or selling prices.
These kind of audit qualifications have been in place now for many years, including during the Liberal reign. Definitely nothing like the fudge-it budget years of the nineties.
Lol, whatever man. Sounds like you’re making this up.
Edit: Also just wondering if this was the case when the government underreported a deficit in 2012 and the auditor general called them out for
It…or does it only apply when the NDP forms the government?
It’s not the positive or negative result in the end, it’s about the process to getting there and if there can be faith in what’s being reported. The key is phrase was “generally accepted accounting principles”. BC’s previous debt downgrades came in part from the amount debt, but more so from markets not being able to to trust the reporting data that came from the government. So, the departure”generally accepted accounting principles” is very similar to the 90s.
Correct. There’s nothing bad about this. First off there’s a surplus. And the auditor says it should be a bigger surplus. Accounting for governments is a funny business to begin with, open to interpretation as needed. This story will be forgotten by tomorrow.
lol, I didn’t actually, it’s only up 59.8%. Also calling 2017 “the pre-pandemic market”, while true, is about as useful as saying that the market is actually up 100% from pre-pandemic, because 1717 was pre-pandemic as well. I’m sure it’s just a coincidence that it was up over 50% from February 2020 to February 2022, not that you’re actually wrong about something.
Unless I’m missing something the result seems to be that government posted a much smaller surplus than it would have if not for the discrepancies. So the opposite of what happened in the 90s.
Screen shot the original next time then call him out. Lmao, now he’s gona be double checking his posts before posting, u just took time out of his life james.. well done!!
From: https://bc.ctvnews.ca/parts-of-b-c-financial-statements-not-accurate-auditor-general-says-1.6050597
Wow, it might really be the 90s again. BC Ferries not being able to job done, the beginning of a housing downturn…. I guess we are just waiting on another leaky condo crisis now? That and giving out casino licenses in exchange for home Renos and decks being built.
Garbage takes and visualizations from CMHC is certainly nothing new. They should really focus on collecting and publishing the raw data and shut up about most everthing else.
As I wrote 5 years ago: https://househuntvictoria.ca/2017/05/04/cmhc-victoria-overvalued/ They finally killed those market assessments last year because they were so dumb.
Yes, but it is woefully incomplete. As I recall, they have some data on condo units in some cities, and nothing on the rest of the secondary market. To be fair to CMHC, they have to work within their budgetary constraints, and the secondary rental market is basically the wild west.
Yes, but very poorly presented by CMHC. Starting with the unintuitive terms “primary rental market” and “secondary rental market” that mean something to CMHC, but are unknown (and largely irrelevant) to most Canadians. Much of their data turns out to be only for the primary rental market. (Purpose built)
Victoria p. 20 https://assets.cmhc-schl.gc.ca/sites/cmhc/professional/housing-markets-data-and-research/market-reports/rental-market-report/rental-market-report-2021-en.pdf?rev=a5a0eaac-6f70-4058-8aa3-e6d307685910
Confusing charts like this one, showing 7 years of Victoria rents. (Cost of ownership added to clutter things up. Tiny Y axis. ). Rents look cheap and fairly stable …(4% rise per year over 7 years, close to inflation) is that what happened?
I agree with the general sentiment (data availability is embarassingly bad) but this isn’t quite true. CMHC does collect data from the secondary rental market. All available on the housing market information portal. Data quality is poor, but then again so is the data from all the other third party sources (padmapper, rentals.ca).
Right. And a big difference between rents in rent controlled and market units.
Average market rent. CMHC has started collecting market rent data, but limited (entirely?) to PBRs which skews low.
True. Yes, it would be great to get better data, but if we did, it sounds like we’d find the vacancy rate to be very low. But other data like average rent paid etc. would be very useful.
It seems like we’re at full occupancy.Between population growth and tendency to smaller household size, we need more housing than is being built. If we added 1,000 more units, they’d get filled up too, with people moving here or forming new households. It’s hard to imagine a high vacancy rate, unless there is more unemployment or people moving away.
It’s shameful how little information there is on rental markets in this country. We get one survey, once per year that really only looks at purpose-built rentals which are about 30% of the market, and generally older with fewer amenities. So we don’t even have a great idea of what the vacancy rate is.
Barrister,
Very roughly, a $500,000 mortgage at 1.5% amortized over 30 years would have a monthly payment of ~$1,700. At 4.5%, it would be ~$2,500. So a big jump but theoretically that person had to pass a stress test when they got the mortgage, so they should be able to absorb the increase…unless of course the lender played fast and loose with GDS/TDS guidelines to avoid the stress test, which definitely was happening.
Personally, I’m not comfortable breaching the trigger rate, so I’ve voluntarily upped my payment once and will probably do it again after the next hike. Not sure how many others are doing that proactively, but I don’t want to fall too far behind the original amortization schedule. All about risk tolerance I guess.
DAD: Thanks for the clarification. My initial thought is that it is going to be a hell of a larger bump than just a couple of hundred dollars for most mortgages.. It sounds like if you are going variable they are recalculating it at the new present rate which is likely to be three points more than your old rate. Five year fixed is also a huge bump. Few if any will have a big bag of cash with which to pay off the mortgage.
Am I misinterpreting the situation?
Interesting to see how the rental market is forming up now as the fall season approaches when there is typically little to rent. There appears to be more than ample supply of rentals for the 0 to 1 bedroom and the 3bdrm+ world. The only lack of listings is in the 2 bedroom availability.
If you’re going to go back and change your posts and call yourself correct, what exactly do you expect? Any smidgen of humility, even so much as a “opps, posted the wrong numbers”, and there would have been no derision from me.
It’s nice to see that we both agree with the vreb.org. numbers showing SFH median prices up 60% since Jan 2017. That’s progress.
Thanks for the discussion.
Evergreen advice for internet arguments.
I was using the numbers from your post. Sorry that I was supposed to know that what I was actually meant to do was look up different numbers from VREB, do the calculation and then congratulate you on doing the math on those correctly. My mistake. Congrats.
Now I’ll just tell you that your original premise sucked, since in August 2021 prices had risen by more than 60% (vs. the current 59.8%) from Jan 2017 median , and yet the number of luxury houses for sale was the same as August 2017. Hell, January 2022, prices were up a whopping 83.8% from January 2017, and yet there were less luxury houses for sale than in January 2017.
@ukeedude, it never checked out, he just changed his post, which I why I made sure to quote it.
I changed my mind im staying out of this
They aren’t “my numbers”. They’re correct, from vreb.org and they’re up 60%.
680k (Feb 2017) to 1,087k (July 2022)= up 60%
Look it up yourself : (median SFH)
Jan 2017 https://www.vreb.org/media/attachments/view/doc/statsrelease2017_01/pdf/statsrelease2017_01.pdf
July 2022 https://www.vreb.org/media/attachments/view/doc/stats_release_2022_07/pdf/stats_release_2022_07.pdf
Your math is terrible. Using your exact numbers it’s 37.2%. Up 60% would be $1,259k.
Oh definitely, and even in Canada there are plenty without.
Daily gratitude has improved my life since I started practicing it a few years back.
I was replying to Leo’s posted chart, comparing to the period Leo was using for his luxury homes chart (2017- july 22). So that would mean SFH prices at the start of that chart (2017).
SFH Prices are indeed up 50% or more from 2017 (the first year of the chart) to now.
In fact they’re up 60% (July 2022 $1,087k vs Jan 2017 median $680k).
Jan 2017 https://www.vreb.org/media/attachments/view/doc/statsrelease2017_01/pdf/statsrelease2017_01.pdf
July 2022 https://www.vreb.org/media/attachments/view/doc/stats_release_2022_07/pdf/stats_release_2022_07.pdf
———-
James, From your recent comment (“Nearly everyone here owns”) I infer that you too are now a homeowner. If so, congrats and when did that happen?
I’m guessing that Oak Bay has an older population than the surrounding areas and would have more people going into nursing homes and properties that are inherited. If your grand-parents can no longer live on their own or have died then one could choose to move to Oak Bay or just sell the Oak Bay home. That might be one possible reason why there are more listings than before in Oak Bay as their families have chosen to take the money instead.
I don’t know of a way to determine the actual reasons. I suppose you could look at homes that are advertised as being available for immediate possession. Intuitively I would think there would be a lot of noise in that ratio so that a clear answer is not determinable.
No one lives forever and eventually all privately owned real estate is sold.
Yes. I reviewed the clause again and one of option would be to increase your payment so that the mortgage would be paid off in the original amortization period. Another option would be to make a lump sum payment for the amount exceeding 80% LTV, or enter into a fixed rate mortgage. If you fail to do any, then the mortgage could become due and payable.
So could result in significant hardship for some people.
I swear Patrick is the new Frank!!
The monthly assessments also includes taxes. So it isn’t a significant difference between a leasehold and a strata. Heat and hot water are generally paid by the tenant in a strata. If that is included in the rent then you might get a smidge more for rent in a leasehold.
The problem with leaseholds is at the end of the term there is no reversionary value. But they still appreciate in value until they near the end of their economic/lease life and the amortization period declines. But with 58 years or so remaining that’s not a big deal until the lenders start to reduce the amortization period.
Any strata condominium built in the same era would also experience an increase in depreciation in the improvements. Eventually the strata condos built in the 1970’s will have to be torn down and at that point the home owner /investor will be receiving a proportional value in the land less demolition costs – if you can get them all to agree. Unlike a strata, there is no reversionary value in a leasehold condo. Which is a reason why leasehold properties are less expensive to purchase.
All communally owned property is going to face the same situation sometime in the future as the value of the improvements decline. If the leasehold property is maintained by the land owner it may be more viable to give the owners an option to convert all of the units to strata and sell the strata lots to the lessees rather than demolish and rebuild. I’m guessing at that as it all depends on what the building will be like 58 years from now and what multi-family land is worth then. Which ever gives the land owner the greatest return is what will determine what will happen.
Leasehold condominiums are an example of how affordable housing can be built. For example, if the city or investor retained the land and charged a ground lease while the private company would build and sell the improvements with a 99 year lease. Insurance companies and pension plans love long term stable income streams.
https://www.theglobeandmail.com/amp/opinion/editorials/article-the-canadian-city-with-a-plan-to-finally-build-more-missing-middle/
Sure. I’m more curious as to why that segment of properties has seen a much higher listing rate recently compared to the lower segments (at least to my eye). Is that segment carrying larger mortgages and can no longer afford them? Or they’re investment properties? Above-average financial savvy and want to downsize/rent/? and stick money elsewhere?
Just seems like there might be something interesting there.
My breakfast at the local greasy spoon went from $9 to almost $19 over the past two years. So I am guessing that they might have to push up interest rates a fair bit to curb the economy.
For many, it still is. One can add clean potable water and indoor plumbing to the list of “luxuries” we routinely enjoy in Canada. Gratitude is a daily exercise…
Yeah, little point to defining luxury without a comparison. Electricity was a luxury back in the day that the median household could only dream of.
From that bank of Canada twitter thread -> someone has back dated inflation measurements with current methodology.
Man, twitter is such a cesspool.
Single family are only up 33% from pre-pandemic (down from 58% above), it’s not February any more Patrick.
Yes. I’d just be concerned the almost $800/month strata fees (even subtracting for heat and hot water) and regular special assessments which do not raise value for you would wipe out your returns on a regular basis, leaving you with declining equity and marginal cash on cash returns.
Informative as always Leo!
Good point Patrick about needing to account for the new market when defining high-end. Although I’d still call meals for 40+ CAD/person luxury.. 🙂
I never said it was a “good” return on investment. I’m just looking at the cash on cash return. Buying an investment that produces an equivalent income but at a lower acquisition price.
There is no rule of what constitutes a good return on investment but a cash on cash return between 8 to 12 percent indicates a worthwhile investment to me or at least one that is worth exploring.
Since prices are up 50% or more from pre-pandemic, wouldn’t we expect the total number of homes valued over $2.5m to be way up?
If that’s the case, wouldn’t we also expect the number of them for sale to have risen too? (As well as the number NOT for sale)
If you defined “luxury” properties based on a multiple (>3X) of current benchmark price, you’d get a clearer picture of luxury sales have risen or not.
The same reasoning would falsely lead us to conclude that more Victorians are eating out at “luxury restaurants” if we define that as meals>$40 per person (as defined in 2015), where you can spend that at Red Robin these days.
If the past is any indicator, the higher end properties in OB tend to lose value faster and be harder to sell in a downturn.
True (chart is list prices above $2.5M)
It’s embarrassing to see the Bank of Canada trying to claim (on twitter) that they didn’t print money to buy bonds during the pandemic. While they are technically correct, it is just because they used a middleman (the big banks) to print the money and buy the bonds, in return for IOU’s called “settlement balances”.
The commonly accepted idea is that the BOC bought bonds from the public (“Joe Public”) and printed money to pay for it. The BOC wants to set the record straight.
Instead, it turns out the BOC used a middleman (the big banks) in the transaction. https://www.bankofcanada.ca/2022/06/understanding-quantitative-easing/
– so RBC buys a bond from JoePublic. And sells the bond to BOC. BOC “pays” RBC with an IOU called a “settlement balance”.RBC has created the money to pay for the bond, not BOC. So BOC claims it didn’t print money.
– The BOC is correct in that these “settlement balance” IOU’s aren’t cash. But the banks print money based on them. (Note: on the bright side, the BOC in the same twitter feed boasts how they’ve reduced the “printed cash”( aka reserves/settlement balances/stimulus) from $400 billion to $200 billion, which is good news)
BOC has been doing a little twitter campaign to convince people that it didn’t print money.
Here is what the twitter crowd thinks….
https://twitter.com/bankofcanada/status/1562801978383937537
Ya Sarah!
Levies in stratas have rules set out in the strata property act. No such rules apply to a leasehold property and leaseholders often have little recourse. In stratas the owners are all impacted by their decisions on the matter, whereas in a leasehold the owner benefits from the repairs without paying for them and makes the decisions as to what is needed.
It is not about some general dislike. It is risk and math. Your view is that there it has good ROI, mine is that this is not necessarily true and you should understand the risks fully before making this statement. https://orchardhouseleaseholder.ca/prov-law-needed/
Didn’t say any of those things up and coming. I think if you re-read my comments you would see that I purposely said that we are not even close to that kind of a market. Don’t worry you’ll be fine. We are all going to die rich.
Up and Coming: Play nice and just make your point.
Dad: Does your mortgage actually set out the amount of increased payment in some sort of payment or the calculation for how much extra capital or is this left to the discretion of the lender.
Leasehold or strata, you are not going to get away from special assessments. It’s a cost of doing business and a write off. But with steel and concrete you have less to worry about with the building envelope relative to wood frame which has a tendency to rot.
But I get it! You don’t like leasehold properties. Not many people do. But it doesn’t matter to a renter. At the end of the year you just have more cash in your pocket than buying a similar size and age strata condo that costs 60 to 70 percent more.
Sorry that you don’t have the slightest clue what you’re talking about
Sorry you don’t like your landlord and think you’ll be in a position to buy the property you’re living in off them when interest rates rise on September 7
Sorry you read this in the Facebook comments and are now basing your homebuying strategy on this
How BIG is our real estate market? Over the last 30 days some 400 properties changed hands in the Westshore, Victoria core and Peninsula. It’s not that big of a market. And if the number of sales continue to decline, then distress sales will command a larger percentage. I don’t know how many mortgages there are, but for argument’s sake let’s assume 100,000 for the same areas as above. If the number of foreclosures was one-tenth of one percent that would be 100 properties. That would be brutal on the market.
If the market was to turn to one that is heavily in favor of buyers. These prospective purchasers are going to vultch on home sellers. The lowest sale on the street sets the market price.
We are not even close to that type of market. All that is happening is the market is moving towards a balance between buyer and seller. It will take 30 to 90 days to sell a home and the vendor will have to make some concessions in terms and conditions. That’s a normal market. We’re just not used to homes taking that long to sell.
Strata fees are $778/month but includes heat, hot water and property taxes. CCA is 4% of the building cost – so, about $4000/year as a deduction? Not exactly a super lucrative proposition.
There is a history of very expensive special assessments on this property with little say by the leaseholders on what happens and how much is expended as it is not a strata so they don’t get a say. In 2016, for example, a 2 bed unit was charged a SA of $37,000 for window replacements. It is in the owner’s interest to complete all sorts of expensive upgrades because the units will revert to them at the end of the term and they will own the entire building.
Ah, I see. Just making a joke.
Not entirely sure what you are trying to say here, but the fiscal and monetary policy responses at the beginning of the pandemic seemed reasonable in the face of double digit employment arising from the initial public health measures that were put in place.
Mistakes seem to have been made in keeping monetary policy stimulative for too long and to a lesser extent, not turning off fiscal support earlier. Easy to criticize in hindsight. As for the causes of the current inflationary episode, it’s obviously more complex than that.
What? Never see Strange Brew or watch SCTV?
https://youtu.be/04u58ifxmRA
If people think Victoria prices are crazy they should check out Whistler. Definitely no affordable housing up there.
80k is just RBC’s clients.
Hosers?
I believe I have read somewhere that it’s only 80,000 hosers at most that will be impacted by the trigger rate. Not really overally significant when you consider the size of the market. As well, don’t assume that all automatically that being hit with trigger rates will be put in a position to default. Assuming that the majority are well qualified buyers (and our system is supposed to have checks), they will be able to absorb the impact. If it’s a down payment top up, sure they might have used their disposable savings on the original down payment, but they should be able to tap TFSAs or RRSPs to pony up another $40k or 50k without an issue. Also, most should be able to flex an extra grand or two into a monthly payment. For those who can’t, they can always just sell and take a bit of a hit and chalk it up to a life lesson. Probably in the end, it will just be in the hundreds facing an actual default. No need to risk the rules based financial system for that. Also, we saw the impact of getting ahead of make believe problems with money during the pandemic, and we are seeing the consequences of that now.
Lease ends December 31, 2073. Then the property reverts back to the land owner. More than enough time to recapture your original investment as well as depreciate, CCA, the asset over its remaining economic life. And that’s what I would do. CCA the hell out of it.
This is a steel and concrete building, so there is the possibility of the land owner (it’s owned by a corporation) adding another fixed term to the lease, as steel and concrete have a longer physical life than wood frame, so the physical life of the building could be another 75 or 100 years. Lenders do finance them they just want the lease to be plus five years of the amortization period. So as long as there is 35 years remaining on the lease you would be able to get a 30 year amortization. If only 15 years is remaining then the lender will only amortize over 10 years. Most of us reading this blog will be long dead before the lease is up.
And I understand how some reading this blog would never buy a leasehold condominium because at the end of the lease their is no or very little reversionary value. However sometimes you have to look at what others are negative about to find opportunities. ie leaky condos and UFFI.
Barrister, I think this has been covered before. The trigger rate is the rate at which point your regular payment no longer covers the interest portion of the payment. The trigger point is when the outstanding principal plus deferred interest exceeds 80% LTV. At that point, the bank may require a lump sum payment or an increase in regular payments. At least that is how my loan is structured which is with one of the big 5. So there seems to be discretion built into the clause.
For many reasons, I agree that it is not in the bank’s (or anyones) best interest to force mortgages into default/foreclosure. Not least of which, it’s an expensive and lengthy process.
Ummm,,, That still leaves a lot of wiggle room as to how this is handled. It is in nobody’s interest to have a lot of defaulting mortgages or god forbid foreclosures in the system.
Speaking of contracts does anybody actually know for sure what most the variable mortgages actually set out for what happens when the trigger rate is reached. Does the loan actually terminate if the trigger rate is breached. That is to say does the mortgage actually end and the remaining principle is due and payable>?
They will have to enforce based on the contracts. If they don’t, the system is make believe and the rules get made up as they go along. As well, they will have to follow the rules as laid out by OFSI, the insurers and the bond holders. It’s not Scrooge McDuck doling out loans from a big vault, the system depends on confidence and the rules and regulations that govern it. If they allow that to slide, the confidence vanishes and more importantly the bond buyers that back all lending.
How the Big Five are going to handle Triggered variables still seems to be up in the air. Moreover it may not uniform either between the banks or even amongst different categories of borrowers. It is juggling act for the Banks, dont want a lot of defaults but cannot keep too many interest only on the books. If TD is right and house prices drop 25% from peak you are going to have a lot of mortgages on the books where the properties are under water,
We have a situation where it has become an exam question for Banking 505. And what if rates are bumped up another two, three or even four points. I can hear the chorus of voices screaming on here that they cannot possibly bump it up three or four points. nevertheless the Bay Street Boys are taking that scenario into account in todays decisions.
I am not making any predictions but there is an awful lot of late night meetings going on in Toronto.
How long left on the lease?
Not generally a good deal in our market. Have to be reviewed by the court and usually need a very good offer and the ability to wait. And also not a sign of issues with affordability, more likely an acrimonious divorce situation.
These condos depreciate as their lease terms come closer to termination and they become harder to finance. 36k on 340k isn’t the greatest ROI if your capital erodes over time and you can’t use leverage – in fact I would call that a losing proposition.
Ran across two court ordered sales in Victoria that are listed. One in Cordova Bay asking $1,450,000. The other is an older condominium at $364,900 in the Quadra neighborhood. I’m also tracking vacant land in the core because I feel vacant land will be the first to show a decline as the market continues to soften. There are now some 22 building lots for sale in the Victoria Core districts ranging in asking prices of $595,000 to $4,299,000. With nothing sold in the last 30 days.
The problem with asking prices is that they are not a reliable indicator of value. They are just advertisement for someone to come out and take a look at the home. But it’s still nice to see starter homes in Oaklands at under $800,000 list price. But I would still take a newer two-bedroom condo of similar square footage over a starter home.
If an investor is looking at good cash flow and not appreciation, then I would be looking at two-bedroom leasehold condominiums in James Bay that you could rent for $3,000 a month but only cost $340,000 to buy. That’s $36,000 a year on a purchase of $340,000. But they are not selling well as I suspect investors want appreciation over cash flow.
I think the economy hinges greatly on how the big 5 handle the variable trigger. Payments will have to go up, but whether they allow people to cover interest-only or require some long amort (like 40yr) will be interesting.
If they simply reset the payment to match the previous amortization, then there will be some big bumps in payments. Over 1k/month on an 800k mortgage.
There is also a ton of ‘luxury’ property for sale currently, which I find interesting. The south OB listings in the 2.5 to 4M range have exploded…not sure what to read into that.
There is a big list of victoria parks where homeless are not allowed to sleep in parks (e.g. Beacon hill Park). And the ones where they are allowed to sleep (Topaz Park). I think they base this on available washrooms and running water . https://www.victoria.ca/EN/main/city/bylaw-enforcement/sheltering-in-parks.html
But as you say, the bylaws would need to be enforced. I’m assuming that this means the mayor and council telling the police to strictly enforce the bylaws. And the police would get the message.
Or super bankers Powell and Macklem for that matter.
Are there by laws allowing for this, or is it that existing laws aren’t being enforced? But yes, agreed that housing options are ultimately what is needed for these people.
The city should be suing any other city in Canada that’s sending their homeless our way. Use the money to put those people in housing.
Another way at looking at investor demand is to track homes that have been converted to multi-family housing with four or more rental units. Currently there are seven such properties for sale in the core districts of Victoria but none have sold in the last 30 days.
In the last six months 18 have sold.
four in March (Average days on market 6.6)
six in April (Average days on market 10)
six in May (Average days on market 13.7)
one in June (17 days)
One in July (55 days)
None so far in August. (active days on market ranging from 27 to 130 days)
This back of the envelope analysis seems to indicate, to me, a change in investors sentiment about the rental market.
School hasn’t started yet, but things are looking good for BCGEU. Haven’t heard anything from the BCTF yet.
No worse than super econ guru Paul Krugman, or your swing and a miss about where Hawk was at Christmas time.
I assume you’re referring to the abbotsford case where BC Supreme Court ruled that homeless can erect structures and sleep between 7pm and 9am. It also ruled that they cannot do this between 9am and 7pm, so they need to be dismantled each day. In Seattle and many cities, these structures are up 24/7 and found everywhere. Hopefully the Seattle mayor will get them dismantled.
The BC homeless need housing options, not laws allowing them to put tents up downtown . The government should establish alternate housing options, and then it could legally enforce removal of these tents at any time, and end the sleeping in the park. Victoria needs a mayor like Seattle that would work hard to make this happen.
https://www.pivotlegal.org/bc_supreme_court_rules_homeless_have_right_to_public_space
Interesting post:
From RBCs last article and 80,000 people hitting their trigger rate they noted that the average payment would only change $200 – which to me means they are just getting the payment back in line to cover interest only. At renewal, that client will take on a bigger payment to keep the AM the same (unless they can refinance).
That being said this client was told by their broker the payment increase would be much greater than $200 – i wonder if TD”s method is at trigger rate to put them back on track for their AM right away. Could be the broker was wrong of course.
Swing and a miss:
That’s a nice story about the Mayor of Seattle, but there is already case law in this country establishing that in the absence of adequate alternative housing, there is a right to take up shelter in a public park.
BCGEU ending strike in ‘good faith’ after progress in contract negotiations
https://www.cbc.ca/news/canada/british-columbia/bcgeu-strike-over-good-faith-1.6566921
Am very interested in what BCGEU’s contract will look like, because all the other unions will get similar.
Victoria needs a mayor like Seattle has. Hopefully he’ll get some success.
https://mynorthwest.com/3610734/rantz-seattle-mayor-privately-blasts-homelessness-groups-inexperienced-council/
“ Harrell says he’s angry about homelessness, and places blame elsewhere
The mayor repeatedly explained that he was not happy with the homelessness crisis in the city. He spreads the blame around, taking aim at groups that the city funds and some council members.
“Some of the same people that were talking about defunding are now saying, ‘Well, we understand that we have to be aligned with the Harrell administration,’” Harrell told officers. “They still take shots at me on my homelessness strategy, because I, quite frankly, I don’t think anyone has a right to sleep in a public space. I don’t think anyone has a right to sleep on a sidewalk and I don’t think anyone has the right to sleep in the park”
🙂
Until the labour market in the USA is much looser or we are in a severe recession the Fed is likely to aggressively raise increase rates. My guess is substantial further interest rates will be needed to do this and control underlying inflation. Financial markets are more optimistic but most of the forecasters who have been right in the last year agree with this gloomy outlook.
Great article Leo.
One point. You refer throughout to the generic category of “investors”, which you then say are currently buying 4% of mls properties. Since Victoria homeownership rate is about 63%, and is fairly stable, that means that “investors” in the broadest sense are currently owning 37% (100%-63%) of homes and likely buying/owning about 37% of new homes if the HH homeownership rate is staying steady. (Investors in the broadest sense includes, in addition to mom n pop investors – pre sales, multi unit purchases, reits. Govt investments in affordable housing , build to rent etc.)
The point being, you’re using the small slice that you’re measuring (let’s call it “mom n pop landlords”) to draw conclusions about the overall “investor activity”, “rental market” and subsequent “rental vacancy rate”.
To illustrate this. The 4% of “investor buyers” you’ve found would be a tiny 320 units in a year of the 8,000 mls sales per year in Greater Victoria.. You’d need to subtract the mls “mom n pop investor” sales to get to net “mom n pop” investor activity (which might be close to zero). And we know that net total rental units get added to Victoria per year is about a thousand or more. So to me, you’re measuring something else than “investor activity”. This would a similar error to measuring “homeowner activity” by only counting townhouse purchases, calling it “home purchases” and concluding that homeowners are only buying a tiny 5% of all homes.
To make it clear, maybe you should refer to what you’re measuring as “retail investors” or “mom n pop investors”.
They likely still wouldn’t let any commercial properties exist except on the very edges.
I’d say the numbers are bit tough and the risk level a bit high for a big segment of those who would be most motivated to buy an investment property – that is those in the accumulation phase of life who need (no pension) or want (desire for security) to get ahead and are willing to put in the time and effort to managing a rental.
I think this leaves people with deeper pockets who are looking for long-term appreciation, and even these folks might be sitting in the sidelines and waiting for a drop in prices.
Twelve floors doesn’t seem aggressive enough. The only way to solve the housing shortage is to turn Gordon Head into central Tokyo, with the attendant decades-long subway construction. I’m disappointed that Eby isn’t willing to think big on this one.
Wow. Fantastic analysis Leo.
Introvert: this is the moment I asked Eby if he would upzone specifically your part of Gordon head to 12 floors if elected: https://twitter.com/HomesForLiving_/status/1564640830505340929?s=20&t=pEcnY-Dwo52GTwFvix01XA
Another great article, as usual
CTV News shows in a poll that more people are upset by airport delays than the housing market. Amazing what gets people riled up these days.
Always a interesting read I myself see no rush in buying and will wait out the year
The investment market simply carries a much higher degree of risk than a coupke of years ago,
Quite agree.
You have even less faith in the fed than i do.
Powell mentioned inflation 45 times in his 8 minute speech on Friday. He really wants you to think they’re not done at least.
Yes! But i’m seeing what this post is suggesting. Currently just not seeing the right rents:costs for majority of properties right now. Although the 2590 Wesley house was viable. I still think the best opportunities are yet to come. Perhaps this winter or spring.