July 24 Market Update

Doesn’t seem like we are going to get any more inventory out this year.   It usually peaks in June, drops gradually until September, and drops more sharply after that to the low in December.

2016 was an abnormal year because inventory was drawn down throughout the whole year, whereas this year we are more on track for a normal seasonal pattern.  However the pattern is squashed, since we gained only 400 listings from January to June instead of the average of 800.

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The Benchmark

A few years ago the Canadian Real Estate Association decided that it was tired of the variability in  average and median prices.  When average prices shot up the regulators got antsy and starting talking about how they could cool the market.  When prices dropped, they desperately tried to explain it away by talking about changes in sales mix and seasonality.

The alternative is a repeat sales index like the long standing Teranet HPI which tracks how the prices of homes are changing by tracking homes that sell twice (a sales pair) and taking the difference in price (and doing a bunch of statistical magic to try to remove outliers like heavily renovated flips).   This works well, but Teranet only tracked the market as a whole rather than individual property types or regions.

So the CREA came out with their own repeat sales index, the MLS HPI.   Unlike the Teranet, you can slice and dice this index into arbitrarily small sub markets.   They do this by coming up with a benchmark or typical home in each region and property type.   So they will have a set of characteristics of the typical 1 storey single family home in Gordon Head, and in Oak Bay, and in the westshore, or the core.  Same for a typical condo in downtown and so on.  Once they have defined the typical home, they try to track the price of that home over time.

For example, do you want to know how much the price of the benchmark townhouse in North Saanich increased between July 2016 and April 2017?   No problem.   Click some buttons in the handy dandy MLS Dashboard  (you plebes only get the national one but I get the detailed one for Victoria) and you can pull up a chart to show exactly that.

And there you have it.  The typical townhouse in North Saanich increased from a value of $602,300 to $690,000 in that span of 9 months.   Pay no attention to the fact that there was not a single sale of any townhouse in North Saanich in that entire period.   None at all.  So maybe it’s a stretch to call it a repeat sale index and you should take that graph with one of these.

However I don’t want to be too harsh on the MLS HPI since I really don’t mind it overall.   I’m sure that when there are no sales in a certain region of a certain property type they use sales in neighbouring regions where there were some, or in different property types and then adjust them based on historical relationships between the two.  In the end you get a number that is about as good a guess as to market value for the benchmark house as you’re going to get.   I do wish that the VREB would indicate when the data quality goes down the tubes for a region in their monthly reports but in the end it’s a minor sin.

Couple weeks ago they updated their definitions of what constitutes a typical home in each region so I thought I’d pull out a few municipalities and fields to see what this magical benchmark home is.

MuniStoreysLot SizeLiving AreaBedsBathsBuilt
North Saanich1222151897321981
North Saanich222215246432.51989
Saanich East183731484321967
Saanich East291472099321980
Saanich West174051323321958
Saanich West271731784321980
Vic West147911243321967
Vic West252271500321912

The “living area” is only above ground, so not very accurate given how many places have finished basements.   Still, kind of neat to see the differences in character reflected in the data, from the cramped lots in Vic West, to the estates in North Saanich, to the character homes downtown, and 70s boxes in Saanich.  In the downtown we see the 2 storey buildings are the older character homes, while in the westshore they tend to be the newer builds.

From looking at some areas with largely homogeneous housing stock like Gordon Head, I believe the benchmark is more of an average rather than the most common property, but still you can see the broad differences in what is common by region.

July 17 Market Update – Gordon Head drops off a cliff

Weekly numbers courtesy of the VREB.

July 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 187  384
New Listings 315  582
Active Listings 1972  1961
Sales to New Listings  59%  66%
Sales Projection  778
Months of Inventory 2.2

On the surface of it, seems like much the same as last year.  Tight market conditions, maybe a very slight easing but nothing major (graph below the fold).

But I happened to take a look at sales in Gordon Head since I haven’t noticed much selling lately.  Once one of the hottest neighbourhoods for detached houses, there were a grand total of 3 sales in the first half of July.   And don’t think it’s because there’s no inventory.    There are 36 28 properties on the market, and if this sales rate continues we’ll have 6 sales in July, or 6 months of inventory (There were 36 active listings as defined by VREB to mean any property that was for sale in the month).

Maybe just a fluke?  The rest of the sales coming in the second half of July?   As Marko pointed out, a number of other properties have accepted offers in place with conditions scheduled to be removed in the next few days so if those offers hold this could very well increase.  I haven’t seen other neighbourhoods where sales have just fallen off a cliff like that.  Oak Bay sales are at 19 so July will handily outsell last July (24  sales).   The Uplands has just one sale so far, but there are so few sales there normally that it isn’t wildly unusual.   Downtown Victoria looks like we’ll about match 2015 sales levels.   Maybe that million dollar listing for a 70s box with a coat of paint in Gordon Head woke people up to the nuttyness of price levels.

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Rate Reversal

To no one’s surprise, the Bank of Canada bumped the overnight lending rate from 0.5% to 0.75%, the first increase in 7 years.   It’s a small jump, one that won’t make much difference to anyone’s debt obligations, but it’s a sign that the bottom is in for rates.   Despite various alarmist polls out there (no, an increase of $130/month in payments won’t make most Canadians “struggle”), the majority will be just fine with any conceivable increase in interest rates.   Thing is, the majority is also completely irrelevant to the housing market.  The important thing is what happens at the margins.

The banks wasted no time hiking their prime rate by the same 0.25% which means it sits at 2.95% (except the special flower TD that charges 3.1%).  That means all those HELOCs just got more expensive (the typical HELOC of $70,000 costs an extra $15/month now).   Same goes for every variable mortgage out there.   Like I said, not going to break the bank for anyone, but it’s a sign that the seemingly endless period of decreasing rates might be over.

For now though, even with a 0.25% increase in the mortgage rate, the majority of the about 80,000 monthly mortgage renewals will be coming off a 5 year mortgage, and will find that the deal they are offered (red line)  is still lower than what they locked in for 5 years ago (green line).  

The precipitous interest rate drop in 2009 was the reason our real estate market stayed stable.   The same house cost drastically less to carry and prices plateaued while incomes increased over several years.   The result:  improved affordability which stabilized the market.   This is why I believe our next correction will not look anything like our last two.

Now we see the other side of the slope.   Prices racing ahead, and interest rates on the upward slope too.   That will quickly drive affordability back into the danger zone which correlates with price peaks in Victoria.

July 10 Market Update

Weekly numbers courtesy of the VREB.

July 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 187
New Listings 315
Active Listings 1972
Sales to New Listings  59%
Sales Projection
Months of Inventory


An OK start to the month.   22% fewer sales than this time last year, but only 12% fewer properties on the market.   The end result is an approximately equal reading for months of inventory and a lower sales/list ratio.

Second quarter buyer origin data is out as well.  Remember, the VREB “buyer origin” data represents what the buyers of a property put down on the contract as their address.  It does not indicate buyer nationality, and anyone moving here first to rent would be counted as a local.   This is different than the foreign buyer data that the province collects at the time of the title transfer.  The VREB no longer allows the buyer origin field to be queried so I can no longer make charts like this but they do release the report on the region quarterly instead of annually.  Here is the latest data.

It’s clear that lower mainland and out of town buying in general has eased up from 2016, if only a bit.   Since sales are down overall, it means the absolute number of out of town buyers should end up around 30% less than in 2016. The full data for the first half of the year looks like this.

And comparison to previous years:

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June Update: A not-so mixed bag

June numbers are out and I’d say they turned out surprisingly strong.   Let’s take a look at what happened last month starting with the bullish news and working our way down.   First of all, prices for the market as a whole continue to trend up across all detached, condos, and townhouses.

The months of inventory at 1.6 still falls into what the market summary considers “ludicrously hot” (MOI under 2).   Despite several individual signs of cooling (we’ll get to that), the overall market shows no particularly convincing signs of slowing down.   If we look at the trend, in a cooling market we should see a gradual deceleration of price gains.   Instead of that we are seeing steady increases or even continued acceleration.  For example, in the last two quarters we saw the 12 month rolling price medians increase as follows.

 Q1 2017Q2 2017
Median Single Family House+$9712 / month+$12,237 / month
Median Condo+$5170 / month+$5076 / month

How many people here are able to save $100,000/year?   Not me.   That’s why this silly price appreciation has to moderate if we think that local house prices should be supportable by local buyers in the long term.   Even if we accept that as the city grows, detached houses in the core will be affordable to an ever shrinking segment of the population, at this rate of appreciation that segment will tend towards zero rather quickly.   Right now only the top 25% of local households could qualify for a mortgage on the median detached house with minimum down (it takes a household income of about $150,000 and some $68,000 at closing).    Continue reading

Foreign buyers part deux

In the last article I posted the updated numbers for the capital region as a whole, where foreign buyers accounted for about 5% of transactions on average or about 45 sales/month.   Problem is, the region is a large place and it’s quite likely that buyers are concentrated into certain municipalities like Victoria proper.   Well I thought that that data doesn’t exist, but it does!  Turns out that in the 2017 data they’ve added not only all the Greater Victoria municipalities but also the foreign buyer sales for each one.

One caveat is that in order to protect privacy of individual transactions, the province only releases the foreign buyer counts if they are either zero, or greater than 5 in a given month.  You can imagine that when you split 45 sales amongst 13 municipalities many months end up with non-releasable data in most municipalities.   For example, the data for Esquimalt is greater than zero but under 5 so mostly not releasable.


Total TransactionsForeign Involved TransactionsPercentage Foreign Transactions
78Not releasable1.3% - 6.4%
87Not releasable1.1% - 5.7%
173Not releasable0.6% - 2.9%
100Not releasable1% - 5%

In fact the only two municipalities with enough sales to consistently be released are Victoria and Saanich.   Here they are.

Anyone else surprised that the percentage in Saanich is generally much higher than in Victoria? Continue reading

Pure demand

After several months of delays, the new foreign buyer numbers are out and we now have a full year of data.

Assuming there isn’t some massive loophole for foreign buyers to avoid detection in this data, two things seem to be clear:

  1. the percentage of foreign buyer involved transactions in Greater Victoria is more or less steady at just under 5% of transactions
  2. the foreign buyers tax in Vancouver continues to be effective, pushing the percentage of foreign buyers below that of Victoria.

There is some evidence that foreign investment dollars in Vancouver went into the pre-sale market instead via assignments, but it seems at the very least the resale market seems to be somewhat back in balance (and the government collected a staggering $131 million in additional property transfer tax from foreign buyers).

Taking a look at the actual numbers of transactions, we can see it’s not huge in Victoria at 45 sales/month and the average price is around $750,000 in most months.

Most of those purchases will be concentrated in the core I imagine, but unfortunately the province doesn’t break it down any more finely than the overall region.

Which leaves our local sources of pure demand to fuel the market:  first time buyers.   They make up about 20% of the market and as of January they’ve been showered with money from the province to fuel the entry level market via the HOME Partnership Program.   In fact 1100 applications have been approved which means an extra $13M or so in capital infused into the market.   That seems to be having an effect on the Vancouver market with the supply of condos at critically low levels amidst a sales surge.

Here, I think it’s difficult to really notice an effect without digging into the land titles themselves (the BC loan is registered as a second mortgage).   Yes condos started selling even faster after January, but that is a normal seasonal effect.   Looking at sales, they were strong until March but unlike last year, that was all the market had in it and April/May/June have been flat.

Despite how monumentally dumb it is to stoke an existing hot market, it’s like throwing fire starter on a bonfire: it just won’t make much of a difference anymore.   As the head of the CMHC said to the BC architects of this nonsense, “You will know we are holding our noses firmly on this and I would not want any other provinces and territories to be misled into thinking this ill-advised program represents good public policy.”    

Let’s hope we’ve seen the end of this kind of pandering politics for a while.

Hottest Markets Slowing Down

It’s a bit of an odd market out there.  On the one hand, there are more over ask sales than even last year and we have extremely low inventory.   On the other the number of price cuts seem to be increasing.   By the stats it’s still a very hot market but around here there are more listings coming on and they are selling quite slowly.

Last June Gordon Head was smoking hot, with only 30 detached homes for sale, and half of all sales happening in 6 days or less.   Now there are 48 listings and climbing, and it takes twice as long for a sale.   Similar situation in Oak Bay, with listings double that of last June, and time to sell climbing.   So far the overall market stats have been masking these regional pullbacks.  Places like Langford have fewer detached listings than this time last year and properties are selling twice as quickly (median 10 days to sell instead of 22 last June).

Now the average days on market are still low compared to any normal year, but as it increases we will start to see fewer above ask sales.   Quite logically, the longer a property sits, the more of a discount off ask it is likely to sell for.  More importantly for buyers, a somewhat cooling market gives some breathing room to do due diligence and add conditions to an offer.

The above chart was created from history in 2016/17 for the sellers’ market, 2014/15 for the balanced market, and 2013 for the buyers’ market.

Also weekly numbers courtesy of the VREB.

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June 19 Market Update

Also weekly numbers courtesy of the VREB.

June 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 96 331  586
New Listings 189 542  849
Active Listings 1939 2000  1992
Sales to New Listings  51% 61%  69%
Sales Projection 915  997
Months of Inventory


Well the 2000 listing level was short lived.  A good sales week drove it back down a smidge and we are now 15% below last year’s sales rate with 15% fewer properties on the market.

Despite some early signs of softening like more price changes, it seems the number of over-ask sales aren’t slowing down.   Looking at a few days of sales in the past years, the percentage of over-asks (defined as more than 1% over asking price) is higher than ever.  You can see a big difference between a hot market like now and last year, to a balanced market (2015) and a slow market (2013).

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