You gotta know when to hold ’em, know when to fold ’em

Generally real estate is a slow moving beast.   There are no flash crashes here, and without an external stimulus, there is generally plenty of time to catch a market change from hot to slow or vice versa.   That said, periodically it can be quite volatile.   If we look at the history of the average single family home price, we see individual years where prices jumped or collapsed by almost 30%.

These are all inflation adjusted values, otherwise the picture would be quite distorted in times of high inflation.

So if you’re a bit queasy about the prospect of losing 25% of an asset worth hundreds of thousands of dollars, how long would you have had to hold a single family house in Victoria to avoid losses?

3 years?

Nope, if you had bought in ’81 and sold in ’84 your house would have lost almost 13% in value every year.   The late 90s also weren’t super great.    How about 5 years?

Getting better but still some periods of large negative annual returns.   Once you add in the very high transaction costs in real estate, even the 5 year periods of relative flatness look pretty miserable.  So 10 years then?

This is better.   Outside of the mid eighties, it’s been either a winning or at least not losing proposition to buy and hold a single family home in Victoria for at least 10 years.   Problem is, according to some estimates, the average Canadian family moves every 5 to 7 years so most people will move much more often than is good for them financially.    For condos, the appreciation is not as good and people tend to stay in them for fewer years so the issue compounds.

And this is looking at the past, mostly during periods of either decreasing interest rates or large societal changes (number of dual income families doubled between 1976 and 2015).   Going forward neither of those things will happen again, so as usual, your mileage may vary and past returns are not indicative of future results.

Who’s buying in Victoria?

Last week we looked at the explosion of Vancouver buyers that happened in 2016 and despite having looked at these numbers before, I was surprised at the magnitude when compared to previous years.   Now the VREB have released their updated stats on buyer origin for all of 2016, so let’s take a look at who is buying in Victoria and how that has changed from last year.

While locals still accounted for three quarters of the over 10,000 buyers last year, they dropped a bit from 2015 (which was down a smidge from 2014).    Based on this data, we can see that:

  1. Vancouver buyers increased massively in 2016.   In fact they doubled, from 600 in 2015 to 1221 in 2016.
  2. Buyers from the rest of Canada did not arrive in Victoria in any greater numbers than they usually do.  Percentage wise they are down, and in absolute numbers there were only 24 more buyers from the rest of Canada in 2016 than the year before.   If the boomer wave is coming, they definitely did not arrive yet.
  3. Buyers from outside of Canada are not a large factor based on these stats (less than 2% of buyers).  Note that this is not measuring nationality and is different than what the province collects (which indicates about 4-5% foreign buyers)
  4. There were a total of 2927 out of town buyers, which accounts for 28% of the market.    However the percentage is less important than the number of buyers, because out of town buyers represent pure demand. And that pure demand has been growing. 

It will be interesting to see if the Vancouver wave continues this year (so far it doesn’t seem to be). Continue reading

2016 Year in Review

How to sum up 2016 for Victoria real estate?   Well it’s been an eventful one.  After several years of languishing and complete boredom in the market, things got exciting both in the local, provincial, and national spheres.   I think I’ve written enough superlatives about the months of the year and I don’t need to rehash the various regulatory and policy changes we’ve experienced.

Looking back it’s not like we didn’t have warning.   Since mid 2013 the market has been improving at a remarkably steady pace.  Just like water boiling the proverbial frog, market conditions were improving so slowly and steadily that no one really thought that much of it.   However in the spring a small swell of out of town buyers combined with improved local affordability to put the market into overdrive.   Once that hit the news it sparked full scale panic and fear of missing out amongst those watching the market and the rest is history. Continue reading

2016 Predictions Roundup

Every year we make predictions on this blog at the start of the year.  It’s not the end of the year yet but we are close enough we can estimate the final numbers, and it won’t make much difference given everyone was catastrophically wrong anyway.

Without further ado here’s the roundup of results with category winners marked in green.

UserAnnual SalesSFH
Average
BoC RateTeranet
June
Teranet
Dec
Leo S8800$710,000.25%158165
Marko
Juras
8000$665,000.50%153155
Dasmo8500$690,000.25%151161
Fireecology8000$700,000.25%----
Michael7800$705,000.50%156164
Caveat
emptor
7800$670,000.25%----
CuriousCat8450$650,000.25%----
Actual10622$754,586.50%162175*

*actual numbers approximate until the final year totals come in.

I’ll crown myself first of the losers on that one.    Continue reading

A brief history of prices

Someone asked for an updated version of our inflation adjusted price history on a log scale, so here it is.

So how fast has the Victoria single family home market been appreciating in the last 55 years?  As you can see on the graph, the equation is y=11723.487 e^{9.779E-5 x}.   To convert that to a percentage yearly increase, we just take the equation for compound interest (P = C e^{r t} ) and solve for the rate.   I’m ashamed to admit I had to look up how to solve for r in this case, but it’s been a while since high school.   In the end end we have:

r = \frac{\ln{\frac{P}{C}}}{t} = 3.74\% \text{ real annual appreciation}

How long can that kind of appreciation continue?

2015 Predictions Roundup

Every year we make predictions on this blog at the start of the year. We don’t claim to be prescient, but unlike the economists and real estate industry, at least we’re confident enough to show how far off the predictions were.

Without further ado here’s the roundup of results.

UserAnnual SalesSFH AverageBoC RateTeranet JuneTeranet Dec
LeoVictoria7200$610,0000.75%138140
Dustin6750$619,0001.25%138138
Caveat Emptor6950$600,0000.75%----
Chris7500$625,0000.75%----
Marko7000$610,0000.75%138138
Patriotz------133128
Dasmo7099$620,0000.5%139142.5
SJ6900$620,0001.0%138148
Actual8295$646,000*0.5%143.9150.2

*estimate until VREB releases their 2015 annual summary.

Overall no one anticipated the huge jump in activity that we saw this year and even the high guesses were quite far off the actuals.   That said, Dasmo scored two wins by correctly forecasting the second Bank of Canada rate cut and getting closest on June Teranet value, while Chris was closest on average price and number of sales.

What’s going to happen in 2016?

Even though dark clouds are gathering over the Canadian economy as a whole, predicting whether those will turn into a storm for Victoria is fundamentally impossible.   I am going to assume that nothing truly disastrous will happen, and the local market will continue to be mostly driven by local conditions.  Those conditions are pretty favourable to sellers right now, and I think we haven’t seen the end of improving market conditions, so I’m going to take the automated forecast as a lower bound.  I also think we’re in for another rate cut this year.   The loonie will suffer but the tourism industry won’t.

2016 Predictions:

Annual Sales:   8800 (rev. Jan 18)
SFH Annual Average Price: $710,000
BoC rate Dec 2016: 0.25%
Teranet June 2016:  158
Teranet Dec 2016: 165

Any other categories we should be predicting on?   What else will 2016 bring for the Victoria market?

2015 Year In Review

2015 was a big year for Victoria real estate.  The pace of market improvement went on steadily in 2015, with annual sales to list moving up 10% from 55% to 65%.  To put that into context, last time we saw the ratio this high was 2006.

chart (5)

After two years of steadily improving market conditions we hit a transition point and prices lurched upward to start the year.  For the first time since 2010 we also drifted into hot market territory.

chart (6)

The increase in prices meant that the decline from peak chart is quickly becoming obsolete.  Single family homes have regained their peak values at least in nominal terms.  Townhouses aren’t far behind, and only condos are still significantly down at 7% below peak values.

yirdfp

Taking a look at affordability, the price gains in 2015 were tempered by a drop in the average 5 year mortgage rate, and some income gains.    It took about the same percentage of the average income to pay the mortgage the average Victoria home this year as last.    However it does appear we are rounding out a bottom here.   It also seems that each bottom comes in higher than the one before (grey line), which makes some sense, given that in a densifying city, detached homes will become less affordable over time as they are replaced with condos.

yiraffordability

What does 2016 have in store for us?   Well we’ll be reviewing our 2015 predictions in a couple weeks (hint: we all sucked) but I suspect it’s going to be a lively one for the Victoria market.

Marko’s Monday stats update also indicates December numbers will be better than expected.

December 2015
Dec
 2014
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 124  244 356 436
389
New Listings 125 261  374 429
419
Active Listings 2797 2734 2631 2552
3210
Sales to New Listings
99%
93%  95% 102%
93%
Sales Projection 479  451 501
Months of Inventory

8.3