Market Value

Ah, market value.  That magical amount of money that a property is worth.   It’s commonly stated that a property properly exposed to the market will sell for market value.   But what is that really?   Some people think that market value is whatever a property sells at, but that is not necessarily the case.   Ask the people who’s business it is to estimate market value and they will say market value is:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale

Those guys aren’t concise.   And that definition is littered with other terms that can’t be precisely nailed down.   How motivated could a buyer be and still be considered “typically motivated”?  What constitutes sufficient advice to be well advised?   Do incentives like the government’s free money for first timers count as undue stimulus? Continue reading

Population change in Victoria

As of the 2016 census, 367,770 people called the Victoria Census Metropolitan Area home.  That is up 6.7% or an extra 23,155 people in 5 years.   That rate of increase is a fair bit above the 4.4% increase from 2006 to 2011 so we are growing faster than we used to.

The population breakdown looks like this.

So what if we take a look at how things have changed over the years by age group?

Wow!   A veritable explosion in the seniors population!   Surely this is because Victoria is the best place to retire in Canada.  After hearing about how they’re coming for the last decade, finally they have arrived.  As coverage confirmed, “retirees are the driving force behind the Capital Region’s population spike between 2011 and 2016”.

One more look though before we accept that theory.   Conveniently enough the age groups are divided by 5 years, and censuses are taken ever 5 years as well.   So Victorians who were between 30 and 34 in 2011 were between 35 and 39 in 2016.   That is, if they didn’t move away or croak.   When we advance the ages from 2011 and compare to 2016, the picture looks quite different.

Now we can see why that seniors population exploded.   People who were somewhat less senior in 2011 got a little more senior in 2016.  Funny how that works.  We can see that the differences now are much smaller, so let’s see where the population actually changed and by how much.

What is this graph telling us?   It shows that after taking into account people aging, how much the population in 2016 changed in each age group.  For example:

  1. There was a large increase in people aged 20-24 that is not accounted for by aging.  Part of this is due to the normal university bump, and the other part of it is due to growth at UVic (largely by international students) and Camosun.   An interesting secondary here is that aging the university bump did not result in a negative in the 25-29 group.   Possibly evidence of more people staying in Victoria after university?  Needs more investigation.
  2. There was a moderate increase in working adults between 35 and 65.   Perhaps coming here for tech and construction jobs?  Or returning from Alberta?
  3. The number of people between 70 and 74 stayed about the same.   What does this mean?  Some people who were 65-69 in 2011 died in those 5 years and some moved away.   A few also moved here, but it wasn’t enough to prevent a small decline in that age group.
  4. The number of people over 75 declined sharply.   This makes sense because with increasing age mortality increases, and there aren’t enough 75+ people moving here to make up the difference.

In conclusion, the driving force behind capital region population increases between 2011 and 2016 is not seniors but rather university students and working age adults primarily between the ages of 35 and 50.

So far there is little evidence of a mass retiree migration to Victoria with only an additional 950 people ages 60-69 that are not explained by the population aging in place.  However, as Patrick pointed out in the comments these 950 people are not the number of people that moved here but rather the net difference after taking into account aging.   That is, from 2011 to 2016:

People moving to Victoria aged 60-69 MINUS people moving away in that age group MINUS people dying in that age group = 950

So the people that moved to Victoria in those 5 years is definitely significantly more than 950.  We can’t measure the people moving away so the best we can get is net migration (people moving here minus people moving away).   To get there we need an estimate for how many residents died in those 5 years.   Based on actuarial tables, that should be just under 3% of the 55-64 year olds that lived here in 2011, or 1565 people.   Therefore net migration in the 60-69 age group between 2011 and 2016 is approximately 2515 people or about 500 per year.    I’ll publish a followup article that takes into account mortality across the range to conclusively identify the largest group of newcomers to the region.

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.


Few little bits that caught my eye lately.

Firstly, seems like the number of price changes are increasing lately.   Unfortunately the Matrix database search is a little broken when searching for price changes in the past, but looking at the last few weeks the rate of price cuts has been increasing quite a bit.

Either the market’s appreciation rate is slowing, requiring some price flexibility from sellers to get properties sold, or the overpriced properties that didn’t move in the spring are being reduced to try for a summer / fall sale.  Something to watch going forward.


According to Padmapper, Victoria has the third highest rental rate in Canada at $1180/month for a 1 bedroom (up 7.3% in a year) and $1400 for 2 bedrooms (up 2.9% from last year).    Those numbers are higher than the CMHC stats mostly because CMHC only surveys purpose built rentals, and not privately rented condos that generally go for more money.


The NDP are discussing options with respect to curbing speculation, saying that a speculation tax as proposed in their platform may not be the only option they are looking at.   The article is light on details, but David Eby has a good handle on the housing portfolio so I’m hoping for some effective changes, assuming they can actually get into power.   Meanwhile the City of Victoria is mulling more AirBnB restrictions, which has caused a bit of a storm in a teacup about the mayor’s recusal from related discussions.

Delinquency Rates

The CMHC has new data on delinquency rates, and as discussed earlier, it’s pretty clear that they don’t tell us a lot until house prices decline.

In the strong markets of Vancouver and Toronto, delinquency rates decreased to absurdly low levels.  In Victoria we saw the same thing as prices increased.


After all, why default on your mortgage if you can sell your house at any time for a large profit?   In the stagnant markets of Calgary and Edmonton we can see the effect of the downturn in increased delinquency rates.  It takes a while, but if house prices stay flat or decline for a couple years, people start running out of the easy options.   If Toronto undergoes a serious correction this will be an interesting stat to watch.

For now though in Victoria, we are still happily financing this runup in house prices with ever increasing mortgages.  All good until those rates rise!

Land of the nearly wed and nearly divested

According to the 2016 census, there are now 367,770 people in the Victoria census metropolitan area.  That is up some 6.7% from 2011, and a growth that is faster than the 4.4% we saw from 2006 to 2011.  One thing that Victoria has always been known for is that it’s the land of the “nearly wed and nearly dead”, with a much larger percentage of the population over 65 years old compared to the rest of Canada and BC.

While that saying is quite out of date (sorry to the more seasoned readers!) the vast majority of people in this 65+ age group do own real estate and chances are they’re not that active in buying more of it anymore.  Based on the newest census data, we can look at the complete picture as it currently stands.

To look into this further, let’s examine a paper out of the US from 2008 that examined the relationship between age and home buying behaviour.   In Aging Baby Boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition, Myers and Ryu look at the impact of population on housing market trends, and discuss how the retiring baby boomers may unleash a multi-decade reversal of the trend of increasing house prices.   Well worth a read if you can access it, if not I will be discussing it further in future articles.   They examine what percentage of the population in each age group typically buy a house in any given year, and what percentage typically sell a house.   For all 50 states studied, it looked like Figure 3 below.

The highest buying rates were around 25 – 40 years old with a gradual decline after that, while selling rates stayed relatively steady until people hit 70 years old, when they start spiking.   In other words, people are net buyers (buying more properties than they sell) until about age 65.  At this point it turns around and people over 65 become net sellers of property.

They did find that this varies strongly by state.   For example, in lower cost states there was more buying earlier, while in higher cost states like California, people delayed their purchases until they were a bit older.   Also in retirement states like Arizona and Florida, older age groups continued to be strong net buyers due to retiree in-migration (Figure 4 below).  In some retiree states, people did not become net sellers until approximately age 75.

What is most similar to Victoria?  On the one hand we are a retirement destination, but on the other hand we are a very high priced market (closer to California and very unlike Arizona and Florida).  So while we can expect a retiree influx to prop up our home purchase rates in older demographics, we shouldn’t expect it to be as large as in Arizona, and we may even see retirees cashing out of Victoria to move to lower priced markets.

One thing we do know for certain is that the boomer wave is heading inexorably towards net seller territory and those numbers are increasing every year.   In the Victoria population, we can see that the net sellers category will be increasing heavily as the boomer wave crosses over 70.

We can already see a huge change in the last 5 years, with the percentage over 65 years old (likely net sellers) in Victoria going from 18% to 21% of the population.

So the natural demographics will be pushing us more and more towards an increasing percentage of the population selling more houses than they buy.   What exactly is that pressure and how many properties can we expect to see hit the market from demographic forces?   Did our growth in the 65+ category come from aging in place or from people coming here to retire?  Will the aging trend be counteracted by in-migration and an increasing number of younger people choosing to stay in Victoria as the economy diversifies?

No more time to dig into that tonight, but I’ll keep exploring this in future articles.  Is the surge in the older population a net positive or net negative for the Victoria housing market?

Paying the Vig

Thanks to Bman for posting the link to the mortgage arrears stats compiled by the Canadian Bankers Association.

The big factor that influences mortgage arrears is the unemployment rate.   You can’t very well pay your mortgage without a job.   But the other factor is house prices.  Even if you don’t have a job, if the market is going up you can take equity out of the house or you can sell for a profit with no problems.   So looking at the BC stats, is there any relationship between house prices and arrears rates?

Pretty interesting how arrears tend to increase and stay high when house prices are flat or declining, and drop when they go up. Continue reading

Market Timing

Some discussion here about market timing in real estate this week and whether it can be done.   Thought I’d add my 5 cents to that discussion.

Market timing in the real estate sense would be to either buy or sell based on expectations of where the market is going.  There are several kinds of market timing in real estate:

  1. For non-owners, choosing to delay buying based on an expectation that prices will decline.
  2. For owners, choosing to sell real estate on the expectation that prices will decline and perhaps that it can be bought back at a cheaper price later.
  3. Buying or acquiring additional real estate much earlier than originally planned based on an expectation that prices will increase quickly.

Mostly we hear about the first on that list, and then occasionally we see people attempting the second.

In the stock market, there is pretty good evidence that market timing doesn’t work, but what about in real estate?   Having read many thousands of very intelligent and convincing arguments about why the market was either under or overvalued in the last 10 years, I’m inclined to think that although the local fundamentals like incomes and market conditions can be used to make reasonable predictions, the macro-level factors (credit availibility, housing policy, market sentiment, immigration, etc) are so influential that you can’t have much confidence in those predictions. Continue reading

CMHC: Victoria Overvalued

Last year the CMHC started releasing their quarterly housing assessments and I had some fun ridiculing their conclusions.   Once again they’ve swapped out the analyst in charge of Victoria, which makes it the 4th analyst in just over year, and none of them are from here.

The new report for Spring 2017 is out, and by new report for Spring 2017 I mean released spring 2017 and actually only covering data up to Dec 2016.  Again, how a measure is supposed to give an “early indication of potentially problematic housing market conditions” when the measure is at minimum 4 months out of date I have no idea.

They analyze the housing market based on evidence of Overheating, Price Acceleration, Overvaluation, and Overbuilding.  Let’s go through their analysis in detail.


Their definition of overheating is a sales to new listings ratio of 80% or higher for the quarter.   This is relatively sensible, although the threshold is quite high.   Looking back at recent history, the hot market recently and the mid 2000s would have been identified as overheating.  Note that the overheating evidence does not go higher than “moderate evidence” because it is only based on one metric (sales/list ratio > 80%).

Continue reading

How to mislead with charts

What would you conclude if I showed you this chart?

With 4 months of declining medians it seems like prices are declining in the core, right?   Are people maxed out on price?   Are the Vancouver buyers not coming?  Are people scared of the green party winning a landslide?   Is it those Chinese capital controls beginning to bite?

Let’s zoom out a bit.

Hmm..  Looks a bit different but perhaps a market top?    Doesn’t this stupid website say the market is “ludicrously hot” on the right side??   Hardly seems like strong appreciation in the last year with prices in April 2017 and May 2016 close to $800,000.

Let’s zoom out a bit more.

Now the graph gives a totally different impression.  The big decline from the first graph is lost in the noise and the actual trend of about +$100,000/year reveals itself.  Monthly medians are notoriously variable.   Sometimes that variability manifests itself in large changes (like the increase of $140,000 from December to January) and sometimes it results in a stretch of steadily declining prices.

Could it be some sort of top?  Sure.  If we get another 4 months of price declines then there is something going on, but so far it’s just that much noise.  It’s human nature to spot patterns in noise, and so we glom onto these things when we see them.   This is why I think that while data is interesting, it doesn’t really help people form an accurate opinion of the market without interpretation.   For example Zolo has a great page of stats for Vancouver but what they are actually highlighting in many cases is the noise, and in other cases they have the signal but it’s not obvious to someone not familiar with the details of real estate markets.

Regarding our market, I still believe that before we see prices slow down we would need to see a matching pullback in market conditions.  This would be something to watch out for and I’ll look into what a market top actually has looked like in Victoria in the past.   When the current runup is over, will we get any warning, and if so, what should we be looking for as an early warning of the market rolling over?