May 15 Market Update

Weekly stats update courtesy of the VREB.

May 2017
May
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 193 436
1289
New Listings 361 692
1423
Active Listings 1797 1854
2406
Sales to New Listings  53% 63%
91%
Sales Projection 889 812
Months of Inventory

1.9

A quarter less sales than this time last year, and a quarter less inventory.   Pretty interesting to see the months of inventory tracking last year’s performance so closely.   We are scraping the bottom of the barrel here, and despite increasing reports of more new listings hitting the market, the market measures are not showing any cooling down in aggregate.

It is true that individual market segments are cooling.  For example, there were 1.85 months of inventory for detached homes in the core in April compared to 1.06 a year ago.   This will be something to watch going forward but so far these are being counteracted by other market segments that are more active this year than last (such as condos and townhouses).   At this point the market cannot get more active, but we’ll need a bit more data to determine if it is going to back off across the board or just bounce around the bottom for a while.. Continue reading

A changing of the guard

Wow, an amazing result in this election if it holds.  I was sure that the Liberals would pull off another majority but it seems the anger against them was greater than anticipated and we seem to be converging on a minority government with the Liberals one seat ahead of the NDP and the Greens tripling their seats.

What is likely to come if this holds?  Well could be a Liberal minority although I don’t see how that would be effective, or could be a coalition.   Despite some grumblings about John Horgan’s temper, it is more likely that that the Greens will want to work with the NDP as the two big priorities for Weaver was to get money out of politics and bring in proportional representation which the NDP has also promised.  Of course at current counts a coalition only gets them to 44 which is hardly enough to be effective.

At the very least it seems like it might be worth looking at what each party says about housing.  Let’s look at the NDP Platform and what it says about housing:

  1. New Supply: Build 114,000 affordable rental, non profit, co-op and owner purchase housing units through partnerships over ten years.  Use public land to build housing.  Get new student housing built by removing unnecessary rules that prevent universities and colleges from building affordable student housing
  2. Renters: Introduce a refundable renter’s rebate of $400 dollars per rental household in BC each year.   Close the BC Liberals’ “fixed term lease” loophole and ensure controls on rent increases are enforced.   Re-invest in co-op housing.
  3. Speculation:  Close the loopholes that let speculators dodge taxes and hide their identities.   Direct the revenue from the absentee speculators’ tax into a Housing Affordability Fund.  Establish a multi-agency task force to fight tax fraud and money laundering in the BC real estate marketplace.
  4. Foreign buyers tax:  There isn’t anything specific in the platform, but other reports have said the NDP want to bring in a 2% foreign speculators tax for foreign owners that don’t pay income tax.

What about the Greens?  Well looking at the Green Platform on housing we can see it is a bit more aggressive:

  1. New Supply:  Build 4000 affordable units per year.  Use public land to build housing.  Rethink zoning.
  2. Owners:  Make the home owner grant income tested.   Make property taxes progressive based on income.
  3. Renters: Introduce incentives for construction of rental properties.  Enhance the Residential Tenancy Act with more protections for renters.
  4. Speculation:  Implement a sliding scale PTT from 0-12% for properties between $200,000 and $3M with additional tax for flippers.   Lifetime capital gains limit of $750,000.
  5. Foreign buyers tax: Expand across province, raise to 30%.

What do you think will happen?  What will be the effect on Victoria’s and BC’s market?

May 8 Market Update

Weekly stats update courtesy of the VREB.

May 2017
May
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 193
1289
New Listings 361
1423
Active Listings 1797
2406
Sales to New Listings  53%
91%
Sales Projection 889
Months of Inventory

1.9

Exactly the same rate of new listings as this week last year, but 31% fewer sales.   Primarily still because last year a potential buyer had 750 additional properties to choose from, so the ratio of viable candidates to the dregs was higher.      However this is the first month I’ve seen where sales are down more than listings.   What to watch for is if months of inventory start increasing compared to last year, then we will know the market is backing off the record pace of last year.   So far they are just about identical. 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.

Overheating

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

First hints of a deceleration

Roses are red,
cherry blossoms are pink.
Sales are down,
because real estate is like a squash.

Or so you may believe if you looked at the VREB’s press release which says “Local agricultural production has been delayed due to the late spring, and so has the local real estate market”.  

I’d say the lowest inventory on record may have more to do with the market than soil temperatures but this is not a science.   So where are we at?   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?

Taxation without representation

is tyranny.   But what about taxation with excessive representation?  After all with 13 municipalities and the CRD we can’t argue there isn’t enough representation going on here, but how much is it all costing us in taxes?   Thanks to open data initiatives, we can see which municipalities have kept a lid on tax increases and which ones have let loose the dogs of bureaucracy.

Assuming you lived in a representative house in each of the municipalities from 2006 to 2016, how much would your taxes have increased?

The winner by a mile is North Saanich where taxes haven’t even kept up with inflation.  Of the core municipalities, Esquimalt has done the best job keeping tax increases moderate while the big loser is Saanich with a 56% jump in 10 years.   All of them hiked taxes and fees much faster than inflation over the last decade.

Here are the 2016 values for all the municipalities.

MunicipalitiesTax Rate ($/$1000 value)Representative House ValueResidential Taxes
Central Saanich6.4821$563,548$4,376
Colwood6.7903$471,039$3,418
Esquimalt7.8249$499,924$3,912
Highlands6.1517$607,913$3,740
Langford5.9665$445,337$2,657
Metchosin5.3625$544,041$2,917
North Saanich4.6147$751,568$4,077
Oak Bay6.0601$948,491$6,918
Saanich6.4072$624,581$5,125
Sidney5.9956$493,209$3,826
Sooke6.9408$359,913$3,436
Victoria6.8297$595,222$5,012
View Royal5.8309$547,538$3,512

Continue reading

April 18 Market Update

Weekly stats update courtesy of the VREB.

April 2017
Apr
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 255 464
1286
New Listings 419 681
1590
Active Listings 1661 1652
2594
Sales to New Listings  61% 68%
81%
Sales Projection 990 875
Months of Inventory

2.0

A significant dip in the sales rate last week, that’s probably due to the long weekend, which in a government town is 4 days long so we only really had 4 business days in there.   I would expect quite a few sales to pile up today.   We are approaching a third fewer sales than this time last year, which along with the approximately third less inventory makes conditions quite similar to last year.

Inventory is down from last week again.  Inventory gains were very low last year as well, but the difference was that sales were 32% higher and we had some more properties on the market to cushion the blow.  This year we will be moving into the fall market with essentially nothing for sale.   Compared to a more normal year like 2015, we have added only about a quarter as many properties to the market in the spring season as we usually do.


Continue reading

Fear and loathing in Victoria

No I’m not talking about a pot fueled housing tour (although there’s an idea…), I want to discuss the impact of fear on the housing market.

If you’ve been tuned into the news, hardly a day goes by without a high profile warning about our national housing prices.   Obviously the focus is on Vancouver prices that amazingly seem to have returned to growth, and Toronto prices that increased 33% last year.  No matter how important we think we are in Victoria, on a national scale we’re about as interesting as Hamilton: just another town caught up in the maelstrom of a bigger bubble.

There is no doubt that various levels of government are hyper focused on the problem right now because the anger it is creating has the potential to unseat them from power.   So what happens if the legs get swept out from under the Toronto and Vancouver markets?  How might it affect us here in Victoria?

If a policy change is introduced it could take out foreign buyers or first timers or speculators.  But what if Vancouver and Toronto simply collapse under their own weight?  It won’t change the fundamentals in Victoria but it will radically alter market sentiment.   Suddenly the belief that housing only appreciates goes up in smoke.  Greed turns to fear.  And fear can have a powerful effect on the housing market.

We last saw this in 2008 during the financial crisis.  Despite the financial crisis not having a big effect on local employment, the market completely dried up as the double digit daily declines in the stock market hit the news.  In the end all that was left were those sellers that had no choice but to sell becoming ever more desperate to unload their houses in an environment that felt like the end of the world.   Over 8 months the median detached house lost some $70,000 (12%) of it’s value while the median condo lost $50,000 (16%).   

Of course it bounced back just as quickly as it dropped, once the market realized that nothing had actually changed in Victoria, and now mortgages could be had for half price.   This is as close as the housing market gets to a flash crash, and it played out over 18 months.  Plenty of time for a brave investor to recognize the opportunity and be greedy while others were fearful.

I believe that when Toronto and Vancouver turn downwards dramatically (I’ll avoid the word crash), it will be felt here in Victoria.   Will it be enough to change the rosy perception of housing as an investment for longer, or will it be another blip?  Will it be another opportunity for investors with foresight, or will it be a bull trap now that the world is weary of quantitative easing?   I only know it’ll be entertaining to watch.

Happy Easter everyone.

April 10 Market Update

Weekly stats update courtesy of the VREB.

April 2017
Apr
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 255
1286
New Listings 419
1590
Active Listings 1661
2594
Sales to New Listings  61%
81%
Sales Projection 990
Months of Inventory

2.0

Holy moly 470 comments on that last post.   That’ll teach me to leave the same post up all week.

Thanks to everyone that came out for the HHV meetup last Friday.  Pleasure meeting you all.  As the event tagline promised, there was beer, housing, and lots of bullshit.    Let’s do it again sometime.

We are now getting extremely close to the conditions of last year.   While we still have some 36% fewer properties on the market, sales are down 23% as well, so the months of inventory are about the same, and will likely match last year by the end of the month.   We are also no longer posting stronger sales/list ratios compared to last year.   It seems there is a limit to the level of activity that can be sustained, and this is it.

Marko Juras mentioned at the meetup that activity is down somewhat in multiple bid situations.   Places are still going for big over-asks, but now there might be half as many bids as last year.   Buyer exhaustion?  Or just a response to the higher asking prices?
Continue reading