September 11 Market Update

Weekly numbers courtesy of the VREB.

Sep 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 183  781
New Listings 321  1050
Active Listings 1949  2061
Sales to New Listings  57%  74%
Sales Projection
Months of Inventory  2.6

A weak start to the month compared to last year.   We are down 16% in sales while new listings are about the same as last year.   We are still cruising along at 5% less total inventory but the difference is becoming immaterial.

It also doesn’t tell the whole story.  Looking at the areas most people are interested in (residential listings in the core, westshore, and peninsula), total inventory as well as inventory for detached houses and condos are up.   Only the number of townhouse listings are down by 15 from last September.

Meanwhile comparing the same days of September to last year, sales are down substantially for all those categories except condos.

It’s not a lot of days to compare, but it’s pretty clear that the low inventory is not the reason that sales are down from last year, and they are slumping because of a reduced demand at current prices.   We should expect market conditions to continue to improve for buyers overall and especially in the detached market going forward.

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Just got an email about the new regulations coming down the pipe in BC for the real estate industry.    If you recall, the industry lost the right to self-regulate last year after a lot of reports of consumer hostile behaviours by certain brokerages in the overheated Vancouver market.   The Real Estate Council of BC was revamped with more outside members, and the Office of the Superintendent of Real Estate (OSRE) appointed to keep an eye on the industry moving forward. Since then they’ve tweaked the rules here and there, for example by making it marginally harder to pass the entrance exam for agents and by cranking up the maximum amount of penalties for misconduct by both licensees and brokerages.   I’ve seen a few job postings for the OSRE that stated the goal was to implement the recommendations of the Independent Advisory Group report that was released last year. Well the next changes have been released in draft form and are:

  1. Removing limited dual agency in BC.  This is where one agent represents both the buyer and the seller as clients in a transaction, with some restrictions.  Some remote and underserved communities will be allowed to continue with this practice for now.
  2. Increasing required disclosure about commissions and representation to clients.   Generally some minor tweaks to disclosure requirements to better inform clients about where their money is going, and what their relationship is with an agent they are dealing with. For example:
    1. In a listing agreement, it must be specified how much commission goes to the listing brokerage and how much to the cooperating (buyer’s agent’s) brokerage.  Also it must be specified how much commission goes to he listing brokerage if the buyer is unrepresented.
    2. Before providing real estate services, an agent must disclose whether they are representing the party as a client (and therefore have a fiduciary duty towards them) and inform them how to file a complaint.  This is very similar to the current Working with a Realtor brochure and will almost certainly result in a modified version of that document.
    3. Before dealing with an unrepresented client in a trade (for example if an agent has a listing and a buyer goes to them directly to write an offer on the property), the agent must explain the risks of dealing with someone that represents only the interests of the opposing party, and a recommendation to get their own professional advice.
    4. When a seller’s agent presents an offer to a seller, they must include detailed information about commission and other remuneration that they would receive if that offer were accepted.

My take: These are draft changes open to comment (provide feedback here) until Oct 6th, but I’ll bet they will essentially pass as written.  Getting rid of limited dual agency is a no brainer and something we’ve seen coming for a long time.  Given that an agent must act in the best interests of their client, it is obviously impossible to do that for two people with competing interests. The increased disclosure laws are relatively minor tweaks to existing requirements.  Some additional transparency for consumers which is always good.   I’m not convinced that the requirement to scare an unrepresented seller via warnings about the risks of being unrepresented is in the consumer’s interest, but certainly getting a lawyer to review an offer before making one is a very good idea.

Overall fairly minor changes that probably won’t have much of an impact on the market outside of turning up the general level of wailing and gnashing of teeth in the industry.   I’m disappointed that they haven’t introduced the requirement for all offers to be recorded on a property to finally put an end to unverifiable competing offers that seem to appear at opportune times to goose a buyer.  Maybe that is still to come.  This is a start and it’s just another sign that the wild west era of speculation, lax regulations, and free money in real estate is slowly being unwound.

August Numbers – The Benchmark Hits a Snag

August numbers are out and one thing that jumped out to me is that the MLS Home Price Index benchmark for detached homes is down, which dragged the overall index to a small decline as well.

It’s just one month, but the overall HPI index is generally pretty stable, and the last time we had a decline like this one in the index was mid 2014 when the market was in a balanced state.  Generally you don’t expect price declines in a market that from a months of inventory standpoint, is still hot.

Looking closer at the detached market, it is definitely the core that is dragging it down.    The westshore is flat month to month, and the peninsula is still up.

Again, one month is no trend, but this bit of evidence of flat core prices gets added to the flat or declining detached medians and average prices this year and flat sales/assessment ratios as well.

But a price decline still doesn’t make sense to me.   All the indicators for the core SFH market are still pointing to a pretty active seller’s market:

  • Average sale price to original list price is at 99.4% (versus 95% in a slow August, and just short of the record 100.4% last August).   43% selling at or over ask.
  • Active detached inventory in the core in August was relatively low at 460 compared to double that 5 years ago.
  • Months of inventory is up from the spring but at 3 is still solidly in sellers market territory.   Same with sales to new listings at 64%.
  • Properties are still selling relatively quickly with the median at 16 days to sell.

So I’ll continue to hold the line on this one and see what happens in the fall.  Last year we had a few months of declining prices in this segment as well but it was all wiped out by a $140,000 jump in the median from December to January.

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Aug 28 Market Update

Still on vacation but back in town.  Good to see the blog humming along without my meddling.   Interesting discussion of full service vs mere postings in the last thread.   I think this topic deserves a lot more attention and analysis, both on the selling side (mere postings) and on the buying side (commission offered).   Is there evidence that the level of commission both on the buying and on the selling side is correlated with positive outcomes for buyers or sellers?   It’s a topic that much of the industry wishes would never be mentioned.

I recently made my info and brokerage more prominent on the right because the Real Estate Council said it wasn’t displayed as required in the advertising standards.  Point is they generally don’t come looking unless they get a complaint and I’m sure any attempt to talk about the holy grail of commissions will unleash some more.   Should be interesting!

For now though, here are the weekly numbers courtesy of the VREB.

Aug 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 157  322  483  644
New Listings 222  431  676  911
Active Listings 1932 1915  1942  1951
Sales to New Listings  71%  75%  71%  71%
Sales Projection  777  750  750
Months of Inventory 2.4

Inventory continues to creep up in a time when it would usually be flat or decreasing.   Not a lot yet, but something to watch.   There’s always a drop of listings at the end of the month as the dregs expire, so we should expect to finish with about 1900 active listings or some 9% less than this time last year.  That’s despite listing cancellations up as the leftovers from spring that didn’t cut it get stale.


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Aug 21 Market Update

Weekly numbers courtesy of the VREB.

Aug 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 157  322  483
New Listings 222  431  676
Active Listings 1932 1915  1942
Sales to New Listings  71%  75%  71%
Sales Projection  777  750
Months of Inventory 2.4

Bit of a surprise increase in inventory this week due to a bump in new listings from 209 two weeks ago to 245 last week.   Maybe a few extra people trying to sell their house before the moon blots out the sun for good.   SFH prices relatively stagnant so far this month still while condos continue to increase.  Sales are coming anywhere from 13% below list to 12% over ask (and one lot in Sooke that sold for 45% over ask).   25% of sales going for more than 1% over ask, 31% selling for within 1% of asking price, and 44% more than 1% under ask.

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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.

Aug 14 Market Update

Weekly numbers courtesy of the VREB.

Aug 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 157  322
New Listings 222  431
Active Listings 1932 1915
Sales to New Listings  71%  75%
Sales Projection  777
Months of Inventory 2.4

Detached homes are still being outpaced by condos, with 29% of detached homes in August going for over ask compared to 39% of condos.    At 21 days, it takes almost twice as long to sell the average house as the average condo right now.   To keep some perspective that is still relatively low given that two years ago it took 35 days and the year before it took 54.   However we can already see price cuts are necessary to shift houses, with the average sell price to original list dropping to 98.6% for detached while it remains over 100% for condos (this measure varies from 95% in declining markets to 103% in hot markets).

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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.

Greater Victoria Municipalities and Neighbourhoods

A few months back the VREB added some proper maps of all their trading areas, replacing the old images that were too small to read and only showed down to the level of the municipalities.   It’s a great improvement, however the maps only have a few hundred views, so I think they are too hidden on the VREB site.

Given how often the topic comes up here, I figured it would be a useful reference to have embedded on the site in one place, starting with the sub-areas in the the VREB trading area (Greater Victoria plus the Malahat and Gulf Islands).

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July Numbers – Condos lead the way

Are we done breaking records yet?  I’m tired of it anyway, so it’s a good thing that we are slowly returning to a more normal state of affairs in Victoria.

Single family homes are gradually slowing down, although I wouldn’t go so far as saying that we can tell whether that slowdown is part of a longer term trend or just a pullback to a more sustainable level.   As SFH prices moved out of reach, activity has concentrated on condos, which are more active than this time last year, with a full third of condos going over ask.

In single family homes, I have to backpedal from my somewhat alarmist post mid month that Gordon Head sales had ground to a halt.   They recovered somewhat from 3 to 13 sales, which is still off significantly from previous years, but not “off a cliff” as previously described.

The entire core is definitely cooling for single family homes.   July months of inventory up from 1.9 last year to 2.8 now, and median days to sell increasing from 10 to 16 days.    The westshore is also turning around, with months of inventory up from last year.  The VREB says there is a “strong focus on the lower priced end of the market” which is to say “pay no attention to the fact that average prices for detached properties are not increasing”.

In fact finally we can see that the whole market is carving out a bottom in terms of activity and is slowing down by all measures even on the rolling 12 month which tends to lag a bit.

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