Dark sales

All the data on this site are based on the sales and listings in the MLS database.   There are just under 6000 of those sales in a slow year, and over 10,000 in an insane one.

Thing is, while most sales happen on MLS, there are quite a few that are not captured there.  For new builds, only a small fraction are ever listed on MLS, and none of the private sales would show up there either.

How many sales are happening outside the MLS system?  Well one side effect of the province publishing foreign buyer data is that they are also publishing the total number of land title transfers every month.   Now that we have a full year’s worth of that data we can get a sense of the number of these dark sales.  Because sales are recorded when the contract goes unconditional, and title transfers happen on closing which is usually a couple months later, I’ve advanced the title transfer data to best fit the seasonal pattern. Continue reading

Nov 6 Market Update

Weekly sales numbers courtesy of the VREB.

Nov 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 83  599
New Listings 157  786
Active Listings 1909 1815
Sales to New Listings  53%  76%
Sales Projection
Months of Inventory 3.0

20% below last year’s daily sales rate but that doesn’t mean much since we only had the tail end of last week in this week’s numbers.  Will require another week or two to determine whether the stress test is pulling buyers forward, or whether the increasing number of lenders that are already applying it will start to put a damper on sales.

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A foreign buyer update

A couple days ago we got some stories about how the foreign buyer numbers were finally released to cover the period from June to September 2017.  It was a bit strange, since every story referenced “statistics released Tuesday afternoon by the province” but I couldn’t for the life of me find those statistics.  There was no press release by the Ministry of Finance like we had before, and the data was not up to date on DataBC.   So was the data released only to journalists?   Can anyone help me find this so called release?

No matter, after some gentle poking at the ministry and the help of a friendly HHV reader, the DataBC record was updated with the up to date foreign buyer data this morning.

Almost all the data reported in the media about Victoria is slightly wrong, because they divided the number of foreign buyer involved transactions for all types of properties (residential and commercial) with the total number of residential transactions to get their percentages.  No big problem, they were only off by a tenth of a percent or so.  Here is the up to date data.

No great change in the numbers for our region.   I still find the numbers for Saanich surprisingly high at 8.3% for the year so far, nearly twice the level of Victoria proper.   It doesn’t combine well with Saanich council dragging their feet on every new development.

October Update

Every month I try to get a jump on the VREB by pulling the data for sales and new listings and prices from the VREB database before the official numbers are released.  And every month I’m frustrated by the fact that it is impossible to match the numbers that VREB produces.

The problem of course is all of your insatiable thirsts for immediate information.   Monthly stats are compiled the morning of the 1st of the following month, and the problem is that quite a lot of sales for the month have not been entered into the system yet.   So what do they report for the month’s sales?  Well all the sales that were reported during the month, minus the sales that were reported in previous months but collapsed.   Problem is that means what gets reported as sales in a certain month are actually missing quite a few sales at the end of the month, and include several sales from the previous month.   For example, as I write this, of the 280 single family sales that the database says were reported in October, 15 actually happened in September, and the total reported by the VREB is 294.

You’d think counting sales wouldn’t be so difficult.

Maybe it doesn’t matter, but fundamentally data that depends on how prompt agents are at entering their sales isn’t very reliable.   Much better to just throw the whole reporting dates out the window and move to a model where everything goes by the date a sale actually happened.   Collapsed sales are an insignificant number and can be tracked separately.   As of now I can actually do that since I gained access to the raw data feed from the VREB and am using it to build out some better reporting tools for the market.  Along with that I will at some point transition to statistics based on sales dates rather than reporting dates and thus will diverge from the published VREB stats somewhat.   Stay tuned for that.

For now, we’ve got the stats as they come from the VREB.  And this month is much the same as September.   Overall sales down some 10% from last October with detached declining the most, and condos maintaining the feverish pace from last year.

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October 30 Market Update

Weekly sales numbers courtesy of the VREB.

Oct 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 146  289  453  601  735
New Listings 265  479  698  922  904
Active Listings 1990 1989 1978 1982  1938
Sales to New Listings  55%  60%  65%  65%  81%
Sales Projection  565  661  624
Months of Inventory  2.6

Running about 15% behind last year’s sales rate.   Today we saw another 36 sales entered (some of those being from up to two weeks ago) and we’ll see likely another 30 tomorrow for about 660 this month.

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Solar power: Does it make sense in Victoria?

Somewhat offtopic from housing, but I’ve always been interested in solar power, and I used to promote a DIY solar option in town that helped people install their own panels.  However they recently shut down, so it sparked another look into what the current options are, and whether it makes sense economically to do solar right now.

The good news is, the price of solar power is still coming down.    Last year I was able to put parts for a 10 panel system together for $2.54/Watt, while one year later a comparable system is down to $2.18/Watt.   Personally our roof is too shady for solar, but my brother is considering it so we decided to do some calculations on what the current economics of solar are in Victoria.   However I found it quite tricky to actually figure out the return on investment from solar in Victoria.   The installers and promoters tend to give very optimistic estimates of return with no details on how this was calculated, and the really good tools like Google Sunroof are only available in the US.

Turns out Victoria is quite well suited in terms of solar exposure.  We’re not the prairies or California, but you can expect that 1000W of installed solar capacity (3 to 4 panels) will generate about 1100kWh of power per year (about $150 at today’s hydro rates).   That’s enough power to drive 5000km in an electric car.

But is it worth it?   Unlike in other areas of the country, we already have almost 100% clean renewable energy in the form of hydro, so you won’t be reducing any greenhouse gas emissions by replacing hydro with solar.   Which leaves the economics of the situation (and the possibility of the smug feeling that you’re not paying a hydro bill).

To accurately compare solar to any other investment, you have to calculate the return on the initial purchase price, and for solar that is usually done over 25 years.   The panels should last much longer than that,  but some other electronics (inverters) may need replacing so for simplicity we assume that the entire system is worth zero after 25 years.   Then we calculate the percentage return on investment given the power produced and an estimate of hydro rate increases over that period.

What’s the result?  Well if you put the panels up yourself, you can get a modest return from solar.   For example, a relatively small 2.6kW system that you put on the roof yourself ($5800 in parts) and have an electrician hook up (~$2000) will give you an annual return of 2.4% for 25 years.   Double the system size (20 panels) and your return increases to about 3%.  Not great but not bad for a safe return and of course that is after tax.

Solar Return for a DIY 2.6kW System

The extra labour costs in professionally installed systems will suck up some of that though.  Based on some quotes for larger systems of about 20 panels, return would be about 1.5% annually.

If you want to test out some scenarios of your own, we’ve developed this spreadsheet that will figure out your return, as well as cost of power generated over 25 years.

Download in: Excel Format   or   OpenDocument Format

If we had better conditions on our roof, I’d put up a few panels now, get the place wired for it, and then likely hold off any further expansion for a year to see if installation incentives are coming either from the feds or the province.  Especially if they kill Site C I imagine they will start to push harder on other renewables.   From a property value perspective, I suspect that solar panels would increase your property value due to decreased operating costs, however I can’t actually back that up.    You can buy components from WeGo Solar and there are also some local installers around.  The app Solar Consult is a good one to estimate solar potential on your roof.

Anyone out there have solar installed or is considering it?  How did you do the install?  Anything you learned in the process?

No, we aren’t underbuilding in Victoria and other census bits

Housing stats are out from the census, and with it a bunch of news articles about what can be gleaned from the release (aren’t we all glad the long form census is back?).  In Victoria the ownership rate is just short of 63% which is down a couple percent from 10 years ago.  The breakdown by housing types is as follows.

Why is the duplex category so big?  It’s because every basement suite counts as a “flat in a duplex”.

Also some other stats I thought were interesting, on the age of our housing stock:

Too bad they didn’t break down the years before 1960 and the bins are different sizes, but you can clearly see the large building boom of rental apartments along with neighbourhoods like Gordon Head in the 60s and 70s.

57.1% of owners have a mortgage, which is a smidge higher than the 55.7% it was 10 years ago.   The percentage of owner households spending more than 30% of their income on housing is actually down to 19% from 20.9% 10 years ago which indicates fewer households were stretched financially due to their housing costs.  Probably something to do with the fact that in 2016 mortgage rates were half those of 2006.  The census was also before most of the recent runup in housing prices.

Back to construction for a minute though.  The usual suspects are trying to present the data to say that construction has not kept up with population growth (clearly we need to build more!).  In the last 5 years this is true.  We had a growth of 23,455 people and only added 5330 housing units, which would yield 4.4 people per unit, which is well over the average household size of 2.2.   But housing construction goes in cycles and 2011 to 2016 was a slow period for construction while population grew faster than normal.   That’s quite obvious looking at construction history.

Looking back 10 years, we grew by 37,682 people and added 17,335 dwelling units, which yields a household size of 2.17 people, or pretty much exactly our average.   No evidence of systematic underbuilding.

One look around the city (or a glance at the stats) would also show you that construction has picked up massively from the levels of 2011-2016 so I don’t think we need to concern ourselves too much with running out of housing quite yet.

Oct 23 Market Update

Weekly sales numbers courtesy of the VREB.

Oct 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 146  289  453  735
New Listings 265  479  698  904
Active Listings 1990 1989 1978  1938
Sales to New Listings  55%  60%  65%  81%
Sales Projection  565  661
Months of Inventory  2.6

A surprisingly strong week at 164 sales which is 20 more than the first two weeks of the month.  I wonder if the stress test is pushing some people to jump in before they can’t qualify anymore?   A 25% buying power reduction is nothing to sneeze at.  We started out the month at a sales rate 30% lower than this time last year, now we are just off 10%.

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What do you do with your down payment?

Assuming you are looking to buy at some point, you’re likely saving up your down payment.   Especially after the stress test, some people may be saving up more of a down payment than before in order to get the mortgage down enough to qualify for it.

What to do with the money while you wait to buy?   With a well-diversified low-cost investing strategy you should expect a long term annual return of about 6%, but what if your investment drops by a third right when you want to buy?  Even worse, these things are correlated so when there are deals in real estate you may be poorly positioned to take advantage.

So what do you do with your down payment?   “High” interest savings accounts?   REITs to hedge your bets?  Stuffed under your mattress?   Bitcoins?   Silver?  Does anyone have a particular strategy or recommendations to share?   Should your down payment investment strategy change based on current stock valuations?   Is there any way to reasonably invest a down payment at all or should you just keep it in cash and hope for low inflation?

The Stress Test

Real estate markets are driven by credit, so when the government starts seriously constricting credit, it can have a large impact.  As expected, the OSFI has announced the changes to the B-20 rules I covered earlier this month.   Stress test for all mortgages (from federally regulated lenders) at 2% higher than existing rates and cracking down on creative financing intended to circumvent these rules.

The rules come into effect January 1, 2018.

Last time we looked at at how minimum incomes to qualify for a typical single family house or condo will have to increase under a stress test.   This time let’s see how that maps to Victoria incomes.   In 2015, our income distribution was like this:

Another way to visualize this is by looking at what percentage of households are above a certain income level.

Now if we assume 20% down (the optimal down payment in many cases) on the median property, what does that do to the number of people that could qualify for the mortgage?  Note that this is assuming good credit and no significant other debts, so the actual qualifying incomes could be higher.

For SFH and condos then, the stress test could sideline around 7% of all Victoria households at current prices.   Of course, the buyers on the edge with additional capital can put more down to pass the stress test, and shadow lenders will take up some of the slack, but it could be a significant chunk out of the buying pool.  Definitely the biggest change we’ve seen to credit availability in years.