Is there a housing bubble right now in Victoria?

Okay, I have a blog where I argue that Victoria is in the late stages of bubbliciousness, but what do people here think? In the near term, is this the top for Victoria real estate, or not?

I believe Allan Greenspan. No bubble, just a light froth.

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is this the top for Victoria real estate...

Top in prices or top in amount of construction?

Didn't we already establish that the 1970s and late 1980s still have the current boom soundly beat in terms of volume?

I think the prices will have to backtrack a bit at some point, but then people have been calling the top for what...seven years now?

Here's a poll for you: If prices come down a bit, would that be good or bad or neither for downtown condo construction?

aastra said

Here's a poll for you: If prices come down a bit, would that be good or bad or neither for downtown condo construction?

Bad. Mostly.

Just cuz a kid can get lemonaid ingredients for cheap, doesn't mean he's gonna sell it.

Makes you wonder what sort of economic climate the Bambu/Mozart crowd are waiting for then. Pre-boom is no good for building. Boom is no good for building. Post-boom is no good for building.

Janion, anyone?

aastra said

Makes you wonder what sort of economic climate the Bambu/Mozart crowd are waiting for then. Pre-boom is no good for building. Boom is no good for building. Post-boom is no good for building.

Janion, anyone?

I'd say that any developer that fails in any stage of economic health, when other developers are succeeding, are using the economy as an excuse.

By top, I mean, are nominal housing prices now at their peak, prior to a decline?

I'd say yes. And one of these years I just know I'm going to be right.

From wiki: "economic bubbles often occur when too much money is chasing too few assets, causing both good assets and bad assets to appreciate excessively beyond their fundamentals to an unsustainable level. The bubbles will burst only when the central bank reverses its monetary accommodation policy and soaks up the liquidity in the financial system."

Doesn't sound at all like what might be happening these days. Nope, nothing to see here.

Ha! Dueling bubble-bloggers.

I know this is a poll, but if we're going to go into a debate on the housing situation it should probably take place on a thread already on this topic at: viewtopic.php?f=8&t=260

Hey Derf,

nobody has posted on that other thread for quite awhile, and my question doesn't just refer to condos. Considering what's happening in the US, is it not somewhat topical to have a thread about the housing bubble, mythical or otherwise? The poll is a bellwether of what the readers who stop by think is happening. If there is a bubble popping, we won't know until next year.

If there is no bubble, it's just another one of those years when prices went up because....

^ok, fair enough

I personally believe that there are several factors that will help Victoria recoup from or even override a national housing bust.

1) we have the boomers migrating to Victoria and purchasing not only primary residences but secondary and tertiary
2) Victoria is growing by 4000 to 5000 residents a year, which chips away at the housing stock and demand for rental units
3) Victoria's tight rental market gives investors buying condos more of a reason to do so, as they rent out their units where they are able to
4) Over the last several decades, Victoria's housing prices have continued to climb and we haven't see the sort of recessions Alberta is privy to
5) and as aastra mentioned, this building boom still falls short of the boom where we saw over 3,000 homes built a year and with 150,000 fewer residents (read [url=http://www.vibrantvictoria.ca/articles/0005_1.htm:58786]this[/url:58786] article for more on that, although it focuses more on highrise construction than total home construction)

So if British Columbians get burned when the bubble bursts, will Calgary and Edmonton be scorched off the face of the earth?

If having to sell your house for $1 in order to get out of a 20+% mortgage and flee the city, then yes. That was Alberta in the 80's when their bubble burst at about the same time our housing boom receded. We got out relatively unscathed.

In reply to your list of positives for the local market, and in the interest of fun, here are some cons to your pros.

- Are not the boomers part of the population inflow - don't count this effect twice!

- Aren't boomers, if they are demographically significant as buyers, going to be equally demographically significant as sellers in a few years when they start kicking off and/or downsizing?

- I think you are overestimating the population growth locally, Stats Can shows a bit lower number... I can find it later if you want.

- People won't buy with the intention of renting, renting is just a fall-back plan, if rents don't stack up well against mortgages, or good old GICs. If I bought a place for $500,000, and rent it out for $2000/month, I'm making less than 5% a year before other expenses, taxes, maintenance etc.

- Many buildings have rental restrictions, so the effect of the ability to rent should be diffused somewhat, also.

I don't think a price collapse hinges only on over-building. A credit crunch/affordability crisis could be bad too. Won't interest rates have an effect?

tsusiat said

- Are not the boomers part of the population inflow - don't count this effect twice!

- Aren't boomers, if they are demographically significant as buyers, going to be equally demographically significant as sellers in a few years when they start kicking off and/or downsizing?

Boomers are both buying primary homes and secondary+ homes, so the snowbirds, or what have you, make up the different between boomers moving to town and boomers purchasing homes and hanging around for several months (i.e. they're not included in the census).

If we're worried about the current "bubble," let's not get caught up in what boomers will or won't do in thirty years. That's too far for us to even worry about.

tsusiat said

- I think you are overestimating the population growth locally, Stats Can shows a bit lower number... I can find it later if you want.

http://crd.bc.ca/inf... ... ROW_06.pdf

tsusiat said

- People won't buy with the intention of renting, renting is just a fall-back plan, if rents don't stack up well against mortgages, or good old GICs. If I bought a place for $500,000, and rent it out for $2000/month, I'm making less than 5% a year before other expenses, taxes, maintenance etc.

Renting is not permanent. It's a temporary solution for holding property for a future sale or for future inhabitance. Housing stock is liquid and should be expected to move from owner, to renter, to another owner, etc. That's normal and happens all over the world regardless of housing value (look at Manhattan where you're paying thousands upon thousands a month for private apartment rentals). The wealth in this city is unreal (more on that below) and people buy $500,000 condos in cash! Coincidentally my dentist was describing his recent purchase in the Chelsea building with a partner. They paid $600,000 in cash and intend to rent the units then flip them in several years. Whatever they charge in rent they'll be earning a profit which will only serve to pad the final sale price. And if the market squirms they'll keep renting it until they can sell it for a handsome return.

tsusiat said

- Many buildings have rental restrictions, so the effect of the ability to rent should be diffused somewhat, also.

A few do, but most don't. And now that secondary suites are legal in much of the region, expect more banks to support homeowners who can calculate income from a secondary suite as part of their household income.

tsusiat said

I don't think a price collapse hinges only on over-building. A credit crunch/affordability crisis could be bad too. Won't interest rates have an effect?

Affordability has little meaning in Victoria. The amount of wealthy people here far outweighs other comparable cities. Those who can't afford to buy will rent, and those who wish to own but can't afford it move to the Cowichan Valley and commute into town. The real-estate market here is not unlike the market in southern California where homes are expensive but people are somehow demanding them and buying them for whatever price is listed.

Since 2003 we've been hearing one bubble burst theory after another. People have been absolutely convinced that the crash was just around the corner. Now moving onto 2008, we're still fine.

Derf,

you seem to be right about the population inflow, but I still don't get how you want to add baby boomers buying secondary homes here to the market forces. This is great anecdotally, but what numbers do you have to support this is occurring with any significance, in addition to the people moving here?

People purchasing in some high profile buildings in Songhees are not going to drive the whole market.

As far as the number of wealthy people here, I guess you mean there are more here in the last 5 years or so, significantly more than previously?

My only comment to that is, how do you explain this: http://cheaprealty.net/home/victoria-inventory-sales-volume-2005-2007?

Your explanations make a lot of sense, except, if things are working out the way you say, why does inventory keep shooting up, while sales stay flat in the local area for the past 2.5 years?

If more wealthy people here are going to support much higher prices, why is there more for sale now than in the past 3-4 years? If wealthy people don't want to buy some of the junky real estate at high prices, won't some of those properties eventually start getting cheaper?

Particularly with higher interest rates? The proportion of dentists in the population in general is not that great... 8)

Okay, I'm stirring the hornet's nest, I know; I will stop, listen to the responses and if I disagree I will take it back to my blog next time.

Finally the discrepency between homes on the market and sales is where it should be. Several years ago when we had 1:5 (one property, five hopeful buyers) buyers were frantically purchasing whatever they could. Now there is selection and buyers have less pressure to purchase something they'll regret or they have the opportunity to purchase at a price range they feel comfortable with without worrying they'll be priced out within two weeks.

Presently at 3.5:1 (over 3 units to one buyer), the market can't be at a healthier state as far as I'm concerned. The current market conditions increase the likelihood that builders will pay more attention to quality and provide more perks for buyers (anyone who ever purchased during a ~1:5 frenzy will tell you how poor the workmanship can be on new construction).

As for out of town buyers, the local papers have claimed (as per the word of developers and agents) that 30% of sales are going to non-locals and 70% are going to locals and new migrants.

As for property getting cheaper, it may, but remember that this is Victoria we're talking about. Sliding prices would be welcome but they won't drop far enough to make this region any more affordable than it already is. Property is purchased as a longterm investment and over the longterm most any investment in Victoria properties is a good investment.

Fair enough Derf,

we can keep an eye on this and revisit the thread in a year or two. My point of view is considerably more bearish, but if I'm wrong this year, there's always next year.... :-D