2300 replies to this topic

[Mike K.]

Here's an excerpt from Royal Bay's main website (http://royalbaydevelopmentlimited.com/):

During 2006, an agreement in principle was reached between Royal Bay Development Limited and the Sooke School District for the sale of 6.3 ha. of land to accommodate a new secondary school in Royal Bay. In 2007, work on the school design should begin with construction scheduled to commence in the summer of 2008. The opening is projected for September 2009.

Sunriver Estates out in Sooke also has a school site planned at: http://www.sunrivere... ... ebb03116ba

...and several new schools have already opened in the west shore.

At his recent talk, Gordon Price (ex Vancouver councillor) said that in downtown Van there was stroller gridlock on the sidewalks 8) . As aastra said, not everyone thinks living in a condo in the city is a bad thing.

[househuntvictoria]

I appreciate the links and quotes... thanks. I never disputed that families are moving to the Westshore, many people bought out there in Sunriver and the new subdivisions off Happy Valley back when prices were between $240-$280K. Sunriver is having a hard time selling out there last phase though at $460K, and you can now buy development land off Happy Valley that savvy developers won't touch because they know they'll have a hard time selling SFH at today's prices in those areas.

[tsusiat]

It's funny how the poll result at Vibrant Victoria skews from the result on my bubble blog. Either way, it looks like there is a fair amount of sentiment that this is near the top.

Vibrant Victoria housing bubble poll so far:

4 say yes
3 say no
3 say maybe

Check this out to see what I mean about the wildly different poll result on my bubble blog. Just goes to show how a different readership can result in quite different results, to a similar question: http://cheaprealty.net/home/node/2252/results.

[Holden West]

That's because the question is somewhat loaded, and that the actual answer (which I posted on the previous page) is more subtle--the "light froth" scenario. Prices may ease somewhat over the next while but there won't be a collapse. I just don't buy your either-or option so that's why I didn't vote.

[aastra]

If you thought there was a bubble in 2002, I'm not sure where you were reading your information.

Google real estate bubble and 2002 and you'll find what you seek. In fact, several of the pundits back then were claiming the bubble was about to burst or was already bursting.

[aastra]

RE didn't become astronomically overvalued until late-2005 and into 2006. Today is what matters in my mind.

Average price, Single Family

May 2007: 567,000

Jan 2007: 508,000

Dec 2006: 518,000

June 2006: 536,000

Jan 2006: 479,000

2005 (average of all months): 514,000

2004 (average of all months): 447,000

[aastra]

I just don't buy your either-or option so that's why I didn't vote.

Yeah, people tend to view such matters from a boom-or-bust perspective. It might go bust all of a sudden, it's true. Or it might trend down a bit and then continue on a longterm uptrend. Or it might go nowhere and tread water for years. Or it might begin a graceful longterm downtrend.

On children in downtown Vancouver:

Since the strategy was implemented, Beasley says, Vancouver’s downtown core has doubled in population, to approximately 85,000 people today (nearly 15 percent of the city’s population). An estimated 4,400 children were living downtown in 2001...

I'm still wondering how many children live in the equivalent area of Victoria. Does anybody know? It'd be interesting to find out the answer, because I expect Victoria's core (as I've defined it) contains considerably more SFD's than does Vancouver's core.

[aastra]

In Van, you're lucky to find a 2 bed condo that has more than 1 bathroom and 800SF. Been in one of those lately? I couldn't possibly imagine the quality of life that busy working families would enjoy in that atmosphere.

My sister/husband/kid lived like that for years in Victoria, except it was 1 bed/1 den/1 bath and closer to 650 square feet. Plenty of people do it and have a great time. Different strokes for different folks.

[aastra]

Jan 7, 1969
"Mayoral Prescription" (editorial)

"The urgent need for housing accommodation within the reach of families of moderate and low income has been made plain in recent months."

"Housing Crisis Committee Set Up"

"One cannot deny the fact that Saanich...faces a housing crisis."

We've forgotten all about it now, but there were predictions of doom and gloom during the red hot real estate market/boom of the 1960s & 1970s. Real estate was priced out of reach for the average family back then, or so some people claimed. But was it really?

[tsusiat]

Holden,

my point about the polls wasn't what the right answer was, just that the perception of those answering was quite different, depending on the readership.

Not sure why asking whether there is a RE bubble here or in Canada in general is a "loaded question". There may be people with vested interests in answering in one way or another, but in the fullness of time, the correct answer will become obvious. Asking people to speculate now is just that - a request for a confirmation, a wait and see attitude, or a denial of any problem/bubble. The thread seems to be stimulating debate, so I believe the question is timely.

As to Greenspan and his frothy remarks, I prefer more straightforward economists, like Roubini and Shiller.

Cheers.

[aastra]

...in the fullness of time, the correct answer will become obvious.

What if prices continue to trend up for three more years? Does that mean there wasn't a bubble? Or does that mean the bubble was bigger than anybody in 2007 feared it was in their worst nightmares?

Or what if prices tread water around the present level for five years? Does that mean there wasn't a bubble?

Or what if prices trend back down for as many years as it's taken to get up to the present level? Does that mean there wasn't a bubble?

What defines a bubble anyway? Are we expecting house prices to plunge 75% one morning like a bad biotech stock? Where's the line between a downward trend and a bursting bubble?

[tsusiat]

Aastra -

what about a lot of things? Why not provide your answers to those questions, so we can figure out if you are merely stirring the pot?

Rather than repeat myself, you can read my answer to your question here: http://cheaprealty.net/home/victoria-watercooler-2-crash-comparison.

In short hand, what do I expect by next year?

Well, if inventory follows the pattern it has shown so far, I would expect a decline of 10% in nominal terms by fall 2008.

I have given a fairly lengthy analysis of the last two declines in Victoria Real Estate values in the post linked above - the length of time a decline takes doesn't indicate whether there was a bubble - rather, the depth of the overall decline confirms the existence of a bubble.

So, for the sake of argument, if real estate prices stay flat in nominal terms for the next 10 years, while inflation trends up 3% a year, I would think anything that takes 10 years to unwind, would definitely be a bubble.

Usually, when RE reverses, it happens faster than that, equilibrium is re-established fairly quickly at the appropriate level, and prices start trending up again, at least in nominal terms. Even in the early 80s, nominal prices only dropped for 4 years. However, taking inflation of over 5% per year at the time into account, by the time prices turned around in the 80s, real estate was 50% cheaper.

That was definitely a bubble.

The downturn in the 90s, was more like 10% adjusted for inflation - not a bubble.

This time?

A decline of 20% or more would signal a bubble in my mind - that would put the average house price at about $450000 - anything that prices an asset at more than $100,000 more than where it can be bought later...hmmm, that sounds like a bubble to me. If you don't believe that can happen, I suggest checking the VREB stats for 1981-1982, and what the price drop was in the first year prices went down - 20% in nominal terms.

The question is, what will force the hands of sellers - after all, as I noted in my post, they won't voluntarily surrender $100,000 of perceived value. I would just suggest that inventory has risen steadily for more than 2 years along with prices, and now interest rates are rising, choking off affordability.

If you subscribe to the theory that rich foreigners only pay cash and don't care about rates, provide something to back it up. Then, how about showing how that could possibly drive the whole market - in other words, show that interest rates don't matters. Or at least provide something to show there will be minimal impact. You could say 40 year amortizations and zero down will do that, but here it is too soon to say. If you want to look at a case study of where that can go, check out Phoenix Arizona these days.

I would suggest that, even sitting in a house that is worth $700,000, wanting to trade up to a house that costs $100,000 more just got more expensive. The market is now going to have to defeat all those forces to go higher.

Not to mention, if you look at the length of the last two runs of rising prices, this boom is already very long. Another 3 years? We'll see,

Cheers.

[aastra]

Question: are people really expecting their real estate investments to always go up and to only go up, from the moment of purchase? I'm not being a jerk when I ask that. It's a sincere question.

I ask because it looks like you and I are meaning very different things when we talk about bubbles and boom and bust and so forth. In my experience, a bust is when you lose everything or just about everything, in a very short period of time (usually in an instant). In fact, I'm pretty sure that's the dictionary's definition: to lose everything and go bankrupt.

[url=http://vreb.org/history/19782002.pdf:35e92]When I look at these numbers[/url:35e92] I'm just not seeing boom and bust. I'm seeing a longterm rising trend with small dips here and there. If that was a mutual fund into which I'd placed $63,733 back in 1978, I'd be very pleased with that sort of performance over twenty years.

Maybe the whole bubble thing is just a question of perspective and investor risk tolerance?

[tsusiat]

Aastra -

simple question, if I bought your "mutual fund", did I do better buy buying in 1981 or 1985 - answer, I did way better by buying in 1985. But of course, you know that, right?

Let's see, did I do better buying Nortel stock in 2000, or 2007?

[aastra]

Depends when you sold, what your average price was, and what your goals were. But of course you knew that, right? Sure you did.

Anyway, you answered my question. It does indeed seem to be a question of perspective and investor risk tolerance.

[tsusiat]

aastra -

Pick any date to sell from 1986 until now -- ANY DATE -- and people who bought in 1985 did better on average than people who bought in 1981. End of story. You can't possibly spin an average price of $126,000 vs a price of $93,000, and come up with a scenario where it was smarter to buy in 1981 than 1985.

I understand the game you are playing -- but try to admit the obvious:

There is no way to do better when you pay more! If you know that, you know that simple math like that has nothing to do with "risk tolerance".

Are you suggesting that those who are not averse to risk, can now make housing purchases as part of a sensible, long term, risk tolerant investment strategy, no matter what the purchase cost?

I suppose you don't consider price/earnings ratios to be too important in stock valuations, either?

Last point I will make, 'cause I will give you the last word at this point and not hijack the thread, if you can't agree that it is possible to pick a top in housing, ever, if you are saying you don't believe it is possible to ever lose in housing, if you just wait long enough [we can't all wait long enough,but that's another story] -- how come it is possible to lose in housing, and how come the chart you post a link to does show housing going down in nominal terms twice in the last 30 years, the last of which was twelve years ago?

Which, as I think I have already suggested, points to the current "boom" being much closer to the end than the beginning.

You weren't saying any of that, anyway, right?

As to the word or phrase used to describe this end game, and whether it should be bubble, bust or dip in the road, that's just semantics. The point is, prices will be going down by next year.

[m0nkyman]

Actually, assuming the person didn't sell, the person who bought in '81 didn't piss away four years of rent, and is four years ahead in terms of paying off their mortgage. Call it rent of 1200 x 4, compounded for twenty-six years. You do the math, but I think it might surprise you.

[tsusiat]

monkeyman -

you're wrong. Look at it this way, if you were lucky, in 85 you got a 5 year interest rate of around 12%. In 1981, it was around 18%. http://www.bank-banque-canada.ca/en/dollar_book/appendixc.pdf.

Aside from that, the amount of principal paid down on the $126,000 purchase price comes nowhere close to the money you saved by waiting and paying less later.

Payments on a 25 year amortization of $126,000 at 18% = $1847 in 1981
Payments on a 25 year amortization of $93,000 at 12% = $959 in 1985

Lets assume you waited until 1985 and bought with a 20 year amortization, to even things out:

Payments on a 20 year amortization of $93,000 at 12% = $1005 (1985 $)

It's not even close. People who bought in 1985 probably kept their homes, managed their payments and did great. 1981? Not so much...

[Mike K.]

I don't see the point of comparing the 1980's market to today's market (much like comparing Victoria's 1930's market to Victoria's 1980's market). The 80's were a completely different animal and housing prices plundered as a result of oil crisis' and other economic mishaps. Furthermore, markets like Edmonton and Calgary were devastated by the same economic factors that Victoria was dealing with, but Victoria's real-estate continued to demand relatively high prices for housing. If Calgarians were selling off property at $1 just to break from their mortgages and Victorians were BUYING housing at almost $100,000, is that not indicative of anything?

Victorians are having a difficult time accepting that Victoria's housing market is no longer contained. The word has gotten out and our real-estate market now absorbs international interest whether we like it or not. Furthermore, our real-estate prices absolutely PALE in comparison to similar properties in the US and Europe. For the $500,000 international buyers spend here they couldn't get nearly as much back home for the same amount of money. As far as they're concerned, Victoria is still a bargain at a high-dollar or not.

To end my little rant I'd like to pose a question. If housing prices are a result of supply and demand, wouldn't one expect, should prices in Victoria drop due to a shakedown of the local market, that there would be enough pent up demand to prop prices back up to lessen the effect of a price bust? If there are thousands upon thousands of buyers just waiting for a break in the prices their demand should out pace supply rather quickly leading to rising prices (that's if as many Victorians are sitting and waiting on the sidelines as we are lead to believe).

[househuntvictoria]

"To end my little rant I'd like to pose a question. If housing prices are a result of supply and demand, wouldn't one expect, should prices in Victoria drop due to a shakedown of the local market, that there would be enough pent up demand to prop prices back up to lessen the effect of a price bust? If there are thousands upon thousands of buyers just waiting for a break in the prices their demand should out pace supply rather quickly leading to rising prices (that's if as many Victorians are sitting and waiting on the sidelines as we are lead to believe)."

Where are those thousands and thousands of buyers waiting to buy in once a break occurs? Interesting emotional things happen to those "buyers" when prices start declining. They actually start waiting for a bottom to buy again rather than get caught on the way down. Who wants to buy a declining asset? how does it go over at the dinner party when you're getting laughed at for buying today for $20K more than in the fall?

And for you aastra, cause you asked, I'll repost what was already posted earlier:

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."