2300 replies to this topic

[mat]

I agreed with you a year ago. But now I think all bets are off about why things are the way they are. Everything is crashing. I doubt Victoria real estate is the cause.

I was not suggesting that Victoria real estate is a 'cause' for the situation - the issue is a complete lack of credit in the world market. Banks are holding onto what cash they have, and are raising interest rates on operational accounts (payroll etc.) - that forces large projects to review costs and potential profit, if the numbers look bad, they shut down.

Buyers transfer or old mortgages with 10%+ down can still get prime -1/2 rates for a new home, it is the 1st time buyers who are being jilted with banks trying to force them into 5 year fixed high rates (6%+).

[G-Man]

I have seen no burst bubbles alal US markets in Victoria in any sector. A marginal decrease in value is not a burst bubble.

[Roger]

A marginal decrease in value is not a burst bubble.

Yep,

Just a marginal drop of over 10% in 5 months.

[Mike K.]

Just a marginal drop of over 10% in 5 months.

10% in 5 months is not a bubble bursting (that's a 2% drop per month -- a smidgen). It's merely a market connection, i.e. a transitioning period between a sellers market and a buyers market.

A bubble burst would have resulted in prices screaming down to 2002/2003 levels over five months and not a slow trickle like we're seeing.

If not for the global crisis, I doubt we'd have even seen a 10% decrease to-date. Individuals, and especially those wealthy enough to easily afford housing in Victoria, have been on edge over the financial climate for well over 5 months as early rumours began to circle about potential economic woes. Some individuals began retracting large purchases a year back, hence the slowdown in other major centres in Canada.

[gumgum]

Trouble with these sorts of things, we won't know if it's a bubble until it's passed.

[Roger]

Trouble with these sorts of things, we won't know if it's a bubble until it's passed.

[wompeter]

10% in 5 months is not a bubble bursting (that's a 2% drop per month -- a smidgen). It's merely a market connection, i.e. a transitioning period between a sellers market and a buyers market.

A bubble burst would have resulted in prices screaming down to 2002/2003 levels over five months and not a slow trickle like we're seeing.

If not for the global crisis, I doubt we'd have even seen a 10% decrease to-date. Individuals, and especially those wealthy enough to easily afford housing in Victoria, have been on edge over the financial climate for well over 5 months as early rumours began to circle about potential economic woes. Some individuals began retracting large purchases a year back, hence the slowdown in other major centres in Canada.

No seriously... 2% a month is a "smidgen"? That's an annualized drop of almost 22%. Can you point me to any housing data that shows a 50% drop in 5 months? Seriously, I think your criteria of prices "screaming down to 2002-03 levels in 5 months" means that nowhere in the world has had a housing bubble.

I don't think you'll find anyone in the US saying there was no housing bubble. They peaked in 2006. A 22% annualized drop here easily matches some of the bigger drops in the states. May I direct you to google "Case Shiller graph 2008"? For example, http://calculatedris...es-by-city.html.

And, I'm sorry, but the "global crisis" didn't even hit until September 15th, at which point some areas in Victoria had already dropped 6 to 10% from the peak in the market in April.

Keep the denial up though, I'm sure it will buoy up the market.

[G-Man]

If people are saying that the bubble has burst I am sorry that is just not playing out. You have to have:

a) a massive a quick escalation in price.
b) a vast and quick devaluation.
c) a large proportion of owners with negative equity causing foreclosures.

I'll give you a but b&c has not occured which mean we are still in a bubble or there was no bubble to begin with.

I think people are confusing bubbles with natural ups and downs in any market.

I mean was there a gas bubble? Those prices have come down more than ten percent in just a couple months. If all pizza places changed their cost of two medium pizzas from 20 dollars to 18 dollars would there have been a pizza bubble?

I think people are getting their definitions confused. A true economic bubble is what happened with tulips in the 17th century in Holland or with dot coms in the 90's. Real estate in Victoria was just never that crazed.

I guess see what you want to see.

[Mike K.]

And, I'm sorry, but the "global crisis" didn't even hit until September 15th, at which point some areas in Victoria had already dropped 6 to 10% from the peak in the market in April.

Correction. The mass media didn't focus on the issue until the markets began to tumble. Aware investors knew months ago that turmoil was around the corner hence a slowdown in the markets well before September 15th.

As for prices, they're down 5% from January 2008.

[Caramia]

I sat in a meeting of developers and land owners in Victoria in June and took notes while they discussed how to best prepare the city for the coming economic crises. So clearly some people knew about it before Sept 15th. The peak was in April you say?

[wompeter]

Correction. The mass media didn't focus on the issue until the markets began to tumble. Aware investors knew months ago that turmoil was around the corner hence a slowdown in the markets well before September 15th.

As for prices, they're down 5% from January 2008.

How is January relevant? Prices were off 6-10% in September in some areas in Victoria, from the market peak. They'll be off much more at the end of October.

I'm not sure why you're trying to excuse Victoria from the global financial crisis (your comment about "if not for the crisis we wouldn't even be down 10%"). The global financial crisis was caused by housing related financial practices. Our runup in house prices is for the exact same reasons that runups occurred in the States, or in Ireland, or in Britain, or in Spain - and that is loose lending practices.

Our housing rise has been just as spectacular as every other country, and our bubble pop will be just as spectacular.

Please see Roger's site, especially http://photoshare.sh...-77803/gallery/ if you'd like to visualize the price drops in Victoria a little better.

[Caramia]

I don't think Mike is trying to excuse Victoria from the global financial crises. I think he is trying to say Victoria has been affected by the global financial crises.

However, if you are saying we have a sub-prime mortgage crises here in Victoria, then rather that posting price declines - since those could be a by-product of the financial crises, instead post local foreclosure charts. A sharp rise in foreclosures since April would be a better indication that exactly the same thing has happened here as what happened in the USA and caused a global financial collapse.

[LJ]

Buyers transfer or old mortgages with 10%+ down can still get prime -1/2 rates for a new home, it is the 1st time buyers who are being jilted with banks trying to force them into 5 year fixed high rates (6%+).

You obviously didn't experience the interest rates of the early eighties!

I still think anything under 10% is a bargain.

[Mike K.]

How is January relevant? Prices were off 6-10% in September in some areas in Victoria, from the market peak. They'll be off much more at the end of October.

How is January relevant? Housing is a long-term investment. Worrywarts fret over monthly variations while the year over year (YOY) figures carry the real weight.

Point still holds that the median price of property has dropped 5% since Jan/08, and YOY it's still up 15%. Even if it drops by another 20%, YOY a housing investment would only be down 5%. That's virtually nothing compared to the beating investors have taken on the stock market. If anything, real-estate in Victoria is one of the securest investments at this point in time.

I'm not sure why you're trying to excuse Victoria from the global financial crisis (your comment about "if not for the crisis we wouldn't even be down 10%").

That's the exact opposite of what I said. It's not a bubble that's causing ripples in our market, it's the global economic impact. As Caramia noted, people who live and breath the markets have been preparing for economic turmoil months before the world "awoke" to September 15th. It's no coincidence that around the time market savvy individuals realized what was around the corner housing sales began to slump.

[wompeter]

I don't think Mike is trying to excuse Victoria from the global financial crises. I think he is trying to say Victoria has been affected by the global financial crises.

However, if you are saying we have a sub-prime mortgage crises here in Victoria, then rather that posting price declines - since those could be a by-product of the financial crises, instead post local foreclosure charts. A sharp rise in foreclosures since April would be a better indication that exactly the same thing has happened here as what happened in the USA and caused a global financial collapse.

I didn't say anthing about sub-prime, and obviously we're not going to have exactly the same thing as the States. We will still have a popped bubble and lower housing prices, however. Price declines have nothing to do with foreclosures, at least not initially. Although if anyone has foreclosure charts for BC, I would love to see them.

What I'm saying, is that regardless of global financial crisis, prices were coming down in Victoria. The cycle was long, drawn out, and over. The crisis will exacerbate the process.

If you think that loose lending is the same as sub prime, you should take a look at http://www.youtube.c...45E4F0ED131E4D1. This is a really great series of videos that you can listen to in about 30-40 minutes, and gives a great basic intro into why Canada will not escape.

[wompeter]

How is January relevant? Housing is a long-term investment. Worrywarts fret over monthly variations while the year over year (YOY) figures carry the real weight.

Point still holds that the median price of property has dropped 5% since Jan/08, and YOY it's still up 15%. Even if it drops by another 20%, YOY a housing investment would only be down 5%. That's virtually nothing compared to the beating investors have taken on the stock market. If anything, real-estate in Victoria is one of the securest investments at this point in time.

What the heck? You were talking about a bubble in 5-month terms, and I stated a fact that prices were down 6-10% from the peak in Victoria. You then said "as for prices, they're down 5% since January". So in the context, January is irrelevant.

As for YOY being up 15%, I'm not sure what you're smoking. The median price in September 2007 was $515,000. In September 2008, it was $500,000. Which means YOY prices are now negative.

Unless you're still talking about January for some reason. But again, irrelevant to today's market, which is YOY negative. January was practically a year ago. If you want to wait until January 2009 to take your YOY pulse, it'll be down even more.

If you're trying to call me a worrywart, that's fine. Except I don't fret over the month to month numbers... I fret over the trends. Which are all plunging over a cliff.

[Caramia]

Thanks for clarifying wompeter. I'll enjoy those links later when I have some time. I agree that the housing market had to come down eventually. I just expected something that would be a little more like a bursting bubble and less like a gradual transition. Just so we have our definitions straight (silly to be arguing about something when we may all be in agreement over everything but terminology) - what would you define as a natural cyclical transition towards a buyer's market and what would you define as a bubble that has (or will) burst? How do you differentiate between the effects of the world economic troubles and the effects of an over inflated local market?

[Mike K.]

As for YOY being up 15%, I'm not sure what you're smoking. The median price in September 2007 was $515,000. In September 2008, it was $500,000. Which means YOY prices are now negative.

You're absolutely right. The median was at 0% gain between Nov 07 and August 08. My bad.

I still see nothing to indicate a "bubble" has burst, and as per Caramia's post above, unless we define a "bubble" in explicit terms there's little value in a debate.

[tsusiat]

Victoria has been in a bubble since about 2004 - characterized as above average asset appreciation without underlying support (ie above average increase in incomes, for instance).

Victoria has gone from an average of around 5 times income/price ratio (see earlier in the thread) to almost 9 in that time.

The whole bubble is built on the buying and selling of properties and an influx of cash into the system from, take your pick, Alberta, the US, Oil Sheikhs, rich Hong Kong Tycoons, wealthy stockbrokers, rich restaurateurs - take your pick.

Anyway, if anyone here thinks the carnage going on in stock portfolios won't force people to change plans, liquidate assets (ie property) and otherwise wreak havoc, wake up.

But like womp said, that just excacerbates the situation.

The point is, once prices start going down (and they are) and buyers think it will be cheaper next year and there is no money to be made flipping and renovating, but rather substantial money to be lost, look out - another leg kicked out from under the table. There is no reason to buy. Now when you go to dinner you might hear aquaintances moaning about real estate. Kind of refreshing, actually.

Did I mention there are now too many expensive properties to sell and nowhere near enough buyers?

Last month 18 million dollar plus properties sold in the VREB area. Right now more than 360 such properties are listed. That is almost TWO years of inventory.

These things all come into play and start pushing prices down. At first nothing much seems to be happening, but at this point all that downward pressure is becoming obvious.

If people want to argue it wasn't a bubble because of some arbitrary measurement on how long a bubble should take to deflate, I would just suggest look at months of inventory and the magnitude of average and median property declines. Once those declines go past 20% and months of inventory goes over a year, we are not in balanced territory anymore. A market like that can only expect further losses until a floor is in, with plenty of buyers around to buy up the excess inventory.

In the current environment, what price do you think that would take? I would suggest a median of around $375,000 for single family homes based on 5 times the median local family income of around $72,000. That is a price that local incomes can support, where you will see people priced out of the market drawn in.

With tourism down and the economy hurting, not to mention forestry decimated and construction taking a hit, is that too optimistic?

Of course that's a buyers market, but if there aren't enough buyers, a buyer's market and a burst bubble might as well be the same thing. Actually, a burst bubble kind of guarantees a buyers market, or maybe a buyer's market guarantees a burst bubble. Take your pick. Semantics.

Thanks for the comments.

[G-Man]

There is no bubble. It is simply a buyers market but part of any natural market fluctuation. You can't point to a downturn in any market and say bubble!! Markets have ups and downs.

I suggest people go and research real economic bubbles (tulip bubble in 1600's, dot com bubble, etc..) and you will see that what we have here is simply a downturn.

As I said before is anyone talking about an oil bubble? It has dropped more than 10 % in the last few months. No. of course not and people will continue to invest in oil just as they will continue to need to buy somewhere to live.