While it has been coming for some time, the latest sales figures from the Victoria Real Estate Board shows all the evidence that the market has stopped. There have been signals on and off for the last year that a stall was coming, but it is here now.
The first signal that something was changing came in 2006 with large number of properties on the market - the sales were not soaking up the new ones coming on the market. One reason for this is that in 2006 a lot of people in the region cashed in on their houses and moved to something bigger and better. Problem is that each one of these people had to sell a house as well.
Historically the number of houses on the market is at its lowest in the middle of the winter. The fall of 2006 saw a large drop in properties on the market, but the number of houses on the market rebounded quickly. There was a drop again last fall, but the numbers for February show that there were almost 3400 properties on the market, not far short of the peak in 2007 of just under 3600 and close to the 2006 peak.
Sales are lagging. February 2008 had 10% less sales than February 2007 even though there were over 10% more on the market. Sales in Feb 2006 and 2005 were also higher than this last February.
Let us look now only at single family homes. 295 were sold last month, 349 in February of 2007 and 332 a year before. To put a morbid spin on this, that means less commissions for realtors.
Prices will manage to hold for some time because people are now convinced their houses are a worth a fortune and will not accept a large drop from their asking price. What will happen is that as the number of sales slows, the number of houses on the market will also drop as the speculative sellers will leave the market.
In the short term, the sudden number of houses coming onto the market in January and February will have put a downward pressure on housing prices. I can already see evidence of this. A year ago there literally was nothing on the market as a single family house for under $400 000 that was not tiny or a dump. I looked today and there are a host of houses on the market for under $400 000, though almost all of them are on major roads and not desirable from that perspective. These are the sort of houses that are the first to suffer in a downturn.
With so many houses on the market, the buyers are going to put a lot more energy into bargaining. I would expect some lowball offers to come in and to be accepted. In February, for each property sold two more came onto the market - this is a sign of a loose market. January was even worse, almost three came onto the market for each one that sold.
Supply and demand is going to take hold and is going to push house prices downwards. How far down? My estimate is that over the next 24 months the Victoria area will see a fall to about $400 000 for the average single family home, about 30%. I would not put a drop of close to 50% into the realm of the impossible.
So as someone that bought a house in 2007, where does leave me? Realistically I do not expect to see any improvement in the value of the house we bought for a decade or more.