House prices in Victoria

The latest Victoria Real Estate Board stats are out on house sales in the Greater Victoria area and it looks bad for the sellers in this market.

July saw 527 total sales, this is the worst July since the 1990s, it is dramatically down from the 800 to 900 sales that we have seen.   We have seen a decline each month since the peak of the market this year in March and this is not the normal pattern.   Normally the peak of the market is June - July in terms of sales.

The number of units on the market is at 4500, this is a basically a year supply for the market.  The number of units coming onto the market has remained consistent over the last six years, the change is the number of sales each month.   The current supply is comparable to what we saw in the summer of 2008 when the market went cold.   The difference between 2008 and 2010 is that the market is colder now than in 2008.  May, June and July 2010 have all been worse than the comparable months in 2008.

The average house price of $615,000 is down and closing in on a low for the last year.   It also means that there has been little or no increase in the value of houses since the 2007 market peak.   What the stats are also showing is that the gap between the average price and the median price is still close to 10% and indicates that what sales are happening are at the top end of the market.

When one looks at specific neighbourhoods, there are some up that are up and others that are down.   Saanich west and Langford have seen dramatic falls in the last six months in prices as examples.

Condos are at a $325,000 average which means effectively no price increase since November 2006, close to four years of no capital gains.  135 condo sales is wildly low for July.  This is what we should be seeing in the late fall, not at the peak of the market.

So what is going to happen in the next few months?   I see the prices coming down a lot over the next six months, I see the average house price dropping to about $550,000 by the end of November of this year.   After that I see the house prices remaining stable or dropping slightly for the next several years.

The factors for a soft market:

• 40 year mortgages are no longer available and rules for getting a mortgage has become harder
• Prices elsewhere in Canada are falling, or have fallen, faster than here.   People can not more here and there is a financial incentive to sell here and move to a cheaper community.
• The market is too expensive for a 30 year old professional couple to be able to buy a starter home.
• The median age of Victoria is rising and these people want to sell their houses for their retirement.   

There are at least some developers seeing there is a market niche for starter homes, Kettle Creek Station in Langford is one such development.  The houses are very basic and available for $370,000 to $415,000, with sizes of 900 to 1650 sq feet in size.

We have several periods of where prices were stable in Victoria, I am convinced we are in that sort of a period again and should not expect to see house prices rise close to the rate of inflation till after 2016 to 2018.  At that point we may see increases, we may also see enough of a demographic change vis a vis population growth that demand many not increase.