“I can’t tell you how many people have informed me of their imagined real estate profits in the past few years, but I can tell you none, and I mean not a single one of them has actually sold anything and taken those profits… but they’ve sure as hell spent them thanks to 2nd mortgages.
The whole “best investment you’ll ever make!” sales pitch falls apart when owners realize they’ll have to either move to a smaller home, distant suburb or back into a rental.”
- ‘nobody you know’ on VREAA 24 Jul 2011 11:33pm
Speculative holders. – vreaa
vreaa – Usually I agree with you but this time I have to take exception. I DON’T think that the majority of people who have spent (or are spending) their ‘profits’ are typical speculators. You see, this is the big trap for the average person. They aren’t really that financially savvy, they don’t follow blogs like this and, as one woman I know said to me that other day, “Oh please, don’t talk to me about all that financial stuff. You know I hate it.” Scary? Totally. Typical? I hate to say it but, I think so.
I am fortunate (?) to have a different take on things as I know several people in the US who accepted LOCs and took 2nd mortgages on their homes as their so-called equity increased and it all seemed so logical. None of these people were trying to flip their properties or even consciously in it to make a profit. They just saw that their house had increased in value, their banks were telling them that they were eligible for the money and all their friends were doing it. It’s these people who were hammered hard when the downturn came. Some of them had owned their homes for over 15 years but they dipped into their equity because everyone (by that I mean banks, MSM, etc) told them they could. And, it’s the Canadian version who will have the same fate if/when things take a turn here.
I know there are speculators out there but it’s really the average person who I think could get hurt the worst mainly because they will never see it coming.
Coco -> The point we have been making in our commentary on this and other related anecdotes is that our market is rife with covert speculation.
The young family who overextend themselves to get into the market, the boomers a who hold off selling for another year, the single twenty something who decides to stop renting and stretch into the condo market: They are all acting on the assumption of ongoing supra-normal rates of increase. They are not buying or holding solely for utility, but partly/largely for price gains. They are less obviously speculators than the blatant flippers, but they are speculators nonetheless.
Yes, the vast majority of them may be unaware that they are speculating, but that doesn’t mean they aren’t. Ironically, some may actually be offended if they were confronted with the idea.
I know what you mean-the average person thinks they are rich rich rich because they happened to buy a house at the right time. I was interested to read on http://www.theeconomicanalyst.com that despite soaring home prices, the average equity in a home has barely budged. (http://www.theeconomicanalyst.com/sites/default/files/article_inside/2011/07/owners_equity_position_canada.jpg)
Ben points out that we have a lower equity position now than we did in 2001, despite home prices increasing. That is simply astonishing and hardly seems possible. But the money’s all gone to acquiring new “things” including more real estate. This will hurt a lot of people, I’m sure of it, people who thought they were doing just fine, financially. But take the house away and they actually don’t have a dime.
Coco,
If they dipped into their home ATM and lose their shirt, too bad for them. Nobody held a knife to their throat and said “your home can lend a hand in buying that Porsche you so deserve for buying a house 15 years ago”. Owning a house has responsibilities one of which is understanding your own personal finances or paying someone you trust to help you understand. 15 years ago information was tougher to come by but nowadays with the information available online and the lessons from the US and the rest of the western world front and centre I say smarten up Canadians and don’t even try and play the naivety card even if “Alpine Credits” told you it was ok.
That was me above
that was awesome
Speaking of job markets as they relate to housing, the last few pages of this report with sample comments are interesting. http://www.planning.ubc.ca/database/rte/files/UBC%20Faculty%20and%20Staff%20Housing%20Demand%20July%202010%20final.pdf
Data scattered throughout the report is intriguing also.
Wow.
Many thanks, this report is rich in remarkable anecdotes; will headline in some fashion.
This is amazing. Thanks.
Part of the problem is Westside NIMBYism. There are still many large underused lots near UBC that could be re-developed into family-friendly housing.
“Residents of the overwhelmingly single-family area believe that it will wreck of the feel of their neighbourhood.”
Read more: http://www.theprovince.com/news/Vancouver+city+council+green+lights+controversial+Shannon+Mews+development/5181433/story.html#ixzz1TbZcrKqu
Awesome link, thanks.
Amusingly, their data is already sorely out of date. They report (on p25) qualifying income for SFH in Vancouver of $194k, based on 2008 MLS data. Using the 2011 CMHC data we see west side qualifying income of $496k and eastside of $182k.
http://www.yattermatters.com/2011/07/vancouver-home-buyers-adopt-slogan/
(Recall our previous discussion of this: http://vreaa.wordpress.com/2011/07/13/only-one-ubc-employee-can-afford-to-own-a-westside-home/)
I enjoyed reading the “Focus Group Responses” at the end. I’m sure VREAA will pepper us with them over time. The number of respondents who were considering leaving was striking:
– “Vancouver and UBC are not attractive anymore, due to the inability to settle down in a durable way.”
– “Inability to settle in Vancouver or at UBC may lead me to leave UBC (despite being ranked as top faculty both in terms of teaching and research)”
– “Wife is so frustrated with local housing market and lack of opportunities
that she would happily accept offer of employment from a university in another city.”
– “Family would consider offers from elsewhere (other universities) as a function of the local housing market.”
– “Willingness to stay at UBC over time is eroded.”
– “Would give up UBC employment if better situation could be found.”
– “Very hard to settle down in durable way.”
PricedOutForNow – Thank you. You are the only person who got the point of what I was saying.
YLTN – Not everybody is buying a Porsche with their ‘equity’. My US friends used theirs to pay for their kids education (college, not private school).
Anyway, I didn’t post that to get slagged. I was hoping to open a discussion about how people who bought years ago – back in the day when you bought a house to have a home – are being caught up in the craziness – but it seems as if this blog may have turned into another place where, ‘if you’re not with us, you’re against us’. Too bad.
I’m sorry coco, I wasn’t slagging you but I still but I don’t care what you buy with your credit: Porsche, boat, vacation, education, it is a borrowing decision and if you borrow more than you can afford to pay back you deserve what you get when the creditor comes calling. When I bought my first place I felt like a cash strapped student again and when the bank offered me a heloc, I used only enough to cover my pre-existing car loan and student loans as I was comfortable with all of my chosen debt obligations. When my friends were off to Vegas and Mexico on holidays I stayed home because I didn’t want to travel on credit – I was responsible with my debt. If your friends weren’t homeowners, would they have gone to the bank to get a loan for their children’s education? If the answer is yes then smart for them for taking advantage of the heloc’s low interest. If contributing to their kids education was only something they could do because of the gains in their house due to bubble increases well then they must accept all consequences of borrowing more than they should have; their kids could have got student loans like so many of us do (and learn about debt ourselves at an early age).
I got some help from my parents in my third year. It was only after they saw I was serious by working through summers, part-time jobs while studying and borrowing on my own. They didn’t like the interest rates on my credit so they co-signed a low-interest line of credit and helped me pay it off AFTER I graduated.
To this day, I think they did the right thing. I saw students who had too easy wasting their University years sh!t-faced in the student pub.
As for the with us or against us, I’m afraid this is exactly the case as anyone that continues to speculate in this market or feel compassion to those that got caught up in the spectacle is against my beliefs. Those same folks that are making paper gains today look at me as a fool for renting and flaunt their high living lifestyle around; I will have no compassions for them if things correct
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