“As a married father of a 2.5 year old, my wife and I have worked hard to get to where we are. Our combined salary is at the average for the province, yet we were able to buy a condo in Vancouver. How?? It’s because we made SMART financial decisions. We don’t have fancy phones, clothes, cars, or even an extravagant lifestyle. In fact, my wife stays home most of the time with our daughter because it didn’t make sense for her to work just to send our daughter to daycare. Most people my age (31) live outside of their means. These articles never touch on the lifestyles of those who proclaim that they can’t afford housing. Was any research done to look into the expenses of those who can’t afford homes? How many of them have smart phones with their outrageous plans, designer clothes, or even decide to buy ultra-expensive organic foods? People need to step back and re-assess their own finances instead of complaining how things are unaffordable to them.”
- geeperscreepers, comment in the Vancouver Sun, 18 Oct 2011 11:07am
It is true that many display mindless consumerism.
Having said that, keep the big picture in mind. Is personal austerity that sensible if one is using it purely as a tool to service mortgage debt during a massive speculative mania?
Who exactly is being the more mindlessly consumer: the renter with the ‘smart phone’, or the very careful budgeter paying thousands each month to ‘own’ a condo?
Prudent citizens watch their spending at every level. But if you make wise decisions about the hundreds-of-thousands of dollars, the decisions about the tens of dollars become less important.
This family is speculating on increasing RE prices. If you don’t believe that, ask them what their plan is if prices were to fall and keep falling. Chances are it’s simply unimaginable to them. They think they are SMART, but they are gambling.
- vreaa
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Latest Anecdotes:
- “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- “Let’s remember how we got here” – Looser and Looser CMHC Limits
- Don’t Worry, I’m Sure Somebody Will Sort This All Out – “Policymakers now know better and will be a lot more proactive in preventing a collapse.”
- “Things have changed, we are not doing that type of mortgage. We are not interested at all.”
- “We are noticing our target type of housing in price decline, albeit slow, as our money increases in value, slowly as well but outpacing housing.”
- Renter Buys In West Van – “For a few hundred more per month, you could own the place. Which is what I will be doing as my offer for a place down the street has been accepted. There is some value in staying in one place.”
- A Bed in the Bathroom, Why Not? [Let Us Count The Reasons...]
- “My husband and kids are pretty happy in our rental house within cycling distance of work that we could never have afforded otherwise. We’re doin’ pretty dang well, thank you, for median income earners in this expensive city.”
- “I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops
- “We asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!”
- “My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”
- Chat Thread
- Taking A Break
- “My best guess: this property is now an ‘investment hold’ and will be built ‘when prices recover’. Good luck on that!”
- Man Loses $745,000 Vancouver Condo Deposit
- Graphic – Degrees of Housing Overvaluation in Canada
- The Rare Individual With A Negative Ownership Premium
- Advice Regarding Renting In Vancouver, Please – “Unfortunately, the Vancouver rental stock is absolutely atrocious. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income.”
- “I just visited Manhattan for a week, and happened to snap some real estate ads on both the Upper West and Upper East sides of the island. Compare to Vancouver. It simply doesn’t compute.”
- Ben Rabidoux In Vancouver Next Week
- “The mortgage company told me they were calling in my 40-year, 0-down mortgage. I have paid nearly sixty thousand dollars towards it, but, nearly five years in, I have yet to touch the principal.”
- ‘Vancouver City Hall: Housing Report Card 2012′; Plus Revised Version
- “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”
- “Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”
- “They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”
- Greater Vancouver Home Builders’ Association Annual First-Time Buyer Seminar Attendance Plummets
- Mom and Pop Get It Wrong In All Markets, Time And Again
- The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.
- “He’s sold all his properties except his current one, which is now for sale. He explained that the market’s currently in crash mode, worst that he’s ever seen.”
- “One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized after debt paid off $185K.”
- “I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”
- Sturdy, With Views – “Calling Froogle Scott!… Is Dr. Scott ‘In The House’?” [Not In This One, Certainly]
- “She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”
- Kits Notes – “I’m pretty sure that this is the first 3+ bedroom property of any type that I’ve seen in the 5 years I’ve lived here that is priced below $700K.”
- “A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”
- “Two family members of hers are trapped, underwater, in condos on the East Side.”
- “Interprovincial migration is not saying good things about BC’s economy.”
- Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”
- More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”
- Rumor that some OV units will be reduced by 20%.
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Picking pennies in front of a steam roller?
Exactly.
Indeed. The British expression for their actions is “penny wise pound foolish”. Let’s wait a year or two and see how smart their condo purchase was.
SMRT…. Homer style.
Excellent analysis VREAA.
how many of tens of dollars add up to hundred/thousand of dollars? this family is settling with their lives, not speculating in RE. if the market drop a few percentage here and there, i dont think they care.
your analysis has just proved that you are against people owning RE, simple as that. you are just envy at others’ achievement; you have wanted a piece of land here many years but couldnt do it because you spend all the time busy writting this blog.
vreaa y u no love real estate
Only an absolute beast couldn’t love cute and cuddly and wholesome lil’ ‘Arr-Eee’..
—
Next up: “Buy a Condo or We’ll Shoot This Dog”
Oh Fred. Of course the small sums add up, but so do the big ticket items, roofs, piping, wiring, furnace.
A smart investment pays for itself and pays YOU a dividend. Houses you live in are not investments, they are homes. If people would see, understand and buy with that in mind we wouldn’t have the bubbles and we wouldn’t have people stretching them financially as thin as these people and many others do.
Excellent post, VREAA. Far too many people in this most bubblicious of bubbly regions view real estate as a glorious, magical saviour.
Sure the entry fee is back-breakingly expensive, sure we’re entering the market at a time when valuations have never been higher, sure we can afford only a craphole, sure we can’t take vacations anymore, sure we’re forced to keep driving our decrepit automobile, sure the kids will have to eat KD several times each week. But thank the good lord in heaven we were somehow able to get “in.” Because, as we all know, real estate valuations will only continue to inflate. Forever. To infinity and beyond!
This is precisely why I loathe guys like Cam Good. He doesn’t merely sell real estate. He propogates the myth that the whole world is coming here to drive prices ever skyward. That if you do not buy now, you’ll be priced out forever. That it’s the only safe “investment.” That if you can’t afford the BPOE, move. That we aren’t a pretty yet rainy northern outpost, but instead the GLOBAL CENTER OF EVERYTHING.
Hmm…come to think of it, we haven’t heard much from Cam lately, have we?
Cam Good has given up on Vancouver real estate. Looks like he’s moving on to distressed US markets:
http://www.terrizona.com/company/founders
VREAA: I agree with your analysis! Sure I *could* scrimp on my lifestyle, and maybe save a few hundred dollars a month, but what would I get out of it?
…A lower quality of life? Yeah, I have a, iPhone, but I was smart about it: I negotiated a fantastic plan from Rogers, so my monthly costs are low ($50 after tax), and I’ve got far more minutes and data and extras than I’m going to use. Yeah, I have a luxury car, but I bought it a couple of years old (50% savings compared to new). Yeah, I go out to restaurants a few times a month. Yeah, my wife and I buy whatever clothes, etc, that we want… But they’re (almost) always on sale.
…And all those savings will get me…. a few thousand dollars a year towards a downpayment? that’ll add a whopping 1% a year to my savings– less than I get from interest, and far less than I get from what my wife and I save every month as it is.
…And I’ll get to squeeze into a crack-shack? The savings I just described will be eaten up my maintenance fees… I don’t think many people know what they’re getting into when it comes to house maintenance when it comes to repairs by owner, or roof contractors, drainage, plumbing, etc. That stuff *really* adds up!
No thanks, I’ll wait until I can truly afford to own a house or condo that fits my desired lifestyle. Until that time comes, I’ll continue to rent an apartment that fits my lifestyle at a lower cost, and save the difference. That savings is thousands of dollars a month ($1500-2000 monthly), let alone the (sizable) risk of a real estate correction in this city wiping away any equity people have.
I agree. I met with an old college buddy yesterday who has a huge mortgage. He asked me if we own the condo where we live (since I’ve been posting some complaints about the shoddy quality of it on facebook recently). And I replied that no, I was pretty happy that I don’t own this piece of s**t. He took the attitude that “Aw, poor you, you guys can’t afford to buy” Like owning is the epitome of success. Doesn’t matter that we have $100k in the bank, or that it costs us $1000 a month less to rent this craphole than it would to buy a similar unit (I say that in jest, these condos are actually considered “high-end”-though the construction is horrible). He just feels pity that we don’t “own.” Meanwhile, he’s drowning in debt. I didn’t even bother bringing up the fact that prices might (will) go down and we’ll be far more ahead by waiting. I just shrugged “Oh well, that’s life”, resigned to my fate. I’m tired of trying to convince people that now is not the best time to buy and it’s better to save than become indebted. People just don’t get it, they’ve been brainwashed into thinking real estate is everything. It’s sad, really. Sometimes I feel like I’m living in one of those Zombie movies, where everyone is walking around in a daze. Except instead of seeking human blood, they’re all seeking real estate (via debt, of course). What has our world come to?
” they’ve been brainwashed into thinking real estate is everything.”
seriously, most of the comments to the article back this up – for example this gem:
“People need to step back and re-assess their own finances instead of complaining how things are unaffordable to them.”
I agree, I guess, but YOU’RE MISSING THE POINT!!!!
IT IS NOT ABOUT WHAT YOU OR ANYONE ELSE CAN AFFORD. IT’S NOT ABOUT SACRIFICES YOU MAKE COMPARED TO YOUR PEERS. IT’S ABOUT THE RETURN THE INVESTMENT PROVIDES AND BY THAT MEASURE PRICES ARE TOO HIGH.
Jesse, I respect your opinion, I am curious about your views on valuation.
I agree that condos need to be looked at from a cash-flow perspective, since there is no better use opportunity presented in owning a box. Unless you’re into hydroponics, but I digress.
What would you consider fair value for an average Vancouver condo? What kind of cap rate would you be looking to get, with what size initial investment? Secondly, when, approximately, was the last time these cap rates were achievable in Vancouver?
I’d be looking at 7% cap rate assuming the building is well-managed and has good chance of stable tenants. There are long-term costs in condos that are loaded decades after purchase.
Those rates were around 12 years ago and were around in the mid-’80s as well. Until then I can do better in other investments. That’s nothing against Vancouver or anything, I’m just looking at what I can reasonably attain elsewhere.
So for a condo that produces $1000/month rent, that’s a value of about $137K assuming $800/mo NOI, or a price-to-monthly-rent ratio of 137. That’s assuming the things above. If there’s risk due to tenant choice, dysfunctional strata, or building deficiencies. I would be demanding more.
JMHO. Maybe Rachelle over at landlordrescue can chime in!
Taking a quick browse around that roughly works out to a 45-50% haircut from todays prices, assuming rents stay somewhat level. I suppose its not totally out of the question if the SFH market correct 30%, less desirable condos should see a larger drop.
The normalcy bias sure has gotten ahold of me, I cannot imagine downtown condos listed at under 200k. Time will tell though. As I said in a previous post, I don’t doubt we are at the start of a sustained correction. Only question remaining is how deep and long it will be.
It would definitely be a snooze fest for the bears if it deflates like the mid 90′s market did.
“I cannot imagine downtown condos listed at under 200k”
With inflation nominal values may not drop as low as I stated. Say if prices bottom out in 10 years’ time (the most severe corrections in the US are still above long-term average after 5 years and it looks like most price adjustments will be real, not nominal, going forward) with 2% inflation puts the nominal haircut at 30%. Prices could easily undershoot and inflation could also be higher or lower.
The biggest thing people forget is how out-of-favour real estate has become in the past, as is the experience in many parts of the US now. It’s like trying to remember what Canadian winters are like after spending 5 years in the tropics.You think you remember, but when that -30C windchill hits your face and your feet go numb it all starts coming back.
I could take on a $0 down $50/month smartphone plan with a free phone for total commitment of $1,500. Or I could take on a $100,000 down $3,800/month mortgage on an average SFH for a total commitment of $1,300,000 (plus taxes, maintenance, insurance, renovations, etc etc) That’s why I own a fancy smartphone and rent a house.
the primary source of seniors wealth is their home
the primary source of young couples debt is their mortgage
-somewhere in between these two stages the wealth is created
This is not rocket science.
Boomers never bought with small down payments, and their income to price ratio was much lower then now. They actually have a whole study that was linked in the story in a pdf form on the sidebar. Maybe you should have read it.
http://www.vancouversun.com/pdf/British_Columbia.pdf
This is not rocket science.
reading requires effort, though
yes, it’s tougher now but not impossible.
Most significant source of wealth is still your home.
Study all you want 4slices, I haven’t met any life long renters who have any store of wealth.
Keep making fun of the poor saps with mortgages and responsibility; they will have the last laugh at your expense.
Do you really mean source of wealth?
I always thought my salary would be my main source of wealth.
“Most significant source of wealth is still your home”
This should not be the case. That is part of your misunderstanding.
“I haven’t met any life long renters who have any store of wealth”
Despite your delusions of grandeur, your apparently limited experience is not universal. Thankfully some of use have a broader view.
Determining who has the last laugh will take longer the 2.5 years than since you bought your trucking route palace. I sleep very well awaiting my day of reckoning. I hope for your sake you can do the same.
No one is saying anything about being life long renters. When it makes sense to buy, you should.
I own property in Taiwan, but not in Vancouver, it does not make sense to own here at this moment.
And who am I laughing at? If anything, I feel sorry for you those “poor saps with mortgages and responsibilities.”
“Study all you want 4slices, I haven’t met any life long renters who have any store of wealth.”
Guess you don’t know many people – while i lived in Vancouver I met two different couples who rented, had no real estate investments whatsoever, but over $1 million in their combined chequing accounts (DINKS)! In addition, they are all public servants with very fat defined benefit pensions and small RRSP’s to boot. You bet I’m jealous.
I still know several folks living in Vancouver who never bought real estate there (some have real estate investments elsewhere – one person had 3 houses in Prince Rupert until a few years ago, another had two in Kamloops until last year- all investments were cash flow positive after expenses, another still owns lakefront in Kelowna that she rents to a very nice family). These people are smart with their money and appear to have built considerable wealth – although you would never know it based on what they drive.
There are likely tons more of these “rich hippies” in Vancouver although the trend seems to be that many are leaving because “the city has lost it’s cool factor.”
Formula1
How many rental applications do you see? Because I know lots. I’ve seen more than a few. One in particular the tenants could have bought the 3000 square foot house they were renting with the available balance on their credit cards. Some people choose to rent and buy a cottage because of the price differential I know quite a few of those.
P.S. The only reason you think the only significant source of wealth is people’s homes is because that’s the way it’s been for the last 20 years because we haven’t had the usual adjustment in value.
Ask someone from the States how they feel about your statement and they’ll set you straight.
What came first, the financial prudency or the home?
The government has been going about things the wrong way. They shove people into houses/mortgages, believing that people who own homes are “more responsible, more financial prudent and have more stability etc”.
But HOW did people manage to buy homes in the first place? Right, they saved up their money (I mean, before the 0%, 5% era came along), thus they were more financial prudent and were rewarded with the ability to buy a house with a reasonable downpayment (20% etc). Those who didn’t have this sense of financial responsibility rented forever, and yes, ended up with less wealth further along.
Now, governments around the world seem to think they can create more financially prudent citizens by pushing them into huge mortgages they simply cannot afford. When, if you look at it, the people who are NOT buying homes are actually being more financially prudent by saving their money (I’m talking about me here, ok, I won’t generalize about other renters) and NOT taking on a huge mortgage that barely enables me to scrape by every month. And yet I am punished for this, by inflation eating away at my savings and by not participating in a speculative mania that could actually be very lucrative.
The government just has it all wrong. They’ve made it too easy for the wrong people to own homes.
Interesting article from the Province:
http://www.theprovince.com/business/fp/money/Into+arms+housing/5554628/story.html
Even CIBC is saying its not a good idea anymore…unless you launder money :
And yet people like Bejamin Tal, deputy chief economist at CIBC World Markets, insist real estate’s prominence will fade over decades.
“This real estate boom is over. It’s not crazy to invest now, but it’s not the best way to utilize cash,” says Mr. Tal, adding the condo market has been influenced by foreign investors wanting to get their money out of their country of origin and diversify their wealth.
Thanks SR, some interesting stuff therein (and one anecdote worth headlining…)
J-ross,
“Despite your delusions of grandeur, your apparently limited experience is not universal”.
I have seen the financial profiles of thousands of Vancouverites as part of my work. Renters, owners, single, married, children or childless, etc.
I am an appropriate authority to be delivering this news to you…there is no such person as a wealthy retiree who never owned a home.
And Rachelle – the old “look at the US argument”
Last I looked our country was called Canada, you know, the country with the soundest banking system, solid mortgage insurance and strict lending practice.
And shame on you! Suggesting people continue renting while sitting comfortably in your own home. Isn’t this hypocritical? Perhaps you should follow your own advice. If you truly think our market will tank, is overheated and prices will come down, why don’t you sell your place, rent, and buy at a lower price?
Give it a rest.
So can I assume you work in the financial industry?
And in view, have you seen the financial health of “the financial profiles of thousands of Vancouverites” improving over last 10 years?
On that note I just got cold-called from CIBC offering a 2.99% mortgage.
Also was that last jab about sitting at home directed at Rachelle or me?
And unlike your pretend occupations my father actually was a CA from 1956 until his death last year. Within the bounds of ethics, we often discussed what people were really worth.
If you stick to pattern, next you will tell me I am full of shit.
Oops – sorry. Obviously that was meant for the troll of a thousand dances.
Was that before or after you were a pharmacist? Or perhaps in your spare time as a professional landlord?
And no-one here is talking about renting for life. Perhaps processing that fact causes your alters to come out.
Is being a 30year old with dual income and a kid, and only able to afford a CONDO really something to brag and be telling others??… Just sayin’
Albeit this is Vancouver, if this was anywhere else, u would be expecting a house. See how sad this is? That ppl are actually proud that they can afford a condo (only)…
Agreed.
It’s all part of the conscious and unconscious conditioning that one should accept far less here.
And if you object, you’re being greedy.
For many couples in Vancouver, it seems to be the norm. People in other Canadian cities would not put up with living in a condo – mind you people can afford something decent in other cities. People have to make decisions – live in Vancouver and get a condo, or move to the burbs for a sfh. Having kids now I would find it difficult living in a condo. I would probably feel guilty about noise issues, and also feeling like your stuck inside more not being able to go out to a backyard or anything.
This man is confused. There’s a difference between buying and owning a condo. If he lived frugally to full-out own a condo, congrats to him. But he lives frugally just to make it into the market. There’s still a long way to ownership buddy, keep living frugally and maybe one day you’ll get there. In the meantime, I’ll spend money on traveling, my health, education, family and become more deeply involved in community projects, thus the goal is investing in myself, not 4 walls.
Is being a 30year old with dual income and a kid, and only able to afford a CONDO really something to brag and be telling others??… Just sayin’
Albeit this is Vancouver, if this was anywhere else, u would be expecting a house. See how sad this is? That ppl are actually proud that they can afford a condo (only)…
In Europe, if you want to live in any city of any size, you are most likely going to be living in a condo/apartment whether you rent or own, unless you are in the top 5% of income earners. SFH is a North American obsession, but as Canada gets more populous this will slowly change; Vancouver is the canary in the coalmine.
Oh my poor Formula One,
Let me address your erroneous arguments one at a time….
And Rachelle – the old “look at the US argument”
Last I looked our country was called Canada, (True we live in Canada.)
you know, the country with the soundest banking system, (Really, says who? Until the next Black Swan Event? There are people who would disagree with this premise)
solid mortgage insurance (Fannie Mae and Freddie Mac were also doing quite well for themselves until the shit hit the fan. Then the governement had to bail them out, just like our government (that’s us the taxpayers) will have to bail out CMHC)
and strict lending practice. (Ok now I’m just pissing myself laughing…)
And shame on you! ( I am not ashamed)
Suggesting people continue renting while sitting comfortably in your own home. Isn’t this hypocritical? (No, I bought 13 -14 years ago, I also bought a house in which I paid $750 for my mortgage payment and rented the basement for $700. Now I chose to make double payments and full anniversary payments to pay the least amount of interest possible)
Perhaps you should follow your own advice. (That would likely be financially beneficial but would mean uprooting my son and husband who is ill. I am also aware that I will require some shelter for the rest of my life, why would I sell something I own outright, like and am quite comfortable in?)
If you truly think our market will tank, is overheated and prices will come down, why don’t you sell your place, rent, and buy at a lower price?
(The rent price for an equivalent house would be $1600 per month today. I choose not to have any payments. I am self employed and the stability and security provided by having $0 housing payments is sweet, sweet, sweet. along with my paid off car, and paid off credit card
Guess what? I feel like not going to work today, I can. I want to fire my customer, I can. I like my house, humble as it is, because of the security. I haven’t kissed a boss’s ass in years because I can live on a $500 a month if I want…can you?)
Give it a rest. (Eat My Shorts)
It would be so SMART to buy now and pay double the real price of a house.
It would be FOOLISH to wait for the 50% haircut that will happen.