“My wife and I rent a basement suite in Vancouver, and occasionally we shake our heads that we’re pushing 40 and living in a space that barely notches above student housing. For a long while we’d been looking down our noses at people shelling out what seemed to be exorbitant prices for tiny, well-marketed properties. We waited, a bit haughtily, for the oft-predicted crash to bring prices back down to our level. While waiting in this particular basement for the past three years, we’ve paid $40,000 to our landlord.
As basements go, ours is fine, no mould-spore filter required. But it’s hard not to feel churlish when the subject of real estate comes up. At parties, we sip from the house cocktail shared by many young (and not-so-young) middle-class renters in Vancouver: two parts seething resentment, one part liberal guilt. To protest too much about our situation seems bourgeois, given we eat organic vegetables, drink good wine, and go on vacation every few months. We blunt our bitterness by counting our blessings, which are many—and it’s hard to stir a revolt on a full stomach and a glass of Merlot.
One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us. Like one of those Re/Max balloons, prices have risen so far out of our reach that even if they deflated significantly we still couldn’t get on board. Yet on our incomes, as a childless couple, we have a choice. Unlike James and Tina, we just might be able to purchase a property that suits our needs. Or we could leave.”
- anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011
When the last prospective buyer with a bearish perspective capitulates, the speculative mania is over.
At least that’s pretty much how the market dictum goes. And we acknowledge we’ve been saying that for years now.
We empathize entirely with Tyee’s position.
But, this really is a speculative mania.
They never, ever end with permanently high plateaus.
Prices will revert to means determined by fundamentals, and that’s a long way below today’s prices.
- vreaa
I agree with the writer. I’ve been watching this market for quite a few years now, and agree that I don’t think it will ever return to a place where I could afford to buy a house here.I’m not whining, that is just the way it is. My wife was born here, so was her mother, and her mother before her, but it does not resemble the city that they knew. It has changed irreversibly, not for the better. Yes, we have more towers, a retractable roof, and home owners are all millionaires, but in the process, we have lost something that you can’t put a value on – the soul of our city.
Interesting read I found regarding rent vs buy:
“The housing crash that crippled the U.S. didn’t happen in Canada for several reasons. For a start, more prudent lending practices prevented the emergence of a significant subprime mortgage market. Canada’s regulatory regime acted as a rudder that kept the financial services industry on an even keel. And besides the capital gains exemption on the sale of a principal residence, there is no particular tax advantage in owning a home in Canada.
Measures mistakenly introduced to loosen mortgage lending rules — such as interest-only loans and 40-year amortizations — were quickly reversed, forestalling a flood of overly leveraged households.
However, while Canada doesn’t idealize home ownership to the extent the U.S. does, it is still perceived as preferable to renting. Owning is seen as permanent, renting transient, the implication being that ownership contributes more to community stability.”
http://www.vancouversun.com/business/rent+that+question/5595374/story.html#ixzz1bk2IDWJM
And with Seaspan getting a $8 billion ship bldg deal, attracting more jobs/workers (i.e. ppl with money looking for houses) I dont think the housing prices will be coming down soon. Well, at least not in North Van.
Yeah, nothing like a million $ mortgage on a welder’s salary! Keep rationalizing.
I know a couple guys in trades. They have no interest in moving to Vancouver for the jobs. They say sure, great opportunity, but where the f**k am I going to live?? Alberta’s still a better deal.
This year $20 billion is being spent on industrial projects in Alberta, mostly near Ft. MacMurray, and mostly in energy related enterprises. Remarkably, this is more than in 2008. Seaspan is chump change.
These workers will need a place to stay, so they will either A. Rent (from some speculator who bought a million dollar crap home and now need renter/s to keep him/her self above water) or B. Become one of the increasing number of house rich/income poor owners dotting the lower mainland.
” it’s hard to stir a revolt on a full stomach and a glass of Merlot.”
!
http://tinyurl.com/y5eswye
[NoteToEd: Concision. Yep. I can.]
While it all depends on when you are born isn’t it? If you are born earlier and bought a house as a normal course of life before the mania, you are now a millionaires, a financial genius, a responsible person who took personal charge of one’s finances and future. If you are born later and just started working when this bubble was already half underway and your income and savings just can’t keep up with the prices increases, when you are basically a loser, a spendthrift, someone who just isn’t responsible financial or anything really. Mostly due to 2 factors you have no control over, which year you are born and when the speculative mania starts and ends.
In essence, Space889…
But for a more complete/nuanced treatment, see Malcolm Gladwell’s, “Outliers”
WTF is liberal guilt? Savers are being raped by the central bank and government policies, renters are systematically relegated to second class citizens and someone feels guilty because he consumes organic vegetables and drinks good wine? Really?
Catholics do guilt. Confucians do shame.
See Hedges, “Death of the Liberal Class”
Bubbly time [the hops kind].
Great handle.
You have been saying that for awhile vreaa. I myself am getting tired of telling my mom about the upcoming crash, telling her to hold off on buying a condo by illustrating the wondrous effects of -20/-30/-40% off. I mean, if it’s not next year, she might not listen anymore, and there would go a big hunk of her retirement money. Thank god it’s not an everyday struggle like some people have. I think she can wait a year. I myself cannot imagine this going past 2012/13. But hey, we’ve been wrong before..
Yes, it is very trying, very ‘inconvenient’ for all involved.
A difficult calculation: weighing the current inconvenience against possible/probable future price drops.
the 40%-80% is a certain. just asked VREAA. Heck, he can even tell you exact date.
Price drops are a close to “certain”.
Magnitude is unclear (30%-66%?).
Timing even less so.
he just needs the name of your fortune teller
Not Tellin’.
(he’s Icelandic).
Why dont you advise your mom to buy in another city that is not as inflated as Vancouver. As a retiree she wont be needing a home within commuting distance to work. Maybe try the sunshine coast. She can not be sinking all her retirement into a home. If she can keep the other half liquid then she will be golden. At that age people can afford to be flexible with location.
buyers don’t have the cash – it’s just leverage. but there will come a time when even the all powerful us gov won’t be able to borrow at these rates. don’t know when it will. but it will and do not be on the wrong side of that. it may transpire a bit like the recent earthquake/tsunami in japan – if you are in the wrong place when it goes, there is no way out. life goes on in the meantime and you might look a bit silly but get over it. .
US gov doesn’t need to borrow, they control their currency. The only question is what the value of that currency will be in the eyes of the rest of the world.
sort of. that will be the ultimate conclusion. however in the meantime, the reason why yields have not already to backed up is due to foreign central banks absorbing us treasury issuance. they are effectively borrowing gdp, not growing it (ref. stockman).
A couple of anecdotey stories:
A Chinese family I know just sold their east van plot to a developer who is buying up the whole block. The extended family have lived under the same roof for 20 years, so the whole house was mostly paid up. They bus everywhere, haven’t owned a car… About a month ago they netted 1.2 Million clear from the sale. They have until January to move out.
Their 13 year old son has been BEGGING them to rent for a while, to buy a car, take a holiday, and enjoy not feeling poor for a change. The grandparents/parents/aunts say that 1) renting, you will get ripped off and 2) the home prices will keep appreciating; if they don’t buy back in immediately, they will be poor forever.
They are currently in negotiations for a $1.4 Million East Van house; they will mortgage the 200,000 difference. Poor kid. He is a smart young man. He says that it is impossible that prices will not go down significantly at some point in the near future, because they have gone up to such ridiculous levels.
Just thought this gives an idea about how people can afford the current prices, and how so many homes continue to sell.
Second, brighter note: I have been trying to tell the in-laws that their plan to buy a townhome and upgrade to a house in 5 years time will see them lose equity, rather than build any, due to transaction costs and the way their payments are applied to interest versus principal. They refused to believe me until…. an 11th hour intervention when I sat them down and made them try our equity calculator (which they had been too “busy” to notice in the email I sent). After first arguing how the analysis was flawed etc etc and going through the spreadsheet with a fine tooth comb, they began to get very worried…. very worried indeed. Even their most optimistic figures (with a RIDICULOUS rent for the property) showed that they depended entirely on appreciation just to break even. As they left, they were discussing pulling out of the negotiations they were in and began seriously looking at renting a bigger place as an alternative. (The calculator is available with the kind help of DuranC from his dropbox at
http://dl.dropbox.com/u/434650/Buy%20or%20Rent%20Calculator.xlsx )
I really hope they make the right choice – it would suck to see them financially undone by buying at peak bubble prices.
Two lives saved… I hope.
who the fuck is this kid? manny from modern family?
Kids say the darndest things, don’t they? If ever there was an anecdote to call BS on …
@ E:
Show me a police background check to prove you’re not an internet paedo-predator and I will let you meet him to verify the veracity of the anecdote. You couldn’t make this shit up. If even a 13 year old can see a bubble, well….
@Matt: never seen the show but wiki’d the character’s bio. LOL. He’s not that smart; just has a sense of realism about what the fuck is a house doing costing lottery winning sums when he sees the fish packing plant wages being made all around his community.
@TPFKAA: Thanks but no thanks. I wouldn’t want this kid scoffing at my investment portfolio. ;oP
@E
“if they don’t buy back in immediately, they will be poor forever.”
Game theory says it’s almost impossible for this family to end up renting.
Door #1: By continuing to own, if prices go down, the worst that can happen is their peers lose the same as they, if prices go up everyone’s a winner.
Door #2: By renting they either lose if prices go up, or win while everyone else loses. Further it’s unlikely they will find somewhere desirable to rent given the family size.
This family will choose Door #1 every time to align with their peer group, and will likely ride the bubble all the way down for the same reasons.
“Further it’s unlikely they will find somewhere desirable to rent given the family size.”
Entirely correct. They are having difficulty finding a house with enough bedrooms, so the one they are bidding on is very appealing to them.
I know the exact listing, but for obvious reasons will not share it.
I think for a young family facing this decision, you either stay out or buy three, because if these rates of appreciation continue your school age children will not earn enough money in their lifetimes in any job to ever buy real estate and you’ll want them to move out at some point. Buy condos for all your unborn descendants! I swear people in China are doing that.
See:
http://vancouvercondo.info/2011/10/hello-inflation.html/all-comments/#comment-136324
“The problem is that people in these countries already have too much debt and so the Central bank policies are creating price rises (at least in their domestic currencies) in goods (food & energy) and I can’t see wages following – unless there is some sort of import restrictions put on low wage countries (i.e. China).
Ultimately, the standard of living in these countries (Canada, UK and US) will fall until that labour arbitrage is gone.”
Very few will be able to get whole through wages. You must use leverage in some capacity or your standard of living *will* go down.
Tilting at windmills will not improve your lot even if it makes you feel better. Every wage earner needs to learn to manage risk.
oh, and the son in the first story – says he will inherit the mortgage (due to the age of the paying members of the family). He is unhappy about that to say the least!!
With our standards, what 13 year old kid can’t borrow 200k? If you have a paper route, leverage it.
just curious if said familys been receiving the low income subsidy
@Keeper: I don’t know. But if they were, they deserve it; they didn’t buy in at bubble prices. They work hard at menial jobs. They are only millionaires if they choose door #2, and very few will realise that path to riches as Jesse points out. I would put money on them not listening to the boy.
“they didn’t buy in at bubble prices”
Maybe not but if they own an SFH and poured a significant amount of their savings into home equity, that means they were, whether they admit it or not, saving for retirement via their house. This is part of Vancouver’s premium and the endgame is they will need to sell to fund their retirement. Compare this to a family who chose not to buy, lived frugally, and invested the difference in other classes. Both are as wealthy, but one is more liquid than the other and has retirement income. It’s questionable that the former should receive OAS where the latter has it clawed back.
This is part of Vancouver’s premium and the endgame is they will need to sell to fund their retirement.
Can’t they just HELOC it until the cows come home?
“Can’t they just HELOC it until the cows come home?”
Yes. Often called a “reverse mortgage” because the carrying costs are paid from principal. Interest charges on the way up, interest charges on the way down. Sounds like a good deal.
A 13 year old kid is probably not the best person to advise anyone, as it seems he’s missing a good part of the picture or not noticing the obvious flaws in the story.
Clearing $1.2 million means they aren’t poor. The 13 year old (and maybe a few others) have no appreciation of that.
Clearing 1.2 and buying at 1.4 means that they’re essentially trading paper equity.
The 13 year old is worried he’ll be saddled with a mortgage of $200,000? He should be so lucky. 1.4 -75% = $350,000. If the kid’s 13 his parents aren’t likely to kick it for a while. If he inherits that mortgage, even after a 75% haircut, he’s won the friggin’ lottery.
You gotta be making this stuff up. A 13 year old telling someone who’s accumulated a million bucks what to do and you side with the guy who listens to Selena Gomez?
Wow.
u know what? an apology IS due regarding the details in this story. The kid actually just turned 15. (I can be forgiven; if you saw him you’d understand – his voice only just broke and he is a tad on the small side.)
Now onto your arguments: how do you know we are talking about the parents “kicking it”? how about, as soon as he’s an income earner in 7-8 years, he will be making the mortgage payments for his retired parent? (I use the singular for a good reason). Or at least contributing for them. He doesn’t mean he will inherit the house lol. THAT won’t happen until they actually kick it. All he gets to do is pay, for now.
And your math is wrong. How much do you think a $200,000 mortgage holder actually pays out over the 30 year period in all homeownership costs and bank interest? I cannot be bothered to do the math, but am willing to bet it comes out to more than $350,000.
Even taking a haircut of 50%, then, yes, he will still get some equity. Big deal. Sure, he’s not ruined for life, he will inherit a house with his brother, and the equity will be real.
But, you don’t realise he could have had the whole kahuna and bought in cash 5 years later for $500k. I think this is the point of the story you missed. He loses nothing but the opportunity of a lifetime for his family to cash out at inflated bubble prices. Contrary to what you say, in fact, he just lost the winning lottery ticket.
Granted, his motivations ARE as selfish as any kid’s. Seriously, he just wants his family to buy a car and take a holiday instead of continuing to live with low cashflow. That prices will come down is not something he is 100% certain of, but he seems sure they are not going to climb any more. That is enough to want to enjoy a million bucks in the bank. Shit, I would have told my parents the same thing!!
They think he is a dumb and greedy kid who doesn’t understand the importance of being invested in real property. And they are also correct. it’s the unnatural market that makes him correct in this case, and quite accidentally so.
O. and don’t forget how much tax they pay on a 1.4 million property for their “bargain” 200,000 mortgage.