“We lived for 5 years in a 450 square feet bachelor, with a bathroom across the hall, paying $725 a month rent, and did not buy any new consumer items. We purchased only thrift store furniture and bought cheap cars (old run down VWs) and mostly consignment clothes. No bling. You have to make a decision – bling or buy. We saved a 20% deposit, and now own our first place. Bling or buy baby.”
- ‘Bling or Buy’ at VREAA, 27 Oct 2011 12:40pm
Speculative mania = Bonfire
‘Bling or Buy’ = Twig
– vreaa
I agree that living in a shoebox and driving a crappy car, used furniture, used clothes is a great way to save money. I think historically that is how people saved up for a downpayment. However, once that downpayment is saved for and you’ve moved into the house you can loosen your belt a bit and stop saving so much because you’re now building equity in this home, you can move up, etc. But if the house was bought based on the numbers calculated from living an uber-frugal lifestyle when do you get to have any fun? Those cars will need replacing eventually. Then you buy another run down car, more used clothes, stay-cations, eat KD ad infinitum? Imo, gross. I’d rather rent. The trade-off just isn’t worth it to me. I don’t think a reliable car, new clothes and furniture that I’ve been able to save for and that I love is exactly extravagant or “bling.”
I agree these appear to be speculators in this case because from the sounds of it they’ve made a lot of sacrifices and I’m surmising that they expect they are building wealth by doing that, hence the “bling or buy.” It translates into bling or save really – commonsense.
On the flip side it is a good point given the “entitlement” conversation in the last couple of days. You can’t have it all, you can’t eat out, go on vacation, spend everything you make and not save for a downpayment and still expect to buy.
even prudent spender got critisized as speculator. VREAA wants to have it all, eat out, vacation, and a house with a big yard in the west end for nothing!
Oi. Regardless of you or I feel about the real estate market here – and setting aside your “have it all” non sequitur (the hell?) – VREAA has consistently described his/her criteria for what constitutes a speculator in this market. Part of that criteria in most cases: the simple choice of entering this market at this time. This view could be right or it could be wrong, but it has been consistent – and by that standard, this person fits the definition of ‘speculator’.
Considering the amount of time you spend here, you should at least be able to do better than dodgy reading comprehension and ad hominem attacks. At least toss us a ‘running out of land’ or ‘Chinese money trumps all’ rationalization!
Also “prudent spenders”? People fitting that title probably wouldn’t put a large sum of money they clearly had to sacrifice a lot for into any single asset (especially when prices for that asset are at record highs and record high ratios against incomes and other ways of paying for that asset [in this case, rent]). Well, unless they thought it ‘prudent’ because they expected prices for that asset to keep climbing and to be able to sell for more in the future. What do you call that again?
” Part of that criteria in most cases: the simple choice of entering this market at this time.”.
I am sorry, but I am unsure if that is what should be defined as a speculator. So anyone who buys a property in Vancouver at this time is a speculator regardless of what his/her intention is? There are many people who are buying their house which they are going to live in for many years to come. That is not a speculator by anyone’s defnition, not even in vreaa’s case.
Personally, a speculator is someone who buys with the intention of selling in the short term ( 2 to 3 years ). In financial trading we call these people short term investors / daytraders. Most speculators are not in it for the long term. The holding term is a very telling sign of whether someone is speculating.
In this couple’s case, I fail to see how they are speculating.
@Julian: please see VREAA’s own definition further down in this thread. That encompasses a LOT of buyers today, hence I said ‘most’ when characterizing the position (I never implied ‘all’ as you seem to suggest ["so anyone who buys a house..."]). I don’t think my characterization was too far off the mark.
As to my own personal definition of speculation, I tend to agree with VREAA. I know people purchasing places they don’t intend to flip within 2-3 years but also don’t intend to stay in long-term (i.e. family is young/growing). The cost to own is demonstrably higher than to rent in these cases – and each year they’ll hang on to that place the gap between what they’ve spent owning vs. renting will grow. These people are aware of the gap. Wanna guess why they think they made the right call buying? Survey says… “price will keep going up”. It’s not as flagrant as, say, flipping within a calendar year, but if you removed price appreciation from the equation – no matter what I hear said about ‘responsibility’ and ‘doing the grown up thing’ – I’d be comfortable waging many dollars that they would be making different choices vis-a-vis home ownership.
in vreaa’s eyes everyone who buys is a speculator. While he stands in judgement of others he does so by also speculating…on price reductions. In fact, potential buyers waiting on the sideline for reductions are truer speculators than those actually buying homes for their families.
The speculators who buy a house in Vancouver with a high LTV loan have significant downside risk: they could go into negative equity with small price drops, and they face future interest rate risk.
The buyers sitting on the sideline have no risk, because (a) nothing forces them to buy at any time in the future, and (b) leaving Vancouver is always an option.
Succinct and right on – the (b) point in particular. Even if the bulls ‘win’ they’ll lose as the exodus of youth and expertise keeps growing (looks clear this week that another colleague will be moving away soon).
@Formula1: Renting meets my needs very well right now. As my family grows, I may always be able to find a rental for us. If the day comes where 1) I can’t find a rental here that meets my changed needs and 2) owning costs haven’t corrected substantially, you seem to think this forces me to buy (thus losing a bet I’ve made based on my speculation). It doesn’t. It forces me to leave.
In the same way that someone hung like a horse doesn’t have to work in adult films, a person with a good amount of net worth doesn’t have to buy Vancouver real estate.
Agreed completely, there are big risks in the going into the market at this time. But for some people, leaving Vancouver is not a realistic option particularly to the 30% east asian plus 10% south asian populations who have to stay close to their parents as it is part of our culture.
Just like how we have what we call bank of parents / grandparents daycare. We also have to take care of them (does not equate to sending them to a home as that is frowned upon in our cultures), so unless you are planning to take your parents with you wherever you go, it’s unrealistic for you to simply pack up and leave.
Don’t you know? Buying the house is more rewarding more fulfilling, more fun than any other so call “fun” you can have. Who needs to buy new cloths and furniture when you have a house? You can always learn new skills and make your own cloth and furniture like they used to! Car? How about being environmentally responsible! Stay-cation? Best kind of vacation! No travelling and packing hassel. No worry about getting sick or rob in a foreign city where people aren’t civilized enough to learn English or when they do, use non-Canadian terms. Also what’s more fun than working on your garden, lawn, house, and soon chicken coop?
These houseowners and their children will likely have more fun and get more out of life than any renters here!
The only people who aren’t speculating are the ones who either don’t care about houses – own or buy, or don’t care about what the house is worth when they need to sell – ie. the kind who view buying house the same as buying a Gucci bag.
Everyone else who are either banking more capital gains, price drops, or buy now or be price out are all speculating. If you are betting on which direction price will go then you are speculating.
Your broad definition of “speculator” may be technically correct (sort of), but it does not make sense in the context of the housing bubble.
Only those who directly participate with the expectation of selling later for a higher price can be considered “real” speculators.
If you don’t buy, you are not part of the madness and you are not a speculator – simple.
Same as in the stock market. If you don’t buy a stock, you are not shorting it, nor are you a speculator, instead you are just not participating at all.
Yes, but you are paying someone’s dividend through rent, so you are short to a degree.
No you are not short. If you don’t buy Microsoft stock, but use Windows 7, you are not short Microsoft.
If you are short a dividend paying stock you have to pay the dividend out every month and eventually buy the stock back.
In your case, you are paying rent (dividend) and (presumably, though not absolutely necessarily) you will buy the stock back (house, condo, whatever).
I would argue most renters reading this blog pay rent and eventually intend to buy real estate to live in, so yes, they are short. You are speculating that the VRE stock is overpriced and will eventually come down so you are willing to pay the dividends until it does at which time you will buy it back. You are speculating.
I like your example though. I own Telus stock because I want share in the benefits (dividends) from their price gouging (my phone contract).
Let’s stick with the REAL definition of shorting. To short something you have to borrow it and then sell it. Dividends are not part of the definition.
Renters are not shorting, period. If I borrow my neighbor’s lawn mower and pay him a small fee, I am not shorting it unless I sell it to someone else. If I go on vacation, I am not shorting the hotel room where I stay, nor am I shorting the car I rent for the week.
Dude, renters borrow real estate every time they lay their heads down at night. It is not an insult, it is a fact.
If you sleep outside every night, your argument might have merit.
I get the renter’s position. I see the logic. But you aren’t magically outside of the market. You have a position.
Yes, renters borrow real estate. They do not short it, though, because it is illegal. No reason to make up new definitions for well defined words. Renting is NOT shorting.
If everyone did what this couple did then consumer spending will crash taking down the economy with it thus killing house prices in the process and this could would loose out. What they did only works if a few people do it, if everyone does it it kills the economy.
There are no times when everybody does one thing. Right now we tend towards the opposite: people spend more than they have and therefore incur large debts.
The Chinese have the highest saving rate in the world, their economy is growing nicely. They base their economy on the spending habits of other people’s economies.
The ‘spot the speculator’ label is knowingly used to describe buyers who most would not consider speculators. We are making a point that these guys are speculators where most wouldn’t consider them such.
We are all able to recognize classic flippers, presale flippers, obvious opportunity speculators. Note we didn’t even use the STS label for the Cambie Corridor densification gamblers in the earlier anecdote today… all pretty obvious.
The point is that the Vancouver RE mania has been driven by superficially wholesome, innocent, responsible citizens “buying homes for their families”. These parties have stretched themselves to the extreme; they have overextended themselves into massive mortgage debt based on the belief that property prices will continue to rise. They are not just buying for utility, they expect rising prices, too (’7% per annum’ is the most oft quoted expected return).
Do you think the couple in the above anecdote, people who care about financial resources as much as they do, would have put 20% down on a property if they knew there was a 1 in 2 or higher chance of them losing their entire downpayment? No way. They fully expect their highly leveraged investment to double, triple, and quadruple in the years ahead. They would not have purchased if they saw significant risk of downside. They are speculating on price strength. Anybody really disagree with that position?
Note too that they talk of their ‘first place’ … you can be sure they harbour fantasies of using profits to ‘climb the property ladder’. They probably haven’t even really calculated the lose-lose nature of that proposition: if prices go up they have more equity but larger homes are then even more out of reach; if prices drop they are stuck in their ‘first’ place with no equity, forever. The chances are far and away that latter will come to pass: these “prudent” speculators are going to lose all their equity.
I disagree with this. How exactly are they highly leveraged at a 20% down payment? I thought by CMHC standards a 20% downpayment is standard leverage. So by your definition, anyone who goes into this market without a 40 to 50 percent down payment is speculating. I think you can argue that they may not be wise in buying into the market conditions but speculating is a bit too strong. If we are to follow this argument, then all retirees who had regular contributions to their mutual funds in the years leading up to the US stock market crash were speculating. I think this is a bit strong.
I’m a bear and I agree that I’m a speculator too. For a number of years now, I have been disappointed but guess what, my money has been sitting in investments, dine out often and have taken vacations. Though I have been disappointed, it did not hurt me in the pocket book. Rent has been relatively constant.
For homeowners that bought a while back, enjoy the paper gains, whatever that’s worth. Those that sold would have pocketed real gains. Congratulations. Those are the real winners.
For recent buyers, they are speculating for appreciation. As long as there is paper-gain, it’s worth overpaying and dining on Kraft dinner. But once paper-loss kicks in, the Kraft dinners suddenly do not taste that great anymore, even though their mortgage expense has not changed.
Ask Mr. Wang about newer buyers getting similar units for 30% cheaper. His cost does not change but suddenly his suffering is too great to afford. WTF?
http://shanghaiist.com/2011/10/27/more_protests_over_property_discoun.php
““We require a refund because the loss we are suffering now is too great for us to afford,” said a homeowner, surnamed Wang.”
Climbing property ladder only works during a stable market where the difference between each property ladder rung doesn’t change or the changes are minor enough to be made up by increase in income and equity build up. Otherwise as VREAA says, it’s a big lose-lose and frankly I’m surprised most people hasn’t caught on. Maybe that’s the intended effects of dumbing down math more and more in highschool.
Do you think the couple in the above anecdote, people who care about financial resources as much as they do, would have put 20% down on a property if they knew there was a 1 in 2 or higher chance of them losing their entire downpayment? No way. They fully expect their highly leveraged investment to double, triple, and quadruple in the years ahead. They would not have purchased if they saw significant risk of downside. They are speculating on price strength. Anybody really disagree with that position?
I sort of disagree with this. No doubt they expect, if not price rises, then price stability. But this is only part of the story, and not the largest. Most of what motivates them is the feeling that comes with ownership. They know that part of what they pay to the bank builds equity (whether or not they could do better by saving and making other investments). They feel they have their little slice of the world all their own (even though the bank owns most of it right now). There are powerful emotions at work – not least of which is the favourable judgement of most around them, in that they have joined the “owning” class.
My point is that they are not thinking like speculators, therefore they are not really speculators in the proper understanding of that term. They are more like naive investors with a lot of risk tied up in an emotionally-charged asset.
The definition of “speculation” is an expectation of realizing a return of capital. If these people would be happy to run this condo into the ground and walk away with no equity, they’re not “speculators”. But I think you meant speculator, not speculator. We have to stop those speculators.
I think back to when my parents bought a house in Mississauga in 1975. They had three children and they bought a (fairly) large suburban home.
Did they expect it to rise in price? Yes they did, most everything did in that inflationary period. Did they calculate that buying was better than renting at the time? Yes they probably did. Was it, nevertheless, a risk? Yes, but one that had a highly probable favourable outcome.
According to VREAA they were speculators. I disagree.
The reason that my parents were not speculators was because they bought a house because they needed a house to live in. If the house had lost half its value they still would not have regretted their decision, because it was the best house they could afford given their circumstances and their needs.
Most of the families that are buying their homes to live in now are thinking along the same lines that my parents did. The financial aspects are secondary to the idea/need of owning a home.
The one key difference is that the relative merits of renting vs buying has completely flip-flopped since the 1970s. But the emotional component of owning a home remains as strong as ever.
The people in the anecdote are buying based on emotion. The fact that they are not aware of the advantages of renting versus buying, or choose to ignore these hard truths, does not make them speculators. For a person to be properly labelled a speculator, the INTENT to speculate must be present.
Robert -> “the emotional component of owning a home remains as strong as ever. ”
Nay, it’s far, far more powerful than ever; and it is so because of the mania (see my related comment in reply to your earlier comment, both below).
“Did they expect it to rise in price? Yes they did, most everything did in that inflationary period.”
Then they are textbook speculators, but that does not make them bad. vreaa’s (and other’s) point is that it’s very difficult to discriminate between what you’re calling a speculator and otherwise. It is very difficult to identify what you deem “speculation” when the definition is so complicated and nuanced.
Everyone is part of the market whether they like it or not. Maybe I’m 10% “greedy speculator”; I hope readers see the inherent problem. It’s not black and white.
I maintain that for there to be speculation, intent must be present. Namely, that the dominant reason for the investment must be to make capital gains, else it is not speculation.
For example, I can invest in gold expecting it to go up in price. This is speculation. Even if there is a small emotional component (i.e. the shiny coin in my hand gives me aesthetic pleasure) it pales in comparison to the main reason for owning it.
Owning a home to live in because you have a strong emotional attachment to owning is not speculation.
A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties. – Karl Marx
[GREAT quote; very apropos. Thanks Nem. - vreaa]
Nemesis are you sure you got the translation “right”?
(Lao Tze is probably misquoted all the time.)
“Owning a home to live in because you have a strong emotional attachment to owning is not speculation.”
If you are going to call a goldfish a fish but refuse to include skates, clownfish, and halibut go ahead. When we’re discussing in public debate the concept of “speculators” be aware that everyone will have a slightly different definition. That’s important when politicians start going on about “speculation”. Their definition may not match even yours.
Then by that definition we are all speculators of some sort. I don’t think anyone invests money expecting no return on our capital.
Lots of capex involves no expectation of capital retention. Think injection mold or automated assembly machine. All will be scrap after useful life.
If you buy property you are by definition a speculator. I’m finding it comical the claims the ability to identify a “speculator” is somehow so simple. I can assure you it is not easy once you start scraping the surface.
If you buy property you are by definition a speculator.
What if I never intend to sell?
“What if I never intend to sell”
But you will eventually. There is always residual value in property because of land value, except where land has zero or negative value due to it having no utility, or requires more maintenance than revenue.
We’re all speculators. You are trying to draw a line in the sand with a windstorm on the horizon.
Robert -> Thanks for the comment.
You say: “Most of what motivates them is the feeling that comes with ownership. They know that part of what they pay to the bank builds equity. …
They feel they have their little slice of the world all their own. …
There are powerful emotions at work – not least of which is the favourable judgement of most around them, in that they have joined the “owning” class.”
Realize that “the feeling that comes with ownership”, the “building of equity”, the emotion of having “little slice of the world all their own”, the “powerful emotions at work”, the “favourable judgement” for “joining the owning class” are all factors that have been distorted by the mania itself.
In more typical times, with housing prices increasing at the rate of inflation, all of these “powerful emotions” would be less intense and less perverse.
These buyers/’owners’ are overvaluing ownership; they have been persuaded by the rampant herd sentiment to make a leveraged speculative bet that in another time or place, they would recognize as insane.
Well, I agree that they have been persuaded… to buy property. I honestly don’t think they view it as a leveraged speculative bet (and I agree that they are being foolish).
One thing I’m not so sure of is that the pull of home ownership has intensified because of the mania. I think it has created a whole new batch of flippers, but I don’t think it exercises any more emotional pull on the “mere” home buyers (i.e. those happy to own one home at a time) than in usual times. Home ownership in Canada has always had massive emotional pull. I’m not sure the emotional pull can be stronger than it was when my parents bought in 1975.
Perhaps this is just my prejudice at work, as my parents were immigrants from Eastern Europe and the main reason for coming to Canada was the prospect of owning your own home. Aside from having children there was not a more powerful desire in my parents’ life than home ownership.
I myself am not completely immune to that desire, though I have the sense to rent (in Mississauga).
Consignment. What is our fair world coming to? Next you’ll say you buy tall instead of grande. (Pro tip: ask for short)
Regardless of why they did it, I think it’s a positive that they were able to adopt a frugal lifestyle, it’s a useful skill to have. I’m sure a lot of people here will have trouble with this, it will clash with their world view and ingrained habits.
Agreed.
But to be frugal, to carefully build a nest-egg watching the dollars and the tens-of-dollars, and then to use all of your hard-scraped gains to buy an asset in the hundreds of thousands of dollars, using 1:5 leverage, somewhere in the vicinity of the top of a decade long mania, is a particular kind of foolishness.
‘Penny-wise, pound-foolish’. (As a recent commenter reminded us).
“it’s a positive that they were able to adopt a frugal lifestyle”
It’s a very good possibility they now won’t have a choice in the matter. So might as well be positive about it.
… and by “people here” I mean Vancouver/Canada/North America in general (and not the readers/writers of this fine blog)
Some increased commercial activity out there. This is good for employment!
http://www.vancitybuzz.com/2011/10/vancouvers-on-the-cusp-of-an-office-boom/
Construction employment maybe. Then those towers will sit empty. More speculative building, that’s all.
“Do you think the couple in the above anecdote, people who care about financial resources as much as they do, would have put 20% down on a property if they knew there was a 1 in 2 or higher chance of them losing their entire downpayment? No way”.
you are “speculating” on their reasons. You have no idea what is motivating these buyers. Is this your personal paranoia? That everyone is motivated by money? Or perhaps you think everyone is conspiring to prevent you from buying your own place. Better get some mental health advice vreaa.
Don’t shoot the messenger…
Formula1 ->
Regarding form:
You always seem to find it difficult to comment on the substance of discussion without drifting into claiming that I suffer “paranoia”, or need “mental health advice”, or some such suggestion. Have you moved from pharmacy into the mental health field? To reassure you: I’m fine, life’s good, please don’t lose any sleep worrying about my mental health.
—
Regarding content:
Do you seriously believe that the couple in this anecdote are NOT “motivated by money”? The whole gist of the story that they relate centres on money. You don’t have to have a fetish for money to see that it profoundly shapes human behaviour: it’s a token for stuff and time, and the vast majority of humans value stuff and time, one way or another.
Speaking of speculating, my close friend who I never discuss real estate with, has decided to buy into a pre-construction condo in New West.
http://www.258condos.com On their splash page it says 2br starting at 238k.
My friend says she is gonna buy it now and in two years when it is completed it will go up at least 50k. I rolled my eyes.
Any thoughts? 238k for a new 2br is pretty “cheap” in this market.
Even though its probably around 700 sq ft/lower level floors/HST payable/etc.
Are the developers undercutting the resale condo prices?
Likely the developer is squeezing labour for cost concessions, hiring lower experiences/valued employees/trades, and quality of material and constructions.
Err… if he thinks it’ll go up by 50K he is dreaming. But at 238K it’s not bad for cash flow, you can rent it out for about 1400. It’s beating the rent returns of most places in Vancouver.
Well she said her aunt’s place nearby increased from 250 to 350 in 4 years. So apparently to her, past gains do guarantee future profits.
She has the 20% for deposit so it is not a terrible LTV play, but that’s all her money. She mentioned she would keep it as an investment if by completion she does not want to live in it.
But then where would she live? If she wanted to buy another place she would she be HELOCing for the downpayment for her primary residence?
In that case it would be pretty risky.
Oh btw shes mainland Chinese
Is it unfair to ask this friend’s age? Ballpark?
We ask from the point of view of appropriate investment for life-stage.
Well, like I said, the cash flow ain’t bad. 238K minus 20% is about 190K including closing costs. So at a standard mortgage, say 3.5% fixed or 2.5% variable. You are looking at about 650 each month for interest on mortgage, plus about 300 each month to cover property taxes plus strata. You are still looking at a 450 dollar positive equity each month which isn’t bad at all in this market. But to think that your place will appreciate especially with a no name developer is a no go. If you rent this place out for about 15 years then you might be able to own the place as long as you put a bit of your money in, that’s the chinese mentality.
Plus I might add, the interest rate will probably stay low for a while so you could build up some serious equity into this place in a couple of years if you choose a variable then play your cards right and fix it in a couple of years.
@VREAA
Mid 20s Just started out working professionally, no debt. Actually I think dp money is from parents.
@Julian
Even with a correction I agree holding longterm it is a decent play.
But, she will want to buy a place as a primary residence eventually. Where would that money come from. Like you mentioned Chinese dont like to rent.
@4SlicesofCheese, I have a question, you said that she put all her money into the DP and then you said that her parents gave her the DP, does that mean she basically has no money of her own at this point?
If this is the case, her primary residence money will probably still be borrowed from parents; chinese parents have saved up a lot of money and unfortunately you have a whole bunch of second generation kids who gets to benefit from their parent’s hardwork. If she can generate a nice positive cash flow on her current property, which is something that is pretty hard to do in our market today, then she can use some of that toward her primary residence.
She just started working and makes mid 40k a year. So I am assuming she pretty much has no money at this point and that her parents are gifting the DP ( I could be wrong, and she saved up herself. But it is hard to save up 40k with no job before.)
She did say it was “All of her money” But then again her bank account can be the type that can be refilled by parents at any time so who knows, money for her primary residence could be gifted as well.
Or not, I know her mom work crazy hours. Only time will tell.
The developer, Tridecca, seems small-time. From my brief research, they built Greystone in Poco a few years ago. Your friend should take a look at a unit in that building to see how it ages.
http://www.pococondo.com/greystone-2342-welcher-avenue-port-coquitlam
I cannot imagine the quality of the building to be that great considering the price.
Also this is a concrete highrise, not a wooden townhouse. If this is their first highrise project, I would probably be concerned.
No mention of parking in the ad. Maybe it isn’t included. Your friend should check it out.
New Craigslist ad, now with FACTS!
http://vancouver.en.craigslist.ca/van/apa/2673497872.html
EVERYBODY hates paying rent …but in Vancouver it’s a long term reality for most. Affordability is a problem for many of us but is buying a condo really out of reach?
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Dean Wegman
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301-1508 W Broadway
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778-668-1478
Recipient 2010 Sutton Director’s Award
The fact that this guy received the 2010 Sutton Director’s Award shows how much trouble we are in.
I met this guy before! He was sending me his newsletter (a copy of the RE Board news release) every now and then. The last one I received from him was in September. I guess that’s before the market started to tank…
He’s operating mostly in Yaletown (that’s where I met him). Funny enough, after talking to him, I thought he was a decent guy that was a bit above the average crook (I mean realtor). I feel like I’ve been cheated on haha!
“Quit anytime”
Heard that one before. His target market is certainly not under dispute.
I can not speak of those outside my circle of family and friends. However, all those I know who bought Vancouver real estate within this past decade price appreciation was a factor.
Even though flipping the place was never on the books for some of these people they still had to mention how one of their work-mate’s house had gone up 20% or so as a reassurance for their buying decision.
Why should that be a decision when it comes to buying a property? I would understanding the argument about building equity as you make each payment. However, I don’t understand why anyone would get worked up over paper profits. Even if the house indeed doubles in price, how will that benefit an owner. Unlike a stock portfolio where you can sell 10% so as to cash out the windfall, you can not sell just one bedroom of your house to take out that 20% appreciation.
Another favourite one from friends and family is the one about moving up the real estate ladder. Once the condo appreciates they sell and take that windfall as a deposit for a bigger place. Unfortunately house and condo prices within the same market go up in tandem and therefore there is no advantage to such a maneuver – especially when one factors in the high transaction costs of real estate deals.
None of my family has ever given me a non-monetary reason for buying a house.
I am personally moving out of BC this coming new year and am looking forward to buying a house in my new city. The reason I really want the house is for space and lifestyle considerations. I have 2 kids and each needs their own bedroom. Also need a spare bedroom for guests. Means I need a house with at least 4 bedrooms. I am a semi professional chef and want a certain configuration for my kitchen and certain types of appliances. Something I could not set up in the average apartment or townhouse. I also enjoy working on cars – actually plan on restoring my current daily driver to showroom condition. I definitely need space for that. Its things like these that drive my home purchasing decisions and not how much equity I expect to gain. That is why you will never see me buy a condo – because it does not meet my lifestyle. In the same manner you will never see me buy a Smart car since I can not haul 2 kids and a dog in it – even if it had a depreciation rate of zero and the highest resale value.
Pretty much spot on.
Great comment.
I totally agree. My interest in buying a house (or ideally building my own) is to have appropriate space for an art studio – I work with many mediums including clay which requires kilns with special electrical requirements and venting. My dream/ plan has always been to have a house/ studio on the Gulf Islands where there isn’t much for rent that is suitable/ affordable – although I continue to investigate options. I had also hoped to have a tiny leasehold bachelor apartment in the city. My plan was looking very doable until 2004. I live cheaply and have no kids so I’m not overly concerned about appreciation or “passing on” assets but I’m very concerned about debt and refuse to take it on. This may give some contect to my meltdown earlier this week with the report that people continue to pay $650 sq feet for yaletown condos. C’mon already! Give a girl a break!
*context*
In my books the textbook example of a vancouver speculator is someone who moves out of a rented apartment and buys a condo apartment. They have done this for purely financial reasons.
With strata laws you have as many restrictions in your condo as you would have at a rental apartment. You still have to put up with noisy neighbours and the kids from upstairs. So, what exactly is the benefit of a box in the sky at such an exorbitant price? Can only be price speculation.