Monthly Archives: April 2009

“But he’s jazzed because he can buy a townhouse for $50k off peak price.”

This from betamax at RE Talks 2009 Apr 28, 8:27am -

“I know someone who’s buying right now, he and his girlfriend just put an offer on a place. The crazy thing is, he works for an IT startup company which has already laid off 1/3 of the staff and may not survive the year, and the people already laid off still haven’t found jobs again in IT, but none of that has deterred him. And his relationship doesn’t look too stable either. But he’s jazzed because he can buy a townhouse for $50k off peak price. People just don’t think things through very much.”

Group Anecdote: “How Exposed Are You To The Vancouver Real Estate Market?”

(1) “What percentage of your net worth is currently in RE?”
(2) “To what extent is your equity in RE sensitive to changes in the RE market?”

These are important questions for all RE owners and RE investors, and we are here collecting ‘group anecdote’ information in this regard. Raw dollar numbers are likely too personal. Rather, you are invited to share the answers to the two questions above. Posters on other Vancouver RE blogs are also being invited to participate in this survey. Results will be collated on VREAA.

First, establish the following variables -
x = Total current market value of owned RE
y = Total outstanding mortgage debt on owned RE
z = Value of all other your assets, including savings, RRSPs, etc.; minus non-mortgage debt.

Now, calculate -

(1) “What percentage of your net worth is currently in RE?”

Percentage of net worth in Real Estate = ((x-y)/(x-y+z)) X 100

Then calculate -

(2) “To what extent is your equity in RE sensitive to changes in the RE market?”

Leverage ratio = x /(x–y)

[Illustrations regarding leverage -
If RE prices go up (or down) by 10%, someone with a ‘leverage ratio’ to the RE market of 1.0 will have their equity in RE move by 10%.
If their leverage is 1.2, it will move 12%; and if their leverage is 4.0, by 40%.
A negative leverage ratio occurs when there is more owing on the mortgage than current market value.]

At the very least, these are numbers with which all RE owners and RE investors should be familiar.
This is an invitation to do the math, and to share answers if you feel comfortable doing so.

Post your answers to questions (1) & (2) as a comment below.

“He is scared as hell because the company has absolutely no jobs lined up.”

Some are only now starting to anticipate the post-2010 hangover. This from betamax at RETalks 2009 Apr Tues 07, 9:16 am -

“A neighbour of mine is a project manager on one of the multi-million dollar development projects currently due to complete in the fall. He is scared as hell because the company has absolutely no jobs lined up when this big project completes. He’s now sending out resumes to other companies, with no takers. He even started talking about applying for jobs in the US, seemingly unaware that things are even worse there. I was actually a bit shocked by how little he knew about the larger economic picture.”

“30% is the average vacancy rate in a couple of dozen towers in Yaletown.”

The rental market is softening in Vancouver, with both more vacancies and lower rents. These anecdotes from a thread at RETalks, 2009 Apr 03 -

wtm notes: “Very interesting developments these days west of Denman in the west end. Normally at this time of year, i.e., start of the summer, very few vacancies are posted. Take a walk in the this hood tomorrow — I saw close to TWO DOZEN vacancy signs today — studios, one bedrooms, two bedrooms, even a 3 bedroom place. Either tenants becoming owners or people leaving the city because they lost their jobs? I have lived down here off and on for 10 years — I have NEVER seen this many vacancies in this neighbourhood.”

Strataman adds some first hand information: “I am exposed to well over 2000 rentals in YALETOWN as a service company for the strata corps. The rents are dropping and have dropped substantially. 30 % is the average vacancy rate in a couple of dozen towers in Yaletown.”

kansai_92 reports: “I’m starting to see vacancy signs around the Broadway/Cambie corridor now. These are older rental stock. One of my colleagues live in one and his rent is an amazing $775/month for around 750sf. He’s surprised to see vacancies popping up as well.”