t at VREAA 11 December 2010 at 3:48 am
“I am very bearish on Vancouver real estate…I am moving to Fort Nelson in the new year. I have been looking at Vancouver RE for so long that the prices in Fort Nelson appear reasonable to me. I have looked at the cost to rent vs. cost to own…$1100/month to rent, $800/month to own…and I am considering buying a place up there. Your thoughts?”
& t again on 13 December 2010 at 10:01 pm
“I am going to buy in Fort Nelson in the next month. I am a bear, and I am relocating for work. The cost to buy up there is roughly 300k for a nice family home. It would cost more to rent than it does to pay a mortgage. I do think that the prices are still high up there, but the local economy does support those prices because there are lots of high paying jobs. If any of you know anything about the RE up there please let me know. We meet with a local RE agent next week.”
t – Thanks for the note, and for caring enough to solicit our opinion.
We suspect there will be numerous readers who can give you food for thought regarding this decision; we’ll start with a few thoughts of our own:
You’d likely be taking the following into account:
Various nuts-and-bolts questions about the math (Is the cost of owning REALLY $800 per month? What about transfer costs, taxes, maintenance, etc? etc.).
Your age. Your income. Your degree of job security.
Whether you intend to live in Fort Nelson long term.
If you purchase, would you be buying the kind of residence that you’d like to live in long term?
What is your ‘ownership premium’? (How important is it for you to feel you ‘own’ your house?)
Would the prospect of future higher interest rates alter your decision? (BOC Governor Carney warned us yesterday that rates WILL rise)
Would the prospect of a future distressed economy in Fort Nelson alter your decision? (How secure are all those ‘high paying jobs’?)
We note that you went from “considering buying a place” to “I am going to buy” in just two days. Obviously you are planning your move, and we respect that you have a need to decide one way or the other. But, does the decision to buy merit the urgency that you currently appear to feel?
Perhaps you are confusing two separate decisions:
..(a) where are we going to live when we get to Fort Nelson?, and
..(b) should we rent or buy our accommodation?
These are indeed two separate decisions, but currently they may feel like one. Perhaps you should try to separate them.
Is the prospect of going up and renting for a while too burdensome?
What do you have to lose if you went up, rented for 6 months, and then made your decision?
The benefit, even if you did end up buying, would be that you may get a better idea of the property type and site that would work for you.
All of the above are important considerations, and readers will likely be able to add more.
For us at VREAA, however, the most crucial considerations are the following:
We are bearish on RE. (You, ‘t’, are bearish, too.)
We anticipate a pullback in RE prices in Vancouver in future, a pullback that will also effect all of BC (and, to a lesser extent, all of Canada). We think prices could drop 50%, perhaps more.
We could be wrong (we have been for some years now).
We weigh the probability of ongoing steady price increases as low to very low (5-10% chance of ongoing price strength). We think the chances of an outright crash are far higher than that.
So, if we were trying to make the decision you’re weighing, we’d be asking ourselves the following:
“If I were to purchase, how much would a substantial decrease in housing prices in Fort Nelson effect my overall future financial trajectory?”
The answer to this question would be closely related to income level and net-worth.
If you purchased, what percentage of your entire net-worth would be made up by the purchase price of the property? 20%? 50%? 100%? 500%? 1,000%? – [the 1,000% example is the case where you put 10% down and have no other savings.]
For some individuals, to purchase a property that then drops from 300K to 150K market value, and stays there (in real terms) for 10 years, would not be of much consequence. For them, it may not be worth the hassle of renting to avoid that risk.
For others, the 150K paper loss may be completely devastating; it may result in a financial blow that takes decades from which to recover (and essentially changes their entire life’s financial trajectory for the worse).
Some people can afford to lose 150K, others can’t.
(In Vancouver, the same rent vs buy decision are heightened by the fact that in many cases that statement becomes “Some people can afford to lose $1.5M, others can’t.”)
Needless to say you have to do your ‘own due diligence’ on this.
(Oh, and by the way, I don’t think any of us doubt what the Fort Nelson realtor will advise. You’d best be clear in your own mind about your intentions BEFORE you meet with the local RE agent next week.)