Valyrian Steel at greaterfool.ca 3 Apr 2011 8:45pm – “I’m 38 with a net worth of about 1.4 million… 700k in real estate (Vancouver condo + Gulf Island acreage), so according to Garth, right where I should be. [Turner gave an equation recommending ’90 – age = percentage of net-worth in RE’.] As my property is all paid for, I manage to sock away about 5k per month in savings/investments, so my real estate ratio is actually dropping significantly. Not everybody in Vancouver is financially moronic.”
This individual has 50% of net-worth in RE. They will weather a crash okay; not great (they risk losing more than 25% of net-worth), but okay. But there are many others who will do far, far worse because of considerably greater exposure and leverage.
Regular readers of this blog know that we believe that the question “What percentage of your net-worth is in RE?” is seminal.
We tried to poll people about this exact question 2 years ago [“How Exposed Are You To The Vancouver Real Estate Market?”, 19 April 2009] and got a whopping two responses, both of which were from renters with 0% exposure. Perhaps it’s time for another try.
The net-worth question also relates to a recent discussion, where we shared our opinion that being exposed up to 25% of net-worth in ones primary residence may be reasonable, regardless of bubble-risk. That is because the risk of loss of 10-15% of net-worth may, for some, be worth the convenience of owning. The problem is that only a very small minority of people are wealthy enough to be able to stake that low a percentage of their net-worth on a property that they at the same time are happy residing in.
Anybody care to share?:
“What percentage of your net worth is currently in RE?”
10%? 20%? 40%? 75%? 120%? 400%? 500%?? – vreaa
Vancouver Real Estate Anecdote Archive 
Nada. 🙂
PS to Editor… (check your email for a premature ‘EasterEgg’)
PPS – define: a type of pumpkin erectile dysfunction/seasonal affective disorder – Answer: Premature’OJackoLantern?
I have no exposure to real estate.
Just so you don’t get the exact same as last time-
0%
Yet another response of 0%.
I think you may have a lot of renters reading this blog.
28% but I live in Houston.
Another 0%.
About eight months ago, I began tracking accounts, debt and expenditures pretty closely. More than a ten-fold increase in net worth since then (mostly because of debt elimination and a very generous employer sponsored savings plan that provides better ‘forced savings’ than even a mortgage payment might induce).
A big fat zero in my case.
Zero. Last year at this time, it was 100% plus we had a $170,000 mortgage.
PS: Looks like the big banks are hiking their mortgage rates today.
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/td-boosting-mortgage-rates/article1969683/
Zero. Though if we take “in real estate” liberally or literally… I may have a few dollars in change down the back of the couch. Wonder if that counts?
cashed out of Vanc RE 18 mos ago (now 0% invested in RE) – not willing to invest in it again while market is showing so many signs of instability – I consider myself a part of the buyer’s strike.
40 years old, married, one kid. Earnings $130/yr w/ defined benefits gov’t pension on the horizon, paid off house assessed @ $810k (market value apparently $920k), $515k liquid.
I think lower mainland housing will be worth at least 30% less in two years but I’m not selling. Gotta live somewhere. Might not be selling for 20-30 years. There will be several property booms and busts in that time. I feel fortunate to be Canadian, living in lower mainland, and in the position I’m in. I’ll just keep on keeping on and stuffing $$ away for retirement.
Best to all.
I would probably throw up in my mouth a little if I learned how my savings are being subsequently invested.
Do you own a REIT? How about an index fund? Guess what? You are investing in real estate whether you realize it or not!
@Jesse
Yes, agreed that exposure to RE market exists through investments. I am in the process adjustmenting portfolio to minimize risk. If nothing else this “crisis” is forcing me to get educated or at least align myself with the right people. Always a silver lining.
0% right now, but I am planning to invest within a year or so – not in Canada, though.
0% to the Vancouver RE market, some exposure to commercial real estate in Greater Toronto Area.
lots and lots and lots of relatively short-term GICs; nothing in real estate
obviously i’m a zero
and loving it
“at both either end of the economic spectrum you will find a leisure class”
About 73% of our net worth as a couple is real estate. Because of the boom/bubble. If prices in Vancouver had followed a more normal trend line over the past decade, it would be 54% RE — still a little high for our ages, according to Garth’s formula, but not that far off, and easier to balance out over time.
I’m not sure Garth’s formula works for the current Vancouver market. Large numbers of people will be very overweight RE simply because of the distorting effect of the bubble. Should they all sell? For example, a 50-year-old couple in 2001 with a paid-off house worth $400K and with $600K in liquid assets would have 40% of their net worth in RE, perfectly satisfying Garth’s dictum. Ten years later, they’re 60, the house is worth $1.2M, their portfolio has grown to $1M, but now 55% of their net worth is RE, rather than the 30% Garth recommends. No bubble, with houses increasing at the historical average, would put the house at $600K, and their percentage of net worth in RE at 37%, much closer to Garth’s number.
Perhaps a better approach for the Vancouver market would be to ignore RE’s paper equity, and use the historical trend line as the basis for calculating RE as a percentage of net worth. Assuming Vancouver house prices eventually revert to their long-term mean, it’s probably a more valid approach for homeowners who have no current interest in selling.
Froogle -> That suggestion makes very good sense. It would work for you, and for the hypothetical couple you describe. Prudent owners who bought early and have continued to save outside of their RE holdings are likely going to be fine.
Many owners are not in that position, however. As a result of the wealth effect caused by increasing housing prices, many have saved far less outside of RE than they would have in normal times. There are even some who have fallen into the RE_ATM trap and have negative savings and more than 100% in RE. These are the individuals who should be considering decreasing their exposure to RE by moving down, or selling and renting, or selling 2nd or 3rd properties. Your suggested ‘formula’ would also work for these folks, of course, because it would show them that they are over-reliant on their RE holdings going forward.
Lastly, it is also worth mentioning ‘opportunity cost’ for the prudent owners. Consider your hypothetical prudent 60 yr old couple. They currently have a net-worth of $2.2M. If/when housing crashes, they risk seeing 600K of after tax cash disappear, more than 25% of their net worth. That loss will have a very large effect on their quality of life in retirement.
We believe that this math is causing some sellers to unload properties at this time.
In some parts of Vancouver the paper gains have gotten so large that more and more are being drawn to ‘cash out’.
At present, prices still feel buoyant, and there is little selling urgency in the air. As you well know, we believe that the big rush of listings will occur when people get wind of the fact that prices are coming down, and there is suddenly an urgency and a rush to try to cash out.
Having a sense that 600K after tax cash that you ‘have’ in your hand is steadily slipping away at 20-50K per month is a great motivator.
You renters are under invested in real estate. Zero percent ? I agree that it shouldn’t be above 75, but at ZERO? Where’s your diversification? No wonder most of you guys are getting ahead. Real estate have been one of the top performing investments for the last decade.
i am diversified in an enormous quantity of bullshit:
when i step outside
when i drive in traffic
when i turn on the tv
when i log onto the interwebs
and it always goes up up up
my strategy is this:
go long on anything with a no bid government contract, especially if it’s some kind of made in canada personal toy, preferably one that steven or stockwell are riding for a photoshoot
you should be long on imported workers, especially clapboards and milk crates to build their shanties up in the bush.
and short white goods, that market’s hooped.
One can invest in REITs or RE mutual funds if one wants to ride the RE roller coaster. Huge benefit of riding it that way: it’s liquid with a click of a mouse for a $9 fee. No sane actual investor would tolerate a sky-high 6-8% transaction cost to lock in profits. What a ripoff!
but.. the lady with the dash cam YouTube channel told us now is a good time to buy.
it’s not a roller coaster! it’s a momentous wave, always reaching gloriously higher and striving to the stars as it swallows all who stand before it’s forward progress!
“Real estate have been one of the top performing investments for the last decade.”
That is simply not true. Real Estate has been one of the worst investments in the last decade with a few exceptions (like Vancouver, but only if you sell before the crash happens). But it has been a terrible investment in USA, UK, Spain, etc, etc…
well if it’s true that you’re always safe when you move with the herd,
then i hope the exits are wide enough for 100,000+
what’s that sucking sound..?
25%
Bought a SFH in Abbotsford 20 years ago.
It’s been paid for for about 8 years now.
I’m 51. Net worth, around 2.5 mil.
Totally debt free.
Paid cash for every vehicle I’ve ever bought for example.
I earn well above the average Canadian income though and have lived a realtively frugal lifestyle.
I don’t know very many people around me who can say the same.
Many of my friends and neighbours live a similar lifestyle to me but most of them are up to their necks in debt. I can’t see this ending well.