“Their combined family income is just over $200K per year. They could buy a SFH but don’t want to, because, in her words, it would be a dump and they’d be elbow-deep in mouseshit and stucco for 3 years. Should have seen her eyes when I told her she is in the top 1%.”

“Met a nice fellow today at an event who said he and wife make just over six figures (combined) and were just pre-approved for $1.2 mil. He said he knows they can’t afford more than $400K at present rates. But nice lady at the bank said not to worry – rates aren’t going up soon. Wonder where she heard that from, and what “soon” is in the context of a 30 year shackle. A friend sells mortgages at same bank. Nice gal. Earns $46,000 a year, dropped out of general arts in her 3rd year of undergrad, took a mandatory 5 day combined mortgage/financial advising course at the bank, rehashes one page flatsheet talking points to existing bank customers.”

“I work with a very nice gal whose combined family income is just over $200K per year. They own a 2 bdrm condo in East Van and can’t afford a SFH but desperately want one because of growing family. Actually that’s not true – they could buy a SFH but don’t want to, because, in her words, it would be a dump and they’d be elbow-deep in mousesh!t and stucco for 3 years, and they actually want to buy vegetables and contribute to an RESP for their kid but couldn’t afford to with an $800K mortgage. Should have seen her eyes when I told her she is the 1% – she figured you needed at least $500K per year. Nope… $230K. What’s 35% of that? After tax: $3,500 per month. With rates up 200 bps in 3-4 years… that’s probably getting you a $500K mortgage or a bit better by my math. Yeah, that’s a healthy market… the 1% can only buy half of the “average” house without a hefty DP.”

“This is what sickens me and drives me to post my useless rants on [RE Talks] – not (just) that I want to buy a reasonably priced SFH in the LM. I’m not some bitter lefty renter – I’m a fiscal conservative to the core, and own property outside the LM. I just can’t stand to see the lies and deceit that will harm so many people while the insiders make out like bandits once again.”

Arthur Fonzarelli at RE Talks, 15 Jun 2012 10:08pm

Four stories in one here:
1. Couple earning $100K+ pre-approved for $1.2M.
2. In-house bank salesperson selling mortgages with minimal training.
3. Family earning $200K+ reluctant to move up because of perceived low value in SFHs.
4. Fiscal conservative RE owner seeking a “reasonably priced SFH” in the lower mainland.
Common themes?
Readily available cheap credit resulting in elevated home prices reflecting very poor value.
– vreaa

25 responses to ““Their combined family income is just over $200K per year. They could buy a SFH but don’t want to, because, in her words, it would be a dump and they’d be elbow-deep in mouseshit and stucco for 3 years. Should have seen her eyes when I told her she is in the top 1%.”

  1. Ralph Cramdown

    There’s plenty of people spending a few years (or more) in the top 1% by INCOME who are never going to make the jump into the top 1% by net worth. You really have to do your own taxes and read about all the deductions you don’t qualify for because all your income is wages and you don’t save enough of them.

    • Ralph Cramdown

      Hey, apparently there’s even a name for these people (big income, pissing it all away): HENRY, or “High Earner, Not Rich Yet.”

  2. pricedoutfornow

    I agree…some of the houses in Vancouver, that sell for a million dollars, are crap. We went to a viewing for a house here in East Van a few weeks ago. You could rent it for $1700/month, or I’m sure it could have been sold as a tear down for $800k plus. The house was crap, old, outdated, windows that were definitely not going to keep the heat in, and the basement felt haunted, it was so creepy. This is the kind of house I’m waiting to buy when the market crashes?? No, thanks! Since my family’s grown to a point where we are pretty crowded in a 2 bed/2 bath condo, I’ve decided to forget ever buying a house in Vancouver-and concentrate my efforts on getting into a decent, well-maintained co-op (they do exist) where I can raise my family. I will keep my $100k in net worth for other things than a down payment (my significant other also has about $50k available) and forget the aspiration of buying a SFH in this city. Adios SFH dreams….

    • Negative feelings about Vancouver RE is picking up speed. Just google words “Vancouver housing bubble” and 491,000 hits comes up. We were at an open house yesterday for 30 mins. and there were 4 other couples. We chatted to all of them and 2 of them said they are just looking and will wait until the market corrects before they buy. In our circle of friends, family and co-workers there are 4 more that are able to buy a home but choose not to. You’ve heard that there are over 19,000 lisitngs in the L.M. and possibly a lot of “shadow inventory”. My guess is there’s a lot of “shadow buyers” too.

  3. In my view the exorbitant loans being offered by banks is one part of the story, but as important is that Vancouver and near-burb “detached” lots have priced in owners becoming part-time landlords of de facto multiplexes. When we hear of families making $100K/year buying an $800K house or whatever there’s the subtext they supplement their incomes with rental income; that or pony up huge DPs.

    So yeah these stories of crazy loan-to-value ratios draw concern, but there is more to it, the worst being I’m not convinced the part-time landlord arrangement has been properly costed by homeowners investors.

    • Would the prices be reasonable if those same lots were rezoned to townhouse/low-rise? Maybe attitudes towards rezoning will change once owners realize this is the only way to preserve the high value of their lot/investment?

      • MM -> The whole issue of zoning/density is not simple to analyze.
        For instance, try this mental experiment:
        Imagine that, suddenly, ALL zoning regulations were dropped, and anybody could build any quantity of units on any lot in the city. What would happen to lot values?
        One’s initial instinct is probably to say “go up”, because we imagine one lot being developed into, say, 4 units, and sold off at current town home or condo prices. But if a large number of such developments appeared, what would happen to lot values? How big is the market for such units?

      • MM prices are construction costs + land value + profit so I’m not seeing some panacea on this front, mostly because the density new builds are producing are getting up towards townhouses anyways. The “Vancouver special” has turned out to be a workhorse for density increases, my concern is first the costs are not efficient as they would be in larger multiplex units (landlords are paying retail for repairs and renos) and second it distracts people from contributing to the city at large.

        We only need look at demographics to see many families are simply saying they don’t want to be part-time landlords and moving away. The dwelling mix that attracts top dollar isn’t conducive with raising a family.

  4. 4SlicesofCheese

    I recently went to speak with the nice boy at the bank ( he was no older than 25) about directing some RRSP preauthorized contributions I had setup.

    We did the banks spreadsheet calculations and and based on retiring at 60 I would have to contribute around 500/ month to reach this.

    And this was only based on my Canadian assets which is only 25% of my net worth. But the nice boy told me I am in great shape and many of his clients come up with numbers in the 2000 dollar range.

  5. Renters Revenge

    “I’m not some bitter lefty renter”
    Wow, stereotype much?

    • Point of logic:
      The statement “I’m not some bitter lefty renter” does not necessarily imply that the author believes all renters are bitter and/or are “lefties'”. He may be saying the equivalent of “I am not bitter, nor am I a lefty, nor am I a renter”.
      [Of course, you may also be correct with your implication!]

  6. The Poster Formerly Known as Anonymous

    I recently saw some anecdotal evidence for the hypothesis that much of the current spending in the Vancouver economy is funded by home equity lines of credit. A nice lady told me that she and her husband have been spending the money that their house “made” for the past 7 years. They now owe double the mortgage that they originally put on the house, but the house is “worth” three times as much. Based on the area and date of purchase, I estimate that they mortgaged 300k, spent another 300k of their equity, and now sit on 900k of nominal equity (and of course owe 600k). They used the income so she could stay home with kids, and he could set up his own business.

    However, the wife has recently had to take a job…. because the husband is getting very worried that values may contract soon, and this means they will need to start paying down the mortgage… and means no more HELOCing.

    • God, reading stories like this make my stomach churn. How do people like this live with themselves?

      My mortgage debt is just barely 2X our household income, and aside from some business debt we have no other obligations. Even though our mortgage rate is now secured for 10 years, giving us a peace of mind should rates escalate. I can’t help but feel that we need to pay off the mortgage ASAP, even thought the money could probably be put to more productive use.

      All this while owing a couple hundred thousand, how the heck do people sleep owing over half a million while earning low six figures.

      Amazing.

      • midnite toker

        Hey my parents have used Helocs several times to pay for scientology training . Yes they are full on couch jumpers. They bought their place in north van about 25 years ago.

        Also , mortgage brokers at the bank only make $46k? that actually makes me feel a little better.

      • I feel exactly the same way Burt. What is happening is actually sickening. Your reaction to pay down debt as quickly as possible is natural as you want to avoid any risk should you become unemployed or unable to pay. I am not sure it is the best choice to draw down your savings and cover debt when interest rates are so low though. You always need a cushion and unless you can totally eliminate debt you are just leaving yourself vulnerable when the correction arrives. Additionally you would not be in a position to take advantage of all the opportunities that appear as assets suddenly plummet in value and businesses come available cheap. Last point of course is that the differential between what your cash might earn versus what it costs to hold cheap debt can add up quickly. Just my point of view of course. I like being debt free and do not envy anyone who has a 500k mortgage.

        Like you say. It is a recipe for stomach churning sickness.

  7. all people in my block earn over 300k per head, and they can afford to take their children to Mcdonald !!!

  8. Well. We have done it again. Debt growth in Canada has reached new highs as the latest statistics on debt to disposable income show. We now stand at 152% and it is still rising.

    http://www.theglobeandmail.com/report-on-business/economy/debt-growth-slows-but-income-growth-slows-even-more/article4272374/

    What nobody tells you though is the real threat buried in the stats. The ratio is on the verge of shooting to all new highs as the excess of credit environment concludes and housing prices slowly deflate in Canada.

    The reason?

    Well unemployment will rise and as it is incomes that feed into the side of the equation we call “disposable income” then we can say with certainty that average disposable income will be in decline. This quickly magnifies the debt/income picture even if debt does not grow.

    How high we might go is unknown. The Americans went above 163% before the cards came tumbling down and it would not surprise me to see a similar outcome here.

    In the groundbreaking paper written by Reinhart and Rogoff they warned how debt to GDP ratios above 90% almost always led to sharp slowdowns in economic activity. Now that is a study based on countries but it can be crudely compared to a householders debt/income picture. And it is not pretty a pretty picture.

    Too Much Debt Means Economy Can’t Grow – Reinhart & Rogoff
    http://www.bloomberg.com/news/2011-07-14/too-much-debt-means-economy-can-t-grow-commentary-by-reinhart-and-rogoff.html

    I think the biggest worry here is that debt normally increases during a contraction phase as income withers. Both sides of the equation work against households just as they do against countries who have come under similar stresses. We see this very plainly in Greece where tax revenues have declined, business fail and simultaneously demands for social benefits and unemployment spike.

    I cannot predict what our outcome will be here but I can say with certainty we will experience some version of this process and that will only magnify declines in consumption and further negatively impact on Canadian retailers. Employment will suffer further as a result as the cycle drives up costs to government and revenue falters. The point is that we can no longer view the growth of the debt/income numbers with anything less than apprehension and concern. They are too high and any hiccup now could send them soaring.

    I do not like how 2013 is shaping up, that is for sure.

  9. Onya Fonz.

    I make a pest of myself over at RET because it is lying rubbish that is promoted. Ive made a lot of money in real estate, and also lost a lot. But I can sleep at night knowing that ive sold or rented at sensible rates, and nothing ive done will result in people taking major losses and being wiped out. Luckily we never had a massive bubble, and prices firmed and softened. Overall maybe 10%. Nothing even remotely like Vancouver.

    Too many people have lost sight of basic ethics, honesty and doing no harm to others. Just because your in the development game doesnt mean you have to lose your soul!

    I know that having a bearish view – has allowed a number of readers to stop think, and go and do further research and make a more fully rounded decision. I feel that is something good that ive done to help others.

    Ive stayed at RETalks to turn the lights out. As the market falls the bulls will all slowly disappear never to be seen again.

    They will quietly profess that they always knew it would correct and crash, which we will recognise as lies as they are moving their lips!

    VREAA – i sent you a personal email a couple of weeks ago – not sure if you got it or not.

  10. reality check

    200k a year is not the top 1%.

  11. To make the “Top 1%” in salary in Canada (individual, not family) you need apx $170K in income. Based on a 4% interest mortgage with 5% down this person can purchase a $700K home according to CanadaMortgage.com. The median listing price in Vancouver West is over $3 million.

    On the plus side the top 1% earners could max out their mortgage qualification amount and buy an average home in Langley, Squamish or North Delta… If they can bump their income to $200K then then they could afford the median listed Coquitlam home of $850K.

    I don’t understand how people with $100K income are getting $1.2 million mortgages but regardless this is going to be horrendous when it comes crashing down.

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