“I just heard of someone who bought a house in East Van with 7 other people! Dude, you’re signing up for a mortgage with roommates? Yeah that ought to work out, good luck with that!”

“I don’t live in Vancouver, but I read ‘vancouvercondo.info’ for the same reason I read the US bubble blogs. The insanity is entertaining. I just heard of someone who bought a house in east van with 7 other people! Dude, you’re signing up for a mortgage with roommates? Yeah that ought to work out, good luck with that!”
Nex at VCI 6 Aug 2012 2:24pm

“I agree. I think it’s crazy that roommates would purchase property together. I’ve had lots of roommates in my day and it never seems to work out. I can’t imagine being stuck to a roommate for 25 years for a mortgage!
Vancity Credit Union actually has a mortgage product specifically designed for roommates. It’s called the “mortgage mixer”. From the Vancouver Sun:
“Vancity also has a “mixer mortgage” where roommates can go together to buy a home they wouldn’t be able to buy otherwise. ‘It also works well for parents and children, because the parents can own part of the home as an investment, while it helps the child get into the market,’ McKinley said. “It definitely helps people get into the market younger.’”

Joe_Blown_Away_By_High_Housing_Costs at VCI 6 Aug 2012, in part quoting from Vancouver Sun 19 Apr 2012

39 responses to ““I just heard of someone who bought a house in East Van with 7 other people! Dude, you’re signing up for a mortgage with roommates? Yeah that ought to work out, good luck with that!”

  1. Seems to add to risk if the mortgage is reliant on so many income streams. The old probability problem: if each of seven people in a household has a 1 in 20 chance of losing income in the next two years, what is the probability of at least one person losing income over that period?

    There are 1000 such households. How many are expected to face impairment of income over 2 years?

    • Followups:
      1) If a single income earner in a household has a 1 in 20 chance of losing income in the next 2 years, what is the probability of this person losing income over that period? There are 7000 such households. How many are expected to face impairment of income over 2 years?

      2) Same question but with two income earners, 3500 such households.

      • oneangryslav2

        1) Followups:
        1) If a single income earner in a household has a 1 in 20 chance of losing income in the next 2 years, what is the probability of this person losing income over that period?
        [1 in 20.]
        There are 7000 such households. How many are expected to face impairment of income over 2 years?
        [7000/20=350]

        2) Same question but with two income earners, 3500 such households.
        [1-(19/20)^2=0.0975 probability X 3500=341.25]
        Or 682.5 out of 7000 households.

    • Hmmm…I don’t get the same answer as vreaa. Am I missing something?

      This is a variation of a classic problem in probability theory. The way to solve it is to first determine the probability that no income will be lost by any of the 20 individuals and then subtract that probability from 1.

      Solution: If each of seven persons has a 1/20 of losing income over the next 2 years, that means that each has a 19/20 chance of NOT losing income. If each of the individuals’ probabilities is independent (i.e., they’re all not working at the same McDonald’s), then the probability that all seven will NOT lose income over the next 2 years is (19/20)^7, which is .69833.
      So, the probability that at least one will lose income over the next 2 years is 1-.69833=.3017, or 301.7 households.

      So,

      • oneangryslav2

        Oops! In the second paragraph there’s a typo. It should read “…no income will be lost by any of the 7 individuals…” [not 20!]

      • Yes, answers are
        7 – 0.3017, 302 households
        2 – 0.0975, 341
        1 – 0.0500, 350

        But of course the loan amount for the 7 would be higher than the 2 or 1 so 7 is indeed riskier (severity and probability)

      • I’m not sure you could consider the long-term employment prospects of housemates as independent. Not only do they live in same city, so are at the mercy of that city’s economy, but there’s a strong chance that at least some of them know each other through work or through the industry in which they work.

    • slav/jesse -> Thanks for the education (actually, in this case the reminder of the education!); you guys are, of course, correct.
      And agree with Anonymouse regarding the likely lack of independence regarding roommate employment.

    • These pretzels are making me thirsty

      0.14 “Pride of Ownership” for each person
      0.14>0.0 (for most blog bears)

    • If you got approved on 4 decent incomes (at high ratio) when you have up to 7, it could be very safe. There are a lot of large households in Vancouver and I think many have done this.

  2. Renters Revenge

    Not much different than strata title.
    Both are equally stupid ways to “own” real estate.

  3. Click here, its different

    Roomates is fun at 20 something. Empty boose bootle, messy kitchen, girlfriend-of-the-month sleeping on the couch …

    But adults ?

    Sharing sex life and intimacy and professional downturns and couple problems and pregnancy with 7 friends ?

    Invite em for supper every week. Yes. But living with them ? Because you want to “own” ? And when Sharon had enough of Dwain’s Xbox and junk food habit and decide to go, what you guys do ? Or Lydia’s fixation on washing the floors every fucking day “because its so dirty” ..?

    Oh man … Absurd.

  4. South Korea’s Kim Hyeon-Woo, Greco-Roman wrestling OlympicGoldMedallist, knows a thing or two about ‘tangling’ with room-mates… and, evidently, metallurgy too.

    Here’s your WednesdayMorning Zen, DearReaders…

    http://tinyurl.com/8wypv79

    [NoteToEd: Not surprisingly, Kim graduated KyungNam University with a major in ‘Physical’ Education]

  5. Interesting comment on an interesting story:

    http://www.ctvnews.ca/business/canada-s-housing-market-cooling-scotiabank-1.907491

    In the comment section, by “dorri” (8 August 2:57 pm timestamp):

    “We bought our house 2 years ago. We put 25,000 over asking just to be able to get the house since there were bidding wars going on in the area. If I decided to sell, no way am I taking a loss, regardless of what they say the market is doing. The market may cool, but hopefully housing prices won’t go lower than what the home is worth in today’s market.”

    I wonder how many others are starting to feel this way.

    And I wonder for how many of them they will eventually have to sell due to life circumstances, no matter what others are willing to pay.

    • “If I decided to sell, no way am I taking a loss”

      Bill McBride AKA Calculated Risk noted that the US housing market, during its downturn of the past 7 years, had a behaviour that mimicked people wanting to sell before they saw a paper loss. As prices dropped the cohort of “motivated sellers” changed and set the new price. Those who missed an exit with positive equity were more likely to default or languish. Since most areas of Canada are near nominal highs, carrying on this train of thinking, the marginal seller is most likely one who bought at or near peak prices. Look at where the major sales volume spikes occurred in Vancouver over the past 10 years for indication at what pricepoints inventory could be in for a renewed kick upwards.

  6. Seems more like an investment move

  7. Said it many times, and sure enough it’s happening. http://postimage.org/image/b2eqflp5r/

    All funded by taxpayers money.

  8. Off-topic, but I can’t remember which post talked about renting going to be more popular than buying.

    http://www.bloomberg.com/news/2012-08-08/recession-generation-opts-to-rent-not-buy-houses-to-cars.html?cmpid=linkedin

    I think it’s here now. At least for the US.

    • “In the midst of this slowdown, Finance Minister Jim Flaherty announced the ***fourth reduction*** in the amortization period for home mortgages in four years. At one point in the past decade, people could take out a 40-year loan to buy a home. But in 2008, it was ratcheted back to 35 years, and then to 30 years in 2011. In June the federal government brought it down to 25 years.”

      Let’s ignore the fact that it was Flaherty who increased the amortization period from 25 to 40 in the first place, meaning that we have had a net reduction of zero. Instead, let’s just count the reductions:
      40 –> 35 –> 30 –> 25
      Yup. Only 3.

      That’s Vancouver BPOE quality reporting for you.

  9. 7 room mates! I smell a sitcom.

  10. I smell a VANCOUVER DINNER PARTY! Just think, all 7 can scarf down KD and Chateau Tuesday while congratulating each other on being savvy investors.

    Clearly this is why I got few dinner party invites when living in Vancouver.

  11. Re Canadian Watchdog and the changes to the mortgage insurers:
    I had a little read-over of the act. http://tinyurl.com/bwp6d2o
    Don’t worry, they took steps to prevent any risk to the taxpayer, they can now reinsure each other to reduce capital requirements.
    Sure, that’s gonna reduce any systemic risk aspect alright, all the companies in the same line of business reducing their capital requirements by insuring each others portfolios! and all of it ultimately backed by the taxpayer, so we just know the CEO can sleep at night knowing his bonus is safe.
    (Gosh, I hope I got the sarcasm tag correct this time.)

  12. Joe_blown_away_by_high_housing_costs

    ““A recent tumble in home sales coupled with a drop in headline prices have some wondering (hoping?), whether Canada’s longtime poster child for a potential housing price bubble is set to burst,” the report concluded. “While a weakening state of demand in Metro Vancouver makes short-term price drops a near certainty, we expect that declines will be both modest and temporary.

    “Prospective sellers are expected to respond to weaker market conditions by curtailing listings activity, which will limit excessive inventory in the housing market. Short of another recession and large-scale job losses, market activity in the Lower Mainland is expected to be characterized by a relatively low sales and a flat-to-weak pricing environment.”

    According to Central 1, B.C. as a whole should also see prices decline this year before rising slightly in 2013 and 2014.”

    http://www.vancouversun.com/business/real-estate/Metro+home+prices+will+slip+plunge+Central+Credit/7060886/story.html

  13. Short of another recession and large-scale job losses, market activity in the Lower Mainland is expected to be characterized by a relatively low sales
    When a third of your economy is RE, “relatively low” is a recession and large-scale job losses! Takes a while to show up in construction, renos and furniture, shiny truck sales to the construction worker, HELOC money flooding into restaurants and so on, but it will.

    • Alex, how do you figure RE accounts for 1/3 of Vancouver’s economy? Not disagreeing, just looking for a reference.

  14. http://www.theeconomicanalyst.com/content/how-might-canadian-housing-correction-weigh-provinces
    Quickly, direct GDP contribution of construction and FIRE for BC is about 32%, Vancouver’s gotta be at least that. MLS resales alone is 21%. Add in the multiplier effect and I think a third is conservative.

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