“We just completed a 110K reno on our home in Abbotsford.
Kitchen, Family room and 1/2 bath.
It was major. The knocking out walls kind.
I didn’t do it to increase the value of the home.
I did it because we bought the house in 1991 and it needed it.
We like the location and don’t have any plans to sell it. Ever.
Our kids will probably end up with it.
The house has been paid for for 9 years and we paid cash for the reno.
Not every homeowner is a debt slave living beyond their means.
Some people here know me. I’m no bull.
I fully expect a hard crash around these parts.”
“I mean no disrespect, but if you fully expect a hard crash (which I do as well) why not sell now, rent, and buy a similar house in 7 or 8 years when they are 50% off?
Since your home is paid off it seems like an easy way to make several hundred thousand dollars.”
“My kids are living in the house and going to UFV.
I’m working outside of the country now and am almost never there.
Did the reno. mostly so it will be ready when I finish this contract and come home.
I have a house in Panama and Tulsa for work. I’ll be buying another one in Denver soon.
It’s not worth the hassle for me right now to sell in Abby and have to find a place for the kids plus move all my junk. I also don’t want to lose the location. It’s irreplacable. Last house on a dead end street with a park behind me.
Don’t mean to sound like a dick but a couple hundred grand won’t change my lifestyle much at this point.”
[Above exchange at VCI 11 Sep 2012 at 2:14pm to 4:39pm]
One way to decide on the wisdom of ownership is purely via fundamental analysis, calculating the true value of a property based on factors such as rental yield, and purchasing when the property is in a range of fair value. This is the analysis and argument we most often discuss on this site, largely because it pertains to the vast majority of market participants.
The above exchange, however, well illustrates another concept that we have discussed here regularly through the bubble, one that is central to the whole idea of whether some individuals should buy/own or rent: If an individual can afford to see the price of their home drop by 50%, or even more, and tolerate the effect that such a drop would have on their future financial health, then they might as well own. Put another way: If the inconvenience to you of your home dropping to less than half of it’s market price is less than the inconvenience to you of renting, you might as well own, even in a very overinflated market!
‘metalhead’ is an example of such an individual. His net-worth and overall financial circumstances allows him to tolerate the idea of his Abbotsford property dropping by “a couple hundred grand”.
But how many Vancouver homeowners can say the equivalent? The majority have most of their net-worth in their homes, and many leveraged ‘players’ have much more than their net-worth in their homes. For most a drop in market value in the region of 50% would severely alter their circumstances and prospects.