Two House-Warmings In South Surrey – “One thing I noticed is that no one talks about home prices going up anymore. They talk about how expensive Vancouver is and how prices will drop there, but not where they live.”

“Went to two house-warmings this week. Both in South Surrey.
While we were there we were bombarded with how great Surrey is and we should consider moving there. With close to an hour commute each way to downtown, no thanks.
Even though the townhouses were cheap (in today’s market anyways: you can get a brand new 3/4 br for the price of 1 br in the city), I was not at all enticed.
Previously, after a house warming I would feel like wow maybe I should just bite the bullet and go buy, not anymore. After the new house smell goes away, I realized how house poor all these people have become, and really their lifestyles are not any better than mine, perhaps even worse with all that extra commuting.
One thing I noticed is that no one talks about home prices going up anymore, that was different from a year ago. They now talk about how expensive Vancouver is and prices will drop there, but not where they live because it is so cheap already how can it drop. I guess they think it will always be other people’s problems.”
4SlicesofCheese at VREAA 10 Mar 2013 10:04am

41 responses to “Two House-Warmings In South Surrey – “One thing I noticed is that no one talks about home prices going up anymore. They talk about how expensive Vancouver is and how prices will drop there, but not where they live.”

  1. Vancouver will most definitely go down on a % and $ basis than Surrey, because it went up more. As we all know prices revert to the mean.

  2. People say, and believe, strange things to preserve sanity.

  3. I need to wake up. At first I thought the headline said “House warnings”

    • Aldus Huxtable

      House warnings, interventions by bears for the house horny?

      • Real Estate Tsunami

        Yeah, but HGTV probably won’t touch that one.

      • New HGTV shows: House Warnings, Foreclosure virgins, Short Selling Vancouver, Negative income property…

      • Ralph Cramdown

        Already been done, bubbly. The show’s called “My First Sale” and features 22 minutes of crickets, lowball offers, realtors begging sellers to lower their expectations, and the usual lanentations in these situations.

      • Sounds boring. I don’t see it in their schedule either. Perhaps a real estate show that doesn’t show guaranteed riches can not be very popular.

      • Ralph Cramdown

        http://www.hgtv.com/my-first-sale/show/index.html
        Definitely along the lines of “What were the programmers thinking?” I agree. Looks like they’re currently using it as filler in unpopular time slots.

  4. Surrey is great….if you work there, don’t need to cross any bridges for anything ( they all will be tolled soon ) and you aren’t near any of well known getto zones life is good ….don’t you love the “shouth Surrey” term…man, almost White Rock !!! The city is cheaper, drugs and guns are easy to get and US border is a bit closer…..that is all.

  5. Real Estate Tsunami

    No one ever invites me to a home “warning” party, because I’d warn them about how deep under water they soon will be.
    This being Ditchmond, it could be taken 2 ways.

  6. Interesting ‘Family Finance’ in the National Post today.
    http://business.financialpost.com/2013/03/08/is-this-couples-financial-vision-an-impossible-dream/

    BC Couple aged 28 & 27 own two condos which they value at a total of $563k with $513k of debt leaving them 8.8% equity. The financial ‘expert’ evaluating their situation calculates a 12% return on equity on their rental condo but only because they are only paying interest on their mortgage.

    “So far, Max and Portia have made a big bet on real estate. A $265,000 rental condo is their largest investment. It has a $228,775 mortgage with 26 years left on its amortization. Without capital repayment on the 25-year mortgage, interest alone is $410 a month. Condo fees and taxes add $277 for total carrying costs of $687. It generates $1,050 rent, so their total return is $363 a month or $4,356 a year. That’s a 12% return on their equity — not bad, but vulnerable to rising interest rates.”

    I guess they will be fine and able to retire early as RE only ever goes up. *sarcasm*

    • How much is their total monthly payment? And you’re forgetting property taxes, which will easily add 100-120 bucks a month (condo fees can go up raather quickly too). And what about any maintenance costs (not including the condo fees. I doubt condo fees plus property taxes is only 277 a month.)?

      This is all assuming the condo won’t go up or down in price in the foreseeable future.

      • The portion in quotations is from the article…not my calculations. It is vague but seems like they are only making $410 payments on the mortgage to only cover interest (debt stays the same) and Condo + Taxes is $277. So they are ‘earning’ $363/mth but not paying down the debt and assuming all risks of property losing value or damages/expenses not covered by condo fees.

      • Realtor behavior

        And how about contingency fund for a longer-term family plan? Kids, illnesses, separation…… They’re only 27, 28 my goodness!

    • They can be ok if prices stay flat and no special assessments or strata fees shooting straight up. 12% income is excellent, even with some price drops. However given that condos are prone to large special assessment bill and rent will drop as condos go past 5 years, 12% is not maintained.

      Oh yeah….there is also the little problem of interest rate going up, but other than that, I’m sure they will do fine. 😛

      • UBCghettodweller

        With income figures like that, couldn’t they just make more money, with far less risk, by taking up a part time barista position on top of their regular jobs?

      • Ralph Cramdown

        Oh but UBCghettodweller, they’re in “hi tech” jobs. Slinging coffee would be beneath them.

        Anybody else notice that their RRSP’s projected annual income of $46,830 is in 2045 dollars? Don’t spend it all at Timmy’s.

      • And there is also the little problem of speculators putting too much rental product on the market after failing to get a sale which has a tendency to depress rental prices for everyone at the worst possible time. The competition factor can drop rents a couple hundred bucks in no time as a sense of urgency sets in for some who were too slow to sell. That is part of the reason so many lost homes in the US as we recall. There was a contraction of families as an outcome of rising unemployment and initially the rental market took quite a hit. Things obviously turned around though as millions of ex-homeowners became renters again and millions of homes sat empty as bank inventory but it did take time for that resolution.

    • Oh and by the way rent revenue is taxed as income, and might put Max and Portia in a higher tax bracket. Oops.

      • Yes….big oops.

      • @Nick – Good catch! And boo at the so called expert, the expenses side is greatly underestimated as usual – incl. lost investment on the down-payment that could be invested elsewhere instead and at least 10% contingency reserve that every owner has to build (or at least keep in mind) that is needed to upkeep the inside of the property (appliances amortization and cyclical repairs) not to mention the special assesements that come around every 5 years or so when the same things are needed to do with the building (change the elevator, roofs, garage doors etc). The strata is under the obligation to have a reserve at min 10% of the yearly fees level and it is rare when they would go over it preferring to collect the special assessment when it is needed.

    • Good to be out

      Um, 12% might look good on paper, but what does it really represent?
      Equity is $36,225 on a condo worth $265,000. The place generates $4,356 a year after expenses. Yes, that’s a 12% rate of return, but on an investment that is leveraged 7.31 times. That is massive risk for a puny return. And like all the other commenters have said so far – market correction, interest rate hikes, tax/condo fee increases could wipe out their little bit of cash flow and destroy their equity before they know it. Just stupid. Financial advisor should be shot.

      • I wrote a longer post but it didn’t seem to post… anyways, what these people should do is get a $36,225 LOC of the condo, reduce their equity to $0 and then enjoy INFINITY return on their investment!!!!

    • These are near perfect examples of those who are going to get crushed in the near future. Limited income and over-extended hoping for capital appreciation. A correction will decimate their net worth and it will take a lifetime to recover.

      If events change such that they need to deal with any costs (assessments or other needs) along with changes in interest rate increasing their payments these folks are ill prepared to deal with it. This situation in my opinion is a train wreck waiting for the certain events to trigger it.

  7. there is no way for a condo with 277 in taxes + condo fees and worth 230K is getting 1000$ in rent.

  8. “…but not where they live.”

    I have continuing conversations with a friend who spent just under 1 million for an East Van home.

    6 months ago he thought prices would never come down for detached homes in Vancouver.
    3 months ago he admitted that West side home had come down but not on the east side. After all, the west side was overvalued compared to the east.
    This month he talked about re-financing their mortgage so they could take on more debt and do more renovations on their home.
    sigh.

  9. “While we were there we were bombarded with how great Surrey is…”

    Ha ha ha ha ha ha ha ha ha…. seriously?

    • 4SlicesofCheese

      It was hard to keep a straight face, I don’t know if they were trying convince themselves or me.

      • Well, I sort of like Cloverdale. It has character.

        But I assume that they were talking about South Surrey… that wasteland of vanilla (metaphorically speaking, although also often in terms of developer color choice) gated communities, faux vintage McMansions, gridlock, box stores, and deforestation.

      • [NoteToEd: I was once invited to an impromptu Surrey Caravan ‘Warming’ Party but the linguistic barriers proved insurmountable…]

  10. Yesterday in The Province.
    Q: Over the years, we refinanced our home a few times to pay off our credit cards and other debts, but we never actually got ahead. Now we’re faced with selling our home as we’re having a hard time keeping up with our first and second mortgage payments. With the market the way it is, we’re not sure if we’ll break even. What can we do?

    Read more: http://www.theprovince.com/business/Evaluate+options+before+selling+your+house/8078000/story.html#ixzz2NNHDoSsg

    I have a better answer… Pray really hard!

    Interesting side note: When I copied and pasted the quote in italics above, the “Read more:” and link automatically popped up. I was going to link anyway of course, but kinda neat that the website knows to add it. Just for fun, here’s a shorter snippet:

    Q: Over the years,

    And that didn’t add the link by itself. Odd and kinda creepy.

    • Ralph Cramdown

      They totally got ahead. They just blew all the aheadedness on coffees, vacations and other vital necessities. The rest they just wasted.

      OK, serious question: What situation requires a 2nd mortgage these days, and what’s a typical interest rate? Because for most people, those things went out with the advent of HELOCs and (relatively) low interest credit cards, did they not?

      • As is so often the case, Ralph, you manage to clearly see the forest through the trees. I agree of course. Like many couples who don’t really make an attempt to watch their budgets they have fallen into the trap of using financing to pay off prior debts. The question they need to answer when crying that they never got ahead is what were the benefits consumed by their credit cards and miscellaneous debts that had to be financed away under long term mortgage obligations. Turning credit card obligations into 30 years of payments is ultimately the lazy mans solution to getting your house in order. Costly too. Now that they are going to have to pay back all that past debt (and lack of discipline) through losses on the home sale seems somehow fitting and unavoidable. As usual…..I don’t feel much sympathy.

    • Thanks. Will headline, naturally.

  11. Real Estate Tsunami

    For those of us who dream of escaping the BPOE.

    http://www.digi-flips.com/digiflips/fob/kf/b8377751/digi-pdf1.pdf

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