“Rentals are being phased out in our condo building because they are just too hard to manage and they bring down the value of the units.”

“Rentals are being phased out in our condo building because they are just too hard to manage and they bring down the value of the units.”
– comment by Kensington, 27 Jan 2013 4:00pm below ‘2012 a record year for Vancouver rental housing’, CBC News 27 Jan 2013

It’s still all about ‘value’ (read: price growth), and not about ‘income’.
The changes contemplated by this strata usually occur in red-hot price growth phases.
During weakness, when prices are descending, the potential for rental income becomes more important in the calculation of fundamental value, and in making a property attractive to buyers (thus offering more support to prices).
This strata appears to be late to the party.
– vreaa

“Our landlords are booting us out. My wife has been onside until now, but with the threat of homelessness she’s wavering. I feel that buying now is akin to climbing out of the lifeboat and back onto the Titanic.”

“Our landlords are booting us out of the house we’ve been in for 5 years. (She’s divorcing him and booted him out, and we’re next down the eviction chain as he’s moving in when our lease expires in a few months.) So we’re desperately looking for rentals in the same neighbourhood (Cambie) due to schools and work. Or we’ll buy somewhere like North Van and uproot everyone but only once.
After being around these boards for 5+ years I feel that buying now is akin to climbing out of the lifeboat and back onto the Titanic. The wife has been onside until now, but with the threat of homelessness she’s wavering. So I’m trying to decide how big the potential downsides are. Pay $3k in rent for 1-2 years then buy (and deal with 2 moves) or bite the bullet and buy now and pay that much for the mortgage (until rates go up). The potential savings by renting and delaying a purchase is what I’m trying to estimate.”
– /dev/null at VCI 22 Jan 2013 11:21am

“Sorry to hear that. Here is my view. We (a family with 2 kids) are renting half-a-duplex in Burnaby for $2000/month for about 5 years. Good area, decent schools, commute is ok. The landlord is a nice person, but has (and always had) thoughts about splitting the place into two units and rent them for $1500+$800 (this trick worked for a while for the neighbour landlord, until last year when they have started having problems with finding good tenants for the downstairs unit). I am tracking the rental pool in the area pretty closely and found that a lot of 5bdr/SFH in the $2300-$2500/month range entered the market last year (starting late summer I would say, most of them accidental landlords). Places like ours are steady in the $1800-$2100 range for the last 5 years, and the influx of of those 2300-2500 homes definitely helps keep those prices from growing.
Last fall, I had a number of conversations with my landlords and gave them the full picture, mentioning that we would have no problem finding something decent in the very same area. Of course, we were perfect tenants all these years. Apparently, it worked out, everybody seems to be happy now.
Back to your situation. First, I think buying something just because “we have to move out of here anyways” is a plain bad idea. Do the math and then decide. Second, I personally wouldn’t mind renting for another few years in your situation, even if it comes at a bit higher price comparing to the deal you have now. Rental pool in our (yours and mine) sector is improving, it’s renter’s market.
Yes, I know moving is painful. I know your wife wants a nest (mine too). Yes, – peer/parent pressure, accidental landlord risks etc. But the risk of losing money by buying something is just way too high these days. My $0.02.”
– C.Junta at VCI 22 Jan 2013 12:51pm
—

Great analogy from /dev/null.
Whether you’re on the Titanic or in a lifeboat, the speculative mania is at the very least time-consuming, inconvenient, anxiety-provoking, and distracting.
– vreaa

Author Of ‘Real Estate Investing for Canadians for Dummies’ “jumped into the market 3 years ago with a 2 BR apartment in Mount Pleasant”; Reports Ownership Cheaper Than Renting; Leaves Out Math

“This columnist jumped into the property market three years ago with a two-bedroom apartment in Mount Pleasant. The mortgage payments at the time were on a par with where rent was heading, so the move made sense. Despite increases in strata fees and property taxes since, the move continues to make sense – perhaps more sense than ever.
Tallying mortgage interest, property taxes, strata fees and assessments, as well as home insurance paid in each of the past four years versus rent and home insurance paid in 2008 (the last full year in which rent was paid) shows that home ownership has steadily cut household expenses. Preliminary figures for 2012 indicate savings on housing costs of more than 20% versus 2008.
Poor affordability tends to give first-time buyers in Vancouver fewer options than those in other cities, but the pay-off – for those who can manage it – is significant.
So long as mortgage costs remain in check, the payoff seems set to continue, but low interest rates and increases in rental costs have so far put accounts in this buyer’s favour.
(The exit strategy and ultimate return on investment is a significant risk factor, of course, but we’ll leave that matter for another column.)”
– from ‘Rental market tight despite rise in Vancouver vacancies; apartment sales projected to hit record-breaking pace’, Peter Mitham, Business In Vancouver, 8 Jan 2013 (“Peter Mitham has written about British Columbia real estate since 1998 for Business in Vancouver and many regional, national and international publications. He is co-author of “Real Estate Investing for Canadians for Dummies”)
[hat-tip Sarbaz]

Priceless stuff. And that’s a major problem — no ‘price’ – no numbers, no math.
We’d love to see the details. The claim seems to be a stretch.
Just for a start, is this a comparable 2BR to the prior rental?
—
Also, interesting to note that an author of a RE investment text:
1. “jumped into” the property market, and
2. talks of the ‘return on investment’ – for his home!
– vreaa

College Student Living With Parents In $7M “Piece Of Junk House” – “I have had to sit through countless dinners where my parents friends bragged about foreign investors leaving notes in their mailboxes making cash offers on their houses and how they could “cash out” at any time. But they didn’t.”

“I am a college student living at home in a house assessed at 7 million dollars. With that price tag you would expect a mansion right? Nope. The house is 90 years old, doesn’t have insulation or a proper heating system. My parents bought the house in 1985 for 450,000. Adjusting for inflation that is 860,000 in 2012 dollars. That is the most I would pay TODAY for this piece of junk house. However we do live in a quiet area in the UBC area and the property itself is quite large with a premium view, but even those factors do not begin to justify the difference between the assessed value and the inflation adjusted price my parents paid 28 years ago.
Luckily my parents were smart with their finances and a large correction in the market will not affect them. My parents have avoided using any paper gains in the property even when their coworkers and friends kept pestering them to take out loans against the house to buy condos and rental properties. These same coworkers and friends have been driving around in fancy leased cars and enjoying nice vacations every year while my parents worked hard to pay off the mortgage. I have had to sit through countless dinners where my parents friends bragged about foreign investors leaving notes in their mailboxes making cash offers on their houses and how they could “cash out” at any time. But they didn’t. Now that they do want to sell they are finding the market has cooled and no on wants to pay peak prices for their homes. Very few people are prepared to spend 15 million dollars on a home in a cooling market.”
– Robert Borden at VREAA 8 Jan 2012 3:43pm

“My father bought and paid for our suburban Vancouver home within 2 years on a city worker’s wage. Second largest country in the world and I can’t afford a 50 year old house on a postage size lot in the suburbs. Things are supposed to get better, not worse.”

“My father bought and paid for our suburban Vancouver home within 2 years on a city worker’s wage, he paid for property taxes with one day’s pay. 2nd largest country in the world and I can’t afford a 50 year old house on a postage size lot in the suburbs. things are supposed to get better, not worse.”
– Led at greaterfool.ca 10 Dec 2012 11:21pm

High House Prices, Less Liquid Wealth – “The cheapest house in this neighbourhood goes for $1.2 million, but people are too cheap/poor to fork over $50 per kid.”

“Our elementary school, solidly in the “rich” Arbutus neighbourhood on the west side of Vancouver managed to raise $17,000 this year during its fundraising drive. Last year they raised $21,000.
Goal was $25,000. There are approx 500 students in the school, so the goal is $50 per student. They raised $34 per student.
Not sure you can draw an anecdote, maybe people are cheap or think their taxes should cover schools, I just find it quite sad/disgusting that when the cheapest house in this ‘hood goes for $1.2 million, people are too cheap/poor to fork over $50 per kid.”
– LS at greaterfool.ca 17 Nov 2012 6:55pm

Baloney Budgets – “I understand you’re trying to make Vancouver look like a place people would want to live. Every one of these case studies is misleading, and you are doing people a disservice by offering them as accurate.”

“Every one of these case studies is misleading, and you are doing people a disservice by offering them as accurate. I understand you’re trying to make Vancouver look like a place people would want to live (and therefore make money off assisting them with their relocation), but please exercise some ethical restraint. 1) There is nowhere in Kits Allison can buy a month’s worth of groceries for $170, unless she’s living off of plain oatmeal and carrots. Shopping at IGA, Safeway or Choices could easily run a person $100 per week, not including much protein, and she can forget the occasional bottle of wine. 2) Gerald is spending almost 50% too much on his apartment. Back before people thought of housing as a place to sleep instead of one more status symbol, the lender rule was no more than 28% of your gross salary should go towards housing. His $36k/year is $3000/month; 28% of that is $840, so his $1225 rent is $385 too high. An actual financial planner would tell you the same thing. But since he can’t rent a studio in Coal Harbour (or maybe anywhere in Vancouver) for $840, he’d be stuck in a basement suite in Dunbar or Kits. Do any of your prospective clients know how much of the city lives in someone else’s basement? Also, what about paying off his student loans, or did he luck into rich parents? 3) You have not factored in the impact of interest rates returning to their long-term norm of about 7% (never mind the rate reset they’ll face in a few years, courtesy of the bank). What does that do to Mara and Jeff’s mortgage amount? Also, where are these people eating out so cheaply? A nice dinner plus wine four times per month at the listed total means their final bill with tip is $60 every week. Please show me a restaurant where a couple can get a “nice dinner” including a bottle of good wine for $52 including tax; I’d like to go there. Do they have any existing debt to service? 4) Same interest rate problem as Mara and Jeff. Misleading people as to the actual costs of living in this city helps no one but yourselves.”
– Dan, commenting below an article at 2vancouver.com titled ‘Vancouver Money and Budgets: A few case studies’ [23 Nov 2012], that sketches out proposed budgets for people in Vancouver in 4 different situations. As Dan points out, the budgets have elements of fantasy about them. [hat-tip to VCI; posted here for the record.]

It’s expensive to live in this city, largely because of costs associated with accommodation. This is very, very bad for Vancouver: It forces young people away, and diverts resources from other areas of the economy. We’d bet that relocation companies like ‘2vancouver.com’ have some relevant stories they could tell. – vreaa

Sad, Young, Inquiring Minds Want To Know: “Could someone explain why Canadian housing prices have gone up so much in the last few decades? Why are houses not being built to meet the demand and keep the prices in line with inflation?”

From ‘As a young Canadian, the current real estate market makes me sad. What is your view?’ a thread at reddit.com started 24 Nov 2012. [hat-tip poster_with_many_handles]

“I was born and raised in Canada and as a young adult, I want to be able to start a family and buy farm property in Alberta, not too far from a major city. However, the current real estate market makes this dream rather hopeless unless I want to owe my life to a bank, if I can even qualify for the massive loan I would require. I am curious what other people’s view is on real estate in Canada?” – slowbreeze

“I live in Toronto and I’m probably never going to be able to afford a house if I also want kids.” – Mun-Mun

“Could someone explain why housing prices have gone up so much in the last few decades? Why are houses not being built to meet the demand and keep the prices in line with inflation?” – wugitor
[EXCELLENT questions. Watch how your college economics professor tries to squirm out from under those. Housing costs in Canada should rise at the rate of inflation (more specifically, wage inflation). Period. Speculative manias distort from that, but the effects will be temporary. -ed.]

“My dad and I have the same career (dentist). He bought his 4-bedroom, detached Toronto home in 1979 at the age of 26. This house is now worth in excess of $1,000,000. Imagine a 26 year old buying such a house now! I am 29, and despite having the same career I am unable to afford a home, let alone a detached house. The times they have changed.” – Ostracized

“I just bought a very nice recently renovated tri level split in my city in the nice part for 160k, granted I live in a small city of about 80 thousand, and it isn’t as exciting as Toronto or whatever, but I paid 20% down, and have very small mortgage payments, I make a decent living and have quite a bit of disposable income. I travel at least twice a year and generally buy things I need. I think it all depends on where you live. Live somewhere smaller and you can get a lot for your money.” – PartyMark

“Move to Windsor Ontario. Houses for $50-150k. (And more). I lived in Toronto, moved to Windsor because paying $250k for a condo, or $350-$550 for a starter home is absurd. I bought a 4 bedroom, 2 bath w/pool for $130k.
I would never move out west or to a big city… It is obvious that average Canadians can’t afford to pay off a $500k mortgage. They are just hoping to sell for a profit. Someone is going to be left holding that bag… And it isn’t going to be me.” – Bortology
—

Bortology said: “It is obvious that average Canadians can’t afford to pay off a $500k mortgage. They are just hoping to sell for a profit. Someone is going to be left holding that bag… And it isn’t going to be me.”
Amen.
Sensible young chap.
– vreaa

Overheard At A Cafe On South Granville Strip – “We didn’t get out like them. They got out at the top of the market. Oh well. We’re still happy.”

“Last weekend we stopped in at a cafe in S. Granville near all the hot high-end shops and I overhead these two women talking about their condo. Of the things overheard was…
: “We didn’t get out like the [Name]‘s. They got out at the top of the market. Oh well. We’re still happy.”
: “We did the roof, we did [something else] so there’s only a few more major jobs to do..”
: “I guess that’s the best thing you can do when your condo goes down in value is just make sure that it’s well maintained and all the building work is done. That way it will pick up value in the long run.”
And then tons of bitching about everyone else on the strata or who lives behind a door. Clearly not much love in this building wherever it is.”
– mac at VCI November 20th, 2012 at 7:00 pm

North Van – “Our house at peak was about $1.3M, and now I expect we’d be lucky to get $1.1M, a minimum 15% drop. We’re staying cause we need a place to live with kids, but also cause we paid $600k, which is where it could go back to.”

“I live in Capilano area, bought in 05′. Our house at peak was about $1.3M, and now I expect we’d be lucky to get $1.1M – that’s a minimum 15% drop. We’re staying cause we need a place to live with kids etc. but also cause we paid $600k, which is where it could go back to.
Other houses up the street have lowered from $1.2 to $1.0M and are still not selling.”
– NVD at VREAA 13 Nov 2012 5:07pm

This owner appears to fully comprehend the risks and benefits of ownership.
– vreaa

Distressed Condo Owners – “So many owners have spent all but their last dime buying the place. Some already spend half or more of their income on mortgage payments and strata fees. The special assessment was defeated because more than half said they couldn’t afford it.”

“It’s often difficult to get the majority of owners to agree to the appropriate monthly fees to cover ongoing maintenance, operation and replacement.
It’s difficult because so many owners — especially in the Lower Mainland — have spent all but their last dime buying the place.
But it only gets worse as buildings age and expensive repairs become inevitable. The Condominium Home Owners Association of B.C. estimates that 10 per cent of the province’s condos are now between 30 and 45 years old and in need of major renewal.
Some are in such disrepair that owners are openly discussing how to liquidate the strata corporation so they can sell the property for redevelopment.”
…
“Until 2009, big-ticket repairs such as replacing plumbing, decks, windows, elevators, roofs and renovating common areas had to be financed through special levies, which require approval by three-quarters of the owners at a general meeting.
They’re difficult to get passed.
Some owners are tapped out, with some already spending half or more of their income on mortgage payments and strata fees.
There’s also a cultural gap, Tony Gioventu, CHOA’s executive director, says.
“It’s a foreign concept for some ethnic groups to repair and maintain buildings … There are some specific ethnic groups who will run a building to failure rather than maintain them to longevity.”
He declined to name the ethnic groups.
There is also an increasing number of owners on limited pensions.
Gioventu cited a recent case where the mainly retired owners in one North Vancouver condo all agreed that balconies and decks in the aging building had to be fixed. But the special assessment was defeated because more than half said they couldn’t afford it.”
– from ‘Condo life is rife with conflict’, Daphne Bramham, Vancouver Sun, 26 Oct 2012

More stories of people who can’t afford their own homes.
– vreaa

“Would I buy in this market if I was in a “normal” situation? No. Does selling now and renting make sense for my family personally, given our current situation and lifestyle? No. Ergo, we’re staying put.”

“We love our house and location, will have paid it off entirely (and way early) in a couple of years, and will be able to put all the money we currently pay in mortgage into funding an early retirement. We’ll still have property taxes and maintenance, but it’s a helluva lot less than we’d pay to rent a similar home in our neighbourhood, and these costs can be covered completely by renting out a spare room for a few months in the summer to an international student if we want to do that (we have done it and enjoyed it in the past, so it’s familiar territory). Our family is in Van, so are both our jobs, so moving to another city makes no sense. Another reason that I am not interested in renting, besides the potential issues with crappy landlords, instability and the lousy quality of a lot of rentals I’ve seen is that we have lots of pets and fish tanks, and renting isn’t feasible for us. It’s hard enough to find rentals with just kids…try telling a landlord that you also have multiple cats, two large dogs and three 100 gallon plus tanks and watch them run screaming.
Would I buy in this market if I was in a “normal” situation? No. Does selling now and renting make sense for my family personally, given our current situation and lifestyle? No. Ergo, we’re staying put.”
– RESkeptic at VREAA 17 Sep 2012 7:49am

Sounds sensible, and we agree with the logic entirely.
Bearish opinions voiced here are not to be confused with a recommendation that each and every owner sell their home.
For people where a drop in the market value of their home of 50% is less inconvenient than the hassles of renting, owning continues to make sense.
– vreaa

Vancouver’s Remarkable Price:Rent Fundamentals – “About to sign a lease, at a 420 price:rent ratio, on 1 year new house built by Asian owner, 1800+ sf, pulled off MLS recently due to no buyer.”

“About to sign lease on 1 year new house built by Asian owner, 1800+ sf, pulled off MLS recently due to no buyer. Now about to be rented to yours truly at ~35 years Price-to-Rent ratio after talking down rent by $100/m. [Thus 420 monthlyrent:price ratio. -ed.]Landlord still has a couple houses near completion. Who knows what happens to the tenant if the landlord goes bankrupt?”…
“I’m moving from a 1Br+den 670 sq ft condo at 283 months (23.6 years) rent, to (the aforementioned) 3Br newer house at 415 months (34.6 years) rent. Definitely makes more financial sense to rent than buy. Viewed a 3Br 1000sq ft newer condo few days ago at 305 months (25.4 years) rent, but passed (interesting to note that property manager is a realtor, guess managing client’s property might be what’s keeping them busy these days!)
– VMD at VCI 17 Aug 2012 10:00pm and 18 Aug 2012 11:22am

An example of a ‘speculative hold’. The owner believes prices will rise in future and is holding the property not for rental yield, but for assumed future price increases.
We are of the opinion that a good percentage of this kind of inventory will be put on the market at significantly lower prices, as it becomes clear that a downward trajectory for prices is establishing itself.
And, yes, this will be disruptive to tenants. The rental market is less stable through a speculative mania in housing, and the unwinding thereof.
– vreaa

Other current sky-high Price:Rent ratio anecdotes from the same VCI thread:

“I am living in Richmond with an (assessed value) : (rent) ratio of about 285.
Strata fees and property taxes not included, why buy now?”
– Anonymous 18 Aug 2012 10:04am

“I’m renting a house in SE Burnaby. Price to rent is somewhere between 350-370 on the conservative side. My best friend is the landlord and I’ve urged him to consider selling. But he will have nothing to do with it. Already has over $1.5mil RE exposure with little other savings. Oh yeah, still looking to buy another investment property because “RE does so much better than the stock market”. Just can’t save people from themselves.”
– How much?? 18 Aug 2012 10:27am

“Here is a unit that has been listed on CL for months (available now) for $2650 per month. The same units are listed for sale at $839K to $879K. So even if they get their asking rent the PR is 316 plus.”
– Anonymous 18 Aug 2012 12:36pm

“Beat you all. 4br house on Ontario. 2012 sale $1.35M. Monthly rent $2850, 2 yr lease. Price/rent 474. I love living here but wouldn’t buy at half the price.”
“Our landlord purchased the property earlier this year as an “investment”. I really can’t understand their business model. The house is an original, nicely-maintained bungalow. New paint, new dishwasher etc.
It’s not a quick flip (we have a 2-year lease) and it’s not a tear down and rebuild, which might make sense. The landlord is shelling out $3k or whatever per month to hold the property. They seem to be invested for the long term.
Of course the potential downside for us is a forced move if the house is sold. We figured that by the end of our lease the house will likely be underwater so that the landlord would not be in a position to sell. We will see how that goes.
I should add the landlord couple are very nice people and I don’t wish them any financial hardship.”
– No Money Down 18 Aug 2012 12:37pm and 19 Aug 2012 10:10am

“I have a whole house (unlike many, home owners, I have no tenants in the basement to worry about) on a nice street off The Drive, assessed at a little over 410 months’ rent.”
– N 18 Aug 2012 1:56pm

“I’m in a 3 bedroom house (we have the place to ourselves), 5 year lease for $1600/mo. House is worth $750,000 based on comps for a ratio of 468.”
– Vulture Fun 18 Aug 2012 11:34pm

“I pay $850 a month for a condo in Surrey. Same unit 2 floors up sold for $253,000 in late 2011. So a ratio of 297:1. You guys are insane with your 400′s ratios.”
– ScubaSteve 19 Aug 2012 12:39am

“I am the winner. I pay 4,400 for a 3,800 ft 6 bedroom (or is it 7?) house in west side.
Assessed close to $3.0 million. For now this is a 660 multiplier.
At the higher price points, it gets more and more un-economic to own and rent these houses out.”
– Van Coffee 19 Aug 2012 8:48am

“I’m at 489 but if I take off the huge strata fees that my landlord pays I go to 696. Strata and ppty tax eat up exactly 50% of my rent cheque. Not a lot left to pay the mortgage and occasional special assessment.
BTW…for all you haters who think we renters are basement dwellers who are broke, I’m writing this poolside in Osoyooss. Thanks landlord!”
– McLovin 19 Aug 2012 11:01am

“For the record – we are in a $1.5M Condo. Strata and taxes are over 1,000 per month and the rent is 3,500 gross (2,500 net of landlord costs). This give you 600.
Property value is no more than the day we moved in.
This represents a $200,000 plus savings and building of equity by renting (we built equity by renting – – – sounds strange).”
– ZRH2YVR 19 Aug 2012 4:52pm

“The cab driver said he thought people in Vancouver were unfriendly, because of the cost of living, which made people work too much and borrow too much, and as a result they were stressed out all the time.”

“I was in a taxi the other day and the cab driver was saying how he has lived in Vancouver for decades and the people here are much less friendly than Toronto etc.
I have not lived in Vancouver that long so I can’t say myself, but I did mention how one would expect the nicer weather to result in a more laid back, friendly attitude vs Toronto.
What he said then was very interesting to me: He said it was because of the cost of living, which made people work all the time and borrow too much, and as a result were stressed out all the time.”
– from ‘TI’, by e-mail to VREAA, 3 Aug 2012

“If she were to sell now, the price she would get would cover the remaining balance on their mortgage, resulting in zero equity gained. Once she factors in strata fees paid, she figures they would have been better off renting.”

“I was at a party on the weekend, a house-warming one in fact. One of the guests told me about how she lives in a ground floor apartment with no yard in Pitt Meadows. She has 2 kids, and she’s glad they’re both girls so they can share one of the apartment’s 2 bedrooms. She would love to live in a house with a yard. But she knows that they can’t afford it. She also told me that if she were to sell now, the price she would get would cover the remaining balance on their mortgage, resulting in zero equity gained. Once she factors in strata fees paid, she figures they would have been better off renting.”
– chibidani at VREAA 1 Aug 2012 2:14pm

“I agree buying today is insane, but the bears forget that there are legions of homeowners who are living mortgage free. So the market drops.. big deal. I am in for the long haul.”

“One thing most bloggers in here seem to overlook. There are masses of homeowners like myself, who like myself have shaved years off the mortgage monster and have only a few years remaining. We have been given a golden opportunity on financing with ultra low rates that probably won’t return for decades..yes, my old man use to tell me how in the early 80′s, 1st and 2nd mortgages were the norm, 11%-12% rates made you feel blessed.
So, I enjoy the remaining years of my mortgage with a locked in, juicy 2.89%…bought before the market lost it’s bearings – prices may have doubled, but I am loving where we live – mortgage free is just a skip away – and though some will hiss that being liquid is having cash – but I say – what if..just a thought, the world goes into a financial crisis (I know, that’s just crazy talk) and the currencies around the world become worthless toilet paper – hard assets will rule. Money won’t keep you warm at night if those digital numbers all of a sudden get wiped out.
I agree buying today is insane, but the blog dogs forget that there are legions of homeowners who are living mortgage free, investing in themselves and have the same long term investment strategy .. so the market drops .. big deal – I am in for the long haul…I came to terms that dedication and commitment will always prevail, and I climbed my own Everest and watching all the rest scramble below me.”
– Just Park It at greaterfool.ca 12 Jul 2012 9:48am

Sure, there are a majority of owners who will sit tight through even a protracted downturn. Bulls forget that bears expect that. Prices are set at margin, and it only takes for a small minority of owners to become anxious sellers for a price crash to occur.
Furthermore, some owners in the same position as ‘Just Park It’ underestimate how much the market price of their house has come to mean to them. This is one of the perversions of the bubble… regular citizens get distracted by the mania; they change their outlook, their plans; perhaps even at an unconscious level. They anticipate that, if the market drops, they’ll simply shrug and think “big deal”. But then it happens and they notice the unsettling effects. Some will even surprise themselves by rushing to market to attempt to lock in what then remains of their paper gains.
– vreaa

Bear Wins Bet – “Earlier in the year a bull at my work asked me for my prediction for house prices for end of 2012, to which I said 10%-off and he immediately bet me $100 so I took it.”

“Earlier in the year I mentioned a bull at my work, who knows about my bearish views asked my prediction for house prices for end of the year, to which I said 10% and he immediately bet me 100 dollars so I took it.
He came up to me fri and said looks like I might owe you 100, so we kind of got into theories about what is causing the recent declines and he believes it solely has to do with the global economic troubles, namely Europe.
He believes the uncertainty is causing people to slow down buying.
I go on to explain the exact same thing I told him a few months ago, locals over extending themselves and local incomes do not support prices and the recent mortgage rules magnify how sensitive locals economic health are.
But no he still believes what he believes and says I focus only on facts and not the “fuzzy things” his words, such as everyone wants to live here, no land, growing demand etc.
Sigh”
—
“(When he suggested the bet) he got so frustrated debating me that he basically said fine whats your prediction, I said 10%（which I thought was conservative) and he was the one who suggested we bet $100.
He was so sure of himself I think he thought I would have backed down after money was on the table and all the people listening to our conversation.
At the times he had a little group of bulls around him and they all thought I was crazy. Most of those bulls are in the bear camp now. Although I don’t believe they really know the extent of what is to come, they just parrot what they hear in the MSM currently and right now that is bearish news.
This is a smart guy too, and had sold in 08. I think he felt he lost out and never should have sold then because prices dropped but of course shot back up to new highs so he now believes Van RE is bulletproof.”

– 4SlicesofCheese at VREAA 8 Jul 2012 at 1:15am and 9:13am

Bets can be fun, and socially important (they often serve the purpose of modern day duels!), but, as we all know, that’s not where the real ‘betting’ is happening.
– vreaa

“I know a young couple who bought a 400K condo assignment in Vancouver. In discussion they generally deflected, avoided or otherwise tried to bury their heads in the sand. If it wasn’t so sad, it would have been amusing. However, I came to observe a few things…”

“I know a young couple who bought a condo assignment (for a 400k condo in Vancouver). The condo will be finished sometime next year. They are both moving to rural Alberta for a year or two to earn a lot more money to pay off the wife’s student loans for dentist school and the mortgage. They leased another car (SUV) recently so they can drive there. They are not going to rent out the condo when it’s finished because they wanted a new place. They have also extracted all their RRSPs (with maybe help from parents) for a down payment.

In the discussion with the husband and family that followed, (as expected) they generally deflected, avoided or otherwise tried to bury their heads in the sand. If it wasn’t so sad, it would have been amusing. However, I came to observe a few things.

1) They have no idea how the market works.

When I told them that house prices may be down, and listings were up, the responses were:

“I don’t care about house prices, of course those are going down, but condos are still going up or holding their value.” Huh??

“The reason there are so many listings are that people are just seeing what they can get for their houses, they’re not trying to sell.” Uhh? Apparently it’s free to list. (Both in time and money.)

2) They have no clear idea how debt works.

The counter to “when prices correct to 50%..”, was that at that point, it would just be cheaper to “upgrade”. I was shocked. In a debt-equity relationship, when “equity” goes down, you first lose value in your equity, not in your debt. In fact, you never “lose” your debt. I used 5% down as an example, and he didn’t realize that at the end of 5 years, unless everything they both earn are paying for the mortgage, that a 50% drop would mean that they’re probably 30% underwater. They will have NO equity to “upgrade” if they can even renew their mortgage. At this point, he disregarded that and went back to his example of how if his condo was worth 200k, he could still…

3) They use select anecdotal evidence only, with no statistics or any other information to back their opinions.

Sometimes these pieces contradict themselves — I don’t see how they could not see it.

“My friend works at the RBC and approves of mortgages. There’s a lot of cash only buyers from China.” … I thought cash-only meant they didn’t need a mortgage…

And of course the standard “housing prices always go up”. Anything that shocks them, just gets deflected and any statistics are ignored and rationalized by some made-up opinion.

4) They don’t understand the relationship between “home” and “equity”.

“We don’t see this as an investment. We plan to stay there long term, at least 5 years. If you want to start a family, you will have to buy a place, you won’t be able to time it.”

Yup, the standard arguments. It’s almost like they all have the same script. Anyhow, I wasn’t cruel enough to break it to them, but they ARE using it and treating it as an investment. If not, they would not talk about using the “equity” in the condo to upgrade. At the end of the day, they do plan for their place to have “value” in it. Otherwise, what’s wrong with renting? (See next observation…)

5) Any alternative is seen as impossible.

No no no… no talking about renting. “Well, if I were to rent, I’ll have to deal w/ having to find a new place when the landlord kicks me out. That’s a hassle and represents time. And time is money.”

I really wish no one coined the “time is money” bit, it’s always misused. Time represents sweat equity (maybe) which maybe translates into money.

I was also not cruel enough to point out that the inconvenience of renting is probably a lot lower than the inconvenience of being homeless, but I kept it zipped.

I’ve shown them graphs and blog entries and videos already. I’ve done my good turn already. I don’t expect them to change their minds on the spot, I am just hoping it’ll give them something to reflect on — that doesn’t fit in their current world view. Perhaps that difference might mean being poor compared being homeless.

As has been said here before, speculative mania can turn regular people into crazies…”

– RE Lurker at VREAA 11 Jun 2012 3:35pm

30s Grind #5 – “We own a house in Vancouver partly because we got into the market elsewhere about ten years ago & leveraged our way up to a house (with basement suites).”

“We own a house in Vancouver partly because we got into the market elsewhere about ten years ago & leveraged our way up to a house (with basement suites). However, another big reason we can afford to live where we do is that we have a frugal lifestyle: no expectations of a huge house with a designer kitchen & a bathroom per person; we don’t buy a lot of electronics & other consumer goods or eat out at expensive restaurants; plus, we have no car–bikes, walking, bus & Modo are all really easy in East Van. We do spend more money that some people might on some things–we eat mainly organic food (I actually shop at ‘Whole Paycheque’ every few weeks), we go out for coffee/lunch/dinner fairly regularly at cheaper places & we enjoy our craft beer; we take trips in BC a few times a year & to Europe every few years.”
– Lisa C at thethirtiesgrind.com 1 Jun 2012 2:23pm

This couple are playing the role of building superintendents in their own home, overseeing their tenants in the basement suites (plural, note). Would they choose to purchase a rooming house if they knew that prices will remain static in real terms (rise with headline inflation, currently at about 1-2% pa), or possibly even drop?  We don’t think they would have seen it as worth their trouble: They are speculating that future housing price gains will make it all worthwhile.
– vreaa

30s Grind #4 – “We bought about 10 years ago and took about 9 years to renovate. It is now worth over a mil at least. We make about 85k combined. We struggle most months to pay the bills.”

“We live in Vancouver I work full time, he works part time so that he can manage more of the house stuff, kids etc. We bought about 10 years ago and took about 9 years to renovate (we did most of the renos.. Blood, sweat and tears) It is now worth over a mil at least… We make about 85k (total combined salaries). We struggle most months to pay the bills. There are no extras, vacations, dinners out, babysitters etc. We are so careful with our $$ and it boggles our minds how most families (parents have regular jobs… Nurse, firefighter, teacher, med tech etc) in our circle take exotic vacations, shop at Whole Paycheck, drive expensive cars and have huge mortgages (the bigger the mortgage, the more exotic vacation it seems). We assume that they have parents with deep pockets… We can’t imagine they live off credit..heck these are educated people… Wtf??”
– Sandy at thethirtiesgrind.com 31 May 2012 8:17pm

Question: How long would it take this couple to save “over $1M”, after tax? A lifetime? Two?
That was a mental exercise to show how disproportionate the run-up in home prices has been compared with real actual money that people are capable of earning and saving.
If this couple do not realize their paper profits by selling, there is an extremely high chance they will be talking about this missed opportunity for the rest of their lives.
– vreaa

30s Grind #3 – “The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale.”

“My spouse and I earn about $225K/annually. We live and work in Richmond, our house would sell for about $1.2M (it’s a nice, newer house with a good-sized yard). We are early 40s. We are paying on a $450K mortgage locked in till 2017 at a low interest rate. We contribute to our own RRSPs, but are also relying on husband’s awesome pension plan (we know he is lucky). Most of his income goes towards the mortgage and other “big” expenses (his new leased car, the insurances on house and car, and property tax). I pay for most everything else – clothing, food, household bills, personal cell phone, kid’s activities (hockey is NOT cheap!). Our second car is 7 years old and completely paid for. The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale. We do not get any money from our parents or any other family members. But, we do have grandparents who do our after-school childcare, which allows us both to hold full-time jobs without having to pay for daycare (we support them financially in other ways but we don’t actually pay for their babysitting). I shop at big-name grocery stores like Save-On and Safeway and rarely at Costco (mostly because I can’t stand shopping at Costco….). We have a pet who costs me $40/month in pet insurance, and even more in prescription dog food (sensitive stomach). We rarely travel for work, so we have to pay for our flights for when we flight for our vacation. We fly across the country every 2 years for vacation and that costs us about $7,000-$8,000 for two weeks (accomodation, flights, and car rental). Alternate years, we only spend $3,000 on vacation. We keep our credit debt (outside our mortage and leased vehicle) under $5,000 and use a line of credit instead of credit cards. Overall, I think we live modestly and we’ve never gone to Disneyland or Hawaii, much to the chagrin of our children. I guess that’s how we afford to live in the Lower Mainland.”
– Anon at thethirtiesgrind.com 29 May 2012 9:04am
—

House value $1.2M – Mortgage $450K = Home equity $750K
50% price drop scenario:
House value $600K – Mortgage $450K = Home equity $150K
Leverage works both ways, and even those with apparently robust low-ratio mortgage set-ups are vulnerable when a bubble pops. These guys would lose 80% of their equity with a 50% collapse.
—
With each move up, this couple’s market exposure has increased. Many who accumulated paper equity through the bubble will give it all back in the coming collapse.
– vreaa

Visual Anecdote – Season’s Wishes

Potato’s ‘Rent vs Buy Investment Spreadsheet’

Take a look at this very elegant Rent vs Own comparison spreadsheet/calculator.
Thanks to ‘Potato’ for telling us about the sheet and hinting to link it.
Potato also has a page of discussion regarding the calculator at their blog ‘Blessed by the Potato’. Wise-words excerpt-
“There are a lot of assumptions and estimates involved, a lot. The question is what should you do for your life? And importantly, what are the consequences of being wrong? Don’t use this tool with unrealistic estimates to try to justify a decision you want to make, but rather try to use it to help you come to the decision you should make — and to see what happens if you’re wrong.”

A Realtor Sells A House To Himself In North Vancouver – “The untangible feeling of pride of homeownership I feel is overwhelming and I strive to work harder and longer to make sure my clients achieve the same exciting, rewarding, and satisfying experience!”

“This past week I made the highly anticipated move from my condo to my first house on beautiful Cortell Street in North Vancouver. The new house is a very well maintained, updated character cottage from 1928, with extensive kitchen and bathroom renovations.

The Location is one of the finest in North Vancouver, in the quite and sunny southern pocket of Pemberton Heights, 2 blocks from Capilano Elementary with its coveted IB program. The yard is a gardener’s dream, landscaped and set up with an irrigation system and automatic lighting. The garage is tiny, but my truck just fits in it:). Some of my favourtite features are the classic hardwood floors; the fully renovated kitchen with Viking Gas Convection Stove; the loft with skylghts and views; the many species of birds that call the magical garden home; the protected Royal Walnut Tree in the front yard that I’m forbidden by the District of North Van to touch; the gas fireplace; an exposed brick wall; large south-facing wood deck; the antique claw-foot soaker tub; and the detailed door fixtures, built in cupboards, and wainscoting.

The windows, electrical, furnace, on-demand hot water supply, and roof have all been replaced in the past 6 years. The neighbourhood is a charming mix of cute and character, ultra modern, and brand new masterpieces. My west-side neighbour’s house is currently being gutted, there is a handsome new custom mansion across the street, and 2 brand new houses being built on Cortell, so for a Realtor who loves homes, I feel like a kid in a candy store:). Speaking of candy stores, 2 blocks away is the infamous Corner Store, a Pemberton Heights landmark serving up great coffee, sandwiches, groceries, and snacks in a warm neighbourhood environment.

I am thrilled to have the talented eye of Missy Kaniuk from Design Project in charge of the re-design of the main level & renovations to the basement! We are going to paint the wainscotting white, and the wall in the living room and entrance a tope/grey/olive tone, the office a tope green with white baseboards, and the bedroom white with a dark wood door and window trim, using paint by Benjamin Moore. The exterior will be white with blue or charcoal trim and ‘fire-truck red’ front door. In the long term, I want to refinish the floors a dark oak & install crisp white crown moulding in the bedroom, den, and bathroom!

The downstairs has a finished bathroom but the rest is exposed framing, washer/dryer, furnace, and a work shop. I am planning on renovating the basement so the walls and ceiling are finished with electric heat, pot lights, new washer/dryer, guest kitchenette, and a bedroom. With the help of a great plumber, electrician, framer, and Rona I hope to create an additional 650 sq ft of finished living space. The main challenge is the uneven floor which will require a skilled leveler (which I will be meeting on Saturday morning – Basement design details to come, stay tuned!).

Upstairs will be a guest room & office on the dreamy East side of the loft , and a TV room on the West Side to enjoy the city/ocean views.

Follow my blog for updates on the reno and life as a homeowner! The untangible feeling of pride of homeownership I feel is overwhelming and I strive to work harder and longer to make sure my clients achieve the same exciting, rewarding, and satisfying experience!”

– Realtor Stu Bell, at his blog stubell.com, 24 Nov 2011
[hat-tip to reader who e-mailed the link]

That ‘untangible feeling of pride’ is one factor contributing to the ‘ownership premium’, the amount that one is prepared to pay for a home over and above the cost of renting it. Stu clearly gets a great deal of pleasure out of owning this home, and his personal ‘ownership premium’ is likely substantial (whether he had to pay more than rent equivalent to purchase this house or not). One wouldn’t want to get into a bidding war with this kind of buyer for a home on which their heart was set.
The story is saved here as a fairly intense example of the current Vancouver love affair with home ownership. We believe that this infatuation is closely related to rising prices, and that the feelings will become less intense when prices are falling.
“Will you still need me?
“Will you still feed me?
“When I’m 64(%-of-the-price-you-bought-me-for)?”
– vreaa

[For another recent example of related emotions, see the TV announcer exchange at “Real Estate stories are always great, they never get tiring, you know?”]

Toronto Rents – “There has been a gradual insidious change as more people buy houses. There is a lack of qualified renters. Rents are down in real terms.”

“Rent prices are actually depressed in Toronto in real terms – There is a lack of qualified renters. I say this because I’ve been doing this for 15 years and there has been a gradual insidious change as more people buy houses. If 70% of people now own, and 30% do not for a large part the reason is that that 30% is not qualified for a mortgage.
When I look at the criteria used for credit score with my credit checking system, the credit score used for an approved renter is 700, yet CMHC will approve a mortgage for someone with a score of 620 which makes me chuckle a little. My rental screener tells me to decline those with that score. Of course I can’t, you have to pick from the tenants that apply not those you dream about getting!
Rents have gone down in actual terms in apartment buildings. Condo rentals are skewing the market.”
– Rachelle at VREAA 26 Nov 2011 5:49am

Spot The Speculator #62 – “You have to make a decision – bling or buy. We saved a 20% deposit, and now own our first place. Bling or buy baby.”

“We lived for 5 years in a 450 square feet bachelor, with a bathroom across the hall, paying $725 a month rent, and did not buy any new consumer items. We purchased only thrift store furniture and bought cheap cars (old run down VWs) and mostly consignment clothes. No bling. You have to make a decision – bling or buy. We saved a 20% deposit, and now own our first place. Bling or buy baby.”
– ‘Bling or Buy’ at VREAA, 27 Oct 2011 12:40pm

Speculative mania = Bonfire
‘Bling or Buy’ = Twig
– vreaa

Tyee and his Wife – “One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us.”

“My wife and I rent a basement suite in Vancouver, and occasionally we shake our heads that we’re pushing 40 and living in a space that barely notches above student housing. For a long while we’d been looking down our noses at people shelling out what seemed to be exorbitant prices for tiny, well-marketed properties. We waited, a bit haughtily, for the oft-predicted crash to bring prices back down to our level. While waiting in this particular basement for the past three years, we’ve paid $40,000 to our landlord.
As basements go, ours is fine, no mould-spore filter required. But it’s hard not to feel churlish when the subject of real estate comes up. At parties, we sip from the house cocktail shared by many young (and not-so-young) middle-class renters in Vancouver: two parts seething resentment, one part liberal guilt. To protest too much about our situation seems bourgeois, given we eat organic vegetables, drink good wine, and go on vacation every few months. We blunt our bitterness by counting our blessings, which are many—and it’s hard to stir a revolt on a full stomach and a glass of Merlot.
One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us. Like one of those Re/Max balloons, prices have risen so far out of our reach that even if they deflated significantly we still couldn’t get on board. Yet on our incomes, as a childless couple, we have a choice. Unlike James and Tina, we just might be able to purchase a property that suits our needs. Or we could leave.”
– anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

When the last prospective buyer with a bearish perspective capitulates, the speculative mania is over.
At least that’s pretty much how the market dictum goes. And we acknowledge we’ve been saying that for years now.
We empathize entirely with Tyee’s position.
But, this really is a speculative mania.
They never, ever end with permanently high plateaus.
Prices will revert to means determined by fundamentals, and that’s a long way below today’s prices.
– vreaa

Alex and Erin – “What frustrates us is that there’s no way to grow wealth or security while living in this city, making what we make—which anywhere else would be considered a really good living.”

“Alex and Erin are doubtful about their future. Smart, practical, and into the city’s culture of dining, outdoors, and high-tech, they’re the Everycouple of Gen F’s 20-somethings. They rent a 500-square-foot apartment in Hastings-Sunrise and love living in Vancouver—even if it means having a living room not much larger than a snooker table. Alex, 28, is a young chef who moved here from Medicine Hat in 2005. After completing culinary school in January, he was hired at the new Hawksworth restaurant in the Rosewood Hotel Georgia. Erin, who grew up in North Vancouver, is 26 and until recently was a pr manager at 1-800-GOT-JUNK. A Twitter lover, she broadcasts their gourmet experiments to the world in 140-character bites. They’ve chosen careers that tie them to Vancouver, or a city of this size, and necessity aside they enjoy the city’s vibe.
They’re not optimistic about putting down roots. As a cook in an upscale restaurant, Alex can count on earning around $29,000 a year. Erin makes more with freelance copywriting and PR, but not much. “Together we make about $70,000, which sounds like a healthy combined income at our age,” Erin says, “and we’re not destitute. What frustrates us is that there’s no way to look at growing wealth or security while living in this city, making what we make—which anywhere else would be considered a really good living.” They’d like to buy a condo in five years or so, but that’s a stretch. “It would have to be in Port Moody or something, which means you’re commuting. Even if we lived on macaroni and cheese for three years, we couldn’t make it work here.”
Erin has over $40,000 in student debt from her UBC years and her Kwantlen diploma, and while pr was a consciously practical choice, getting ahead is tough. “The pr departments are small to begin with, unlike in Toronto,” she says. “So there are piles of people coming in at junior levels who can’t move up because people aren’t moving out of senior positions—the director has been there for five or 10 years and will be for at least another 10.”
– anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

James and Tina – “Today, any starter home in the Lower Mainland is far out of our financial reach. We didn’t ever think that we’d be 35 years old having never lived above ground level.”

“James and Tina live in Point Grey, in a two-bedroom basement suite in a Vancouver Special. Tina, 34, a former music teacher, is now a stay-at-home mom. James, 35, teaches music and directs the 260-student Dr. Annie B. Jamieson Elementary School string orchestra. He also gives private cello lessons to bring in extra cash. Their twin boys were born last May, and their challenge as a new family of five is how to afford not groceries but space. The search for a larger home has not gone well. Real estate, they say, has been “a continual source of depression” for seven years. “We feel fortunate to be healthy, have three wonderful children, and have jobs that are mostly satisfying and interesting,” James says. But they’re tired of living below ground. “Our dehumidifier and industrial mould-spore-removing air filter are playing too large a role in our lives.”
On their combined income—at around $80,000, it’s well above the regional family median of $68,000—they’re still knocking their heads against the subfloor of the real-estate boom. While in their 20s, they saved for a down payment and made offers on six houses in Vancouver and Burnaby. Despite bidding over the asking price almost every time, says James, they always lost out. “Today, any starter home in the Lower Mainland is far out of our financial reach. We didn’t ever think that we’d be 35 years old having never lived above ground level.” They love Vancouver, and want to stay close to their families and their roots. But, like many middle-income earners here—web designers and police officers, young architects and teachers—they find themselves rehashing halfhearted talks of packing everything into a moving van. “Maybe we’ll head to Victoria,” says James, “somewhere we can realize our dream of living above ground.”
Tina and James are part of what, real-estate-wise, might be called Vancouver’s Generation Fucked. As the city becomes a global “lifestyle destination,” tens of thousands of middle-class households are getting a hard lesson in diminished expectations. Unless the members of Gen F want to raise their children in a one-bedroom condo, their salaries will qualify them to be no more than permanent renters in Vancouver.”
– anecdote and image from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

“I’m not interested in working my butt off to pay a mortgage that we really can’t afford and then totally lose out on enjoying our children and giving them the benefits of having me at home.”

“Christina King and her husband Ian have a 22-month-old son and a two-month-old daughter. They recently decided to give up the idea of ever owning property because they are not willing to sacrifice time with their children to make the kind of money a B.C. mortgage demands.
“I’m not interested in working my butt off to pay a mortgage that we really can’t afford and then totally lose out on enjoying our children and giving them the benefits of having me at home,” she said.
King, 34, teaches yoga, but works around her husband’s schedule so one of them is always home with the children. The family rents a house in Metchosin, a bucolic community west of Victoria, from Ian’s parents. But Ian will soon be moving into a position as a farm manager in the same community, and a house on the farm will be part of his compensation.
“We’ve chosen a lifestyle over making a ton of money,” King said. “We’ve chosen that lifestyle because it’s something that we love to do, it goes with our values. It keeps us happy and not stressed, which I think makes us better parents.
“We’re still able to do what we love, but we’re not going to have to pay a mortgage for the rest of our lives.”
Sacrificing family time to pay for housing and child care is a decision young parents should not have to make, said Paul Kershaw of the University of B.C.’s Human Early Learning Partnership.”
– anecdote excerpted from ‘Incomes, house prices leave young B.C. families worse off than anywhere in Canada’, by Tara Carman, Vancouver Sun, 18 Oct 2011
[hat-tip 4SlicesofCheese]

CTV Host Tamara Taggart – “Real Estate stories are always great, they never get tiring, you know?”

Tamara Taggart: When you want to buy a home, you want to buy a home now..!
Linda Steele: You do
T: …you don’t want to wait until 2013. Oh and, by the way very nice apartment [featured earlier in clip] they were looking at, I like it a lot
S: I know…
T: Gorgeous…
S: They didn’t buy it, by the way..
T: Oh, so it’s still on the market! (smiles and waggles head) … What about off-shore people… are they jumping at prices?
S: Well, that’s kind of a fiction, the Chief Economist of the BC RE Board says not true, a lot of people have heard these rumours, but only 2-3% of the buyers are foreign investors from mainland China, the vast majority are just recent immigrants who bought homes to live in and they are your neighbours and they’re staying.
T: There you go, thank you… Real Estate stories are always great, they never get tiring, you know? Thanks a lot.
– from ‘Is Vancouver’s housing bubble about to burst?’, CTV 27 Sept 2011 [time 2:50 onwards]

“On the one hand, I love real estate; on the other hand, real estate is fabulous!”

Taggart demonstrates the excitable frisson that many owners of appreciating homes in BC demonstrate for the sport of Real Estate.
Watch as glee turns to disgust in coming years.
Hardcore contrarian bears will only consider buying when CTV ‘news’ is completely and utterly devoid of any RE stories.
– vreaa

“We have owned our own home for over 18 years and have recently sold it. We are now looking for a long term rental.”

“DO YOU HAVE A 3 BDRM HOUSE/TOWNHOUSE FOR RENT??? (Coquitlam/Port Moody)
Date: 2011-09-16, 7:35AM PDT
Family of four with small pets is looking for housing. We are a stable, reliable family looking to rent a House/Townhouse in the Coquitlam/Port Moody area. We have owned our own home (townhouse) for over 18 years and have recently sold it. We are now looking for a long term rental.
PostingID: 2601513776”
– ad on craigslist, 16 Sep 2011
[hat-tip Patiently Waiting at vancouvercondo.info]

Sidestepping Owning Entirely? – “This bubble kept them out at the precise time they were most eager to jump in, and, by the time it runs its course, they will be thinking about downsizing”

“I had an interesting chat over the campfire with some friends on the weekend. They are in their mid to late 30s, two kids, renters. A few years ago they were looking at buying a house in the suburbs where they live. They were priced out despite having a household income slightly above average. We got to talking about the coming crash and I told them that their dreams of home ownership may come to fruition in the next five or six years. Those houses that were unattainable at 500k+ may drop right back into the 250k zone they were at only 5 years ago. They informed me that they had made their peace with renting and the math on a 25 year mortgage no longer worked for them. They have plans to take their early pension option and travel. Even a 25 year mortgage won’t be paid off in time for them to have the freedom they want.
I’m not sure I totally agree with the logic that simply because you wouldn’t be mortgage free at retirement, means buying isn’t a sensible option at the right price, as they could still realize some gains if they were to buy near the bottom of the bubble cycle. But I thought their energy and attitude towards real estate was telling. They were looking to buy when their kids were 3 and 11. Now the youngest is almost 7 and the oldest can see University on the distant horizon. This bubble kept them out at the precise time they were most eager to jump in and by the time it runs its course, they will be thinking about downsizing, not buying into a money pit. I wonder how many other families will follow a similar path. Seems to me this bubble burst could be amplified by the thousands of prudent families who stayed on he sidelines during their most urgent nest years only to be in a completely different head space when the prices come back into reasonable range.”
– Lexlimo, by e-mail to VREAA, 3 Sep 2011

Even though this family will do fine financially, they have had to compromise through the bubble. In more typical times they would have been able to buy fairly easily at 3.5x income (or thereabout), and the whole subject of RE wouldn’t have taken up unnecessary space in their lives. It’s yet another example of the very significant inconvenience that this bubble has caused.
Perhaps more noteworthy, Lexlimo raises a very interesting idea about how the length of the speculative mania may result in a whole group of prospective buyers essentially ‘side-stepping’ the whole act of buying. It’s a persuasive argument, even though it likely only involves a smallish minority (most families have not been ‘prudent’). Thanks for the post, Lexlimo.
– vreaa

RE References In Vancouver Popular Culture #97 – ‘Thanks to his recent successes, musician Dan Mangan has finally been able to buy into Vancouver’s red-hot real estate market.’

‘Thanks to his recent successes, Dan Mangan has finally been able to buy into Vancouver’s red-hot real estate market.’
– Georgia Straight [25 Aug 2011]. Photo Leigh Righton.

Nice joke, especially considering Dan once wanted to be a vet.
We like Dan’s music. – vreaa

“The only people that think of Vancouver homes as lottery tickets ready to be cashed in seem to be the ones that don’t own them, or the ones that merely flip them. To the majority of owners, they’re just homes.” [We disagree]

“In 2000 I got married, and my wife and I decided it was time to get something more than our apartment. We were making just under 100K combined back then, and bought what we could afford. In retrospect, very good timing, but I didn’t time the market in any way.
Truthfully, I don’t care. I like my home, I like where it is, it suits me and my lifestyle – so yes, I guess you could say I’m attached to it. I’m 40 years old, so I’ll probably be here another 10 or 15 years until I stop working, and worry about the next phase of life then – maybe its here, maybe its not. While I don’t believe that housing will keep going up like it has – I’m pretty bearish on Vancouver real estate – I don’t think it will go lower than what I paid for it either. I don’t really care until its time to sell it.
The only people that think of Vancouver homes as “lottery tickets ready to be cashed in” seem to be the ones that don’t own them, or the ones that merely flip them. To the majority of owners, they’re just “homes”.”
– nuxfan at vancouvercondo.info 23 Aug 2011 7:18pm

We respectfully disagree with ‘nuxfan’.
One result of the speculative mania in Vancouver RE is that it has been absolutely impossible to ignore. For most owners, homes are now more than “just homes”… they are, consciously or unconsciously, also considered stores of wealth; they are partly financial instruments. To suggest that owners are oblivious to this, or that their psychology and behaviour is unaffected by an awareness of the ‘value’ of their property, is either naive or disingenuous.
‘nuxfan’, himself, for instance, plans to “stop working” at 50 to 55 years of age. Does the projected market value of his house factor into that expectation? We can’t be sure, obviously, but we’d wager it does.
Note that this doesn’t mean that we’re arguing that all owners should sell.. just that any owner who claims “not to care” is deceiving themselves, or others, or is so wealthy that the value of their home only constitutes a small percentage of their overall net-worth. And in Vancouver that last group is very small.
– vreaa

‘The Mortgagors With Hands On Their Faces’ – “Extremely poor and rapidly eroding affordability in the Vancouver-area market”, “without a doubt the most stressed in Canada, facing the highest risk of a downturn.”

Above images advertise videos accompanying the Globe and Mail article ‘Vancouver housing affordability ‘rapidly eroding’: RBC‘, 22 Aug 2011 [hat-tip Nemesis]. They are remarkably sorrowful images for a 2011 Canadian housing article, and remind us of ‘The Brokers with Hands On Their Faces Blog’.

Excerpts from the G&M article:
—
Most Canadian cities offer “reasonably affordable” housing, according to Royal Bank of Canada’s quarterly survey into affordability, but Vancouver is at risk of a downturn.
—
“Extremely poor and rapidly eroding affordability in the Vancouver-area market is somewhat skewing the national picture.”
—
“Vancouver’s housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn,” Mr. Craig Wright, senior vice-president and chief economist at Royal Bank, said.
—

This sensible comment at the G&M by PF Murphy, 22 Aug 2011, 10:35am:
“With the average price of a house in Vancouver being 11 times the average annual salary, the RBC’s advisory is many days – like several years – late and shows the conflict of interest of their benignly offering advice in an industry on which they depend for their bloated profits. To think that ill-advised people can go on buying houses that mortgage their grandchildren’s futures is idiotic. It is to be devoutly hoped that this bubble pops soon [so that] some sanity will be restored to housing in Canada.”

“Nobody knew or cared that we were renters instead of owners. It’s possible to realize the capital gains if one doesn’t get too attached to the idea of ownership, and is willing to consider renting.”

“My parents moved several times as the family situation changed, e.g. moving into bigger houses closer as the family grew (six kids!), moving to different parts of town to be close to certain schools we attended, and then downsizing as the kids left home. Usually they sold and bought, but at least on one occasion when they felt the market was unusually high and it was time to downsize anyhow, they sold at a tidy profit and rented for a few years while the market came down. Nobody knew or cared that we were renters instead of owners.
It’s possible to realize the capital gains if one doesn’t get too attached to the idea of ownership, and is willing to consider renting.”
– Gerry Beauregard, Canadian Singapore-based Software engineer, at VREAA 24 July 2011 11:55pm

Joanna Pachter, Canadian Business – “This is not yet another story about the real estate bubble. It’s a story about why more of us don’t rent.”

“This is not yet another story about the real estate bubble. It’s a story about why more of us don’t rent. The belief that we’re not responsible adults until we own our home, whether or not we can afford it, has distorted and stigmatized the cheaper and safer alternative: renting. And we’re literally paying the price.” – Joanna Pachter, in the her article in ‘Canadian Business’, an excellent discussion of renting in Canada, circa 2011 [‘Rental Complex’, Joanna Pachter, Canadian Business, 14 July 2011].
We encourage all to read the entire article.

Excerpts:

[Personal anecdote] Over the past decade, Barry Bradey, a health and finance entrepreneur, owned three houses in the affluent Toronto suburb of Oakville, and watched each soar in value. But after a divorce and a business failure, he needed cash on hand. So last fall Bradey (who asked that we use a pseudonym) did some back-of-a-napkin math. The 3,500-square-foot house he wanted would cost about $850,000. Even with $400,000 down, the mortgage would cost him roughly $3,000 a month. Add property tax and maintenance and “that’s $5,000 a month before you turn on the lights.” Utilities, insurance and various amenities would be another grand. He also figured the downpayment came at an opportunity cost of about 6%, equivalent to another $2,000 or so a month. He bounced these numbers off a local realtor friend; she thought the carrying cost should be closer to $12,000. Nevertheless, she insisted the house was worth the money because it was “an investment.”
Bradey didn’t buy that. To rent that same house would cost him—all in, and worry-free—about $3,500 a month. A 53-year-old father of two with a startup venture underway, Bradey did the financially prudent thing. He now rents a large townhouse in the same neighbourhood for $2,200 a month. “With a house, its market value might go up or down, but it would cost me $8,000 to live there,” he says. “My logic is, renting gives me flexibility. I won’t have to pay 5% [commission] if I want to leave.”
—

Over the past decade, as the value of the average Canadian home doubled, and tripled in some areas, rents remained stable or even declined. As a result, it now costs more than twice as much to own that average home as it does to rent it.
—

—

With widespread warnings that we’re approaching the peak of the housing boom, with Canadians more indebted than ever, largely due to their outsize home investments, and with cities like Toronto boasting some of the lowest rents among major world centres, why aren’t more of us re-examining the math? The reasons are cultural and emotional, backed by ill-conceived public policy. This Canadian Dream is an expensive delusion. There’s never been a better time to rent.
—

[Personal anecdote] Your lifestyle suffers, your worries mount—and yet, no matter how much data you throw at people, there’s an ingrained belief that being a homeowner signifies maturity and that renting connotes instability and transience. Moshe Milevsky, a finance professor at Schulich and one of Canada’s best-known home-ownership skeptics, has long argued that for young people with limited means and unrealized career potential, stowing most of their wealth in a single illiquid asset is foolhardy. Today, he thinks just about anyone would be better off renting. “I really wish I could sell my house and rent. Immediately!” he says. “The market is so overvalued. I’d sell to the biggest sucker. But my wife and kids would kill me.” That’s because, for most of us, financial considerations are only part of the equation. “The decision to purchase a house goes well beyond the practical,” says Milevsky. “It’s part of people’s identity.”
—

While the average price of a Vancouver home is now more than 11 times the average family’s income, the rental market has stayed earthbound. But VREAA notes that the bubble has raised the “social cost” of renting. “[It’s] become broadly socially synonymous with being relatively impoverished and disenfranchised,” he wrote in a post that drew passionate debate. [‘The Stigma Of Renting In Vancouver’ 25 May 2010 -ed.] One respondent noted that people are renting luxury units in new buildings they can barely afford to give the illusion they own. Another said that even though renting saves him and his wife $4,000 per month, in social terms, “we’ve never felt poorer.”
Vancouver may be extreme, but the stigma is just as real elsewhere. Bradey, the new convert to renting in Oakville, knows that his friends, who are largely well-to-do and own their homes, see his move as a regression. “Even in my own mind, I probably downgraded [my social status] from an A+ to a B+,” he says. Still, he believes that, were most people who may pity him now forced to go without income for three months, they’d be in trouble.
—

In the glow of our pride of ownership, we tend to forget that owning your residence is hardly the global norm. Quebec, where home ownership rates have been rising, remains a renting-friendly society, at least in the urban centres, and Montrealers who move to Toronto are often shocked by the pressure they feel to buy. In Switzerland, Sweden and other parts of Europe, particularly where rental markets are highly regulated, the majority rents. In fact, Germany, Europe’s economic engine, has the European Union’s highest proportion of renters, according London-based property research firm RICS. In Berlin, 90% of residents rent; in Hamburg, the share is 80%. And renters aren’t the lower-income contingent: professionals who spend half their earnings on rent are not uncommon. While Germans do want to own, they don’t feel pressed to buy when they can’t afford to, the way Americans, Canadians and Britons do. The difference can be traced to real estate market trajectories: Over the past decade, while housing bubbles percolated through much of Europe and in North America, home values rose less than 3% in Germany. Renting has no stigma because Germans don’t think of home ownership as an investment opportunity of a lifetime.
—

No one argues that owning a home is, in principle, a bad idea. But today, in this market, renting is a better one. After 12 years of rising real estate, a renter goes against a powerful cultural tide. But even if the housing bubble continues to inflate for months or years to come, it’s high time to recalculate the ownership premium we are willing to pay.
—/ end of excerpts

It is also noteworthy that Pachter’s article is given cover prominence with a strongly worded: ‘Home ownership is a losing bet: Why renting is suddenly making a comeback‘.
And the association of ‘Home ownership is a losing bet‘ with the ‘Suckered‘ headline story can’t be a coincidence, surely …

Poll: Vancouverites Overwhelmingly Agree Vancouver ‘Nicest City’ In Canada – “95 per cent of those living there convinced there’s nowhere better in Canada.”

Excerpts from‘Vancouver ranked ‘nicest’ city in Canada’, Vancouver Sun 28 Jun 2011 [hat-tip ‘calguy’] –
“[A] survey of more than 1,500 Canadians, commissioned by the Montreal-based Association for Canadian Studies and carried out during the week of June 21, presented respondents with a list of nine major cities from coast to coast and asked them to name their first and second choice for “nicest city in Canada.” …
Twenty-five per cent of all Canadians picked Vancouver as No. 1. Quebec City drew the second most votes as Canada’s nicest city, with 20 per cent of respondents nationally. …
The overall results, noted association executive director Jack Jedwab, partly reflect the fact that Vancouver residents themselves overwhelmingly named their own city the nicest — with 94.7 per cent of those living there convinced there’s nowhere better in Canada.”
“…such “hometown patriotism,” while evident to some degree among residents from each of the cities offered as choices, was strongest in Vancouver.”
“63 per cent of B.C. residents in general chose Vancouver.”
—
This comment below the article from an individual representative of the 94.7%, full-patch cult member ‘len2’ 28 Jun 2011 2:34pm – “excuse me, I don’t need polls to tell me what a Garden of Eden I live in, of course this is utopia. have you ever seen the moon on the rise standing by prospect point? how about from the cap river looking west, the string of pearls across the Majestic Lions Gate with a full moon in the background or underneath the Lions Gate looking south at the beautiful span, as it disappears into a forest of green. I have had the pleasure of living in this place of breathtaking beauty for over 40 plus years and I am still in AWE and THANKFULNESS when I look around me. nothing compares. I say to all you Vancoverites get out and explore your paradise, don’t just drive around, walk around the sea walls at night, visit the parks through out the lower mainland. to me this will always be heaven on earth. biased, of course I am, who would not be.”
[Note to self: Avoid getting into a bidding war on a Vancouver property with ‘len2’. -ed.]
—

Comment:
Yes, it’s another one of those almost innumerable polls/surveys/ratings.
We don’t have access to the methodology or raw data; the actual poll results themselves doesn’t appear to yet be publicly available. The poll was “conducted last week via web panel by the firm Leger Marketing”. A “web-panel” is a group of people who have previously agreed to participate in such polls. ‘1500 Canadians’ were each presented with a list of 9 cities (Vancouver, Quebec City, Ottawa, Montreal, Toronto, Halifax, Calgary, Edmonton and Winnipeg) and asked to rank them by ‘niceness’. There also appears to have been an ‘Other’ choice.
It looks like almost all Vancouverites polled voted Vancouver #1, and that is “partly reflect[ed]” in the “overall result”. We take this to mean that the pollster is pointing out that part of the reason that Vancouver did so well is that it got all of its home-town votes. Perhaps Vancouverites actually are more invested in their city than most?
Anybody with access to the actual poll publication, please share it with us. It’d be interesting to know more about the methodology, if only for curiosity sake, and we’d like to see the actual numbers.
And, by the way, what is the rationale for funding such a study? – vreaa

Reply To Rusty #3 – The ‘New Monaco’ Argument For Divergence Of Vancouver RE Prices From Fundamentals

Readers we respect have pointed out the trollish nature of some of rusty’s comments here, and we’d agree. Having said that, rusty’s position does genuinely reveal beliefs that are shared by many buyers/owners of Vancouver RE, and for that reason, we have headlined this response, for the record.
Here’s the question that Rusty has posed:

vreaa,
you didn’t answer this question:
“what about when prices break with fundamentals? How do you explain Hong Kong, Manhattan, London, Singapore, Rome, Tokyo, Paris, Moscow, Monaco, Sydney, etc? They all easily eclipse Vancouver in $/sqft and price/income? If prices “always return to fundamentals”, why haven’t prices followed this path in the aforementioned?” – rusty 12 May 2011 6:43am

We will magnanimously put aside the many questions that rusty himself hasn’t answered (most pertinent, his degree of leverage net-worth:local-RE), and also put aside the fact that price ($/sqft) is not a fundamental, and answer thus:

rusty –
80% of Singaporeans live in public housing, so how can we begin to compare that market with Vancouver’s?
Manhattan has lower ownership rates than Vancouver, and has price:GDP and price:rent ratios that support prices far, far better than similar ratios in Vancouver. We’d argue that Manhattan hasn’t really ‘broken’ with fundamentals.
The city you list that is arguably most comparable to Vancouver is likely Sydney, which is, like Vancouver, still in a large RE bubble.
The city that best supports your argument is possibly Monaco, a tax haven/resort town/plaything for Europe’s wealthy (which, BTW, really has run out of land. Visit and you’ll see.)

We see and understand the argument you are making. You’re saying that Vancouver has moved from being a town in which, prior to 1995, or 2000, or 2003, housing prices tracked fundamentals such as income, to being  a town where externally generated wealth is driving prices up beyond local fundamentals, such that local incomes don’t matter any longer (Rents should still matter, but let’s put that aside for now). This is essentially the ‘Limitless Demand Argument’.

In prior discussions here we have weighted the possibility of this being the case (Vancouver = ‘New Monaco’) as low (we’d say less than 5%). So, yes, we’ll give you that there is a small chance that we transition to become China/Asia’s Monaco, with Vancouver becoming a resort town/political haven for thousands of millionaires from elsewhere, but we rate that possibility as much lower than you do, for various reasons (China is less robust economically than people imagine; there are many alternatives to Vancouver; the foreign buyers are momentum players who will desert the market; etc).
So, that is the essential difference in our positions: You say “New Monaco”, we say “Not”. OK?

You should realize that, making an ‘all-in’ bet on “New Monaco” being the case (as you have, with leverage) is very gutsy because such an event only happens once in a town’s history, if it ever happens at all. In other words, it is a very low frequency event, and you are betting that it’s happening here and now. For every city that you list above where such a distortion may have occurred, there are thousands of others where such a distortion has never occurred and will never occur. So, you’re betting that this is ‘it’ for Vancouver. We see the Vancouver market action as being far, far more likely to be the result of a far, far more common occurrence, that of a speculative market bubble.

Either way, we have little alternative other than to wait and see how it plays out.
– vreaa

Canadian Business Mag: ‘Housing: Real insanity’ – On Renters And Owners

The article by Joe Castalado at canadianbusiness.com 25 Apr 2011 is an absolute must read for anybody with even a vague interest in Vancouver RE. It is a multifaceted article, and we have/will highlight various bits and pieces of it elsewhere. It is headlined here to archive its presence in the chronology and to encourage all to take a look.

We also take the opportunity here to highlight excerpts that summarize well the renter/owner discussion:

“Canada has a long history of embracing property ownership (it was once a requirement to vote), and government policy continues to support it. “It’s a virtuous circle,” says Phil Soper, CEO of Royal LePage. “Governments have been elected over the years for putting forward policies that encourage home ownership, and people have in turn viewed it as good policy.”

Politically, it makes sense for governments to cater to homeowners, a powerful voting lobby. But part of the logic behind supporting ownership is that it’s [good] for society. The prevailing wisdom is that homeowners vote and volunteer more than renters. They’re more engaged with their communities. They’re even healthier. In short, property ownership makes better citizens.

The evidence for this is dubious. William Rohe, director of the Center for Urban and Regional Studies at the University of North Carolina at Chapel Hill, summarized the existing research a few years ago for a Harvard University housing journal. He found that homeowners have higher self-esteem than renters, but pointed out that the original studies may not have adequately controlled for other contributing factors. Numerous studies also show that homeowners participate more in volunteer organizations and political activities. It’s still unclear, wrote Rohe, whether ownership actually leads to this behaviour. Yet another purported benefit of ownership is that it fosters better education for children. Again, the evidence is weak. A paper in the journal Real Estate Economics published in 2008 examined much of the literature using more sophisticated analytical techniques. It found that children of American homeowners scored no better on math and reading tests than renters’ kids, nor did they have lower high-school dropout rates.

Grace Bucchianeri, a professor of real estate at the Wharton School of Business, found the societal benefits of home ownership to be similarly overblown when she examined data collected from 600 women in Ohio. She found little evidence to support the idea that owners participate in civic and community activities any more than renters, and after controlling for factors such as income, housing quality and health, she concluded that owners were no happier. In fact, they spent less time on leisure activities and socializing with friends than their renting counterparts. When you look beneath our assumptions, Bucchianeri writes in her 2009 study, “the intuitive link between home ownership and well-being breaks down.

As for the renter’s fear of losing out financially, that too is exaggerated. Today, the average home-price-to-rent ratio is at its highest level on record, which means renting may actually be more affordable than paying a mortgage. Furthermore, a 2007 study from the UBC Centre for Urban Economics and Real Estate found that over the past three decades, renters could have beat homeowners’ financial results. The study examined the theoretical returns of buying versus renting in nine Canadian cities. In four of them, renters who invested wisely could accumulate 24% more wealth than homeowners, and match it in three others.
…
Considering the inconclusive research, it might be time to rethink the degree to which governments support homeownership. David Hulchanski, an associate director of research at Cities Centre at the University of Toronto, for one, argues that our current system punishes renters. … Housing policy should stop blindly favouring ownership, Hulchanski argues. Eliminating the capital-gains tax exemption on home sales would be one way to free up some cash. “That’s billions that could be used on rental or social housing, and we rebalance the system,” he says. He knows the prospects of that are next to zero, however. “Even the NDP is silent on it.”

“My wife and I could buy a place outright and have no mortgage which is much less than what we pay in rent. That still doesn’t mean we should buy.”

CanuckDownUnder at vancouvercondo.info April 7th, 2011 at 2:46 am offers a position that applies as well to the Australian bubble as it does to ours – “My wife and I could buy a place outright and have no mortgage, which is much less than what we pay in rent. That still doesn’t mean we should buy.”

A simple truth that is still lost on many. – vreaa

Bearish Buyers: Capitulation, Of Sorts – “Yeah, if there was ever a clearer signal of the top of the market. I’m also the guy who enters the shortest cashier line-up at the grocery store but still manages to exit after everyone in the longer ones.”

Bear capitulation occurs when a long term RE bear gives in and buys.
Yelling “That’s it, I’ve had enough, this market is absolutely crazy, I resign myself to renting for life!” doesn’t count. Also, leaving Vancouver may seem like capitulation but it isn’t. The bear has to give in and buy. One of the laws of bubblology states that the bubble is over when the very last bear that is going to buy throws themselves on the frenzied pyre of the market and is consumed in the flames. When that happens, we can get on with the crash, already.
Here are two (rare) anecdotes of bear capitulation, but they are both ‘qualified’ capitulations, and we thus don’t present them as evidence of a top. Our brief comment follows at the end of this post.
We don’t see very many stories of bear capitulation: if you know any, please send them along. – vreaa

Lost Soul gave an account of their purchase on two threads at RE Talks, 8 Mar 2011 and 25 Mar 2011. Excerpts from Lost Soul’s comments:
“This loooooong time bear likely will be an owner soon (accepted offer).
Please don’t categorize me as a bull. I’m buying with the expectation that we will take a financial hit for it.
We didn’t all of a sudden grow horns and start snorting. But something did grow and popped out after nine months and we needed more space. It’s not all about money. 😉
Could we have just found a bigger rental? — I suppose, but we just wanted a place to settle into and be able to do what we wanted with it without worrying about what the landlord would think.
Do we think this is a wise *financial* decision? — not a chance — this is pure consumption in our view. If by some bizarre happenstance the value of our place goes up 50% in the next year, we will not all of a sudden start crowing about how we were so brilliant to buy.
What if the market gets halved? — Bring it on! The loss on this purchase of course will be unpleasant but it also means that the next place we buy will have dropped twice as much in absolute dollars so net we’d still be ahead (if not by so much as not purchasing at all now). And ‘No’, the loss on the current place would not wipe out our dp for the next one — contrary to the beliefs of some here, bears are not necessarily on welfare living in their parents’ basement.
(Still) My advice to others: *We* are fortunate to have the savings and income to pull this off. If *you* are purchasing a place you’re not happy to live in for the next 35 years and buying it means Kraft Dinners, you might as well wait and pray for a crash — the “buy small and climb the property ladder” approach isn’t going to work.”
[In response to a comment “Lost Soul Buying…”] “Yeah, if there was ever a clearer signal of the top of the market. I’m also the guy who enters the shortest cashier line-up at the grocery store but still manages to exit after everyone in the longer ones.”

And a related story from enki at RE Talks 26 Mar 2011 8:47pm – “I totally sympathize; I am a longstanding bear (and still am), and finally bought a townhome in Abby in August [2010]. I didn’t want to buy, but I was tired of waiting, and wanted some stability. Living across the street from some very good mountain biking didn’t hurt either. I bought the cheapest thing I could tolerate, and resigned myself to losing some equity while keeping my wife.”

These stories don’t really qualify as complete capitulation, as the protagonists remain mentally bearish, and actually anticipate a drop in prices. In complete capitulation the bear overextends themselves as much as other current buyers, and emerges from the experience as a born-again bull.
The anecdotes above are perhaps best seen as stories of ‘partial capitulation’. They are of interest, because, for a prospective buyer, the ‘partial buy’ and ‘renting’ are both compromises, but with different inconveniences.
For the record, we don’t think ‘partial buying’ is a good idea. Moving up during a crash may be more challenging than one expects. – vreaa

[Update: An exchange on 29 Mar 2011 between posters at RE Talks turns ugly, and Lost Soul confirms they paid cash for the above deal. Screen caps here and here.]

“Trusty” Toronto Real Estate Reality TV Star Contractor Charged With Extortion

From the National Post 14 Mar 2011 –
“The co-host of an HGTV show about turning unsightly properties into attractive real estate has been charged with extortion.
Barrington Anthony Sayers — who co-hosts The Unsellables and was also the featured carpenter on the W Network series Me, My House and I — was arrested on the weekend, Toronto police announced Monday.
Mr. Sayers, 41, was charged with two counts of criminal harassment, attempted fraud under $5,000 and extortion.
The saga began last month, when a woman hired Mr. Sayers, who also owns a general contracting company, to complete renovations at her home.
“The accused provided substandard work, criminally harassed and extorted the woman,” police alleged in a news release.
A graduate of George Brown College, Mr. Sayers has worked in the building trades for 17 years and has a large client base in Greater Toronto, according to a bio on HGTV’s website. A promo for The Unsellables describes Mr. Sayers as a “trusty contractor” who provides tips “for turning real estate lemons into lemonade.”

From video at globaltoronto.com:
Announcer: “She says that when she refused to pay him more than he had quoted her, for work that he had allegedly not done, things went from bad to worse.”
Client: “He started harassing me, every day, he started making phone calls, he showed up at my house when I wasn’t here, went to my neighbours asking for my whereabouts, and at that point I started to feel very afraid to be at my house”.
Police detective: “We believe that this isn’t the first time that someone has been victimized by this individual.”

Fundamentals – “When would you buy?”

We haven’t mentioned the actual word  ‘fundamentals’ here for a while, probably because they seem so, well, passé for Vancouver. But the concept remains alive and well, if a little dormant, in the minds of the few remaining prospective buyers who see the market as bizarrely overvalued. Sometimes such folks are asked: “When would you buy?”
On a recent thread, ‘matt’ pointed us all to a 2008 NYTimes article on this very subject, a useful reminder in these frothy times. It’s worth the re-read, if just to keep oneself in touch with the reality of the extra-Vancouver universe: ‘As Home Prices Drop Low Enough, a Committed Renter Decides to Buy’, by David Leonhardt, NYTimes, 28 May 2008. A few excerpts: –

“One of the big lies of the real estate business is the idea that renting a home is tantamount to throwing money away. It’s a useful fiction for real estate agents, because they make vastly bigger commissions on house sales than rentals. But the comparison isn’t nearly so straightforward for the rest of us. Renting involves one obvious, recurring cost that can never be recouped: the monthly rent check. Buying, on the other hand, involves multiple expenses, some of which aren’t so obvious. On top of closing costs, there are repairs, property taxes, mortgage principal and mortgage interest. When you own, you also lose the ability to invest your down payment elsewhere, like the stock market.”

“Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.
It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.
Throughout the 1970s, ’80s and ’90s, the average rent ratio in the US hovered between 10 and 14. [In the mid 2000’s] it broke through that historical range and hit almost 19 by the time the housing market peaked [in the US], in 2006.
And while home prices — and rent ratios — have always been higher on the coasts, they reached whole new levels recently. In the Washington area, the ratio went above 20. In Boston, New York, Los Angeles and south Florida, it topped 25. In Northern California, it approached 35, higher than it had been in any city, at any point on record.
In concrete terms, a rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting.”

“The question facing my wife and me was whether we were entering the market before the correction had gone far enough. I really didn’t know what the answer would be. So as we looked at houses, I started calculating rent ratios. In the neighbourhoods where we were looking, two-bedroom condominiums were selling for $400,000 and being rented for about $2,100 a month, which makes for a rent ratio of 16. Four-bedroom houses were selling for $700,000 and being rented for almost $4,000, which makes for a rent ratio of 15. No matter the price range, pretty much every apples-to-apples comparison produced a similar ratio. Historically, this is still a bit high.”
—

Using similar calculations, ‘rent ratios’ [sales_price/annual_rent] for SFHs in Vancouver are currently commonly in the 40-42 range. -vreaa

“Even at the corporate level, locals have a desire to ‘overpay’ for RE assets and make strange choices when it comes to parting with cash for RE.”

Mango at financialinsights February 20, 2011 at 1:44 am– “Lululemon just paid $65M for a building in Kits. That is 25% of the cash they have on their balance sheet. That [building] would have cost them less than $3 million a year to rent. They have massive growth in earnings per share (EPS), so common sense [should have told them to rather use the money to invest further in their business].  Instead, they bought the building? So even at the corporate level, locals have a desire to “overpay” for RE assets and make strange choices when it comes to parting with cash for RE.”

“Since I bought my home my ‘income’ has been 40% from my job and 60% from housing appreciation.”

L8erDude at yattermatters.com February 2nd, 2011 at 1:18 pm, 4:53pm & 3 Feb 2011 at 8:56am –
“Since I bought my home my “income” has been 40% from my job and 60% from housing appreciation. When I sell this is tax free money. Go ahead and rent forever – but you’re rich or poor only in relation to your peers. At 60 years of age come and talk to me about how wise it was for you to rent. … I don’t see a halt to property prices so long as immigration continues at the frenzied pace of the last 20 years. At 60 years old my home will be worth 3x today and your rent will be about the same multiplier. … I won’t take a dime less than my home is worth to sell to an über-bear.”

1. The amount of “income” from appreciation of current market value of their house should be ringing alarm bells for this owner, and telling him/her something about the market, …but it isn’t.
2. The gains are thus far only present on paper. Only a very small percentage of owners in this situation will realize their gains.
-vreaa

TPFKAA on Ambivalent Recent Buyers

anonymous (now known as TPFKAA) at VREAA 22 Dec 2010 at 9.35pm –
“A family friend bought a 2 bedroom, maybe 700 sf condo during the late 08- early 09 correction for around 350000. He rents out the second bedroom to a tenant. I asked him if it was working out ok in such a tight space… a pained expression flitted across his face: “yeah it is a little tight… but it works out okay.”
uh huh. Comfortable.”

“An acquaintance with a townhouse, decent sized, good for two kids, bought long ago told me she dreaded her family friends coming over for dinner. Recently the friends bought a house for 850000 in N van, with help from parents’ downpayment. Since then, each time they visit the wife keeps on telling my friend that “you should get a bigger place. you really need more space.” They shopped for months before they found the place, and it is in dire need of renovation and decoration. My friend says it is really grotty. But they seem so pleased with themselves. To me it sounds more like they need others to affirm they see the emperor’s clothing, because their nagging subconscious sees the scam they have fallen victim to.”

“I just wanted to share a conversation I had with a good friend of mine as he announced he was going to buy a place.”

El Magnifico at VREAA 25 Dec 2010 12:24pm –
“I just wanted to share a conversation I had with a good friend of mine as he announced he was going to buy a place. It really highlights well what is called “the emotional factor” when it comes to buying real estate. Hopefully this conversation will be useful to some other people…

Me:
Hi (…),
I hope you’re doing well. I was also apt hunting recently, until I learned more about the real estate market in Vancouver… I’ve decided to hold off for for a couple of years and see what will happen.
I read a lot of articles, blog, etc… You may want to hear what these people have to say about the Real Estate market in Vancouver. Here are some of the most useful links I found:
– https://vreaa.wordpress.com/
– http://www.greaterfool.ca/
– http://canadabubble.com/
– http://financialinsights.wordpress.com/
Good luck!

My friend:
Hi (…),
Hope all is well with you too!
Thanks a lot for the information. I surely won’t dare to disagree that the risk of a potential real state crisis has increased due to the low interest rates, easy credit, and consequent increasing household debts, etc.
However, since I arrived in Canada some people have been expecting a real state crash in Vancouver for different reasons: 2008 financial crisis, the olympic games; etc.
On the other hand, some other people think that real state prices in vancouver will never drop significantly, due to the shortage of available land…
Meanwhile, I now realize that I have spent over $75,000 to pay for my rent in the last 3.5 years… and I will never see this money again, that’s for sure…
I mean, I totally see your point, and actually nobody can be sure if a mortage will or will not be a good deal at this time…
I really don’t know who is right or wrong… and so I guess I will keep looking around and I think I will probably buy a place if I see a good opportunity on a place that I like. Besides, it’s probably better to buy now, when interest rates are low, than the opposite…
Anyway, we should keep discussing about that… I think it can helpful to the both of us in trying to make lucid decisions.
Thanks again and let’s try to get togetehr for a beer or coffee sometime soon.
I take this opportunity to wish you, (…) and your baby a very Merry Christmas and Happy New Year!!
Talk soon,

Me:
Hey (…),
Good to hear everything is well for you! (…).
Somehow, I’m glad I didn’t buy any real estate as I would have been such in trouble to sell it off (the market is dead right now, -35%ish for saleq compared to last year…).
I’m glad you are aware of the potential risk for a real estate crash. The intent of my first email was simply to make you aware in case you were not. As we say in french “un homme averti en vaut deux” which means something like “one knowledgeable man is worth two men”.
If I can only give you a few advices to you in making the biggest investment of your life (unless your business becomes so successful that you can afford all these millionaires’ toys), there would be as follow:
– be always careful of what real estate agent and their board say. Trusting them regarding real estate analysis is like trusting your drug dealer when he says heroin is good for you! They have a vested interest in keeping the market going up…
– when you compare renting vs. owning, make sure that you take into account all the costs of ownership. As a renter, you don’t have to pay for property taxes ($1,500 a year), strata fees ($400 to $500 a month in the nicer buildings in downtown) and the maintenance costs (so many people bought condos in leaky buildings and had to pay 50 to 70K in rainproofing… that really hurts!). All in all, ownership costs are really expensive too.
– Don’t forget that when buying a place, you’ll have to pay 7% of commission fee to your real estate agent. On a $450,000 property, this is $31,500 (not far from half what you paid in rent in 3.5 years in Canada!), money that you will never see again too.
– remember that if you don’t have 20% of down payment, you’ll be required to pay for the CHMC insurance, which will be a significant additional burden to your mortgage payments.
Coming back to the argument of buying when interests are low, it is actually a bad idea, and it’s counter intuitive. Let me explain you. When people buy a house, they look at what they can afford and usually bought the biggest house/condo they can afford (property cost + interest cost). This is ok in countries like US or France, where mortgage interest rate is setup for the entire duration of the mortgage. In Canada, however, mortgage rates are reset every 5 years. I let you imagine what happened when a family that has bought to the maximum of their ability, at emergency low interest rates, see their mortgage payment doubling because their mortgage rate has been reset much higher 5 years later… This is what, in my opinion, will create a real estate crash throughout Canada. When the Bank of Canada will increase the prime rate, people will see their mortgage payment increase and won’t be able to face it, and therefore be forced to sell…
On the other hand, if you buy a place at a time where interest rate are high, the cost of your mortgage payment are likely to be lower when your mortgage rate is reset after 5 years. Today, it is the opposite. Interest rate can only go up, and therefore mortgage payment will go up significantly for most of the people.
Regarding the argument of available land in Vancouver, I don’t really buy this argument. There were so many special places in the US (Florida, California, Nevada, etc.) that, despite great features/qualities, have lost more than half of their values that I don’t think this argument is very solid. What I see is that prices in downtown Vancouver are now similar to prices in Manhattan and double the prices in Seattle. There is no rationale reason for that…
The last thing that I wanted to share with you is what I discovered when looking at mortgage payments. Initially, the first few years, your mortgage payments are split as follow: 80%ish to interest and only 20%ish to your principal. That something I didn’t know and found totally unfair and outrageous. Somehow, the first few years of your mortgage, you more renting the place to the bank than owning it…
Anyway, it’s a very long email. I wanted to share with you my thoughts and discoveries regarding RE. I was in the same seat as you and I didn’t buy, and now I’m leaving, I’m so glad I didn’t.
(…)
I hope this email will be useful to you. I’ll organize a small farewell gathering before I leave (…).
Cheers buddy !

Him:
Hi (…),
Excellent reasoning, thank you so much for taking the time to share, I really appreciate it!
(…)
I did become aware of the issues you mentioned above when I first thought of buying a property here in Vancouver, in early 2009. I agree with you in most of them (and that’s why I gave up the idea of owning a real estate property in Vancouver, back in 2009).
In some other aspects I think slightly differently from you, more specifically regarding the interest rates and ownership costs (but I won’t get into details here, because I don’t want to make this a boring discussion to you, as I’m sure you have more important things to think about(…).
(…) I’m now also considering some aspects of ownership that are less of financial relevance (but not less important) and more of personal nature, and therefore difficult to be quantified, because their effect and value can significantly vary from person to person.
All in all, I’m still inclined to jump into the owners side, if the right opportunity comes.
Well, thanks a lot again (…). I really appreciate your analysis – definitely very useful.
Hopefully I will see you soon then!
Cheers,
….”

Buy Or Rent In Fort Nelson? – Reader Request For Opinion

t at VREAA 11 December 2010 at 3:48 am
“I am very bearish on Vancouver real estate…I am moving to Fort Nelson in the new year. I have been looking at Vancouver RE for so long that the prices in Fort Nelson appear reasonable to me. I have looked at the cost to rent vs. cost to own…$1100/month to rent, $800/month to own…and I am considering buying a place up there. Your thoughts?”
& t again on 13 December 2010 at 10:01 pm
“I am going to buy in Fort Nelson in the next month. I am a bear, and I am relocating for work. The cost to buy up there is roughly 300k for a nice family home. It would cost more to rent than it does to pay a mortgage. I do think that the prices are still high up there, but the local economy does support those prices because there are lots of high paying jobs. If any of you know anything about the RE up there please let me know. We meet with a local RE agent next week.”

vreaa thoughts:
t – Thanks for the note, and for caring enough to solicit our opinion.
We suspect there will be numerous readers who can give you food for thought regarding this decision; we’ll start with a few thoughts of our own:

You’d likely be taking the following into account:
Various nuts-and-bolts questions about the math (Is the cost of owning REALLY $800 per month? What about transfer costs, taxes, maintenance, etc? etc.).
Your age. Your income. Your degree of job security.
Whether you intend to live in Fort Nelson long term.
If you purchase, would you be buying the kind of residence that you’d like to live in long term?
What is your ‘ownership premium’? (How important is it for you to feel you ‘own’ your house?)
Would the prospect of future higher interest rates alter your decision? (BOC Governor Carney warned us yesterday that rates WILL rise)
Would the prospect of a future distressed economy in Fort Nelson alter your decision? (How secure are all those ‘high paying jobs’?)

We note that you went from “considering buying a place” to “I am going to buy” in just two days. Obviously you are planning your move, and we respect that you have a need to decide one way or the other. But, does the decision to buy merit the urgency that you currently appear to feel?
Perhaps you are confusing two separate decisions:
..(a) where are we going to live when we get to Fort Nelson?, and
..(b) should we rent or buy our accommodation?
These are indeed two separate decisions, but currently they may feel like one. Perhaps you should try to separate them.
Is the prospect of going up and renting for a while too burdensome?
What do you have to lose if you went up, rented for 6 months, and then made your decision?
The benefit, even if you did end up buying, would be that you may get a better idea of the property type and site that would work for you.

All of the above are important considerations, and readers will likely be able to add more.
For us at VREAA, however, the most crucial considerations are the following:
We are bearish on RE. (You, ‘t’, are bearish, too.)
We anticipate a pullback in RE prices in Vancouver in future, a pullback that will also effect all of BC (and, to a lesser extent, all of Canada). We think prices could drop 50%, perhaps more.
We could be wrong (we have been for some years now).
We weigh the probability of ongoing steady price increases as low to very low (5-10% chance of ongoing price strength). We think the chances of an outright crash are far higher than that.
So, if we were trying to make the decision you’re weighing, we’d be asking ourselves the following:
“If I were to purchase, how much would a substantial decrease in housing prices in Fort Nelson effect my overall future financial trajectory?”
The answer to this question would be closely related to income level and net-worth.
If you purchased, what percentage of your entire net-worth would be made up by the purchase price of the property? 20%? 50%? 100%? 500%? 1,000%? – [the 1,000% example is the case where you put 10% down and have no other savings.]
For some individuals, to purchase a property that then drops from 300K to 150K market value, and stays there (in real terms) for 10 years, would not be of much consequence. For them, it may not be worth the hassle of renting to avoid that risk.
For others, the 150K paper loss may be completely devastating; it may result in a financial blow that takes decades from which to recover (and essentially changes their entire life’s financial trajectory for the worse).
Some people can afford to lose 150K, others can’t.
(In Vancouver, the same rent vs buy decision are heightened by the fact that in many cases that statement becomes “Some people can afford to lose $1.5M, others can’t.”)

Needless to say you have to do your ‘own due diligence’ on this.
(Oh, and by the way, I don’t think any of us doubt what the Fort Nelson realtor will advise. You’d best be clear in your own mind about your intentions BEFORE you meet with the local RE agent next week.)