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August 1st, 2008 at 5:38 pm
Dave up to his usual tricks:
1 Price to rent multiple is bad even when using apples to apples: MLS listing plus Craigslist asking rent for identical/similar unit.
2. Rents increase but mortgage payments stay the same. No argument there. But it isn’t the free ride you make it out to be because inflation is priced into long term rates.
3 The cost of construction does not DIRECTLY influence prices. Second, you forget that a large component of housing (SFH at least) is land. That is where the adjustment will take place if the costs of construction spiral out of control. Overall, the cost plus argument is totally flawed.
August 1st, 2008 at 5:37 pm
That guy, interesting, a SFU professor working the blogs. No research or papers to mark right now? Tax money at work? Why don’t you enlighten us with your opinions on real estate? I don’t think anyone cares about your detective hobby.
August 1st, 2008 at 5:32 pm
“Any idea why landlords would not increase rent by the maximum allowable every year?
Supply and demand.”
You mean the same supply given “how difficult it is to find developable land” (your words), and demand given Vancouver’s population growth, which is only half what it was 15 years ago? Time will tell, but to say there is lots of supply that has kept rents low then turn around and say supply is restricted is too rich.
Add to that the record units under construction and it’s unlikely rents will rise as you say. Construction costs have nothing to do with it. Rent will be based on “supply and demand” so land value plummets to compensate.
This is going to be a 300+ comment weekend at this rate. Let’s hope patriotz and freako don’t show up or we could break 400 easy.
August 1st, 2008 at 5:26 pm
the source:
yeah, i’m really interested. it’s a funny thing about academics: we’re curious. that’s why we do research in the first place.
anyway, way to bolster your credibility. good job!
August 1st, 2008 at 5:19 pm
The threads here are hard enough to read when you have people quoting from reports and craigslist listings without providing links but it really bugs me that they can also take whatever name they want making it impossible to determine who said what. Is there a way to fix that?
August 1st, 2008 at 5:16 pm
As a retort (or addition) to the forum concerning if it’s time to fix your mortgage – here’s my thoughts:
Study after study shows that historically (circa past 40 years) having a variable rate mortgage vs. a 5 year fixed mortgage will save you thousands of dollars in interest approx. 80% of the time. So, no, you are not guaranteed to save money and no, history does not confirm future events, however, it really comes down to your risk tolerance, just like any investment. You also have to be comfortable with your payment (or the amount which goes to principal if your payments are set) going up and down. But, as many have mentioned in this forum, no one can predict the future so rather than guess at what’s going to happen, ask yourself whether you (and your finances) can afford for your variable interest rate (and payment) to go up 1 or 2%? If the answer is yes, and you don’t mind some instability with your payments – go for variable. If not, fix it and forget it!
August 1st, 2008 at 5:15 pm
Drachen, so you don’t like me or the “project”. Thanks for the news.
August 1st, 2008 at 5:13 pm
That guy, ok Mr. Tricky, so you’re looking for a reference, or direction, or a name linked to this “project”. Or maybe my name. You really seem interested. My advise is contained in my prior posts.
August 1st, 2008 at 5:09 pm
The Source
“Now, did you see me mention anything about a report?”
Well then, now we’re getting somewhere. So, assuming that you’re not lying, you are either;
A) One of the members of this ‘group’ you talk about. If this is true one doubts the validity of anything coming from the group as you apparently don’t possess the logical skills to assimilate data (at all, never mind correctly).
B) This information is coming to you second or third hand as word of mouth. If B is true there are many places along the chain where facts could be distorted or misrepresented entirely.
August 1st, 2008 at 5:04 pm
Dave Says:
August 1st, 2008 at 4:17 pm
Any idea why landlords would not increase rent by the maximum allowable every year?
Supply and demand.
Wow. You can say that and still assert that rents are abnormally low? You’ve got your doublethink down.
August 1st, 2008 at 4:55 pm
the source:
come on now, be nice. all i asked you to do is point me to the research. maybe you could save me some time & give me a name of someone involved in the project?
and if this isn’t published work — or even a working paper by the sound of things — how do you know about it?
August 1st, 2008 at 4:51 pm
Funny negative review. It’s as if people think that folks on TV can cause a Real Estate crash, and if we all just had “happy thoughts” prices would rise forever (faster than incomes)
Bottom line is… prices are too high for the average buyer without suicide financing. This is why the prices have to come down. It’s economics 101, nothing to do with interviews on the CBC.
In the US, since the market peaked in 2006, the TV was filled with people saying the “market is sound” and “high prices are based on fundamentals”, including people like Ben Bernanke, Henry Paulson, and other influential figures. It did not prevent economic reality for causing the market to collapse.
August 1st, 2008 at 4:45 pm
I just read a UBC report and in it it says
1.Prices in Vancouver will fall 20% this year.
2.Krissh is the source.
3. Bob Rennie has sold off all of his holdings.
4.Prices will go down for decades to come
August 1st, 2008 at 4:44 pm
Drachen, you’re an interesting character, i envision a nine year old child with a slightly higher than average IQ. That guy, ok Mr. Professor, go back and read my first two posts. Now, did you see me mention anything about a report? Ok, now we’re getting somewhere, maybe you can ask around up on the hill? Yes, very good.
August 1st, 2008 at 4:37 pm
the source
“is the SFU report so far fetched or does it scare you in some way?”
Why would it scare us, we haven’t seen it, you refuse to provide any way for us to find it (authors, link on the web etc.). One is left with the conclusion that you’re just making it up (certainly with the details you’ve provided so far it sounds pretty made up).
“ever hear of “freedom of information” law?”
What does that have to do with anything? You’re barely more literate than ThumbsUp, you throw out some made up sounding “study” which you refuse to provide any real information on and you’re simply dismissive to anyone who brings up legitimate concerns with your arguments. Unless you care to have an actual debate or provide useful data you’re just a waste of space here.
August 1st, 2008 at 4:37 pm
the source:
sorry, you’ve lost me. i’m just asking you to point me to the research you cited. can you do that? thanks.
August 1st, 2008 at 4:27 pm
Dave
“am simply pointing out where the data comes from and explaining why it is biased low. With respect to VACANCY, the data shows tight supply. Two different metrics.”
But the data is all gathered using the same method. You’re saying the method is poor for the metrics you don’t like and accurate for the metrics you do like? Have I called you a cherry picker lately?
“Please show me on a map where this land exists.”
HERE
“Rents are not high relative to income.”
Wait are you talking about the rental statistic? The one you believe is skewed low? Or where you believe (without evidence I might add) rents actually are? Because the affordability rating is 101 (in 2007) with a 100 being 30% of family income consumed on rent (which is seen as normal and healthy). But you believe it’s what? 50%, 80%, 100% higher than that? You’re ignoring your own made up ‘facts’ Dave, that’s a bit of a stretch even for you.
August 1st, 2008 at 4:21 pm
That guy, nice try, ever hear of “freedom of information” law? Any real professor understands it as a basic.
August 1st, 2008 at 4:18 pm
Foremost peoples, do your own research, is the SFU report so far fetched or does it scare you in some way? Like maybe I’ll be flogging a buyer’s strike on here for the next ten years? Drachen nice to see you’ve calmed down, but you still don’t have anything intelligent to say.
August 1st, 2008 at 4:17 pm
Any idea why landlords would not increase rent by the maximum allowable every year?
Supply and demand.
August 1st, 2008 at 4:13 pm
Dave
“The Japan real estate bubble started in about 1986, as did the run-up on the Nikkei. Neither of your examples is even close to a decade.”
http://www.excel-consultant.com/Nikkei_Bubble.html
1975 – 1989 arguably longer, with 14 years of losses afterwards for a total market cycle of 28 years! How can one person be so consistently wrong Dave? I really want to know!
“So you believe that affordability drives corrections? I don’t. It is simply a measure of current valuation. Corrections are driven by other factors.”
Wow, well since you’re a world renowned economist I respect that your opinion differs from the rest of the economic community (and common sense). No… Wait, you’re a nobody who constantly spews loopy theories. More of your voodoo economics? Pray tell us oh mighty Dave, what factors drive the market that have eluded all mortal economists?
“The rental rate component of the equation is biased low by a significant amount.”
As always in debates with you, I’d like a source other than your ravings to go on. Even if that were true I doubt they’re biased low by 60% or so and I can do comparables that show at least a 50% discrepancy.
“a better measure of fundamental value would be to consider the cost of construction and value of land.”
You don’t understand how fundamentals work do you? You’re not calculating the fundamental value to MAKE something you’re calculating the fundamental value the market will PAY for something. You’re bass ackwards.
You did give me a good laugh though, I’ll give you that!
August 1st, 2008 at 4:12 pm
Dave:
As I said before, jump on the skytrain, or use Google maps. From what I can see there’s quite a lot of available land, actually. Mind you, there’s very little in the downtown core.
You make a lot of assertions like “rents are not high relative to income” but you don’t have stats to back ‘em up.
Rents are comparable to other cities, but the cost of owning is several times higher than anywhere else. There is a massive oversupply of home stock being built in the city. MOI is piling up. Sales have stopped. Vancouver is the only Canadian city with net OUT migration of head offices. Tourism is down. Software lumber has fallen off a cliff.
This story has been played out over and over. California. Florida. Spain. England. Connecticut. Australia. It is in the process of playing out here. There’s no point in either of us arguing, you need only look at the pattern.
All this has happened before, and all this will happen again. Who know the realtors were all Cylons?
August 1st, 2008 at 4:06 pm
“Up until a few years ago, rent had not kept up with wage inflation.”
Correct: rents have not been increasing even at the allowable rate that was legislated by rent control. Any idea why landlords would not increase rent by the maximum allowable every year?
August 1st, 2008 at 4:05 pm
Scullboy, this “Dave” person is just trying to drag this blog off topic.
Anyone who has a brain and is actually interested in this blog would be best to ignore this guy.
Next thing he’ll be claiming tobacco hasn’t actually killed anyone and referencing studies.
The market will crash worse than Florida here, there are lots of links on this site.
August 1st, 2008 at 4:04 pm
The reason is that rental rates are too low, rather than real estate values being too high.
You’re kidding right? Here’s the thing – rents are based on what people are willing/able to pay. They don’t fluctuate like house prices because you can’t take a loan out at a variable rate to pay for it. It’s a better representation of where housing prices SHOULD be because its not prone to speculation or fluctations in credit markets.
BTW, It’s pretty silly to take Craigslist ‘wishing rents’ of amateur landlords and hold it up as a reasonable market rate. ‘Market price’ is what the market will pay, not what a seller wishes the market would pay. I’ve seen some of those units advertised month after month while the owner bleeds cash, slowly bringing their asking rent down hoping someone will bite.
August 1st, 2008 at 3:52 pm
Official vacancy rates are determined through rental stock, which does NOT include one-off condos. You claim vacancy is low, yet you ALSO claim one-off condos are replacing traditional stock. So which is it?
It is both. With respect to average RENT, I am simply pointing out where the data comes from and explaining why it is biased low. With respect to VACANCY, the data shows tight supply. Two different metrics.
Anyone who has spent any time at all on the Skytrain knows there’s tons and tons of available land for development, just not in the immediate downtown.
Please show me on a map where this land exists.
Do you have *anything* to back up your expectation of rental inflation to be very high, or is this something else you pulled out of your hat?
It’s not possible to prove a future prediction by definition. It is simply my opinion of which I have explained my rationale. If you don’t agree, then that’s where you need to start.
Rents here are already fairly high relative to incomes. What’s going to happen if rental rates skyrocket, as you suspect?
Renters will move.
Rents are not high relative to income. The ratio is low relative to past decades! Up until a few years ago, rent had not kept up with wage inflation.
There will be no shortage of renters in Vancouver. Our population growth is positive and the GVRD will continue to expand.
August 1st, 2008 at 3:45 pm
There we go Ahandle, so did you actually have a point or were you just making dumb innaccurate statements to take the blog off topic?
Would you mind posting links?
August 1st, 2008 at 3:43 pm
Your 4.2% mortgage rate is a joke too leading me to determine that you’re just trolling and have no real interest in this blog.
http://www.ingdirect.ca – look under mortgage rates. Having dealt with them myself I can say that you can actually get a small discount if you have a good downpayment and good credit.
August 1st, 2008 at 3:41 pm
Dave, your assertion that mortgage amount drops with every payment does not take into account interest rate risks: you locked only for 10 years maximum. With low down payment, mortgage = leverage, which means amplification of the interest rate risk, and amplification of property value risks.
August 1st, 2008 at 3:35 pm
I’m still waiting for a link to this SFU study. Where is it?
August 1st, 2008 at 3:34 pm
Dave,
Official vacancy rates are determined through rental stock, which does NOT include one-off condos. You claim vacancy is low, yet you ALSO claim one-off condos are replacing traditional stock. So which is it?
Anyone who has spent any time at all on the Skytrain knows there’s tons and tons of available land for development, just not in the immediate downtown.
Do you have *anything* to back up your expectation of rental inflation to be very high, or is this something else you pulled out of your hat?
Rents here are already fairly high relative to incomes. What’s going to happen if rental rates skyrocket, as you suspect?
Renters will move.
What happens if renters move? The pool of people who can migrate from renters to owners dries up.
No matter how you slice it, Vancouver is at an inflection point. Either prices drop in line with incomes, or low to middle income earners leave for less expensive cities.
August 1st, 2008 at 3:32 pm
LETOWN 1BR + den + balc + pkg. pool 25th flr view. great amens. concierge. np/ns $1500
1BR YALETOWN marina view, 5 appls. park’g, pool, gym, Aug 1 $1500/mo
1 BR Yaletown New Condo Bright 1BR+DEN,HW Flr,ss appls,gym. Avail NOW. $1550 Balcony, Dishwasher, Eat-in-kitchen, Fireplace, Hardwood Floors, Laundry, Microwave, Near Public Transportation, Near Shopping, New Construction, Parking, Refrigerato
1 Br @ Mira luxury w/patio, cat okay, gym, $1300
1155 Homer St. 1 BR, 6 appls., gym, prkg., locker, lease. $1,450
BENTLEY 1001 Homer, 1 Br, pkng. stor. gym, spa, ns/np, avail Sept 1, $1325.
There we go Ahandle, so did you actually have a point or were you just making dumb innaccurate statements to take the blog off topic?
Dave, are you saying interest rates will never go up in the next 40 years? and what about strata fees when the building leaks? Tell me you aren’t that stupid.
August 1st, 2008 at 3:32 pm
while your mortgage amount outstanding drops with every payment.
..after starting with a HUGE mortgage that no
sane person would tackle….. you can not ignore affordability…..
it is cheaper to rent than buy
August 1st, 2008 at 3:31 pm
Dave, what is so special about wood frame buildings? I don’t think they build any concrete frame buildings for rent either. And the reason they don’t build rental buildings anymore is because the real estate prices are inflated to a degree where renting out is not cash flow positive.
August 1st, 2008 at 3:26 pm
New Listing
BENTLEY 1001 Homer, 1 Br, pkng. stor. gym, spa, ns/np, avail Sept 1, $1325.
New Listing
BENTLEY 1001 Homer, 1 Br, pkng. stor. gym, spa, ns/np, avail Sept 1, $1325.
1155 Homer St.
1 BR & DEN. Marinaside T/H! 11′ ceiling all appl, nr 700 sf, priv. patio opens to garden. Sauna, Pool. np/ns $1600 604-727-8872
$1,600
1 – 700 sqft
11
1 BR Yaletown New Condo Bright 1BR+DEN,HW Flr,ss appls,gym. Avail NOW. $1550 Balcony, Dishwasher, Eat-in-kitchen, Fireplace, Hardwood Floors, Laundry, Microwave, Near Public Transportation, Near Shopping, New Construction, Parking, Refrigerator,… (more)
$1,550
1 – 550 sqft
12
1BR YALETOWN marina view, 5 appls. park’g, pool, gym, Aug 1 $1500/mo
1 BR, 6 appls., gym, prkg., locker, lease. $1,450
August 1st, 2008 at 3:23 pm
AHandle, the other thing to keep in mind is that rent increases every year while your mortgage amount outstanding drops with every payment.
August 1st, 2008 at 3:23 pm
Ahandle, I think you’re just trying to take the focus of the accurate advantages of renting versus buying right now.
If you were serious you could easily find a nice 600 sq ft place in yaletown or coal harbour for $1350 if you went to househunting.ca
I used $1500 so the trolls wouldn’t pick off the stats.
Your 4.2% mortgage rate is a joke too leading me to determine that you’re just trolling and have no real interest in this blog.
August 1st, 2008 at 3:09 pm
Drachen, those were bubbles, but they did not start in prior decades. The Japan real estate bubble started in about 1986, as did the run-up on the Nikkei. Neither of your examples is even close to a decade.
So you believe that affordability drives corrections? I don’t. It is simply a measure of current valuation. Corrections are driven by other factors.
With respect to fundamental value, I assume you are referring to price to rental ratios. The rental rate component of the equation is biased low by a significant amount. Rents are calculated by only considering the low end of the marketplace (i.e. multi-story wood frame buildings constructed in the 60s/70s). Over time that rental product represents less and less of the actual marketplace. Rather, one off condo units are providing the new rental product.
You need to ask yourself why nobody is building multi-story wood frame buildings for rent anymore. You need to ask yourself why those woodframe buildings sell far below the cost it would take to rebuild them, never mind the actual land value. The reason is that rental rates are too low, rather than real estate values being too high.
I would suggest that a better measure of fundamental value would be to consider the cost of construction and value of land. The cost of energy and commodities needed for construction are unlikely to drop significantly. The cost of labour also rarely drops, especially in times of low unemployment, like we have now. The demand for land is only going to increase with the growth in our population. If you talk to any developer, they will tell you how difficult it is to find developable land. Empty lots just don’t exist anymore. On top of that, consider how low the vacancy rate is. Future demand for rental product will continue to grow. I expect rental inflation to be very high or the next decade and well above the core inflation rate.
August 1st, 2008 at 3:03 pm
Vansanity,
If you put rockets under the Lower Mainland and blasted off, Vancouver would no longer be the best place on earth, QED.
I wonder how that would affect prices….
I also note it seems to be shaping up to be another friggin’ cold summer. 19 degree high for AUGUST 01? Jesus.
August 1st, 2008 at 3:02 pm
Your right you can find a decent place for $1500 in downtown *Richmond*
http://vancouver.en.craigslist.....58508.html
August 1st, 2008 at 3:02 pm
$500K condo rents for $1900? Said like it’s completely normal.
August 1st, 2008 at 2:58 pm
According to a report just release by the institute of imaginary data (sorry don’t have a link handy at the moment) the top 5 things that people around the world think of when they hear the words ‘British Columbia’ are as follows:
5: The winter games
4: Leaky condominiums
3: Marijuana & Heroin
2: Beautiful collapsing roads
and the number one thing people around the world think of when they think of BC (drumroll please)
1: Feet washing up on the beaches
August 1st, 2008 at 2:53 pm
Ahandle, are you talking about downtown Vancouver rent?
If you can rent out a 600 sq ft unit for more than $1500 then you have a career in Property Management in front of you since you’re clearly better than anyone else who’s ever done it.
August 1st, 2008 at 2:50 pm
$1750 Mortgage on $500,000 (4.2% at ING)
$250 Strata
$500,000 rents for $1900
Mortgage + Strata = $2000
Rent = $1900
Leaning toward renting but not quite as dire as you make out.
August 1st, 2008 at 2:48 pm
the source:
i’m an economist at SFU. as far as i know, none of my colleagues are involved in a project like the one you describe. do you think maybe you could give us a reference?
thanks.
August 1st, 2008 at 2:48 pm
“You’re right, I got my crashes confused! The 40% drop was in the early 80’s.”
I was mixed up too. Mostly because 1989-90 was a bump and not a correction. As I’ve said before we have not seen a proper price correction since the early ’80s. All of those increases will be lost over the next few years.
Dave will sputter and fuss over that but other than saying economics must obey the laws of physics and he decides which laws apply when and where he really hasn’t had a single counter argument. (I include the physics mumbo-jumbo because it was his only attempt, not because it means anything outside of his own deranged mind)
August 1st, 2008 at 2:42 pm
Dave
“No they didn’t. If this is a 1989 style correction, then you should be out there buying up the town.”
You’re right, I got my crashes confused! The 40% drop was in the early 80′s.
August 1st, 2008 at 2:34 pm
before that tool Dave tries to say you’d need less than $350k.
$600 per $100,000 =$3,000 mortgage
$250+ strata fees.
$500,000 rents for $1500.
Mortgage and strata = $3250
Rent = $1500
in order to put enough down to make that one neutral would need $325,000 and that’s if no GST or PPT is being applied.
And if you have $325,00 cash and put it into a GIC @3.7% at ING and use the $880 a month interest towards the rental and pay only $620 per month while waiting for the downtown condo market to drop 40%
August 1st, 2008 at 2:31 pm
Anon49, on a $500K house it would be $75K. Current $750K detached benchmark would be $112K and change. 0.15 times the price. That’s if you think this is 1989. You know what that means? 2009 will be Hammer Time!
August 1st, 2008 at 2:30 pm
p.s I mean 50% down in order to qualify as an investment and in the rental condos downtown you’d need to put $350,000 down to break even on a $500,000 unit.
That’s presuming interest rates don’t go up for the next 25 years and the building doesn’t require $140,000 per unit for remediation.