Why a home is a bad investment
Those heretics over at Canadian Business magazine have a cover article this month called Why Buying a House is a Bad Investment.
The euphoria around home ownership crowds out some of the unpleasant truths about real estate: mainly, that long-term returns are often modest at best. Some studies have found that stock indexes actually outperform housing. More worrying is that real estate prices can and do fall — and they can take a long time to recover. Canada has not been immune to severe price corrections in the past, and we could be on the verge of another one now. With interest rates set to rise and curb affordability, and with economists speculating about a bubble, staking one’s entire financial future on a home is not necessarily a wise bet. In fact, a house just might be one of the most overrated investments around.
..and it goes on and on.
“There’s a unique confluence of factors that has driven house valuations up this sharply,” says Derek Holt, vice-president of economics at Scotia Capital. “They’re all temporary, and that’s a house price bubble that could be pricked as we go off into the next year.” The rate of growth in home prices for the past 10 years has in fact been out of line with prior decades, pointing to lofty valuations today, according to Holt. Prominent Canadians such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge have also sounded the alarm recently on today’s unusually rich home prices.
You can read the full article at the Canadian Business website, but these people clearly don’t know what they’re talking about. After all, real estate prices never go down, everybody knows that.
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March 15th, 2010 at 3:24 pm
For the past year I had been out looking to buy armed with a real estate agent (I was looking for something less than 10 years old (preferebly 5)). Just my preference. It would get to a point where one place seemed interesting..hmmm..seems like an okay place then I would ask the question to the RE agent..What was this purchased for 5, 3 10 etc years ago…Everytime I was absolutely shocked at how much the price had increased over a period of 5 years or less. I could not justify handing over 100000 profit on a 400000 place that was purchased for 300k 5 years ago…To me that is just silly…I just cannot find the logic in that….As an average buyer I was just trying to find a decent place to live (mind you you have to travel outside the city to find anything remotely worth the price (even then…not so much).
I then find a place in a decent range and the RE agent says…well ya know..you and your gf might want to have something bigger incase you have kids down the road…Girlfriend then got convinced we needed something bigger..
It was at that point I walked away…In the end it will be greed that sinks this ship..This is one potential buyer that turned away at the last minute..Im sure there are more out there with the same stories..
March 14th, 2010 at 12:50 pm
You can’t afford an apple,doesn’t apple is sour;Chinese alone can sustain Van ER.To Chinese is milk and honey.
“Vancouver really is the ‘Best Place on Earth’ for me! Do I have to own it? No.” « Vancouver Real Estate Anecdote Archive Says:
March 14th, 2010 at 6:28 am
[...] March 2010 · Leave a Comment Dorker at vancouvercondo.info 11 Mar 2010 9:07 pm [...]
March 12th, 2010 at 10:14 am
oneangryslav2:
You cannot assume any appreciation or depreciation going forward for a house when estimating returns, because nobody has any obligation to buy it from you at any time for any price. It’s not like a bond where the issuer has an obligation to pay you your money back on some date. It’s like a stock. Competent stock market investors never assume that they can sell for any given price in the future, rather they look only at earnings.
You have to assume you will own the house forever and compare the present discounted value of future net rental value, i.e. the fundamental value, with the maket price. Needless to say the market price for Vancouver RE at present exceeds fundamental value by a factor of at least 2.
March 12th, 2010 at 10:06 am
@VRENGD:
Patently untrue. Your return is the difference between ownership costs and market rent, as I have already pointed out.
Are you saying that someone who bought a house in the mid-80’s, and has been paying monthly costs below rental value for the last 20 years (i.e. net below rental over the whole 25 years), and now has a paid for house, hasn’t received any financial return?
Give me a break.
“I grew up in a house with a garden and my children grew up in a house with a garden, just 10 thousand miles away. When we moved to Vancouver I took one look and I knew that buying a house here is a definitely a bad idea.” « Vancouver Re Says:
March 12th, 2010 at 9:41 am
[...] March 2010 · Leave a Comment White Payer at vancouvercondo.info 11 Mar 2010 3:33 pm [...]
“I flipped 3 homes between 2003 and 2007 and more than doubled my money. Banks would lend me $1,000,000 if I asked for it. I do not see any good opportunities in Vancouver at the moment. Vancouver is like the souvenir shop at the airport where items Says:
March 12th, 2010 at 9:33 am
[...] March 2010 · Leave a Comment Anonymous at vancouvercondo.info 11 Mar 2010 3:14 pm [...]
“I was in no situation to buy RE in 2005. Prices here have nowhere to go but down. There is no jealousy, hate or immaturity in this position – just financial discipline.” « Vancouver Real Estate Anecdote Archive Says:
March 12th, 2010 at 9:27 am
[...] March 2010 · Leave a Comment Nero at vancouvercondo.info 11 Mar 2010 2:49 pm [...]
March 12th, 2010 at 9:23 am
@Vansanity: I am just wondering how would you compensate your followers?
Don’t you see big difference between 60,000 vs 8,000 listings end of 2008?
Only a shoe shine boy could be that much wrong,I don’t think window licker could ever beat this shoe shine boy and and.
Do you know the difference between 45% appreciation and 70% crash?
that would make a total of 115% appreciation vs your prediction.Now i want you to pay 115% difference to every single bear on this board and say sorry to all the bulls if you looking for cure for your retard prediction that you were spewing on this forum.
March 12th, 2010 at 8:55 am
@Kite towards moon: I’ve got some real expensive italian leather shoes that you should be working on, rather than be on here trying to poke a bear.
You’ll be one I’ll be looking for when the shit hits the fan. Good luck!
March 12th, 2010 at 8:39 am
@doug r:
Or they get a reverse mortgage.
March 12th, 2010 at 8:18 am
@Dorker: We’re just almost 3 years behind California, is all.
March 12th, 2010 at 8:01 am
@Dave: It costs money to maintain those massive mcmansions. When they stop working, their income goes down. When the market goes through a contraction, especially if they rely on house flipping for income, they will have to sell. Eventually they will sell to get extra cash or they will default in the 25th year of their 35 year refi.
March 12th, 2010 at 7:56 am
@Stupid Bears:
Not everyone lives in Point Grey-there’s only so many suckers with huge piles of cash out there. Eventually average homes in family neighbourhoods will come down to affordable levels:
Houses in LA County getting back down to reality
March 12th, 2010 at 7:01 am
@Vansanity: I happen to agree with you re us being in the vicinity of a market top.
However, regarding the ’shoe-shine-boy’ indicator, well, shoe-shine boys and equivalents have owned RE in this town for the last 5 years or more.
And, while we’re talking indicators, all of the sentiment indicators (pervasive mindless bullishness) topped out years ago and this market still plowed on.
2008 likely would have been the top, but we were perversely bailed out by the stock-market crash. Money went from free to freer, and even more demand got dragged forward (20 year old shoe-shine equivalents buying RE).
Anyway, as it’s been said before by many here, the bigger the bubble the bigger the bust. Currently the bubble walls are as ‘wafer-thin’ as a Mr Creosote mint.
Bull Hubris?… Or Appropriate Owner Confidence?: “Fundamentals don’t apply to Vancouver. Real estate has detached itself from economic reality long ago. It has reached escape velocity to break away from economic gravity. It is a beautiful case study. Says:
March 12th, 2010 at 6:41 am
[...] Anonymous at vancouvercondo.info 11 Mar 2010 3:41 pm – [in response to a renter who enjoys the freedom that comes without a mortgage] “Hey, be sure to enjoy your “freedom” on the streets when you retire, and have no home of your own. Life is not easy, and sometimes it requires commitments like home ownership to get ahead.” [...]
March 12th, 2010 at 6:05 am
Hey Kite toward moon and happytimes, here’s a little something from Google translate:
现在你的母亲是我的大海洋吮吸阴茎
The rest of you, translate at your own risk.
March 12th, 2010 at 12:08 am
It’s a great investment in Vancouver for those who are looking for 2% yield over 35 years.
But that’s okay because we need more home owners and housing starts.
After all, someone has to pay the city taxes and pay the development fees.
March 11th, 2010 at 11:37 pm
Human,
We were here to see bears up dating Larry’s number in the forum posted by VHB but it seems like bears can’t handel sky rocketing sales so there is no update.
Once again everyone,In Vancouver more listings mean more sales.Oppertunities are disappearing so does your chance to enter.
March 11th, 2010 at 11:19 pm
Man there must be something happening in the market because there is a huge uptick in the bull, as well as incomprehensible, postings.