Preparing for falling prices
Canadian Mortgage Trends has an article about getting your mortgage approved before prices fall.
When home prices do fall, it makes it tougher for certain people to qualify for a mortgage—especially for refinances. When prices start dropping, appraisals come in lower, insurer valuation systems become more conservative, and lenders tighten up in general.
Vince Gaetano, a broker with Monster Mortgage, tells the Financial Post that people are already trying to get approved “before there is a correction in the real estate market.”
Of course prices may fall in the rest of Canada, but we all know they won’t fall here in Vancouver right guys?
June 29th, 2010 at 6:56 am 1
The constant spin and illogic of the Re industry never ceases to amaze me. Yup, you need to hurry up and buy a house before the market goes down.
The really interesting thing is watching them squirm as rates go down and prices go down at the same time. They appear to have simply no idea how much air is in this market. Meanwhile HST further erodes general affordability.
The next one coming is a market "balance" due to the pre-HST sales. The pre-HST surge will bring sales up for about 2-3 weeks before they flatten sharply in July. However this will be reported as a "balance" and proof of a "bottom". You can time this one with an egg-timer. Watch for it this week or next.
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June 29th, 2010 at 7:23 am 2
Heard on the streets of Tokyo, 1989:
"I buy three my husband buy three!"
Forget the US housing bubble, we just need to look to Japan to see how this is all going to play out.
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June 29th, 2010 at 7:25 am 3
Hurricane warning in order
http://www.jugglingdynamite.com/
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June 29th, 2010 at 7:34 am 4
The 'hurry up' buyers in the Okanogan market are sure taking a bath. Being first in line was definatly a bad strategy as prices plummet and despite 'reduction' from the grossly inflated price there are still no buyers. I guess the asking prices are too high then?
http://www.vancouversun.com/business/Buyers+take+…
This is a typical example of what happens in all markets when the cycle begins to accept an alter perception from the hype. The micro markets around the periphery begin to crumble leading to a rapid collapse at the epicenter, much like a sink hole forming in an intersection, it just goes 'whoooomphh' down the hole taking all the fools with it. Theres no escape from this as we see in the OK where asking prices ared own 40% in some cases from the incredibly bubblish peak. Its not as if value is being lost, it was never there in the first place….perception remember.
The last gasp of the pimps is being played out on the front pages this morning, either the Chinese are going to save us or….we buy before prices go down. Bwahahahahahahahahahahaaaa……yeah right.
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June 29th, 2010 at 7:55 am 5
(When home prices do fall)
Ha Ha Ha Ha Ha………………When? Where?…………….Ha Ha Ha……..Never in Vancouver.
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June 29th, 2010 at 7:58 am 6
@realpaul:
Don't worry in Sept there gonna be few thousand wealthy Chinese tourists shopping houses in Vancouver.Thanks,China one more time.
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June 29th, 2010 at 8:04 am 7
Bear if house price fall elsewhere in Canada it make sense to get pre-approval since you never know when move to Vancouver is needed. If price do fall elsewhere many people will come to Vancouver since price do not fall which mean higher prices. You lose again bear. You lose again.
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June 29th, 2010 at 8:12 am 8
Did bears see 5 year bonds lately? They're dropping like a bear after 5 cranteeny's. Mortgage rates are next. But rent stays the same, which is due tomorrow. just drop it in the mail slot.
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June 29th, 2010 at 8:17 am 9
@Junius: Silly bear, didn't even read article. It is talking about re-financing, not new buyers. But very easy to paint all RE stories with same brush. I can do too, watch. All bears are sad loser living in rented basement. That was fun. Bear analysis skills are sloppy like Italian defence in FIFA hifi.
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June 29th, 2010 at 8:53 am 10
Any anecdotes on falling prices / little interest today? We know people who recently listed their house in the North Van – Deep Cove area. They've had two open houses. One open house had one visitor, and the second two visitors. House value is $760k. The realestate agent is going to re-list it as a starter home to try to draw more interest. What kind of person buys a $760k property for their first home anyways??????
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June 29th, 2010 at 8:58 am 11
@SuperSmartBull: Actually Junius is correct to point out that many people will be stupid enough to think that they should take the opportune now to take out equity they have available to invest in more real estate. They have already fallen ill to the myth of "real estate never goes down and if it does go down it's only for a little while". SO the typical idiotic bull is going to refinance at 80% LTV and use the available equity to double down on two investment properties in a "safer" market. The sad truth is that there is no "safe" market in this environment. Also for those thinking that they're getting a deal on a better interest rate for rolling all your debts into your house, most likely your credit card rates will be jacked when the shit hits the fan since the banks will have to cover losses in one way or another. You cannot "beat" the banks. They'll get your money one way or another if you depend on credit, as costs of borrowing rise. If enough people max their refinances and the shoe drops, costs of borrowing will rise even faster. Be prepared for for banks to screw you in so many other ways.
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June 29th, 2010 at 9:13 am 12
@900kCrackHouse:
Apparently not.
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June 29th, 2010 at 9:15 am 13
@Junius: I'm going to disagree that Vancouver still has a final hurrah in pre-HST sales. There will be no significant change from the last few pre-HST sales. This turkey is already burnt to a crisp. There will be no sales surge; if anything it will be slightly flat but mostly declining. Vancouver numbers show that the last of the greaterfools have already been exhausted in April. Toronto numbers showed that May was the last of the greater fools. June is the last month before the HST on July 1 for Ontario and yet the stats were still abysmal.
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June 29th, 2010 at 9:21 am 14
Bull is right. Bonds going down, mortgage rates to follow. But that's not good news; it means no new jobs to pay the mortgage or rent. I wonder when people will clue in low rates aren't "free money."
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June 29th, 2010 at 9:21 am 15
If 'they' agree that prices are going to fall, wouldn't the better advice be to sell your stupidly overpriced vancouver home and rent while you can instead of renewing the mortgage?
The mortgage broker is not hurt as another turkey will pick up a mortgage.
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June 29th, 2010 at 9:47 am 16
Bond yields are indeed getting hammered on both sides of the border.
That can only mean one thing – financial collapse Part Deux is upon us and this one will be worse.
The US is already sliding into another recession.
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June 29th, 2010 at 9:54 am 17
Bear bond yield go down just like stock market even most retarded bear should know this. What does it mean for Vancouver real estate and jizzbag bear renter? Well it mean that mortgage rate go down and house price go up and loser bear "savings" go down. Sounds like you lose again bear
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June 29th, 2010 at 10:05 am 18
With asia's increasing global power this will be a reality for the rest of our lives. We will all have to get used to it, and learn to take the higher housing cost in exchange for the ecomonic benefits it will provide:
http://www.vancouversun.com/life/Wealthy+Chinese+…
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June 29th, 2010 at 10:21 am 19
@Vanrod:
So 40 people have the power to control the entire Vancouver real estate market? Keep dreaming…
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June 29th, 2010 at 10:26 am 20
@Vanrod: I have no issue people blowing their brains out borrowing absurd amounts of money just to say they own RE in Vancouver. My rent is at a very comfortable level that I can afford and lets me live and save for my future.
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June 29th, 2010 at 10:29 am 21
@Vanrod: One more thing I forgot to add, if the Chinese can't save their own market, how will they save Vancouver's?
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June 29th, 2010 at 10:30 am 22
I have a question about "daily numbers". Aren't the sales listed each day only those that are POSTED to the system on that date? Don't the actual sales dates range over several weeks prior to the date posted on the system? In other words, will today's sales really reflect the market today, or rather the average market over the past several weeks?
I apologize if this has been answered here before, but knowing the answer to this might help me understand the seemingly erratic nature of daily sales.
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June 29th, 2010 at 10:30 am 23
I'm in the Okanagan. Lots of For Sale signs, so far I haven't seen one Sold sign. Even the brand new condos have signs out front saying "Inventory pricing now available" whatever THAT means! Couple people I know are trying to sell their houses..not too much going on. Where are the buyers?
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June 29th, 2010 at 10:35 am 24
@Recently Bearish: You are right. Sales included in the dailies are transactions that actually took place like 1-2 weeks ago. So, all the 'it was sunny yesterday' and 'Greek Day made everyone want to buy' justifications are just whispers in the wind. Listings, on the other hand, go through pretty much right away.
For example, in my PCS/VOW account, I can see the following information for 3 recent sales.
Date of Sale, Date of change of status
June 13, June 22
May 28, June 9th
May 3, May 11.
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June 29th, 2010 at 10:39 am 25
I think people should really be trying out some of the mortgage rent vs buy calculators out there. There are some good ones like this one by yahoo:
http://realestate.yahoo.com/calculators/rent_vs_o…
I did a comparison of the place I'm currently renting downtown at 2400 a month and at a 6% interest rate (higher than right now, but that's still reserved for the future) im better off renting by 292k.. LOL… I would love to see a post on various scenarios VCI..
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June 29th, 2010 at 10:40 am 26
re: sales numbers
The daily sales numbers are 'completed transaction' and are sales where are the subjects have come off and a closing date for possession is legally in place.
The actual purchase date could have been a few days ago or even a couple months ago. So basically June sales are not really June sales because many of the places are were actually sold in April or May.
Listings on the other hand, only take 1 or 2 days to get entered into the system.
With the daily numbers, you are getting a real mixed bag and it is dependant on which sales happen to 'complete' that day. It is better to look at monthly numbers.
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June 29th, 2010 at 10:52 am 27
#13 Gary,
I don't think it is a "last hurrah" either. Just a slight increase in the trickle before the well goes dry.
In any event, I agree that the pool of greater fools has shrunk down to a very small group. I would think we will have record low sales in July, August and September.
The long, dry summer is upon us. Low listings, lower sales. The market is positioning for the great fall in the fall…..and beyond.
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June 29th, 2010 at 10:57 am 28
Hi Guys,
Another refugee from the Johnny Horton blog here.
It seems it has shit itself this a.m.
Not surprising with all the bot spamming that's been going on there lately.
Some of you that used to post there or those that lurked there will recognize me as one of the ones who battled the JH, Thompson, jimtan, silverman, eyesthatlies etc. bull mob.
Anyway, thought I'd introduce myself and it's been fun reading some of these posts.
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June 29th, 2010 at 10:58 am 29
@Bored: A lot seems to hinge on guesstimates regarding appreciation of rent vs. house price. Which, of course, in a bubble is all out of whack.
Even still, putting in a greater "appreciation" of home over rent by 3%, I still come out ahead renting by 170K over 30 years. With rates of appreciation in rental and housing being about the same, I come out ahead by $400K by renting!
When it doesn't even *matter* what guesses you're making about the direction of housing supply and appreciation, you know things are seriously out of whack!
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June 29th, 2010 at 11:11 am 30
@Bored: Don't forget…that is an American calculator you posted so there is a provision for the tax deductability of the mortgage insurance. So your savings are even higher.
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June 29th, 2010 at 11:20 am 31
A sad story of homoanership. 1042 Palermo listed for $549,000 on April 6, 2010. Down to $539,000 on May 9. Down to $519,900 on June 25. Now this:
http://tinyurl.com/2u7t8hf
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June 29th, 2010 at 11:21 am 32
@Absinthe:
Exactly. The problem with these calculators is that they take appreciation as an independent variable, when it's really a dependent variable that is driven by fundamentals in the long run.
A proper calculator would not have you enter a purchase price and appreciation at all. Instead you would enter the other parameters and it would tell you what a reasonable purchase price is.
There's a way to approximate this simply by entering rent and price appreciation of, say, 2% and interest of 6%, and trying out purchase prices to find the break even point with renting. Surprise – it's about 150x monthly rent.
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June 29th, 2010 at 11:28 am 33
@Vulture Fun: what he'll get for it next year won't start with a '5'.
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June 29th, 2010 at 11:41 am 34
@Bored:
You're comparing your rent today, with an anticipated future interest rate, over a long timespan and somehow think that's reasonable? Your rent is likely to change, just as interest rates are.
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June 29th, 2010 at 11:43 am 35
@G:
"The actual purchase date could have been a few days ago or even a couple months ago."
I think a couple of months ago is unlikely. If I were a seller I'd be very reluctant to accept an offer which has more than a couple of weeks for subject removal.
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June 29th, 2010 at 11:52 am 36
@VHB: Agreed. The sad part is that 549K is (was?) a pretty good price relative to comps in Chineside which is one of the better Coquitlam neighbourhoods.
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June 29th, 2010 at 11:59 am 37
@patriotz:
OK
If you are not already, You need to seriously think about becoming a finance professor, or at least editing texts. It would probably be a professional step down, but the impact on the next generation IMO would be huge. It goes without saying you obviously have a strong finance educational background, but the value is in the fact that you find ways to communicate it that just make so much commmon sense.
Seiously, this is my last Patriotz praise session.
A# out
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June 29th, 2010 at 12:09 pm 38
@metalhead:
Welcome metal.
How's the MHFI index going?
RE talks was a lot better back when there were moderators.
Now the squaaaarrrk/signal ratio over there is overwhelming.
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June 29th, 2010 at 12:10 pm 39
Re: Anonymous
Please look at the results of the Calculator, rent increases are there calculated by a variable…
While I'm sure every bull here could find holes in the calculator it will still come out ahead for the majority of renters in the lower mainland even with 'bull friendly' variables.. That said… I would love to hear your own comparisons.
RE: http://realestate.yahoo.com/calculators/rent_vs_o…
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June 29th, 2010 at 12:16 pm 40
@Vulture Fun: 1950 for a 2 bedroom house in coquitlam? LOL good luck, should have sold for what they could get and been done with it.
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June 29th, 2010 at 12:30 pm 41
Hi piano, er, I mean A sharp.
Ha, yeah the MHFI. It's going through the roof.
I don't know what's going on, the mods have abandoned that place completely.
I'll still pop in now and again to stick it to the odd bull who says something particularly stupid but I'm going to decrease my visits there for sure.
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June 29th, 2010 at 12:36 pm 42
SuperSmartBull #9,
Here is a story about refinancing for you painted with a different brush.
Say you bought an apartment for 400k and put down 20k. Your mortgage includes CMHC fees and is about 390k. Fast forward 5 years, market corrects by say 15%. At refinancing time, you condo is worth 340k and you still owe 360k. What do you think the bank will do?
They ask you to cough up an additional downpayment to support your mortgage and to qualify for another 5 years. Say 40-50k, depending on qualification ratio at that time.
Scenario 1: You pay and get your mortgage prolonged.
Scenario 2: You do not pay, bank forecloses and gets money from CMHC. Clear business case, why wait for 25 years if you can get everything repayed now. It so nicely improves the balance sheet.
Scenario 3: You have three such properties…
… and you become a mortgage-free, or should I call you a renter…
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June 29th, 2010 at 12:47 pm 43
I went out with a friend I haven't seen for years. He moved from Winnipeg here about 5 years ago, and just loves the city. He's one of the few people that agree Real estate here is due for a crash. He and his girlfriend are renting a really nice 2 br condo with den, right in coal harbour for $2k a month. Condo fees are $600 a month.
Anyhow, he is a CA but is striking it out on his own with a few partners. They have their own web based start up company. One thing he said really struck me. He said "you know….because of my partner and I, we have 5 people drawing paychecks. We haven't paid ourselves for 1 year so far, but it feels great to have created 5 jobs. The thing that sucks though is that there are no government incentives for entrepeneurs". So there's plenty of incentives to go buy a house (cheap easy money), but very little to encourage economic growth.
KK
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June 29th, 2010 at 12:50 pm 44
Re Non metro Vancouver Real Estate
The drop in demand (and thus prices)is a good warning sign. Recreational property is a luxury and a sign of stupid money.
The leading edge of the baby boomers have shot their wad in their final gasp at having it all.
Local Gov't/Regional districts are pigs as far as gouging property owners. The services they provide are F*ck all compared to real cities. Its not for the weak of heart to see the tax gouge increase year by year.
I don't see offshore buyers supporting prices , nor the Gen X crowd either.
Recreational prperty is like a boat, you may use it on average 6 -8 weeks of the year. Then it sits doing nothing. When you look at the taxes, insurance, maintenance etc, you'd be better off taking that same money and going on a nice turnkey vacation without the headaches.
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June 29th, 2010 at 1:00 pm 45
RE sales update: just talked with a Van realtor who’s been making multiple six-figures for years. Apparently deals are falling apart over $5k differences between buyers’ bid and sellers’ asking price — unheard of previously, when buyers would just pony up the extra, and very frustrating to said realtor.
Also, many buyers making offers are subsequently unable to get the financing afterward. Such problems previously occurred very rarely but are suddenly common almost overnight.
Times they are a changin’.
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June 29th, 2010 at 1:01 pm 46
Markets are taking a pounding today. Wonder if there will be some panic induced selling out there.
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June 29th, 2010 at 1:04 pm 47
BMO lowers mortgage rates
http://www.vancouversun.com/business/lowers+mortg…
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June 29th, 2010 at 1:04 pm 48
#43 KK there are LOTS of incentives for entrepreneurs. Your fried obviously hasn't bothered to look. Just google the following:
IRAP
SRE&D
MITACS
SBIP
BC Investor Tax Credit
These are just off the top of my head.
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June 29th, 2010 at 1:07 pm 49
@Krazy Kanuk: "The thing that sucks though is that there are no government incentives for entrepeneurs"
Nope there are lots of incentives. The catch is you actually have to do something innovative to get them. Imagine that.
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June 29th, 2010 at 1:11 pm 50
@patriotz: "A proper calculator would not have you enter a purchase price and appreciation at all."
There are legitimate reasons for appreciation ex current rent, such as density increases and gentrification.
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June 29th, 2010 at 1:16 pm 51
@Krazy Kanuk: further to my previous point, there are small business tax exemptions, as well as other considerations for small companies in BC. The provincial government, both under the NDP and the Liberals, have maintained these provisions in various forms to encourage entrepreneurship. I think claiming there are no incentives for entrepreneurs is wrong, though perhaps there could be more. On a related note, the NDP in the '90s had many programs for small businesses that were "streamlined" by the BC Liberals in the 2000s. The Liberals lowered taxes for everyone in lieu. Not saying one philosophy is better than the other.
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June 29th, 2010 at 1:23 pm 52
Well, unless you're a realtor, or living in a cone of stupidity, you may have heard that the Chinese markets are getting roiled in light of a Conference board report stating that Chinese growth should slow significantly.
http://www.marketwatch.com/story/conference-board…
And note Chinese Economist Andy Xie predicts that even in the event of a Chinese slowdown, interest rates will be headed up for fear of a property bubble. And when prices do go up, a 50% drop in property prices has a high likelihood of occurring. Even in the face of rising wages.
http://www.marketwatch.com/story/sweet-spot-for-c…
Isn't it funny how many reports are coming out against China?
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June 29th, 2010 at 1:23 pm 53
@jesse: Yep, you do have to do something to get them. The unfortunate thing is that all you have to do to be approved for a CMHC backed mortgage is show that you have a pulse. By making it easier to get a mortgage than capital for a start up, the GoC is saying that they value home ownership over real economic growth, as funds are diverted from investment in actual wealth production to speculative asset appreciation.
I'm not saying that we should loosen access to capital for every crazy scheme out there. Only that we tighten credit for mortgages.
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June 29th, 2010 at 1:27 pm 54
Their is nothing magical about real estate.
Remember when garage sales benfitted both buyer and seller?
Nowadays, garage sales are waste of time and many people simply send the items to various charities.
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June 29th, 2010 at 1:34 pm 55
He He…Check this out
Here we have an innovative new rent to own system. In one of the options of this system you pay:
-$9000 DP
-$1800 a month for rent ($200 credited to purchase price). Also note that market rent for this is $1000 on the nose. Comparables have been seen asking 950 for 2 br.
-Then you get to buy for $370,000 in three years (but dont worry
you get 200*36 back…so its only 362,800
advertising:
http://www.renttoownsolutions.ca/files/317%20-%20…
Comparable unit (brand new) in complex for sale:
http://www.realtor.ca/propertyDetails.aspx?proper…
So you get to pay 600 extra a month, tie up 9000 for three years and then pay 140000 extra for the unit…
Just trying to understand…this program is for those professional people who want to live somewhere long term…have a down payment…can afford 1800 a month…but cannot get a mortgage?
lol
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June 29th, 2010 at 1:39 pm 56
You renter jizzbags!
When you decide you want to move, you just give notice and move out a month later! WAH! You don't have to hire Home Stagers to remove your furniture and replace it with rental sofas and generic non-threatening art for hundreds of dollars a week! WAH! You don't even pick up your dirty underpants when I'm trying to show the place to prospective tenants! Why don't you grow up and purchase a place so you can have your lifestyle scrutinized by strangers at Open Houses? Be a grownup, jizzbags!
(parody)
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June 29th, 2010 at 1:41 pm 57
"And note Chinese Economist Andy Xie predicts that even in the event of a Chinese slowdown…"
This makes me laff. Whatever happened to Marxist theory?
I remember Raissa Gorbachev was a staunch believer in Marxist economic theories.
Poor Raissa, she received quite a tongue-lashing from that Nancy Reagan bitch. "Just say no!"
Oh well.
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June 29th, 2010 at 1:42 pm 58
Double dip part 2 is upon us. Prepare for a repeat of 2008 in the Vancouver housing market…
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June 29th, 2010 at 1:50 pm 59
#37 @“A-Sharp” Accountant: I greatly prefer him posting here. Any interested person can seek him out and learn. If he were a finance professor half his class might be douchebags and about 25% could be evil, and you'd have to pay high tuition to get access to his daily insights.
The internet is a great levelling force. Over time the bozos and the intelligent people tend to sort themselves out. In 30 years the job of a professor might be gone. They'll still be around of course, doing the things they do, but I bet the cost structure and access to information will change radically.
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June 29th, 2010 at 1:53 pm 60
Mainland Chinese investment $$$ is simply an unpredictable black box.
Gov't policy could easily be changed to shut off the tap.
I find it rather funny how our realturds are now admitting how dependent our RE market was on mainland China. Sounds like the band on the Titanic re-arranging the deck chairs to calm the masses.
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June 29th, 2010 at 2:01 pm 61
@Patsan: I hope this is funny bear joke.
Sit yourself down with a cranteeny in a quiet place and ask yourself serious question pretending you are bank CEO. Should we (a) foreclose on customer who has been paying mortgage and take loss on leaky condo or (b) just let him keep paying on underwater home? If you cannot answer correctly, then you are not ready for home ownership, business or Subzero. In fact you should stay away from power tools too, just to be safe. Playstation is OK.
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June 29th, 2010 at 2:05 pm 62
@SuperSmartBull: That's right. The bank will let you keep paying the underwater mortgage. And they will axe your line of (unsecured) credit, and generally make you feel pretty poor (which you are).
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June 29th, 2010 at 2:10 pm 63
http://www.cnn.com/2010/BUSINESS/06/29/china.rent…
Hahahah
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June 29th, 2010 at 2:13 pm 64
Uh oh bear stock market down 3% today lose all your "savings" again. 3% of nothing is still nothing though so no panic needed bear. Still time to "save" for big "crash" never gonna happen. Bear you keep losing day after day and government come in and mess up plan. Why is that bear? Answer is simple. No one like jizzbag renter bear. Should have paid more attention in school bear put down the bong.
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June 29th, 2010 at 2:14 pm 65
#55 @“A-Sharp” Accountant: Now that's just laughable. If I thought for a second anyone would take it, it would be sad.
I have a better deal: rent a place and pay $500 extra a month to me. Then in 3 years I'll send you a bill for $100k for nothing.
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June 29th, 2010 at 2:18 pm 66
@NO-LYMPICS:
Alleging, not "admitting".
One thing I should say is that it's easy for anyone with some background in economics and corporate finance to sound smart about residential RE investing. It's the simplest tangible investment going. When you try your hand at stock market investing you find out who the really smart guys are.
It also means that you really can't make big money in residential RE just by being smart, because it's too easy to figure out. Most people who have made money in RE got it not by being smart buyers, but by selling to people who are stupid. Of course they don't realize this, and they also don't realize that the supply of stupid buyers is limited.
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June 29th, 2010 at 2:21 pm 67
@rp1:
That is 17.17% compount appreciation expected by the owner.
If it did not have all the pre-made communications, I would have thought it was a joke.
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June 29th, 2010 at 2:38 pm 68
@“A-Sharp” Accountant:
Yes, but didn't you read the Vancouver Sun? There are 40 Chinese people coming to Vancouver/Toronto this summer to shop for houses. Surely 17.7% is conservative
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June 29th, 2010 at 2:47 pm 69
Today…
Me: How's condo selling going? (Bby, 1BR)
She: Not good, can't sell.
Me: Why?
She: Can't get more than 250K
Me: How much you've paid?
She: 150K, 2003
Me: Yeah, too bad…
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June 29th, 2010 at 2:49 pm 70
patriotz:
A few tanks running in Tiannemen Square would probably help Vancouver RE prices.
Other than that , investors are looking at firing their investment like a spitball that sticks the best. RE is historically more real and tangible.
In the good old days, the pool of greater fools was relatively predictable. Now its a big toss-up.
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June 29th, 2010 at 2:49 pm 71
SuperSmartBull,
Let's pretend I am a CEO. What would I do?
I'd say we have this sucker by the balls. He will not go to another lender as he has negative equity and nobody will give him financing unless he pays the difference that he does not have. And, by the way, let's double his mortgage rate as his morgage can now qualify as risky. Let him be our slave. If he misses the payment or dies working on 3 jobs, CHMC will cover our loss.
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June 29th, 2010 at 2:52 pm 72
@Raguz:
Shoulda told her to sell it to her husbun for $250K cause he'll be certain to pocket a $100K profit 7 years later. Rinse and repeat until forever cause Van RET only goes up.
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June 29th, 2010 at 3:02 pm 73
So what criteria do banks use to determine property values? To put it another way, how do they know when you're underwater if it's just by 5-10%? It's not like they conduct an appraisal before you purchase – at least, not one which requires an actual VISIT of the property in question.
If I want to buy a place for 2x assessed value, would the bank say "no, this property is not worth that much so we won't loan the cash"?
For all this talk of "paying the difference", how is the "difference" actually going to be quantified for an individual residence?
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June 29th, 2010 at 3:13 pm 74
@NO-LYMPICS:
I'm still interested in how people explain the Chinese purchases of multi-million dollar homes, particularly by the "tourist buyers" mentioned in the Sun the other day, if China prohibits its people from taking more than $50,000 out of the country in a year.
I think I know the answer but would be nice to see the Sun show some curiosity.
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June 29th, 2010 at 3:15 pm 75
bored says:
While I’m sure every bull here could find holes in the calculator it will still come out ahead for the majority of renters in the lower mainland even with ‘bull friendly’ variables.. That said… I would love to hear your own comparisons
with calculators it is easiest to keep it simple, i would just look simply at an amortization table/program. in vancouver, the first ten years belong to the renter, the following ten to the owner, and after twenty a bear would look like one of those west end saps with the eviction notices. also, you need to look at what the alternatives are for your capital, currently real estate looks ok compared to stocks/bonds/fixed income.
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June 29th, 2010 at 3:19 pm 76
Another interesting blog post by Richard Florida:
I think his point about walkability is insiqhtful, and this portends a situation in Vancouver where prices in the downtown core and Kitsilano/Fairview don't fall nearly as far as the more far-flung regions of the Lower Mainland.
http://www.theatlantic.com/business/archive/2010/…
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June 29th, 2010 at 3:26 pm 77
Go Argentina Go
There is no hst on mls resale homes go look for some other clue for bearish entertainment,This is Vancouver real estate baby.Now back to fifa action replay in high definition.
Go Argentina Go
Run Buddy Run
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June 29th, 2010 at 3:31 pm 78
@stagnate: haha you're way off on that one there Stagnate, every situation/location is different. You can't assume that you'll always be out ahead between year 10-20.. Especially if you're putting between 5-20% down in an all time high price to income ratio… Please give us your current scenario with that calculator then, I would love to hear the values you use. Google your address for similar listings if you don't have a sales/rent value… lol.. always out ahead? come on.
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June 29th, 2010 at 3:34 pm 79
@metalhead:
Hey metal, how's it going? Welcome to sanity.
I don't know how you lasted so long amongst all that sewage on Jurock's shrieking cheerleader site.
Did it damage you psychologically or make you stronger?
Good to see you and beta both here, you're just in time for the crash. Cocktails are served at 5:30 every evening.
Smiles, everyone!
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June 29th, 2010 at 3:38 pm 80
Thanks for the welcome, bpom.
It probably did damage me but I'll say it made me stronger for the hell of it, ha.
I'm not done with that place completely.
If this year unfolds like I think it will and like all signs are indicating it is going to, I'll be back rubbing their faces in it.
I'd imagine if things do start looking ugly people like liesthatbuys will disappear.
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June 29th, 2010 at 3:46 pm 81
@oneangryslav2:
I don't think anything matters except price/rent, and AFAIK price/rent is more inflated downtown than in the suburbs. I also don't think the outlook for rents downtown is any better because there just aren't that many good jobs there any more. Not to mention the overbuilding.
I'll predict right now that you will see 50% off nominal in some downtown condo buildings. The fundamentals point to well over 50% off real.
And you have to be careful when looking at the situation in other cities – which factors are substantial and which are just coincidental.
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June 29th, 2010 at 3:52 pm 82
Bears, how does it feel to be outsmarted by Realtor who broke Grouse Grind record? He save big dollar on HST for gondola rides. Bears will pay full price for waiting. Full price.
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June 29th, 2010 at 3:58 pm 83
chip:
Personally, I am not interested in how china limits its citizens investments.
I am more intersted in how our Gov't will wean itself off its dependency on these funds. This will not end up good.
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June 29th, 2010 at 3:59 pm 84
New Listings 175
Price Changes 144
Sold Listings 128
14 times up the grind is cool. Good for him!
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June 29th, 2010 at 4:01 pm 85
Oh yeah nutslaps, look around when you walk down the street. See all those chinese people? They all want to own multiple condos. They all want three condos each minimum. They will buy condos and houses until they own 10-15 condos each.
Bears don't need to count greater fools. Just count the chinese! They all want to buy real estate over and over and there are hundreds of thousands of them here. You see them everywhere.
That's why Vancouver real estate never go down. The supply of chinese, local or China based, is infinite.
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June 29th, 2010 at 4:02 pm 86
@Bored: Well, remember though, US rent vs buy calculators assume you can deduct mortgage interest from your taxable income, and probably some other things too.
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June 29th, 2010 at 4:07 pm 87
@NO-LYMPICS:
"Personally, I am not interested in how china limits its citizens investments."
Who is?
What IS interesting is that despite these controls Vancouver is somehow the recipient of buyers with millions in their pockets. And this, most likely, criminal element is surely germane to any conversation about whether Canada should adopt restrictions on foreign buying as Australia has.
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June 29th, 2010 at 4:09 pm 88
@SuperSmartBull:
Good for Sebastian, he's raising money for a great cause.
One of the few good realtors in this town.
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June 29th, 2010 at 4:09 pm 89
V836438
This is the most rediculous listing I have ever seen. Just see how greedy the current owner is. He/she purchased the place May 2009 for $800K, without doing renovation, he/she is trying to sell for $1.59 million. The BC assessed value $798K.
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June 29th, 2010 at 4:09 pm 90
@Devore: agreed, that seems to be the only difference, although if you run a home business you can deduct a portion of the interest as well (here in Canada)… That's the only difference I'm seeing in the calculator. So it helps the rent case.
RE: http://realestate.yahoo.com/calculators/rent_vs_o…
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June 29th, 2010 at 4:11 pm 91
bored says:
every situation/location is different. You can’t assume that you’ll always be out ahead between year 10-20.. Especially if you’re putting between 5-20% down in an all time high price to income ratio…
it's a safe assumption. most markets the owner would be ahead after a couple of years. year ten is a reflection of the price/rent gap here. a lot of variables come into play, you have to crunch numbers on your own. twenty (or even ten) years is a long proposition and a lot can happen.
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June 29th, 2010 at 4:19 pm 92
@A Bear:
V836438
Nice place though, if it really is an acre that's 10 standard east Van lots.
However they're willing to rent it for 3K which is a ratio of 530.
That kind of delusion has become commonplace around these parts.
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June 29th, 2010 at 4:19 pm 93
@stagnate:
Someone buying at today's prices in Vancouver is never going to come out ahead of renting. The compounded value of the rental deficit just keeps growing going forward and no feasible increase in rents can ever make up for it.
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June 29th, 2010 at 4:20 pm 94
@ A Bear
Not only greedy, also sleazy:
"Could be negotiable if the perspective tenant is desired by owner."
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June 29th, 2010 at 4:23 pm 95
# 87 chip:
I totally agree.
I think there is so much dirty money being laundered, its gotten out of hand and the Gov't has turned a blind eye.
There come a point that ANY constituent base has to tell their gov't enough is enough. Time to follow the Aussie example.
Our shamelsss liberals have sold out BC on many fronts, so do we think RE is anything special in this regard?
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June 29th, 2010 at 4:28 pm 96
patriotz says:
Someone buying at today’s prices in Vancouver is never going to come out ahead of renting. The compounded value of the rental deficit just keeps growing going forward and no feasible increase in rents can ever make up for it
tell that to someone who bought at the peak in 82 and still owns the property. the same thing could have been argued then. unfortunately the demand on the land keeps compounding here.
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June 29th, 2010 at 4:45 pm 97
@stagnate:
Why don't you see what $150K would get you today if you invested in the TSX back in 82. You just might be ahead
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June 29th, 2010 at 4:45 pm 98
@stagnate: I'm sorry man, I just don't follow your logic when you quote 'most markets and it's a safe assumption' without backing it up with an actual sample/data.. The point I was making was about my own condo that I currently rent in yaletown I would be saving 346k(over a 30 yr period) based on some assumptions.. while I'm sure you could argue those assumptions, I would love to hear how much appreciation you would have to have and what interest rate would have to be to break even after 30 years with todays rent/housing prices…
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June 29th, 2010 at 4:46 pm 99
I agree about all the money laundering in the lower mainland but none of the people I suspect are foreigners, all are greedy locals.
I work in the insurance industry and I see a lot of suspect transactions. A common one: People buy properties in company names to avoid paying tax on the retained business income, fine, but then they declare the other residence they own personally as a Principle Residence so they remain capital gain tax free.
Others who even when the move out, request that we don’t change their mailing address because they don’t want CRA to know that they don’t live in the residence anymore.
I had one client request that we back date her insurance policies to show a multi million dollar vacation home as her principal residence after she was audited…sure…let’s commit fraud together…WTF.
I’ve seen a twenty something woman pay cash for her Fraser Valley Insurance renewals (about $2,000) suspicious because we are located in Vancouver and nobody ever pays cash. Probably growing tomatoes.
One thing I have noticed lately, locals are leaving. I’ve never seen so many people leave for AB, ON before. Most have been renters but I think locals are giving up on Vancouver.
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June 29th, 2010 at 4:46 pm 100
@stagnate:
Don't confuse speculative pricing with actual demand. Actual demand for land is reflected in rents, and real rents are lower now than they were then.
I also think that someone who bought at the 81 peak is still behind a renter unless they sell. Essentially someone who buys at an inflated real price will always remain behind a renter unless they sell later at an even more inflated real price. Those who bought in 81 have had the opportunity for a few years, but unless they take advantage of the opportunity it means nothing. Those buying now will never have the opportunity IMHO. But the renter will have the opportunity to buy at a fair price in the future.
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June 29th, 2010 at 4:50 pm 101
"I don’t think anything matters except price/rent"
If you are going to take anything away after reading this blog, this statement is it. It is such a simple concept yet one to which most of us are oblivious.
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June 29th, 2010 at 4:53 pm 102
Chip #74, the $50,000 currency number is erroneous…at best. Recently in a local paper a report came out that a Chinese national was stopped at the airport with $1 million cash in a suitcase and stuffed into his pockets and an expensive immigrant style watch. I say immigrant style because no one but an immigrant wants to wear a diamond encrusted girly man bracelet unless your gay. He had to swear an affidavit that he gor the money from a legitimate source and paid a fine of $3400 for not declaring it. For the watch he got a sub $2000 fine for same and sent on his way. Hows that for border security????
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June 29th, 2010 at 4:57 pm 103
bored says:
The point I was making was about my own condo that I currently rent in yaletown I would be saving 346k(over a 30 yr period) based on some assumptions
fair enough, i suspect for your property it would be further out on the amortization before the owner is making some hay, what's the approximate rent and cost to buy on your gig?
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June 29th, 2010 at 5:07 pm 104
Bear famous proverb say always most bright before dawn. What does it mean bear? Well it mean that we are at dawn of new day of Vancouver real estate boom. TDF about to begin in hi def bear which mean many cyclist will buy condo too.
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June 29th, 2010 at 5:12 pm 105
@stagnate:
Rent: 2400
Price: 710k
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June 29th, 2010 at 5:18 pm 106
@A Bear:
That is awesome. Still, 800K seems low for that place. It does seem pretty nice and its almost an acre. Then again it is way the hell out there and I really have no idea what land value is around that area.
It's possible it was listed high so that the coming reductions will seem all the more dramatic.
I'll pop it into the favourites and check on it every week or so. Gotta love that favourites on MLS, just put all the most overpriced properties in there and watch em dive!
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June 29th, 2010 at 5:23 pm 107
@Kim Jong-il buy 3: I’ve seen a twenty something woman pay cash for her Fraser Valley Insurance renewals (about $2,000) suspicious…
What's suspicious? Business as usual…
touching+company shower always + b*.b*.b.j.. more and more !!
$$$ 1OO — 45 MIN – f. serv!ce
ONLY CASH!
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June 29th, 2010 at 5:42 pm 108
bored says:
Rent: 2400
Price: 710k
fairly typical ratio for yaletown, basically 300 to 1. financing the total amount on a 25 yr. amortization it would come out almost equally first half of the amortization the renter ahead, second half owner. the renter would get the opportunity cost first so can make some hay up front.
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June 29th, 2010 at 5:54 pm 109
New Listings 207
Price Changes 161
Sold Listings 154
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June 29th, 2010 at 5:56 pm 110
@stagnate:
I dont want to be "That Guy"…but
Why would the owner come out ahead in the second half of the amortization? Because he has paid down some of the principal?
I think this is a common misconception—that equity means "home free"
Capital is used to invest. Capital has a cost. That cost is incurred in two primary ways
1) debt (the cost is interest) an outflow
2) Equity (the cost is a missed inflow)B/C it is tied up.
No matter where the home owner/investor is on the scale of 0% paid off to 100% paid off (ie, the D/E ratio), the difference in the Weighted Average Cost of Capital is relatively immaterial.
Don't just take my word for it, Read up on Miller and Modigliani.
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June 29th, 2010 at 5:59 pm 111
“I don’t think anything matters except price/rent”
This is the fundamental of all fundamentals.
High prices alone do not a bubble make. Premium assets will expect premium cash inflows and thus will command premium sales prices.
Low yield is the problem.
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June 29th, 2010 at 6:10 pm 112
@“A-Sharp” Accountant:
LOL sorry for the triple post…but I just looked on the wikipedia link for M&M.
It is kinda lacking. They talk about the initial assumptions: (Tax free environment, Financial distress free, symmetrical info etc.) This is sort of "level one" stuff
When all of these above assumptions are relaxed, what happens is that the overall value by the Present value of the interest tax shield, up to the point where it is overcome by the effect of the cost of distress.
On the flip side of this, the WACC (weighted average cost of capital), decreases as D/E increases up to an optimal point then decreases
Just wanted to mention this in case you looked at wikipedia, and were wondering what I was talking about.
Bottom line…Equity is in many cases more expensive than debt in the end.
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June 29th, 2010 at 6:17 pm 113
@stagnate: I'm assuming you put in a high appreciation per year variable? What figures did you use? All the calculations im coming up with even with 5-8% are ahead with renting… I appreciate you trying to debate and not giving up
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June 29th, 2010 at 6:29 pm 114
bored says:
I’m assuming you put in a high appreciation per year variable?
no, calculating on no inflation/appreciation. if you enter that variable you have to start including a bunch of other variables as well. your impication that i am debating is misplaced. amortization calculators are easily found on the web. i'd rent your property rather than buy it because i wouldn't want to feed it for twelve years. no defensiveness needed.
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June 29th, 2010 at 6:30 pm 115
@stagnate: That makes no sense whatsoever. The buyer is ahead after 12 years of amortization? What does that even mean?
If you're going to look at a house as an investment, you have to look at things like the cost of capital, return on investment, and cash flow. Anything else is just waving your hands voodoo.
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June 29th, 2010 at 6:37 pm 116
@stagnate: I have no idea where you're coming up with these numbers.. 12 years? How? Is this the chart you're were talking about? I'd love more info on how you came up with 12 years being the break even point.. Please supply how you came to this.
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June 29th, 2010 at 6:41 pm 117
bored says:
I’d love more info on how you came up with 12 years being the break even point.. Please supply how you came to this.
around the 12-13 yr point the interest, maintenance fee and property tax paid per year is about the same as the rent collected per year.
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June 29th, 2010 at 6:49 pm 118
@stagnate: Based on what down, interest rate%, etc. To me, you're just making these numbers up. Send me a link of your findings please.
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June 29th, 2010 at 6:57 pm 119
Those 154 buyers who got sucked in by the FIRST WAVE of price reductions remind of Kramer on the Seinfeld Show suing for getting burned by from hot coffee, then accepting free coffee for life when they were prepared to settle for megabucks.
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June 29th, 2010 at 6:59 pm 120
bored says:
Based on what down, interest rate%, etc
i used the amortization calculator at canadamortgage.com
i used the default 4.5% rate. assuming no inflation this would be a bit high. calculating in a down payment or cmhc rate is unnecessary for our purpose with this.
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June 29th, 2010 at 7:08 pm 121
@stagnate: You're still pulling this out of thin air. I can't make any sense of this, someone please chime in and help me understand how he's coming up with 12 years.. How can you say that without making some assumptions?
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June 29th, 2010 at 7:16 pm 122
Consumer confidence in Canada plunges, BC hit the hardest.
http://www.financialpost.com/news/Consumer+confid…
That should help sell our overpriced real estate.
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June 29th, 2010 at 7:23 pm 123
"proverb say always most bright before dawn"
Pretty stupid proverb.
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June 29th, 2010 at 7:29 pm 124
i'm craving the June REBGV stats package…some ice cream would also be nice.
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June 29th, 2010 at 7:41 pm 125
to the 154 people who bought today…..welcome to the good life.
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June 29th, 2010 at 7:58 pm 126
@crashcow:
Stats package should be out Monday.
Me, I'm craving one of these: http://www.terrafugia.com/index.html
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June 29th, 2010 at 8:01 pm 127
@Anonymous: I'll take a shot. Here we go.
Based on what I've seen, the price/rent ratio in Vancouver for something that I'd want to buy is between 250 and 300. Let's take the average–275.
Thus, a 2BR condo that rents for 2250 is currently selling for about (2250*275)=618,750. Assume one puts 10% down (not including closing costs, etc., which makes this calculation more favourable to the purchaser than the renter), the mortgage would be 618,750-61,875=556,875.
Using the mortgage calculator at canadamortgage.com, assuming a 5% interest rate, an amortization period of 25 years and a 5-year term, the monthly payment is 3238.31. Let's round this up to 3250.
Taxes are about another 250 monthly and strata fees would add another 300 or so. Thus, a total monthly nut of about 3800.
Starting with a rent of 2250, and assuming a 2% annual inflation rate, it would take about 27 years (2250*((1+0.02)^27)) for the rent to match the owner's monthly expenses. So I have no idea what assumptions stagnate is using to get his result. In addition, I haven't included the opportunity cost of the $61,000 down payment. Let's assume you purchased a CSB that yielded an average of 1.5% over those 27 years: your investment would have grown to more than 92,400 by then.
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June 29th, 2010 at 8:23 pm 128
@Krazy Kanuk:
……….. The thing that sucks though is that there are no government incentives for entrepeneurs”. So there’s plenty of incentives to go buy a house (cheap easy money), but very little to encourage economic growth.
++++++++++++
Yeah, god knows we need more CA's and the economic benefits paper pushers create.
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June 29th, 2010 at 8:23 pm 129
@oneangryslav2:
Sure, but you can 't just compare monthly expenses because a portion of an owner's payment is going towards principal.
For that $3238 payment, the first payment will be paying $2,297 towards interest and the rest towards principal. Add your strata and taxes of $550 and your monthly cost is about $2850.
After 12 years you've paid the balance down to $372,000 and only $1,540 is going towards interest each month, so your monthly cost is about $2100 (not accounting for increased strata, changing interest rates, etc).
There are obviously a lot more variables at play (opportunity cost, increase/decrease in property value, etc.), but I think that is where stagnate is pulling numbers from.
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June 29th, 2010 at 8:25 pm 130
@oneangryslav2: Thank you for that breakdown, 12 years just can't happen.. Not to mention the maintenance costs, a better return on your opportunity cost and allow it to be liquid in case of emergencies…
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June 29th, 2010 at 8:29 pm 131
Hope all those Chinese tourist/investors don't have their money in here.
When I'm feeling contrary, I like to wonder if all of this stuff about our assured domination by the Chinese will end up looking like this years from now.
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June 29th, 2010 at 8:41 pm 132
i bought today, my deal went through so i'm one of the 154
so what, its only money
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June 29th, 2010 at 8:44 pm 133
@VHB:
Very good point. All we heard about in the late 80's was how the Japanese would dominate the world economy.
Well, 20 years and 2 huge asset bubble collapses later they are a basket case.
Only a few short months ago I was still under the impression that the Chinese were incredibly smart as a nation but now I see they have squandered 20 years of good fortune with their latest "growth at all costs" approach.
Now they've built empty cities and continue to put up more useless, unwanted crap. Just like Japan they've also had a massive stock market and real estate bubble.
The stock market bubble has already collapsed.
These people are just as greedy and stupid as any others, they'll blow it just like Japan did.
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June 29th, 2010 at 9:02 pm 134
Vanrod Says:
June 29th, 2010 at 7:41 pm
to the 154 people who bought today…..welcome to the good life.
LOL more like to the 154 people who SOLD today…welcome to the good life!
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June 29th, 2010 at 9:03 pm 135
@Not much of a name…: "@Vanrod: One more thing I forgot to add, if the Chinese can’t save their own market, how will they save Vancouver’s?"
If only it is as simplistic as the way you put it. Of course, I'm 100% behind you on this. But things may go the other way as they had been for so many years ……
Chinese Gov want to slow down their economy, but they only want to curb their real estate industry and their high inflation. Canada is now their favored destination. So the Chinese will just fly to Vancouver to buy houses/condos here. They have nothing to lose.
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June 29th, 2010 at 9:15 pm 136
And also this month ends without breaching the 19k barrier. The sales have note dropped off the cliff yet, despite the flood of new listings. I expect July and August will be the months when sales dry up. We can pass 20k.
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June 29th, 2010 at 9:17 pm 137
@chip: "I’m still interested in how people explain the Chinese purchases of multi-million dollar homes, particularly by the “tourist buyers” mentioned in the Sun the other day, if China prohibits its people from taking more than $50,000 out of the country in a year.
I think I know the answer but would be nice to see the Sun show some curiosity."
Chip, for a family of 4 x $50k = $200k a year
Then, friends and relatives can use their IDs to remit the same every year.
I don't see anything fishy with this arrangement.
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June 29th, 2010 at 9:27 pm 138
@lw: "Then, friends and relatives can use their IDs to remit the same every year."
Why do you think the Chinese government has restriction on cash flows? Because if they don't they can't peg to the US dollar. Sure a few can sneak money out but all it means is the Chinese government brings it back in somehow to keep its peg in place. In total it's no free lunch. Markets seem to have agreed with this, some a bit later than others. (Some markets, like Vancouver housing, are still in denial)
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June 29th, 2010 at 9:36 pm 139
@realpaul: @realpaul: "Recently in a local paper a report came out that a Chinese national was stopped at the airport with $1 million cash in a suitcase …"
Yeah I read that all the time that so many of them are targeted by thieves at Vancouver International Airport.
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June 29th, 2010 at 9:36 pm 140
Now the 'laneway house' is being marketed to students.
http://vancouver.en.craigslist.ca/van/apa/1818407…
I'm left wondering if they are thinking that it wasn't such a great idea after all?
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June 29th, 2010 at 9:37 pm 141
@domus: not a chance. We are going under 17K on July 1. Your next window for inventory growth will be next spring. Better luck next year.
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June 29th, 2010 at 9:52 pm 142
@lw:
Nothing to lose but their life savings.
When the market turns in China, what makes you think they'll hang on to Vancouver condos?
To pay off their debts, they'll be flipping Vancouver condos like dot-com stocks.
And then you know what will happen next. China bending over backwards to recapitalize their RE market, but in the face of overseas deflation, Chinese goods won't be cheap anymore.
So they'll have price deflation for exports, coupled with decreased demand, domestic wage inflation, high and increasing public debt, and serious public unrest.
Oh yeah, let the good times roll.
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June 29th, 2010 at 9:53 pm 143
@Chilled:
Tthe laneway-house-landlord must be reading VCI
His Craiglist Ad is gone (o_O)
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June 29th, 2010 at 9:53 pm 144
CMHC is wasting their time. We all know real estate never goes down. NEVER!
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June 29th, 2010 at 10:28 pm 145
@oneangryslav2:
You should throw into the calculation some $100k for envelope repairs, or roof, or whatever – that is about the right amount in Yaletown for 2 bdr condo, which the lucky owner will have to shell out in these 25 years.
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June 29th, 2010 at 10:46 pm 146
I spoke to a woman today who tols me her husband and she jumped back into the market after retiring to a trailer. They bought into the hype and into a four building condo complex in Ladner (shudder). Being trusting folks they believed their realtor had led them to paradise. The first thing they got was an undisclosed leaker assesment of just over $60,000, some units were higher based on the sq ft. Buyer beware…….. and never trust a Real Whore. $13 million is the price for the envelope reconstruction. Sad story, the whore should be whipped.
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June 29th, 2010 at 10:53 pm 147
@Anonymous:
Anonymous Says:
June 29th, 2010 at 9:53 pm
@Chilled:
Tthe laneway-house-landlord must be reading VCI
His Craiglist Ad is gone (o_O)
+++++++++
What a shame, who wouldn't want a landlord willing to "pick up your groceries?"
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June 29th, 2010 at 11:07 pm 148
angryslav says:
Starting with a rent of 2250, and assuming a 2% annual inflation rate, it would take about 27 years (2250*((1+0.02)^27)) for the rent to match the owner’s monthly expenses
like jay indicated i am looking at dead costs (interest) as opposed to interest and principal.
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June 29th, 2010 at 11:15 pm 149
Best place on meth says:
I agree with most of your posts but your comments about Japan are totally unfounded. You really should make an attempt to go there because the info you have is way off base.
I go to Japan often and although the economy has taken a few knocks, it's still much stronger than most economies. It's also very uncommon to find the level of greed that you find here in Vancouver. To know someone who owns more than one property is very rare.
It's also very difficult to find a lawyer on every corner like you can here. If you cheat on your wife she gets everything, if she cheats you get everything.
They still have honor. Not too much of that here in Canada.
I have 3 very good Japanese friends who own companies in and around Osaka. One owns a toy company and is growing rapidly, the other owns flower stores and he has plans to open 3 more in Osaka/Kobe area and possible expansion into China.
The last friend owns a massage parlour and business is always on the rise. Just checking to see if your paying attention.
In short I have not seen any signs of recession in Japan.
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June 29th, 2010 at 11:16 pm 150
Using mortgage payments and principal reduction of debt to justify house prices is a sucker's game. They call these guys Joe Howmuchamonths in the mortgage broker industry.
How you finance an investment should be independent of whether the investment is worthwhile. Except in the wonderful magical world of housing.
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June 29th, 2010 at 11:28 pm 151
@jesse: This seems like an idiot-savant's application of something arcane like the Modigliani-Miller theorem to house pricing. (aka as junk science) Do not be fooled by bogus finance and economics theorems.
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June 29th, 2010 at 11:34 pm 152
149 @Patrick: "To know someone who owns more than one property is very rare."
That's because they were all wiped out!
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June 29th, 2010 at 11:38 pm 153
@“A-Sharp” Accountant: There is a paper out of UBC Sauder that says that in certain cities, there is actually a wage discount for skilled professions.. that is people are willing to work for less in order to be able to live in a city like Vancouver.
See: http://strategy.sauder.ubc.ca/lee/papers/ability_…
This may also suggest a factor in resolving your question regarding low yield.
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June 29th, 2010 at 11:45 pm 154
@Patrick:
You're that fella from the 80's insurance commercial!!!
You know, the one with dad answering the phone, telling mom that "it's Patrick, he just bought life insurance!!!"
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June 30th, 2010 at 2:35 am 155
@Debunking Economics: You fail. Investor doesn't care professional takes pay cut. They want ROI in Vancouver just as much as ROI in Ottawa.
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June 30th, 2010 at 2:40 am 156
@stagnate:
The owner NEVER comes out ahead. You are ignoring the accumulated deficit of renting versus owning which has to be compounded year over year. Who do you think has been paying that deficit until the costs meet, Santa Claus?
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June 30th, 2010 at 2:44 am 157
@Anonymous:
Correct. What the paper gives is an explanation for higher rent/income and higher price/income, which are historically a fact in Vancouver compared to other Canadian cities.
But you still have the same price/rent on a sustainable basis.
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June 30th, 2010 at 6:41 am 158
@Debunking Economics: Does borrowing money increase or decrease your return? Go take some "Rich Dad" classes and let us know.
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June 30th, 2010 at 9:21 am 159
@jesse: Jesse says:
"How you finance an investment should be independent of whether the investment is worthwhile. Except in the wonderful magical world of housing."
Bingo. The investment and financing decisions are separate.
The "Joe howmuchamonth" types are interested in "cash flow" which is independent of yield. Cash flow is a simple way of looking at it (inflow vs pmt), but it is a perverse mix of the two decisions, that really clouds up the true economic substance of the investment decision. In the short term, cash flow/liquidity is the most important thing, but in the long term it always comes down to yield.
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June 30th, 2010 at 9:22 am 160
@jesse: I suppose the "Rich Dad" classes would go well with my Ph.D. in Economics. Total straw man Jesse. Don't hide behind out-dated theorems.
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June 30th, 2010 at 9:33 am 161
@Debunking Economics:
I'm not adapting M&M to house pricing. I'm applying it to capital structure and the investment decision.
I am merely stating the obvious, which is lost on 90% of real estate investors. When financing an investment. Equity has a cost.
All debate aside, I'm sure we have both rolled our eyes many times as RE investors have said: "yeah, if I put down XX.XX% this is a good investment".
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June 30th, 2010 at 10:45 am 162
@patriotz:
"The owner NEVER comes out ahead. You are ignoring the accumulated deficit of renting versus owning which has to be compounded year over year. Who do you think has been paying that deficit until the costs meet, Santa Claus?"
Sure, but you're ignoring the accumulated principal that comes from owning versus renting.
Do you honestly think that the house will be worth nothing 25 years down the road when the mortgage is paid off?
As I said earlier, there are lots of other variables to consider, but there are plenty of scenarios where the owner comes out ahead – most simply involve more time.
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June 30th, 2010 at 11:05 am 163
#153, the coming double dip may lead to an even steeper curve when the gloves come off and civil service wages are rationalized as they are being elsewhere. You won't be 'willing' to work for less ( which I think is a nonsensicle chicken and egg argument, wgaes started low and have never come up to international norms) you'll be forced to work for less while costs continue to spiral up…classic stagflation…coming to a mortgage payment near you.
http://in.reuters.com/article/idINIndia-497673201…
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June 30th, 2010 at 11:09 am 164
@jay:
"Do you honestly think that the house will be worth nothing 25 years down the road when the mortgage is paid off?"
Of course not.
Buy a Property now for 500k…in 25 years, you can expect it to be worth 1,046,889 (assuming rent increases 3% annually and assuming that current price/rent ratios persist).
And yes, this is a BAD investment.
Just a question…What discount rate are you using in your calculations?
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June 30th, 2010 at 11:13 am 165
@jay: We have calculated the appreciation/principal invested of your purchase vs renting… Please visit:
http://excelexperts.com/Buy-Or-Rent-Calculator
Enter in your own place..
It's basically a real estate planner for yourself, you can enter in all sorts of variables.. just try it
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June 30th, 2010 at 12:23 pm 166
@jay:
You are ignoring the money saved by renting every month. The first month of owning (and the first few years) a very small percentage of payments actually pay down the debt. I worked it out on the place I rent and the first month of owning would cost 1700 in 'wasted' money (interest, strata and property tax). The rent is only 1200. Thus I save 500 bucks by renting. Over time this will decrease, but if I took all that saved money and put in other investments it would be earning me money. In order to be truly ahead you have to have more in equity than you would have in savings if you rented. Also you have to be adding more to the principle of the mortgage every month than your invested money would be earning. Of course, this all depends on what you assume your investments will earn and what appreciation you will get on your house.
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June 30th, 2010 at 2:38 pm 167
@davers:
Thanks davers, but I'm not ignoring the money saved every month. My original post was simply explaining how stagnate arrived at his calculations.
In post 162 I was just refuting patriotz statement that "The owner NEVER comes out ahead"
There are many scenarios where the owner will come out ahead, but I understand, as you said, it will depend on long term appreciation of the house, return on investments, etc.
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June 30th, 2010 at 3:37 pm 168
@Bored: Thanks Bored. Great calculator.
I was using stagnate's numbers.
Price of 618,750
Rent of 2250/month (518/week)
When I use your calculator with a 20% deposit, 200,000 in the bank, and 5% post tax return on investments it works out better to buy after only 12 years.
If I assume prices drop 20% this year and stagnate for 4 more years, it's still better to buy after 14 years.
And if I assume prices drop 20% this year, 10% in 2011, 10% in 2012, stagnate for 2 more years and then rent and house prices go up by 3% a year, it still works out better to buy after 25 years. Hold for another 25 years (moving twice over that time) and you're about a million ahead by buying. A great investment? Maybe not. But, it just shows that renting isn't always the best answer.
I know that this will throw some people into fits here, but buying into real estate and staying in for your lifetime (which, speculators aside, is what a most of people do) isn't such a bad investment, even at peak prices … with the caveat that you can actually afford it, and still afford to pay into your RRSP, TFSA, etc.
The only way you could possibly come out way ahead by renting in the long run is if you were an amazing investor.
The best combination is of course renting and eventually timing the market, but as I've heard many times before: you shouldn't try to time your investments …
… not that it will stop any of us from trying
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June 30th, 2010 at 5:26 pm 169
@jay: haha I don't believe it… Can you post the excel sheet somewhere? I want to see what you used for your figures to come up with this 12 year thing… ie. interest rates, not putting in maintenance fees and setting rental increases high per year… so many variables to fudge for your own benefit. The idea is to make it as close to your own personal situation and not hypothetical…. ie. Most people move every 5-10 years (you can put that in there), maintenance costs (I bet you put 0).
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June 30th, 2010 at 6:05 pm 170
@jay: I just used all your figures and even if you use 5% interest rates for 25 years (never happen, historical is 7), Assume housing does go up 2% a year… Still comes out better to rent (even at 12, 14, 25 years) by a substantial amount. Come on stop being a pumper and tell the truth. I used a post tax salary of 62k. Maintenance costs of 1% (you'd be lucky to get that in an avg van home).
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June 30th, 2010 at 6:23 pm 171
@jay:
All I have to say to this is…
USA! USA! USA!
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June 30th, 2010 at 11:16 pm 172
[...] June 2010 · Leave a Comment ‘Kim Jong-il buy 3′ at vancouvercondo.info June 29th, 2010 at 4:46 pm [...]
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June 30th, 2010 at 11:17 pm 173
[...] June 2010 · Leave a Comment Raguz at vancouvercondo.info June 29th, 2010 at 2:47 pm [...]
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July 1st, 2010 at 10:36 am 174
@patriotz:
@jay:
…buying into real estate and staying in for your lifetime (which, speculators aside, is what a most of people do) isn’t such a bad investment, even at peak prices …
@patriotz:
"All I have to say to this is…
USA! USA! USA!"
Not really applicable when you look at my statment in context:
" … with the caveat that you can actually afford it, and still afford to pay into your RRSP, TFSA, etc."
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July 1st, 2010 at 10:55 am 175
@Bored:
@jay: "haha I don’t believe it… Can you post the excel sheet somewhere? I want to see what you used for your figures to come up with this 12 year thing… ie. interest rates, not putting in maintenance fees and setting rental increases high per year… so many variables to fudge for your own benefit. The idea is to make it as close to your own personal situation and not hypothetical…. ie. Most people move every 5-10 years (you can put that in there), maintenance costs (I bet you put 0)."
I left maintenance fees at the default 1% and I wasn't fudging anything. Let me know if I messed something up unintentionally, but here are the numbers:
Initial Weekly Rent of $518
House Price of $618,750
$200,000 Current Cash In Bank
20% Deposit
2% Cost of Buying
3% Cost of selling
1% Annual Maintenance
0% I will add value each time
0 Mortgage Broker Fee
5.00% Post Tax Investment Rate
4.90% Mortgage Interest Rate
left hypothetical rent and housing increases at defaults
move after 12 years
time horizon 12 years
RESULT: $3291 better off buying
I think the numbers I used are valid:
As I said, price and rent were stagnate's numbers.
2% would have been almost exactly my cost of buying
1% is currently higher than my home's annual maintenance (in Kelowna, not Van)
5% post tax investment rate would mean getting 6.4% from capital gains, or higher if returns aren't all capital gains
I have a 3.2% rate hold for 3 years or 4.9% for 10 years.
The spreadsheet also doesn't allow for varying rates. I would probably take a lower rate now and accelerate payments early on which would further help the buying situation.
And as I noted:
If I assume prices drop 20% this year and stagnate for 4 more years, it’s still better to buy after 14 years.
And if I assume prices drop 20% this year, 10% in 2011, 10% in 2012, stagnate for 2 more years and then rent and house prices go up by 3% a year, it still works out better to buy after 25 years.
I agree that I don't know what mortgage rates I would be getting 10 or 20 years down the road, but I believe historical rate of 7% is the posted rate, not a discounted rate, and Bank of Canada now has it's hand in the mix to keep interest rates lower than historical norms.
In both those scenarios, I was using time horizons that equaled the time between moves. That is valid too – I intend to live in the next house that I buy until my kids leave home, which will be over 20 years. That was my main point: moving is expensive, but if you "buy and hold" by living in a property then it will almost always make financial sense eventually, even when buying at a peak.
If you move every 5-10 years then that wouldn't be true.
And finally, I'm hardly a "pumper". I was actually a little surprised at just how much the "time" variable will affect the calculation (highlights the value of paying down principal as quickly as possible, especially early on in the mortgage). I am (was) a home owner that has sold two properties this spring and just signed a one year lease yesterday. I figured I could save some money when I do get back into the market down the road, and am still hoping that I am right
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July 2nd, 2010 at 8:01 am 176
@jay: I appreciate giving this a go, but I fail to see how you got these figures. I posted EXACTLY what you did without any changes to rent increases/housing increases/decreases to see what happened… The result
http://vancouvercondo.info/forum/topic/jays-figur…
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July 3rd, 2010 at 10:20 am 177
[...] July 2010 · Leave a Comment Krazy Kanuck at vancouvercondo.info 29 Jun 2010 12:47 pm [...]
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July 3rd, 2010 at 10:22 am 178
[...] July 2010 · Leave a Comment 900KCrackHouse at vancouvercondo.info 29 Jun 2010 8:53 am [...]
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July 3rd, 2010 at 8:35 pm 179
@Waiting:
Looks like I used Buy-Or-Rent-Example-Values.xls instead of Buy-Or-Rent-Zero-Values.xls
Using the default rent and housing increases in that spreadsheet gives the result I posted.
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