Rob Carrick wants you to rent

Actually I don’t know that he wants you to rent, but over at the Globe and Mail he’s got a column that compares owning to renting and it doesn’t make buying at these prices look so hot.

Do not base your thinking about your ability to afford a house strictly on what lenders or real estate agents tell you. They may have useful guidance, but their goal is to sell mortgages and houses. That’s why the affordability measures they use pretend you live a world where there are no claims on your household cash flow other than those related to your home and other debts.

Being able to amass the minimum 5-per-cent down payment on a house does not mean you’re ready to buy, either. In the real world of home ownership, 5 per cent is peanuts. By some estimates, the costs of buying a home – mover, property taxes and utility bill adjustments, legal fees and repeated trips to Canadian Tire or Rona could cost an additional 2 to 4 per cent of the value of your home.

I’m guessing the Globe and Mail doesn’t make as much ad revenue from real estate agents and mortgage brokers as the Vancouver Sun?

Sort by:   newest | oldest | most voted
blueskies
Guest
blueskies

methinks the G&M is slightly
more journalistically honest than
the local MSM rags………

patriotz
Member
Active Member

Carrick's analysis is faulty because it focuses only on affordability. He doesn't even mention rental value.

If anyone wrote a similar column about buying stocks he would be laughed at. What matters about buying a stock is not affordability – after all anyone can afford to buy some amount of stocks – but fundamentals, i.e do the earnings justify the price.

And that's what matters about buying a house too, unless you don't care about throwing away money. Simply being able to afford something is not a reason to buy.

CanuckDownUnder
Member
CanuckDownUnder
I saw this article today and it's rather topical for us. After a very wet Sydney Saturday spent apartment hunting and dropping off applications we were successful on our first choice, a nice 3 bedroom 2 bathroom unit in a great suburb. Based on the recent sale price (plus stamp duty) the gross rental return is 4.4%. Now subtract strata fees, water, and council rates from that. We can't forget the agency managing the property, they'll want their cut. Better throw in the legal costs from the sale and the advertising of the unit, that wouldn't have happened for free. At this point the owner would be lucky to see a 3% return on this purchase. He better hope too many things don't go wrong in the unit or maintenance costs will drive that even lower. Just for comparison you… Read more »
blueskies
Guest
blueskies

http://tinyurl.com/44mal5g

"KINGSTON, Ont. — The planet is running out of oil and heading toward a future that could trap Canada in a violent spiral of decline in the economy and the environment, a special research unit within the Canadian military is predicting."

interesting read
"some" may try to find a
bullish angle to this but
trust me it won't have one………

VHB
Member
VHB

Big inflation surprise here.

5-yr yield should reverse its freefall today.

Should be nearly 100% chance of uptick for next few BoC decision dates.

Extremely rich Van h
Guest
Extremely rich Van h

@blueskies:

So,Canadian should seek alliance with China,the only super power.It will help Canada against US aggression;Van will be benefitted from it because there will be huge demand for houseing those Chinese military personnels once a Naval base has been established here.

Anonymous
Guest
Anonymous

There is a Chinese housing bubble and it is located in Vancouver:
http://www.gurufocus.com/news/129183/there-is-a-c

AG Sage
Member

@Extremely rich Van house owner.

Ah, I knew it. You're a performance art piece.

Dave
Member

@patriotz:

Affordability drives the market. It is the most fundamental element of the market.

Rental value and return is an import metric as well. In the low yield environment that we are currently in, the return on real estate makes sense from a risk reward perspective.

Someguy
Guest
Someguy

@Extremely rich Van house owner.:

I assume you are unfamiliar with the the Monroe Doctrine.

http://en.wikipedia.org/wiki/Monroe_Doctrine

While I don't entirely agree with the concept, it is still a fundamental pillar of US foreign policy. China won't be coming to our shores in that way. ever.

It is also why our oil is US oil and our water is US water 🙁

Flip Flop
Guest
Flip Flop
Get ready for more increases in food prices. We're raising our wholesale pricing on all sorts of brands across almost all categories lately. Not only from an increase in the cost of the raw goods used, but our shipping costs have jumped significantly as well (a big deal in a country with the population of California across 20x the geography). It takes time for these price jumps to materialize, as we have to run through existing inventory and give our clients 60-90 days notice on price changes. 80% of the price increases that we've implemented in the past 6 months aren't even reflected in the retail pricing yet. I'd hate to be in over my head in a mortgage right now. There's no way rates don't move on May 31. Of course, that won't be in time to impact the… Read more »
Flip Flop
Guest
Flip Flop

@ Dave

Let's say you could buy something today, and rent it out.

What sort of cap rate would you require to offset the risk of your investment falling in value moving forward?

Let's assume you think the worst case scenario is a 30% haircut.

crabman
Guest

@Dave: Affordability drives the market.

Is that why prices in Arizona (record high affordability) are falling, and prices in Vancouver (near-record low affordability) are rising?

pricedoutfornow
Guest
pricedoutfornow

Wonder if rates will go up on May 30th? Looks like they'd have to now. Ouch. I read somewhere that when gas prices increase as much as they have in the last few months, there's usually a recession within 6 months, as consumers have to cut back in other places.

real_professional
Member
My buddy sent a bunch of MPs in the Vancouver area a copy of a few News articles regarding over priced Vancouver housing – Only one responded: Notably silent on the issue were Ujjal Dosanjh (Liberal) – Vancouver South and James Moore (Conservative) – Port Moody.Westwood.Port Coquitlam NDP, Liberals, Conservatives were all contacted. The only response that he received was from West Vancouver conservative John Weston, this is his campaign manager's stupid response: "Thank you for sending us a copy of the very well-written article … While Vancouver housing prices are undeniably high, Vancouver continues to remain to be an extremely desirable place to live. Not only our majestic scenery, climate and recreational opportunities draw global attention, but also Canada’s action by Prime Minister Harper to help our economy recover more quickly than other countries. His initiatives such as cutting… Read more »
Eddie
Guest
Eddie

Not to mention no more HELOC's will have a huge effect on our economy. Look out below.

paradox
Guest
paradox

It seems to me that RE prices have been anticipating the inflationary environment we are about to enter into.

BoC wont increase rates in a significant manner before the FED. People thinking otherwise are fools.

With more than half the work force working for the government and automatic inflation adjustment in their wages, RE affordability will not be an issue for the lucky ones with government jobs in the foreseeable future.

Savers have no place to hide in this environment.

Interest rates will severely lag inflation rates for years to come. This is the plan all along.

Those who bought RE were not fools after all, as their wages go up with the inflation rate, and their debt deflates by the same amount, it is a double winner. Visionary indeed.

paradox
Guest
paradox

People comparing rent versus ownership are severely biased.

It is very hard to find quality rentals in Vancouver. Yes there are apartments that are cheap, but I would pay twice the rent to live in a decent place rather. To make this comparision fair one has to find a way to account for this quality of living factor. Quality places rents are expensive, and will rent for 5% yield to the purchase price which is decent considering the interest rate environment.

Also, RE will provide a better inflation protection. Right now mortgage debt is deflating at 3.3% pace while your savings in the bank are barely yielding 1%.

Anonymous
Guest
Anonymous

@Dave:

In the low yield environment that we are currently in, the return on real estate makes sense from a risk reward perspective.

Isn't that speculating? I would think that what you just described, in terms of the low yield environment, the risk reward spectrum is tilting heavily toward the risk side.

space889
Guest
space889

@paradox: And who's going to be paying for all those automatic wage increases you like to brag about? The other half of the working population in the private sector who get paid less than government workers for the same jobs? The same ones who are stretched by the high housing costs, higher cost of living, no wage increases, and higher taxes?

I would suggest you take a look at what's happening to civil servants in places like Greece, Ireland and Britain when the inequality goes too far.

Also guess what? When you tax productive people too much they tend to leave and you end up with lower tax base to fund your gold plated wage package. Remember the brain drain problem back in the 90s??

space889
Guest
space889

@paradox: So are all the piece of shit condos and townhouses selling for $600k+ with less than 1000 sq ft of living space and unlikely to last more than 20 years. Quality housing is just hard to find here regardless of whether you are renting or buying and what price you are paying. Just take a look at any condo towers or townhouses building in the late 90s that are now 10 to 15 years old, most of them look prett sad for still being a teenager. I can't imagine newer constructions to be much better. In fact for a lot of townhouses around my area, the new townhouses constructions just look terrible.

whydoItry
Guest
whydoItry
No mention of risk in the article. In a world of constantly increasing prices there is no risk. Hence there is almost no limit to the price one will pay with leveraged money as long as one can make the monthly payment. In past house inflationary periods, lenders have reigned in lending, because of increased risk to their shareholders. CMHC, would also have done the same decades ago, when its mandate was to help Canadians buy a home to live in. But, when prices are declining, the affordability has not changed but risk has increased. A simple measure of risk is the length of time it takes to pay back the mortgage. In a recession, buyers only want to take on debt for a short period. During a recession, the pay back period in Vancouver real estate has been around… Read more »
Phil
Guest
Phil

I disagree with voting Dave down. It makes it so it is hard to read his posts. While I may not agree with what he says, he has well thought out, articulate, comments that I find interesting to read. We should only vote down the trolls…

Anonymouse
Guest
Anonymouse

@space889:

"unlikely to last more than 20 years. "

You think they're going to be pulling down buildings like Conference Plaza in less than 9 years? Come off it.

patriotz
Member
Active Member
@space889: When you tax productive people too much they tend to leave and you end up with lower tax base to fund your gold plated wage package. Remember the brain drain problem back in the 90s?? No I don't remember the brain drain problem in the 90s, rather I remember a lot of people in high tech moving in from Ontario, etc. to work at companies like Creo. Remember them? Do remember that in the 90s BC still had the 2nd or 3rd lowest (not sure wrt Ontario) taxes in Canada. The fact is that today with unquestionably the 2nd lowest taxes in Canada, net domestic migration to BC has dropped to zero and we are getting a serious brain drain NOW, because the RE bubble is killing the real economy and making it impossible for people who do real… Read more »
wpDiscuz