Global Price to Rent Ratio

According to fundamentals, Canadian RE ownership continues to be significantly overvalued compared to rental cashflow. Even the bubbly Australian market has started to correct, but with interest rates low for at least 2 more years, who can predict how long the plates can continue spinning?

You can play with The Economist’s house prices chart yourself here:

http://www.economist.com/blogs/freeexchange/2011/03/global_house_prices

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Starving Artist
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Starving Artist

We're just like Singapore!

Keeping An Eye On Th
Guest
Keeping An Eye On Th

" The average family buying a house in the city would need to dedicate 92.5 percent of its income to own a bungalow.

"Vancouver's housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn," Wright said."

http://www.bnn.ca/News/2011/8/22/Most-housing-rea

92.5% and that is with basically with 0% real interest rates.

No bubble, no trouble

victoria
Member
victoria

Now tell me how do people surivive? We are in Victoria – our family salary is above average – we have 4 kids that don't do a whole bunch of acivities. We don't travel , don't eat out. We just can't seem to make ends meet.

So, how do people in Vancouver do it I wonder if so much of their income is going to RE.

Flip Flop
Guest
Flip Flop

My fiancee and I spend approximately 10% of our pre-tax income on rent. That probably grows to 15% when you account for utilities like hydro, cable, phones, etc.

We live in a beautiful little north facing 1BR, 600 sq ft, apartment overlooking the city and mountains from the top of the hill in Kerrisdale.

Once all the transfers happen (travel account, savings account, investments, rent, bills etc.) there's just enough left for a couple meals out and a little walking around cash.

I can't imagine feeding 4 kids and paying a mortgage. The savings, travel and dinners out would certainly become a thing of the past in a hurry.

Good luck with that. Why did you have 4?!

Anonymous
Guest
Anonymous

Victoria,

Few ways it's done:

Rent basement

Take on more boarders

Two or more jobs

Loans (gifts) from parents

Of course, the above all come with additional stress.

space889
Guest
space889

Well as they say, if you can't afford to be in the city, move!

I guess this is just one more evidence of Vancouver bull market. Get in before it becomes 110% of your gross income to own a charming old timer with all original plumbing and electrical. Best place on Earth!

WFT?
Guest
WFT?

@Victoria:

Drug dealing and tax evasion.

Best place on meth
Member
Best place on meth

@Victoria:

So, how do people in Vancouver do it I wonder if so much of their income is going to RE.

It's a neat little trick called "negative savings".

Vancouver is the only place in the country where it's successfully practiced.

Escapee
Guest
Escapee

@space889: I did move, even though my bills were a small part of my income (like flip flop). For me it was more about getting tired of the city and needing a change. After living in the city my whole life I was suprised to find the quality of life in a small town a lot higher and more affordable. I also find I don't miss the things I thought I'd miss in Vancouver, although I do miss family and friends.

If I was still a teenager I wouldn't want to leave, but there are much better places in this province to raise a family.

N
Guest
N

@Victoria:

Personally, I rent. I think many people who own use HELOCs.I certainly know people who do. And, of course, most people who own bought before the bubble. I would be interested to know what the percentage of residents who actually pay large mortgages is. It might be much lower than we imagine.

WFT?
Guest
WFT?

@N: Good points.

900kCrackHouse
Guest
900kCrackHouse

12% of my household income goes to rent. 0% to property taxes, 0% to condo fees, 0% to repairs / maintenance, and 0.4% to utilities / energy. I heat my house using the gas fireplace which is on strata fees (landlord). And no, I'm not living in someones basement suite. Nice newer tower, lots of space, huge deck, great location. Twill be the envy of all the "owners" when this ship starts to sink.

Anonymous
Guest
Anonymous

Another beautiful sunny summer day in Vancouver. Reminds me of the old joke:

Q: What do you call 100 lawyers at the bottom of the ocean?

A: Drier than Vancouver lawyers.

kansai92
Guest
kansai92

Haha, Vancouver, sorry, you're not NUMBER ONE for once!

But just keep buying. We'll get there eventually.

paradox
Guest
paradox

"The average family buying a house in the city would need to dedicate 92.5 percent of its income to own a bungalow"

That is 92.5% of the pre-tax income.

Smth does not add up in this city, could it be underground economy, grow ops , or HAM money, I dont know but I am sure we are about to find out in not the too distant future.

jesse
Member

@paradox: "Smth does not add up in this city"

Marginal buyers ensure things will rarely "add up".

space889
Guest
space889

@Escapee: How are the healthcare in small towns? I'm sure it's ok for day to day stuff, but what about emergencies? Small towns would not have the same access to specialist on a moment's notice as bigger cities? What about surgeries? Would you have to travel to say GVRD for major surgeries which I also imagine wouldn't be very convenient?

Best place on meth
Member
Best place on meth

R.I.P. Jack. 🙁

Anonymouse
Guest
Anonymouse

@paradox:

"That is 92.5% of the pre-tax income.

Smth does not add up in this city, could it be underground economy, grow ops , or HAM money, I dont know but I am sure we are about to find out in not the too distant future."

Or perhaps the average family isn't buying houses in the city?

jesse
Member

@Anonymouse: "Or perhaps the average family isn’t buying houses in the city"

No they use capital gains on condos, family financing, and rental of suites and rooms students to finance the costs. If you want to live in Vancouver and own a detached property there are ways.

If what you state is true the median income for the city should be increasing faster than it is.

DaMann
Member
DaMann

@Anonymouse:

Bloody hell. When are people going to stop with saying that? We KNOW the average person with average income is not buying in the city. It's a metric used to show affordability, nothing more. 92.5% of pretax income pretty much states these people are not buying!

interesting numbers
Guest
interesting numbers

10% of my pre-tax household income goes to rent. I do not pay for maintenance or for structural insurance. I also do not pay property taxes. I have an entire newly renovated house for my family.

My landlord would need to have made a 60% down payment to make this rental break even, even in this very low interest rate environment. Her purchase price was around 400 times monthly rent.

900kCrackHouse
Guest
900kCrackHouse

@interesting numbers: I believe the appropriate metric for this indicator is post-tax income.

/dev/null
Member
/dev/null

Boomer Retirement: Headwinds for U.S. Equity Markets?
http://www.frbsf.org/publications/economics/lette

So, not sure if I have this correct since investing isn't exactly a forte of mine. Lower P/E is bad for older people (Boomers) who have counted their eggs (capital-gains from stock price increases) before they're hatched (sold said stocks)? If so, it's a good thing that many boomers are counting on their home equity to fund their retirement. Oh, wait.

But is it correct that a sustained period of lower P/E is more desirable if you're planning to buy stock and collect dividends? i.e. you're buying the same chunk of a company (earnings) for less money?

real_professional
Member

Zero Hedge – Article on Canadian Housing

"Perhaps the most defining features of an asset bubble is a marked and persistent deviation from the underlying metrics that once determined fundamental value. We know how real estate in Canada stacks up when compared to GDP, personal disposable income (cities and provinces), rents (cities and provinces), and inflation. It's not pretty. As with any real estate bubble, the overvaluation is most extreme in a handful of cities. The regional data can be seen in the highlighted links. Certainly not all areas of the country have experienced a massive divergence from underlying fundamentals, but it is extensive enough to concern us." …

http://www.zerohedge.com/news/guest-post-more-ins