The move-up buyer is screwed.

If you recently bought a condo in Vancouver this probably isn’t what you want to hear, but let’s just think about this situation realistically. Let’s pretend we get the ‘perfect’ scenario of constantly rising house prices. A young couple buys a condo to get on the property ladder and plans on starting a family and moving up to a larger home in a few years. When it’s time to sell, it’s a jackpot! Their condo has increased by $100 grand and they magically find a buyer at that price right away..

but wait. That home they wanted to buy is up $200 grand. Better hope their income has been increasing a lot faster than everyone else.

And that’s in the magic ‘balanced’ scenario where homes and condos increase at roughly the same percentage year over year. For a while here in Vancouver, house prices have lept up while condos have been mostly flat. The hypothetical move-up buyer is even more screwed.

Maybe it’s time to get some smaller furniture and turn the ‘den’ into a babies room, since we don’t seem to build many large family size apartments in Vancouver. It’s either houses or ‘junior’ one bedrooms with little in between.

Constantly increasing house prices means you only win if you sell and get out of town or sell and rent. The move-up buyer is screwed.

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Boombust
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Boombust

The condo market is excessively over-built.

Word has it also, that many of the buyres of recent ones are having trouble finding tenants' particularly in the Tri-Cites area.Flips that flopped, I s'pose.

patriotz
Member

@Boombust:

"many of the buyres of recent ones are having trouble finding tenants’"

You mean they're asking above market rents.

Patriotz' No.1
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Patriotz' No.1
I do agree with this move up buyer concept to be silly but I think in "bizarro world" this is how it works. I buy a 200K condo and I have a 5K down down payment. Condo goes up to 300K, now I have 105K equity (not counting transaction costs). Now, I sell the place and use that 105K equity for a down payment on a 1 million dollar place. The million dollar place goes to 1.5million and now I turned 5K into roughly 600K equity that I can treat as real money by HELOCing it. I know, I know, there is so many flaws with this way of thinking and its long term repercussions but I do believe this is one way the move-up buyer concept makes sense to people. Now paying off the full mortgage at the end… Read more »
chilled
Member
chilled

The average "move-up buyer" simply has to wait until mom and dad bite the bullet and the will is settled. Now they are ready to "move-up." Lets face it, the "move-up buyer" probably didn't buy the condo on their own nor will they the house.

logic
Guest
logic

well, or move to the suburbs. this is what people with kids do, no?

jumping in
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jumping in

@ Patriotz' No.1 Fan

I have heard that kind of reasoning,

As for paying off the mortgage, this is really old school.

Those people plan on passing away in debt. Their only concern is: how to carry the mortgage when we are retired? Of course, they forget to factor in health expanses.

registered
Member
registered

6 jumping in Says: "Those people plan on passing away in debt."

Boomers aren't savers. 'Death funding' was an argument also used a few years ago in California. Not so much today.

It's an argument that's only valid with zero pop growth anyway. Few in this market will be willed a property that hasn't yet been built.

Don Lapre
Member
Don Lapre

@Patriotz' No.1 Fan

In the condo situation the buyer had a $195k mortgage, then when they "move up" to the million dollar house they have to carry a $895k mortgage. If they could only afford the condo to start out, the would require a MASSIVE jump in income to service a mortgage >4 times the original one.

I have never understood how this pyramid scheme functions without ever increasing amounts of cheaper credit & corresponding availability.

Oh well, I guess I better go into debt and become rich!!

whydoItry
Guest
whydoItry
At one time, a buyer could purchase a condominium and move up to a home. A condominium purchased with relatively tiny 10% down in a rising market could reap enough net profit to make the move to a home without using CMHC insurance. But that was not to last long, the government made it easier to move right to house ownership with zero down and 40 year amortizations. Later that was to be reduced to 5% down and 30 year amortizations. But the damage was already done. That's the problem when you stimulate a flat or declining volume of buyers. In this case choosing a house was at the cost of not choosing a condominium. Today, the only way left to stimulate both the condo and the detached house market is to lower prices.
Patiently Waiting
Member
Patiently Waiting

A FTB who bought a condo since about 2007 would likely have no equity to put towards a downpayment. They'll be lucky to come out with the original downpayment for the condo.

So they will have to buy far out in the burbs for more space. Sell a $400K Yaletown shoebox to buy a $400K pressboard shack in Maple Ridge.

Patiently Waiting
Member
Patiently Waiting

Urban mining in HAMtown.

"The thefts occurred at 30 abandoned houses or houses scheduled to be demolished. Other incidents happened at homes that are under construction or have been placed on the market to be sold or leased."

Read more: http://www.theprovince.com/news/Empty+Richmond+ho

space889
Member
space889

I believe the process is supposed to be as follows for MetroVan.

1 – You are supposed to be buying that condo as soon as you start working.

2 – You get married and each person sell their condo (so 2 condos totally) and have enough equity to buy that townhouse in Van/Burnaby/Richmond or a small old house further out. Obviously you need to take on tenants or homestay students as mortgage helpers.

3 – Sell and move up to bigger house and/or closer to Vancouver West side.

Pay off the mortgage? Nah, that's just stupid. You don't paid off good debt when it's only 2%. You need to borrow more and invest in more RE.

Anonymous
Guest
Anonymous
"Maybe it’s time to get some smaller furniture and turn the ‘den’ into a babies room" I was watching the Home and Garden real estate shows the other night. There were two shows where people had bought a condo in the US about 5 years prior and needed to move due to a new baby. Both were underwater in their mortgages. In one show the people paid $350K had an all in payment (mort, taxes, fees) of $3000 per month. They estimated the place would rent for $1700 per month. So they had been paying close $1300 over rental cost for 5 years or $78K. When they went to sell they couldn't even get 250K for the place or 100K below what they paid minus real estate commissions. They still owed 330K. They were in the hole close to 200K… Read more »
Vansanity
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Vansanity

I caught Jim Chanos on Bloomberg this morning, of particular interest is his view of the Great Red Tiger's (or Dragon) "fragile" banks.

Here's the video: http://www.bloomberg.com/video/81455126/

What's worth noting is what the difference in what Chinese banks did in 1999 and 2004, during the previous loan problems without recessin, versus recapitalizing the banks like the US has done.

Disclosure: I've continued to make money shorting China this year and am moving more holdings into short positions in 2012.

patriotz
Member

@whydoItry:

"Today, the only way left to stimulate both the condo and the detached house market is to lower prices."

The problem is that most market demand is move-ups rather than FTB's, so falling prices result in more underwater owners unable to move up than first timers able to buy. This is a result of historically high ownership rates which mean there aren't many new FTB's to be gained by lower prices.

That's the dynamic that keeps prices falling lower and lower. Eventually it resolves itself but the US is not there yet after 5 years of declines.

Anonymous
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Anonymous

@DEFAULT NAME: ….They were in the hole close to 200K on a 350K condo over 5 years….

I love that story! Tell it to us again Santa 🙂

Anonymouse
Guest
Anonymouse

"Let’s pretend we get the ‘perfect’ scenario of constantly rising house prices."

Obviously constantly rising house prices isn't the perfect scenario for the move-up buyer. The perfect scenario is that the divide between the top-end and the lower-end of the market shortens, without impacting the equity they already have. The second best scenario is that house prices fall universally without leaving the move-up buyer in a negative equity position.

The claims made in the original post are total nonsense, because they're all based on a false hypothesis.

Anonymouse
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Anonymouse

@DEFAULT NAME:

If they still owed $320K on a $350K mortgage after 5 years AND were paying $3000/month then their interest rate must have been enormous.

PennyStock
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PennyStock

Carney: Canadians will continue to "enjoy" super-low interest rates for a some time to come.

http://www.cbc.ca/news/business/story/2011/11/23/

Anonymous
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Anonymous

bears like comforting one anothers. it's time for you to join grandview park.

registered
Member
registered

19 PennyStock Says: "Carney: Canadians will continue to “enjoy” super-low interest rates for a some time to come."

Harper: There is no sign of an impending recession.

Chretien: I will replace GST.

Mulroney: GST will be temporary.

Enough already.

Best place on meth
Member
Active Member
Best place on meth

@PennyStock:

This applies to the BOC rate only, the bond market may have different ideas as country after country blows up.

Ditto with what banks charge as they may need higher spreads to cover increased risk.

See today's failed German bond auction.

VanRant
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VanRant

"A new tax on foreign buyers could also wreak havoc, said Stephen Moranis, founder of Prudential Sadie Moranis Realty. He's concerned that the government may consider intervening on foreign deals as affordability continues to erode for average Canadian workers."

Why not a new tax on foreign buyers??? All the world (except Canada) is doing it to protect housing affordability for it's citizens.

PennyStock
Guest
PennyStock

Here's a link for VanRant's story:
http://money.canoe.ca/money/business/canada/archi

Troll
Guest
Troll

@Best place on meth:

This applies to the BOC rate only, the bond market may have different ideas as country after country blows up.

Yes, it will push rates even lower.

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