Why renters rule the housing market
Until renters can take out a mortgage to pay their rent they’re limited by income to how much they can pay. This is different than buying because mortgage rates and easy credit can change ‘affordability’ enabling people to take out larger loans and ‘afford’ higher prices.
Since rent tends to be more stable and directly related to the local income it puts a theoretical ‘floor’ on how far house prices can fall. As soon as it’s cheaper to buy than rent you should have investors who can do math buying up property.
Of course there are other complicating factors: psychology, ease of credit and liquidity.
Bloomberg has an interesting article looking at the situation in the USA after their housing bubble popped.
Many people who are technically homeowners are really renters. They put little if anything down. In many cases, the equity is negative when, for example, home-improvement loans piggybacked on first mortgages and brought total indebtedness to more than 100 percent of the house value. Many also planned to refinance their mortgages with cash-outs due to appreciation before their mortgage rates reset upward or, in some cases, even before they skipped enough monthly payments to be foreclosed.
It’s easy to be in a negative equity situation if you buy at the peak with very low down payment.
Of course it’s different in Canada right? The CMHC even introduced rules in 2008 eliminating zero down payment mortgages and now requires everyone to put down a huge 5% down payment..
So now we call it a ‘cash back mortgage’ and there are so so so many ways you can get a zero down mortgage in Canada today and be on your way to negative equity!
UBC Condo Selling Pressure? | Vancouver Real Estate Anecdote Archive Says:
February 24th, 2012 at 7:29 am
[...] “38 for sale in Hampton place alone !?!?!?!? (UBC) This is pure insanity. People are rushing to the exit.” – jumpin in at vancouvercondo.info 23 Feb 2012 6:40pm [...]
February 24th, 2012 at 2:06 am
@rp1:
“very high inventory is not necessary for a market crash”
The only thing necessary for a market crash is for buyers to be no longer willing to pay ridiculous prices. Regardless of whatever sellers do.
One of those self-evident things that is less so to many people.
February 24th, 2012 at 12:16 am
Bank of Canada warns of possible debt ‘shock’ if housing prices fall
http://www.canada.com/business/Bank+Canada+warns+possible+debt+shock+housing+prices+fall/6198589/story.html#ixzz1nHk31aJe
February 24th, 2012 at 12:02 am
RRSP contributions to decline to 1970′s levels: RBC
http://www.canada.com/business/RRSP+contributions+decline+1970+levels/6198606/story.html#ixzz1nHgnHlKK
February 23rd, 2012 at 11:40 pm
@rp1: This should not surprise you. Remember that price is a function of supply AND demand.
How do you like my avatar?
February 23rd, 2012 at 11:28 pm
http://popping-bubble.blogspot.com/2012/02/stock-on-market-vs-bubble-burst.html
Makes the interesting point that very high inventory is not necessary for a market crash (if sales are a shrinking denominator).
February 23rd, 2012 at 11:15 pm
@Anonymous: RE: Million dollar foreclosures. I fixed the CNN article. See if you can spot the difference.
http://i.imgur.com/X6nKv.png
February 23rd, 2012 at 10:53 pm
@ Anonymous…. I am a renter here in the Village COV owned, managed by Crosby PM, it is my understanding that they charge 2.25 PSF, they issued a notice this week saying that they needed access to each unit to measure. Got me thinking and i pulled out my tape and low and behold my place is aprox 10% less SF than they state on my floor plan, sounds like they owe me a refund!!
February 23rd, 2012 at 10:38 pm
@Watcher: A 3rd party property manager rents out the units at the Village. They simply charge what the market will bear.
Typically, the market for downtown rents is $2.30 – $2.60 PSF for strata units in newer Yaletown buildings.
Renting out units is a very straightforward process. Determine the comparable and set your price accordingly. It is not rocket science. If you can’t find a renter, lower your price or provide a move-in allowance. In Vancouver though, there is a lot of rental inventory so it is very easy to price a unit.
I’m not a property manager but know a couple who have explained the business to me.
February 23rd, 2012 at 10:08 pm
Hot damn Pope – it works!
February 23rd, 2012 at 10:07 pm
Testing…. testing local avatar system …..
February 23rd, 2012 at 9:59 pm
Taking from paub’s number
http://www.laurenandpaul.ca
February 23rd, 2012 at 8:50 pm
i gotta think that the relentless msm fear drive will start showing up in listings (net new) as the weeks progress.
If they don’t I’ll ask McLovin to give out five dollar specials at half price.
February 23rd, 2012 at 8:36 pm
@Guy Smiley: Gravatar should be based on email address, so you can register as any user name and as long as you use the same email here when posting as Guy Smiley it will show your avatar.
We’re also testing a local avatar system here. Scroll down to the bottom of the user profile page you see when you log into VCI and you’ll see a box to upload your avatar there. Test it out and see if it works for you.
February 23rd, 2012 at 8:33 pm
There are two duelling stories about China: a popular one of rapid and prolonged economic ascendancy, and another—seldom heard around office break rooms but strikingly pervasive among top-level investors— that it’s a facade on the verge of collapse. Contradictory as this sounds, both stories are partly true. In many respects, China has assumed the economic leadership of the world—which is why its hard landing in 2012 will be all the more painful, both inside the Middle Kingdom and beyond.
http://www.canadianbusiness.com/article/66217–prediction-china-s-economy-begins-to-unravel
February 23rd, 2012 at 8:29 pm
Speaking with a few owners here in Hampton Place. There are still a bunch more waiting to list. All 3 hi rises here have significant issues that need repairing. One has already had an special assessment with the other 2 still waiting to figure out what direction to take.
February 23rd, 2012 at 8:22 pm
http://www.news1130.com/news/national/article/333881–cda-s-housing-debt-bubble-vs-pre-meltdown-conditions-in-us
VANCOUVER (NEWS1130) – Are Canadian homeowners about to find themselves in the same mess as Americans did a few years ago? That’s the question being asked by Maclean’s magazine in its latest issue.
February 23rd, 2012 at 8:17 pm
Harry has been very quiet lately.
Garth has some interesting links.
The following link is a gem:
http://www2.macleans.ca/2009/02/23/the-shocking-truth-about-the-value-of-your-home/
when you know it is 3 years old
February 23rd, 2012 at 8:12 pm
@jumping in:
Just look a bit to the south : )
http://s15.postimage.org/4obehti17/UBC.jpg
February 23rd, 2012 at 8:05 pm
Anyone notice Larry’s dailys today? He posted numbers for the Feb 21st? Seems he is cherry picking the ones with high sales to listings. On another note can anyone tell me how the COV sets market rental rates for condo’s at the Village? Is it calculated per square foot X $2.50??
Have a nice evening everyone!
February 23rd, 2012 at 7:01 pm
@jumping in:
Interesting re: Hampton place. Now just look a few hundred meters south…
http://s15.postimage.org/4obehti17/UBC.jpg
February 23rd, 2012 at 6:59 pm
@guy smiley “north van”
Inventory is increasing, but if you look at recent deals large majority are bidding wars, up to 10% over list. That could also mean the majority are listed that way intentionally, but doubt that.
February 23rd, 2012 at 6:49 pm
@56 – thanx Pope. I tried to sign up at gravatar but someone faster than me has already registered my handle. And pretty much every other name i can think of.
@83 drachen – do you have any link or name for that study – i’d love to look at it.
Lots of sold signs as i drive around in north van which kinda drives me crazy. I agree with whichever bull it was who posted the other day that a buyers strike is patently impossible, but i’m tempted to print off bearish flyers (charts and fundamental stats etc.) and hand them out on the sidewalks outside of open houses. Anyone out there own a tph franchise?
February 23rd, 2012 at 6:40 pm
38 for sale in Hampton place alone !?!?!?!? (UBC)
This is pure insanity.
People are rushing to the exit.
The ghosts are coming.
February 23rd, 2012 at 6:29 pm
a real estate flipper posted today bragging on how the high-end homes >$5M in Van West are “flying off the shelf”, including the old tear-downs on bigger land.
http://forum.iask.ca/attachment.php?attachmentid=245896&d=1330038069
perhaps these are the greatest fools?
February 23rd, 2012 at 6:23 pm
@bpom “55 listings”
I wonder what the total inventory is at UBC vs recent sales. There are lots of cranes, plus many signs warning of more. All for a 99 year leasehold and high maintenance fees. If there is a place in van west that is ripe for carnage this should be it.