BC, debt, economy, pictures, prices, renting

Price to rent bubble in the Province

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78 Comments

Looky here, the Province newspaper has discovered the price to rent ratio!

Take the house price and divide it by what it costs to rent for a year to get the price-to-rent ratio: Price divided by (Monthly rent x 12) = X.

(Estimates for additional costs of homeownership, such as taxes, maintenance and insurance are factored into the equation.)

If the number is higher than 15, it’s generally not a good time to buy.

If the ratio is less than 15, buying is a better deal than renting, if you plan on living there for at least five years to offset moving and closing costs.

By the time the number hits 20, renting is apparently the way to go, except if buyers expect to stay put for at least 15 years, according to a formula used by trulia.com to rank major urban U.S. centres every year.

B.C.’s numbers, as shown in the graphic, are through the roof, from 29 (Prince George) to 73 (West Vancouver).

Compare that to a few little housing markets like Manhattan (20) and San Francisco (17).  That ratio doesn’t mean house prices are <i>low</i> it just means that they’re more reasonably priced compared to rents.

Since you can’t take on a big loan to pay rent it tends to show how much a place is actully worth in terms of desirability and local economics.

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jesse

@Anonymous: You’re using aggregated data to explain why certain housing types in certain locales in a region will only track inflation. That is not correct. We only need look at sales prices in Vancouver westside of detached bungalows over the course of many decades, and not necessarily using prices of the past 10 years as a gauge, to show that low density detached housing in a region that is increasing in density will have its land value increase faster than inflation. This makes sense, a property’s utility increases as its density increases. Future density could well be priced in but they are discounted due to holding costs and risk, hence the faster-than-inflation appreciation. Does that make the low density property a good investment? Not necessarily due to significantly lower rental yields. But Sommerville’s suggestion that a property can increase faster… Read more »

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Bilbo Bloggins

Too bad majority of the population couldn’t do a own vs rent scenario if their lives depended on it.
Even if the price-to-rent ratio was 300 they would still see renting as throwing money away or “paying someone else’s mortgage”.
On well, knowledge is power and to each his own!
Onward!

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Anonymous

@chilled: “Keep a close eye on the silverware”

Wooden bowls will fuck you over at every opportunity! Bastards!

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chilled

@Anonymous:

Keep a close eye on the silverware.

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chilled

@Best place on meth:

“Followed by a round table panel discussion “Should we trust China”?”

It *is* a stupid question. I haven’t trusted China for decades. It chips easy, often can’t go in the dishwasher and often the cup handles are dainty. Because of that, I’ve been using paper plates and beer cups for decades.

I agree, fuck China.

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Anonymous

@Anonymous:
This is not related to RE but since you ask the question…

It is reasonable to assume that if a country gives lots of incentives to women to have babies (generous mat leave, easy access to daycare, non discrimination policies, child allowance, etc), women will tend to have ore babies. Obviously, there are more influencing factors (such as religion for example).

OK, enough of this discussion, back to RE 🙂

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Anonymous

I know 3 families who used to give me a “sorry” look because we rent while they own. They just “lost” roughly $150 000 in the last 12 months (10% drop). Ahhhhh… no more real estate talk when I will invite them for dinner. What a breather!!!

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UnagiDon

@Anonymous: US has hispanics and mormons.

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Anonymous

@Makaya:

Where’s the USA fit in your list? Welfare state about the same size as Canada (in terms of % of GDP), yet a birth rate similar to France.

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southseacompany

More great headlines:

“Vancouver’s real estate swoon deepens” Globe & Mail, today.

http://www.theglobeandmail.com/report-on-business/vancouvers-real-estate-swoon-deepens/article2433053/

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Makaya

@Anonymous:

“So a welfare state leads to a higher birth rate or something, except that everywhere in the world a large welfare state corresponds with low birth rates.

Everything you write is just muddled nonsense.”

Why so angry?

Let’s just take countries with similar level of development and then compare fertility rates, ok?

From “2012 List by the CIA World Factbook”

– Singapore: 0.78 (worst in the world)
– Canada: 1.59
– France: 2.08

Now, tell me which of this country has the most generous welfare state? Which had the least generous? and which is in between?

Get it now?

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CashedOut

Here’s a real world data point for The Province article:
6285 CHARLES ST, Sold March 2012 $1,173,000

Recently spotted on Craigslist for $2500 / month. http://tinyurl.com/bpcowa4

price:rent – 39.1

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Anonymous

@Makaya:

““Singapore has a non- replacement birth rate” & “Very little welfare state here”
I see cause and effect here…”

So a welfare state leads to a higher birth rate or something, except that everywhere in the world a large welfare state corresponds with low birth rates.

Everything you write is just muddled nonsense.

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Best place on meth

Entertaining pieces on The National tonight.

First the piece on Vancouver’s deflating real estate market and the 10 crash in average prices year over year. And there’s Sewer Somerville saying everything is hunky dory except for maybe Toronto’s condo market.

Sure Sewer, when was the last time only one segment of one market crashed in any country? Sorry loser, it all goes down together.

Followed by a round table panel discussion “Should we trust China”?

Stupid question.

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loser with the girls

Opss Honk Kong down 2.5% overnight…looks like the smelly stuff is hitting the fan

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KopyrightKlepto

@Patiently Waiting:
“It begins…
http://www.cmhc-class-action.com/
“they will hunt you for the rest of your life””

This is why the government wants to privatize the CMHC. Clearly they will need to go after foreclosures to collect on debts and the government doesn’t want to be the bad guy.

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Anonymous

@jesse: “Sorry, but the data support prices increasing above inflation due to changing density norms.”

The steady decline of interest rates is the only thing responsible for increases above inflation. Here is the data:

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

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loser with the girls

if DOW and TSX deflate just 10% within next month RE market would be in 2008 mode right away.

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Romeo Jordan

I figure sales mix could show a 15-20% decline by late fall, although this will not be an accurate read of things. My guess is a true 10% decline by year end, but the big show will not unfold until we see some interest rate hikes.

Stick that in your noggin.

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jesse

@Anonymous: Sorry, but the data support prices increasing above inflation due to changing density norms.

A house surrounded by condos won’t increase faster than inflation but that’s not most houses.

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Anonymous

comment on Globe and Mail

“”Not everyone is convinced there’s a housing bubble. Economic fundamentals are driving activity and prices, and many markets are still undersupplied, said Peter Norman, chief economist at Altus Group.

He points to an improving labour market, low interest rates, population growth and pent-up demand from the recession as driving activity. “I wouldn’t say it’s out of control but it certainly indicates strengthening demand in a relatively supply-constrained market,” he said.

Even in Toronto, where talk of a bubble is most concentrated, rising prices simply reflect population growth of about 100,000 people a year in a city where “severe land constraints” are limiting the ability to build single homes, he said.”

IF HIGH HOUSING PRICES ARE BASED ON STRONG ECONOMIC FUNDAMENTALS THEN REMIND ME AGAIN WHY WE NEED EMERGENCY LOW INTEREST RATES???”

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Anonymous

testing..can’t seem to post

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VHB
	
May-2012	
Total days	22
Days elapsed so far	11
Weekends / holidays	4
Days missing	0
Days remaining	11
7 Calendar Day Moving Average: Sales	125
7 Calendar Day Moving Average: Listings	294
SALES	
Sales so far	1424
Projection for rest of month (using 7day MA)	1373
Projected month end total	2797
NEW LISTINGS	
Listings so far	3591
Projection for rest of month (using 7day MA)	3238
Projected month end total	6829
Sell-list so far	39.7%
Projected month-end sell-list	41.0%
MONTHS OF INVENTORY	
Inventory as of May 15, 2012	18274
MoI at this sales pace	6.53
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midnite toker

@Joey Jo Jo Jr.: nice! Thought about sharing that on Facebook but I know some friends and family would take it personal …

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Anonymous

@jesse: “Underused property will increase faster than inflation and areas with constrained land supply will do the same, and that goes for Vancouver in spades. Sorry, but it is a fair point.”

Wrong. Underused property has a premium already priced in. If you can build a larger house on a lot, subdivide or what ever that premium is already built in at market price. What Tsur was talking about is property values increasing above inflation justifying paying a premium over renting. Isn’t going to happen over the long term. Tsur Sommerville is nothing more than an industry shill.

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