Price to rent bubble in the Province

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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and so it begins...
Member
and so it begins...

Wow…. Price changes outpacing sales nearly 2-1 today. Add in an MSM story of peeps walking away from deposits and a nice -9.8% dip on yoy average price. I’d call that a day wouldn’t you?

Anonymous
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Anonymous

“To be fair the Calgary market has been pretty hot this spring. The median price in May so far is $435,000, just below the high of $439,000 in June 2007”

So put another way, its 5 year ROR is 0%

Makaya
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Makaya

@paulb.: +92 from yesterday, I live it better that way!

paulb.
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paulb.

New Listings 287
Price Changes 174
Sold Listings 95

TI:18274

http://www.laurenandpaul.ca

Best place on meth
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Best place on meth
@jumpin in: I see McLister is being a whiney, lying scumbag again – in other words, being himself. “How many new lending ‘guidelines’ can the market bear before it breaks?” wrote Robert McLister, a mortgage planner who edits the website. Hey asshole, don’t like lending ‘guidelines’? Fine, let’s get rid of taxpayer backed mortgage insurance and go private, then you can set your own rules. There’s “no question” the proposed OSFI guidelines will curb demand and hurt housing prices, McLister said in an interview. That’s right you fucking crybaby, I’m sure you and your ilk would like to see cheap and easy credit extended forever to anyone who can breathe but we’ve had enough. McLister pointed to banks’ low arrears rates on mortgages as evidence more rules aren’t needed. What a lying piece of filth, he knows full well defaults… Read more »
jesse
Member
@Anonymous: “Which place would that be that exceeds inflation over the long term? 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. Condos, and houses away from the periphery, are unlikely to increase their utility significantly and will roughly track inflation as Shiller indicates. Shiller looks at aggregate US and city-wide data, not specific areas, but I do believe he has commented that price movements are not necessarily homogeneous, even over the long run. Vancouver SFH is central in a region that is increasing in density, just look at any new housemultiplex going up in place of a WW2-era bungalow. There is more utility with the new dwelling, often with multiple suites that generate additional revenue, way more… Read more »
Joey Jo Jo Jr.
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Joey Jo Jo Jr.

Headline on the Globe & Mail:

Vancouver’s real estate swoon deepens

Also mentions people walking away from deposits….

Just need some more stories like this to really change the market psychology… If it hasn’t turned already!

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

UnagiDon
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UnagiDon

@Anonymous: “Any chance you can find a blog more on topic with the things you want to discuss?”

I solemnly pledge to stop discussing Chinese gangsters on RE blogs…

…just as soon as Global TV pledges to stop showcasing Cam Good flying around in yellow helicopters.

Anonymous
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Anonymous

@Flip Flop: “What is the appropriate expectation is a very legitimate debate, and in many places should much exceed the rate of inflation, but not in every place”

Which place would that be that exceeds inflation over the long term? Case Shiller already debunked that myth. Without interest rates falling we would not see anything above inflation. When the rates rise we will not keep up with inflation. To forecast above inflation over the long term with current rates is asinine. Imagine what housing prices would look like if interest rates were 10% as they were for most of the 70s.

Anonymous
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Anonymous

@Makaya: “If you have a link regarding his previous occupation that made him so rich, I’d welcome it. I couldn’t find what this guy was doing.”

It was in the article you originally quoted!

‘Police gave no other details but local media said the Ferrari driver was a financial adviser from Sichuan who was applying for permanent residency and already living in a Singapore penthouse with his family.’

Anonymous
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Anonymous

@Makaya: Any chance you can find a blog more on topic with the things you want to discuss?

Makaya
Member
Makaya
@Anonymous: “Singapore has a non- replacement birth rate” & “Very little welfare state here” I see cause and effect here… Canada is obviously nothing like Singapore (thank god!). My point was not to compare the two countries, but to draw a parallel on the resentment towards HAM here and there. “You notice the young Ferrari driver had a high paying job and bought his own car. Not quite the same as our Ferrari-drivIng vancouver house sitters now is it?” If you have a link regarding his previous occupation that made him so rich, I’d welcome it. I couldn’t find what this guy was doing. The only thing I found was this below, but I can verify whether this is true or not: “The dead PRC driver, Ma Chi, of the red Ferrari was the brother of Ma Yong, one of… Read more »
Flip Flop
Member
Flip Flop

@ Patz

A rebuttal from Tsur (I ruffled his feathers a bit via email).

-clip

Please see any paper on housing as an asset, then look for owner cost of capital, notice that rent to price ratio depends on interest rate, holding costs, and expected appreciation. The last two have geographic variation within a country, all three vary across int’l borders

What is the appropriate expectation is a very legitimate debate, and in many places should much exceed the rate of inflation, but not in every place

If cities are not perfectly “open” then urban utility doesn’t have to equalize across cities and land price deviations can get larger than can be explained by amenities alone

Finally, rent and prices have to be for the same unit/location and this is rarely the case in detached housing markets

-clip

for what’s its worth.

Anonymous
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Anonymous

@Makaya:

Singapore has a non- replacement birth rate coupled with a surging economy. It needs immigrants badly but the influx is stirring resentment, some of which has abated since the govt cut back on the number of arrivals.

There’s also one huge difference with Canada. Very little welfare state here and a pretty high threshold for skills so immigration has a rather large net economic benefit. You notice the young Ferrari driver had a high paying job and bought his own car. Not quite the same as our Ferrari-drivIng vancouver house sitters now is it?

jumpin in
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jumpin in
Macho Nacho
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Macho Nacho

@jesse: Unless the guy buying another house has a huge income, the bridge loan is probably from a private lender or credit union (although even this outlet is shrinking).

space889
Member
space889

@Makaya: Wow 30 year old and can afford a $1.4M Ferrari, a penthouse in Signapore. Wow….I’m in the wrong industry/job.

My condolensces to the two innocent bystanders who died, it’s really unfortunately. The only bright side out of this tragedy is that the perp also died, rather than walking away without punishment. It’s really too bad he didn’t crash into a concrete barrier instead.

CanuckDownUnder
Member
CanuckDownUnder

To be fair the Calgary market has been pretty hot this spring. The median price in May so far is $435,000, just below the high of $439,000 in June 2007. Of course if oil continues to tumble the market will be dead again.

DaMann
Member
DaMann

@Anonymous:

LOL Fantastic point!

jesse
Member

Look at benchmark prices compared to 5 years ago based on sub-region in the Vancouver area: http://twitpic.com/9lfvtj

Not all areas have gone gonzo since the GFC. Something to consider.

Makaya
Member
Makaya

The G&M spinning RE again, it’s been a long time!

Why Calgary could become hottest housing market again

Love this one from the comment section:

“God I hope so. One of my properties is still under water. I made a dreadful decision that I’m hoping to unload as soon as possible. Not worth the headache.”

How many like him are (or will be) in Vancouver?

Anonymous
Guest
Anonymous

@DaMann: “Who the hell buys a house or property or whatever and doesn’t know these things?”
If you had to pass an IQ test to buy a house, we wouldn’t be in a bubble.

DaMann
Member
DaMann

@Anonymous:

Fair enough. Who the hell buys a house or property or whatever and doesn’t know these things? I mean really…

Makaya
Member
Makaya

YOY average price change graph from CREA.

Look at Vancouver!

http://img7.imageshack.us/img7/3287/chartofinteresthiresen.jpg

Anonymous
Guest
Anonymous

@DaMann: I don’t think they declared bankruptcy. I think they believe that because of the insurance that they could just walk away from the house (ie, non-recourse). What they need to do, and what they are obviously trying to avoid, is to declare backruptcy.