Is the door closing on home buyers?

Airborne Canine pointed out this PDF from the Real Estate Board of Greater Vancouver arguing that taxes and government regulation are putting home ownership out of reach of buyers.

That’s right, it’s not a problem with prices, it’s the PTT and ‘government regulation’.

As Best Place on Meth angrily points out, that last one is a bit odd.  The recent changes to insured mortgages weren’t government interfering more in the mortgage market, it was less.  They’re simply rolling back the increases in amortization terms to their historical norm.

He also points out a math error:

“How much do the new federal rules cost a buyer of a $609,500 home with a 15% down payment of $91,425?
$270.20 more per month”

In order to make that math work you have to disregard that you’ll be paying that lower monthly cost for 5 more years which means more interest payments.  In fact a 30 year mortgage under the old terms would cost a buyer $53,849.76 MORE than the new 25 year standard term over the life of the loan.

The proposal to reduce property transfer tax and lobby the federal government to increase the amortization period for government-backed insured mortgages doesn’t actually address the root problem: Speculation has driven house prices beyond what the local economy can support.  Trying to juice the market further is not a long term solution.

On a side note Data Junkie is a commenter on this blog who says they’ve done some work for the REBGV as a government relations policy analyst.  If you have a questions about his experience working at the board you can post them in the comments section below.  The highest rated questions will be sent on for Data Junkie to answer.

And last but not least 604x points out that the Select Standing Committee on Finance and Government Services accepts submissions from anyone through their web portal:

https://www.leg.bc.ca/budgetconsultations/survey.asp

As 604x puts it:

Perhaps some of our VCI heavyweights like Jesse, Scuba, VHB, VMD, b5baxter, AG Sage, and the rest could submit summary data illustrating the insanity of past government policies and the impact of CMHC loosening.

The big push now from real estate lobby groups seems to be on restoring the bubble through looser finance and tax breaks. The Committee needs evidence that the bubble is ultimately destructive over (and short-term pain of adjustment downward in prices will help everyone over the longer-term).

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VMD
Member
Gentlemen, behold the “Buy one get one free” deal of Vancouver West. $898000 / 2br – 1460ft² – Buy one get one free (no kidding) (South Cambie) Buy one Townhouse in Vancouver and get a single family house in US free. Townhouse in Vancouver, BC: $898,000 1460 sqft, 2 big bedrooms + 1 den, built in 2004, south Cambie Best Schools – just 1 blk from Churchill High, Laurier Elementary and community centre! Private garage, blt-in central vacuum. Designer paint, custom made window covering, build in security system, all double glaze windows with good acoustics. This well designed, bright corner townhouse and great community is the best place to raise your kid! —- Free single family house in Ohio, USA Property Description: 6900 sqft land size, built in 1962 This is a 3 bedroom, 1 bath brick ranch with central… Read more »
gokou3
Guest
gokou3

This makes an interesting idea: if one can finance it, he can actually buy a vancouver property + several US distressed properties to make the combination cash flow neutral.

Of course, a far better idea is to just buy several US distressed properties and use the positive cash flow to pay for the local rent. 🙂 This allows the individual to own hard assets (which everyone in Vancouver is so horny about) while not overstretching to pay for the Vancouver-sized mortgage.

patriotz
Member

“He also points out a math error:”

It’s more than a math error. Simply changing the amortization period of a loan doesn’t change the cost to the buyer, in present value terms, at all. Payments are higher with the shorter amotization (assuming the price stays the same) because more of them are principal, which is not a cost but an investment. And of course, the shorter amortization will result in a lower price, which means that the cost to the buyer will actually go down.

patriotz
Member

@gokou3:
“Of course, a far better idea is to just buy several US distressed properties and use the positive cash flow to pay for the local rent.”

I follow the same strategy except I own things like Canadian resource stocks – a lot easier to manage from your keyboard than US RE. Better that I buy them than the Communist Chinese state.

Grab a brain
Guest
Grab a brain
The idea that lowering the PTT would lower home prices is more than a little suspect. Taxes do have an effect on the price of most things we purchase, but I highly doubt lowering the PTT would have any effect on housing prices because those prices are set more by buyer perception and credit availability than they are by fixed costs. Yes, construction costs are somewhat fixed, but land is completely variable. People pay what they think it’s worth. And in Vancouver the land is frequently “worth” far more than the house on it. All other things being equal, any reduction in the PTT would simply result in a corresponding increase in prices and a resulting increase in money flowing to the banks and (to a much smaller extent) the realtors. Okay, sellers would benefit too, but that’s not the… Read more »
patriotz
Member

@Grab a brain:
” I highly doubt lowering the PTT would have any effect on housing prices ”

Lowering PTT would increase house prices by the same amount as the PTT is lowered. Reason being that, as always, prices are determined by how much buyers are willing and able to pay out of pocket.

The RE industry of course knows this which is why they are always lobbying to have PTT lowered or eliminated.

vanpire
Guest
vanpire

IS THE DOOR CLOSING ON FIRST TIME BUYERS?
I am the potential first time buyer and I welcome the changes.
Anyone who is capable of doing their own math (IMO, a skill that is absolutely necessary before you buy a house) will disregard all this cheerleading from RE lobby shills anyway.
On the other hand, the door is definitely closing on speculators, flippers, “investors” and all other assorted scum who are responsible for driving our prices through the roof.
And as a future first time buyer, I welcome this with open arms.
So don’t you worry about me REBGV – 25 years to pay sounds plenty for me, thank you very much.

joe_blown_away_by_high_housing_costs
Guest
joe_blown_away_by_high_housing_costs
That buy-one-get-one-free deal is a townhouse development at 58th & Oak. Before the townhouses were there, it was a big property with just one house on it and maybe a second smaller coach house. It was mostly a big field with lots of nice trees. When I was a kid we used to walk right through that property on our way to go to school at Churchill. There was a path through the field that all the kids would take. Some of the ‘bad’ kids would go there to smoke pot when they were skipping classes. Yes, I went to Churchill for high school and I grew up in a neighbourhood that according to that ad is “the best place to raise your kid”. And my parents didn’t have to buy a million dollar townhouse in order for me to… Read more »
Harry Wang
Guest
Harry Wang

Door is closing for first time gamblers and debt slaves.

vangrl
Member
vangrl

gotta love the CEO of the real estate developing company “Remington Group” on BNN right now pumping Toronto. Absolutely nothing to worry about in Toronto….phew, those lucky torontonians !

Mick Murphy
Guest
Mick Murphy

Vancouver’s Cold Real Estate Market – Global TV

http://www.youtube.com/watch?v=k16n04zbfPQ

Can’t wait to see crying HAM, boomers, and Gen Y people on GlobalTV asking for the government to do something to help them. I’m tired of seeing these REBGV clowns.

Bo Xilai
Guest
Bo Xilai

@Mick Murphy:

Vancouver’s Cold Real Estate Market – Global TV

Ozzie Jurrock and Eugene Klein are the only ones interviewed… Nice balanced story Global TV…

They forgot the “Brought to you by Re/MAX” at the end of the story.

left already
Guest
left already

It is impossible not to notice the grey dark Vancouver sky in that global TV video. So depressing!
When I think that you will have to wake up to pouring rain and grey dark sky like that every day for the next 9 months, I am glad I left regardless of whatever RE prices do. Vancouver is a depressing vastly overrated wet dump.

Apocarypse Now
Guest
Apocarypse Now

Re: Global story.

Nice how Ozzie always quotes those 1960’s prices compared to now and never takes inflation into account.

Anonymous
Guest
Anonymous

@left already: “It is impossible not to notice the grey dark Vancouver sky in that global TV video. So depressing!”

It is beautiful out today. Actually it has been beautiful for over 2 months straight. You must get depressed easy.

Anonymous
Guest
Anonymous

@Mick Murphy: “Real estate is supposed to be a secure investment, but…” Aren’t they just precious.

They keep saying “prices are stable”. It might be interesting to graph something like an average list price / average sale price ratio (maybe with outliers removed), or something that would show any divergence in price between properties that move versus properties that don’t. I have a feeling we might see quite a gap.

s
Guest
s

Did this site get taken down.

http://re.olvius.com

Thx!

jay
Guest

@Bo Xilai:
Agreed. The Global TV piece is more balanced than CBC’s recent report on Vancouver housing.

Bailing in BC
Guest
Bailing in BC

@s:

Perhaps the used house salespeople got to them.

patriotz
Member

@Anonymous:
“Real estate is supposed to be a secure investment, but…”

That’s correct but not in the sense they’re trying to give the viewers. It’s very easy to determine a price to pay for RE which will almost guarantee you a positive return going forward. Not the case for stocks at all. And since you never have to buy, there’s no penalty in waiting until that price arrives.

Mick Murphy
Guest
Mick Murphy
the most puke worth quote on the GlobalTV story from the presenter – “SALES ARE DOWN… ALTHOUGH PRICES AREN’T FALLING…… at the same pace…” and from the reporter – “AND YES ALTHOUGH SALES HAVE BEEN DROPPING, THE SAME CAN’T BE SAID FOR PRICES…. at least to the same extent.” As if sales and prices falling at the same rate is relevant. They seem to want to hammer this point home. And this out right lie from Eugen Klien says “There’s been absolutely no change in the prices” Despite the HPI showing 7.3% drop for the first 2/3 of the year according to the Financial post. “But when you pull out actual sales data, you find year-over-year prices in August in Canada’s most expensive housing market were off 6.9%. For the first two-thirds of the year, prices fell 7.3%. The decline… Read more »
TNT
Guest
TNT

Regarding the new rules.
It appears that they are put in place to protect people from themselves.
People if you must buy, buy with in your means.
Buy what you can afford and not what you just gotta have.
The US and many other housing markets decline are an example of what happens through greed and perceived need.
These are a in your face warning,scratch and sniff.
Vancouver is no different, and you will have no excuses.

painted turtle
Guest
painted turtle

Another funny comparison:

http://www.vancouversun.com/travel/Photos+Sheryl+Crow+three+home+million+compound/7342706/story.html
Singer Sheryl Crow has listed her Hollywood Hills compound for US$15.995M. The 11-acre property contains three residences: a primary four-bedroom 1920s Spanish Colonial; a three-bedroom 1909 Craftsman bungalow; and a two-bedroom cottage built in 1885. The entire compound is tied together with canyon pathways, hiking trails, tee pee, campsite, playground, palapas and a resort style infinity pool.

and V964377, same price, but the value is mostly in the 52.92 x 157 lot:

Four bedroom house. Highly desirable waterfront property on prestigious Point Grey Road. Your own private stairs to the beach. Restore this quaint residence…or…this is your opportunity to acquire an exceptionally rare building lot.

Patiently Waiting
Member
Patiently Waiting

@Grab a brain: Also, any reduction in PTT would mean an increase in some other kind of taxation, or reduction in services, or increase in Provincial debt.

PTT taxes most those who deserve it most: speculators.

TNT
Guest
TNT

Apparently many Canadians used their Helocs to finance properties down south.
The current upward trend in parts of the states RE is due to these buyers.
When this HOUSE OF CARDS collapses there is going to be many tears, much pain and regrets.

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