Welcome to the New Year!
You made it! And this being Friday, that means it’s time for our traditional Friday free-for-all, our open topic discussion thread for the weekend.
-this is where we post links when we’re not too lazy (or too holiday)
So what are you seeing out there as the new year dawns?
Post your news links, thoughts and anecdotes here and have an excellent weekend!
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YVR and crabman, you are measuring cap rate of land that is under-utilized, that property is not for a landlord – look here for that:
“If the purchase price fell 40%, the cap rate would only increase to 4.8% — still less than you claim to be getting on your place. Still think a 40% drop is “unlikely”?”
Actually it is more like 3.5% net when you factor in time to manage the property (or pay a property manager), vacancies and basic repair costs to maintain it. We need more like a 65% correction for this property just to give a similar yield to a REIT ETF. So to answer the question of how likely is a 40% correction I would say 50/50. There is a 50% change of only a 40% correction and a 50% chance of much more.
“What do you think the chance of a 40% correction is? At that rate, Crabman’s example above will have a cap rate close to 10%.”
Your math needs work. The example I gave rents for $2,100 net ($2,400 – $300 property tax). At a purchase price of $868k, the cap rate is only 2.9%.
If the purchase price fell 40%, the cap rate would only increase to 4.8% — still less than you claim to be getting on your place. Still think a 40% drop is “unlikely”?
“A few more years like this and they will reach fair value” I know it might seem crazy but a “few more years” is not out of the question. The quibble/caveat is it might be something like 5-6 more years, at which point there is risk of another recession occurring, and most past recessions have been predicated by rising rates. I think there is a built-in assumption about capital costs; if one takes the risk they will be low for the majority of debt repayments, I think we’re about 4-5 years of “flat” prices away from that. If rates do rise (and that is an “if”) then it would take much longer, or more likely it will necessitate nominal price drops. Not saying what’s the correct play here, but from what I see, those who are investing in the current… Read more »
#112, #114:
So what am I supposed to believe? Relentless pumper UnrealityCheck and his Global-like massaging of Flaherty’s words or VMD’s direct quote? Hmm…
Nevertheless, the most telling quote was likely this: “We have to be vigilant because that (housing) market is really important for jobs in Canada.”
No shit. On one hand, they want idiot Canadian lemmings to stop taking on debt. On the other hand, the economy is dependent on idiot Canadian lemmings continuing to sell insanely priced houses to one another. He pretty much said exactly that today.
What an f’ing mess.
@112 RC:
This is what Flaherty really said (via CTV):
“However, Flaherty said, he would intervene to further tighten mortgage rules if the market appears to need further cooling.”
“What we’ve been trying to manage, to the extent that governments can manage the housing market, is a soft landing, a gradual reduction. And we’ve seen that, we’ve seen some softening in the housing market, including the condo market,” he said.
“We’ve tightened the rules four times on mortgage insurance and if we have to tighten them again, we will.”
(btw, Flaherty’s voice sounds quite authoritative today.. like batman)
thanks for the ELS lesson M
Flaherty just said on CTV that he will do everything in his power to support house prices. Add to that Poloz wanting a lower dollar.
Wow and nutcases like Bert want to oppose guys like these???
If I’m gloating I apologize. I am well aware that many people are struggling and many are doing much better than me. My point, and it may be a fine one, is that there are many players with different timeframes, resources, portfolios, risk tolerances, etc. I don’t think our local market is a Sell. More like a Hold in analyst parlance. Not sure how effective your macro perspective has been in forecasting. Timing is always the hardest thing. As Jesse points out, condos are already correctiony. A few more years like this and they will reach fair value. If you decide to time it, make sure you don’t want to cash out of your equities when stocks are crashing. YVR, then I guess I am your test subject. What do you think the chance of a 40% correction is? 5-10%?… Read more »
Bert:
Under estimate is one word.
“And YVR, you wouldn’t be here either if you didn’t want to buy back in.”
I will likely buy back in once it makes sense. Until then I watch the bubble and psychology of the masses with fascination. The most interesting part to me is the person holding real estate who actually sees the bubble but can’t fully accept it. Those types seem to frequent this blog and I find their posts interesting. Most will end up trying to sell once it is too late when the market goes no bid.
“YVR, tell me in simple terms where my capital will do better?” A GIC. At least you maintain your capital while collecting a 2% to 3% yield. With real estate you get 2% to 3% at best, have to do a bunch of work to hold it and will likely lose 40% plus of your capital over the next 5 years. In my personal situation my landlord is getting about 2%. He has already lost 20% of his capital from what he paid if he sold today. If you think RE can’t go down then you are better off in a REIT. ZRE yields 6% or about 2 to 3 times a typical residential real estate investment with much more liquidity, better diversification, no rent cheques to collect (or bounce), no toilets to plunge and almost no transaction costs. A… Read more »
” where my capital will do better?”
I can tell you where it would have done better.
I think the US and Canadian (as well as BC) economies will not be in recession for at least the next year, and probably longer. RE downturns can often align with country wide recessions but there have been exceptions, and the effects can linger for several years.
It sounds like you’ve done OK so, really, unless spending time on some “bear” blog is some sort of hobby, are you gloating or trying to reassure yourself?
“With my suite the cap rate on my house is 5%”
That comes out to a price to rent ratio of less than 20 when you include property taxes. The lowest P/R ratios I’ve seen are over 30, here is an example:
Rent whole house for $2,400.
http://vancouver.en.craigslist.ca/van/apa/4274318882.html
Buy one a block away for $868k (cheapest in neighbourhood).
http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13514027
Scintillating retort BERT.
And YVR, you wouldn’t be here either if you didn’t want to buy back in.
😉
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YVR, tell me in simple terms where my capital will do better?
I have no doubt there are risks in the local re market, has been for over a decade. A 10% correction in the SPY this year wouldn’t surprise me either.
Take into account transaction costs on buying/selling, interest rates, capital gains tax on equities (TFSA/RRSP are maxed) and/or foreign (US) real estate.
Assuming 7% returns on the capital markets and a flat to slightly down real estate market, rent increases, moving expenses, and pain-in-the-assedness, a 5-year round trip makes zero sense.
RC (MORON)
never under estimate your opponent. He or she could easily be a multi millionaire.
blah-blah-blah your handle fits your posts
blah-blah-blah et al.
The bottom line is your capital would be better off elsewhere. You can come up with all the scenarios and calculations you want but the fact is renting is much cheaper and owning makes no sense. All real estate in BC is over valued and will correct. It is obvious you realize this otherwise you wouldn’t be around here trying to convince yourselves that holding real estate makes sense. But hey if owning helps your self esteem somehow then maybe holding for you is a good idea.
“I could have paid off more but with my mortgage at 2.5% I’m getting far better returns in the market”
I wasn’t being sarcastic with my original comment, but on this one, if you think you’re getting “far better returns” by paying down a mortgage at 2.5% given price appreciation of the past 5 years, I have some news for you.
Maybe the future will be different.
Not sure why bears bother down-voting and hiding bull posts, they obviously all get read anyways.
RealityCheck:
The moron you refer to is 38. No mortgage on my detached house bought when I was 23. Trying the whole financial portfolio thing now. Will be in Southern California for all of February.
Wow that is quite the success story in life.
You have to laugh when someones whole self worth is based owing a old house in Surrey. That would be like bragging you paid cash for a 1984 Yugo. I don’t think you are impressing anyone.
