Can someone please explain this market?

The following was posted by ‘Whistler or bust?‘ in the comments this weekend:

I will be the first to admit I have been very wrong about the direction of Van RE in the past 2-3 years. That disclaimer said, lets examine some facts to see if there is any upside left:

These are the incomes required to be in each % (Source CBC)

10% of income earners $80,400*
1% of income earners $191,100*
0.1% of income earners $685,000**
0.01% of income earners $2.57 million*

So with the average Vancouver detached home at $1,408,722 (Source Yatter Matters)

A DP of $281,744 is required to buy
PPT is $26,174
Misc Closing $2,000
Total $309,918

Mortgage $1,126,978 @ 2.59 for 5 yrs = $66,072 Annually ( I will note these are record low rates)
Assume 1% Annual Maintenance (This is a standard benchmark over many years) $14,080
Property Taxes – These can vary but lets assume $7,000?

So Annual carrying costs total $87,152 AFTER TAX – I am excluding heating and hydro which vary but in no cases less than $3,000 annually for a detached home

Back to our chart above – Lets assume a 30% avg tax rate for the 10%, 35% for the 1% and 45% for the 0.1 and 0.01%.
After Tax
10% of income earners $56,200* – This house would take up 155% of the after-tax income
1% of income earners $124,215* – This house would take up 70% of after-tax income
0.1% of income earners $376,750* – This house would take up 23% of after tax income
0.01% of income earners $1.413 mil – This house would take up 6% of after- tax income

This is assuming all of these people have $310K for closing. This is assuming they are buying the average house of $1.4 mil. I think we all know what kind of house $1.4 mil gets on the West Side and even on the East side nowadays.

So the conclusion – Even the 1%ers are realistically priced out of the average Van detached home. Only the 0.1% and and above can really afford to buy.

Put another way – 99% of people are priced out. As families combined lets assume 95% are priced out.

So to all you bulls out there, please answer the questions: Is this a healthy market? Is this a market with any upside left?

I think we all know the answer.

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Been There Done That
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Been There Done That

elvince – 151

You have to realise that selling one house as a principle residence is more or less OK. While it seems obvious that the guy is gaming the system, this has been acceptable for many years. Most builders do this, and the courts have accepted that there is no restriction on how many times you sell your principle residence. I believe CRA requires about a year of residence for it to qualify.

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tedeastside
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tedeastside
space889
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space889

@realist – I’m just saving the bears some trouble and say it for them. Geez…lighten up as they would also say when someone complains about them being racists.

vangrl
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vangrl

3240 West 21st

Listed Sept 2.8 million – sold 3.6 million

Just sold again this week for 5.3 million

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elvince
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elvince
@150: They should, but they won’t. I’ve never seen it happen a single time, and I’ve seen people flip every 18 months for a decade. I even know of a guy who owns a small construction company, who always lives in one of his demo house, and whenever he sells, he claims it as the sale of a principal residence. So if his company builds, say 20 houses per year, one of them gets sold every year as principal residence. Sometimes 2 per year. The guy basically lives in his luggages. Before you say “Report him to the CRA”, well, I did. Called them, confirmed with them that this revenue should be taxed as company profit, gave them the name, current address and the name of the company, all the infos. 2 years later, I ask the guy if he’s… Read more »
patriotz
Member

@149:

If CRA determines that someone is de facto in the business of flipping properties, whether they were claimed as a principal residence or not, they will assess the proceeds as ordinary income not capital gains.

Slagathor
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Slagathor

…Right. So there’re not failing to pay taxes due. They live there for a year and no capital gains are due. I don’t see the problem with this….

Ok if you don’t see a problem with this but Revenue Canada doesn’t share your view. If folks make a business of flipping successive houses after living in them for a year, the Capital Gains principal residence exemption evaporates as far as RC is concerned.

LS in Arbutus
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LS in Arbutus

At a talk today about Basel regulations and talks of how we get into these messes, but essentially huge run up in prices which leads to bubbles, which are fueled by too much leverage…. you can imagine what I was thinking about…..

w
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w

Murder charge laid in North Vancouver kidnapping investigation

One of four men previously arrested in the case has been charged with murder

http://www.cbc.ca/news/canada/british-columbia/north-vancouver-kidnapping-murder-charge-1.3281956

southseacompany
Member
southseacompany
“Terence Corcoran: Liberals go from Poloz to Summers”, Financial Post http://business.financialpost.com/fp-comment/terence-corcoran-from-poloz-to-summers “The idea that central banks have no juice left to stimulate the economy got a bit of a boost Wednesday from the Bank of Canada.” “So what is to be done? Nothing. Short of another cut in interest rates, already near zero, there isn’t much monetary policy can do to spur growth in an economy that, for any number of reasons, refuses to rise up out of a seven-year post-financial crisis slump.” “Within the Liberal camp, the idea that Canada needs a fresh blast of government spending on infrastructure and some deficit spending has been top of mind since the party brought in global economic heavyweight Lawrence Summers — former U.S. Treasury Secretary — to provide policy guidance for a new Trudeau economic plan.” “Summers’ basic premise, first articulated… Read more »
southseacompany
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southseacompany

“What’s fuelling Canada’s economic recovery? Even more debt”, Global News

http://globalnews.ca/news/2290330/whats-fuelling-canadas-economic-recovery-even-more-debt/

“The country’s central bank remains worried about rising debt levels among Canadian consumers – a trend that’s developing into a major vulnerability to the economy as households borrow more and more money without the wage gains to back it up.”

“Much of that debt is being funnelled into the housing market, which has experienced runaway price growth in some regions in recent years, notably Vancouver and Toronto.”

Yunak
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Yunak

@142

Told you that… Spaceshit is 50 cents party cadre and provocateur, although not the brightest one.

paulb
Member

New
171
Sold
156
TI:11127

http://www.paulboenisch.com

realist
Member
realist

@140 space889 says:
“Well apparently Caucasian money have a home, a conscious, and friends, and everything you cited. Only dirty Chinese money don’t care about any of that.”

So you say. I don’t say. I never said. And I never shall say.
So, dear space889, who is making such racist remarks?

vangrl
Member
vangrl

Australia

‘The boom is certainly over’: Fewer buyers and higher interest rates mean Australia’s property market has finally hit the wall
-Sydney and Melbourne prices grew at their lowest level since March 2014
-Property guru says the boom is over and disputes claims prices will quickly rebound in the new year
-The average cost of a house in Sydney is still more than $1 million, But homes in the inner west which once topped the $1 million mark are being passed in $100,000 under reserve
-Perth crashed to its lowest number since June 2011 and was labelled ‘a hostage to the resource sector’

Canada –

“Canadian interest rates have bottomed and housing has peaked”

Read more at http://www.econotimes.com/Canadian-interest-rates-have-bottomed-and-housing-has-peaked-105936#pOVpCxrDrtM0HsTy.99

I think that’s the 1st time in many years that I’ve see someone call the Top in the Market

space889
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space889

@realist – Well apparently Caucasian money have a home, a conscious, and friends, and everything you cited. Only dirty Chinese money don’t care about any of that.

space889
Guest
space889
@Vanco – I did post a MoneySense survey on income and wealth broken down by city awhile ago. The 10% family is doing fairly good in Vancouver in income, and the top 5% and 1% are doing even better. Buying a nice SFH in a good area is not an issue for those families, though it’s likely those are probably 45+ and already own their homes. But bears apparently have issue with that survey, but I haven’t seen them putting forth anything better. As for SFH, apparently according to bear, we aren’t constrained by geography, so Vancouver is expanding with new lands being made available every year for new SFH lots. I have always thought the supply of SFH in GVRD are constantly decreasing while demand is increasing and that imbalance, along with low interest rates & foreign money is… Read more »
space889
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space889

@ostritch – Except the said superpower said they will share 50/50 of all proceeds from assets seized from corrupt officials with Canada. Given there are so many of them and most of them haves tons of assets & $$$, I say that’s a pretty big incentives to get those corrupt officials, maybe even expediate the extradition. It’s not these people are likely to ever be able to make it back to Canada and sue gov’t for damages for trample on their rights.

space889
Guest
space889

@ostritch – Which is why they should hike the fines so that it becomes a money generator to catch these posers. Forget about prison sentences and such, just fine, fine, fine, and more fine. Maybe even simply confiscate all properties held by immediate family and relatives as punishment, like in the old times.

Vanco
Guest
Vanco

Article in G&M about UK wanting to be China’s best western partner and rolling out red carpets for China’s leader.

You cannot throw out the baby with the bathwater, which is what the angry bears fail to comprehend.

I am all for enforcing Canadian laws equally, but let’s not be too short sighted in our own interest and forget the impact of immigration and investment.

Good thing the only influence bears exert is voting me down on this forum.

realist
Member
realist

@124 Ostritch
@128 Patriotz

To clarify, I expect that the Liberals will desist from persecuting on principle their own civil service, because they are not so inclined ideologically. The Liberals recognize that there’s no percentage in it for them – quite the opposite in the case of CRA.

The Liberals want to spend that uncollected tax money, and enforcement is the means to get at it.

It was previous federal governments that decided to create a rich immigrant class. And now this government will have to live with and deal with it.

The readers of the blog are sophisticated enough to know that money has no home, no friends, no conscience, no race, and no religion – except getting more.

Vanco
Guest
Vanco

@ 133

Good point.

That’s why you cannot take a numbers and apply it blindly to suit your analysis. The income number are for all of Canada and doesn’t reflect the top 10%, 1% in Vancouver/Toronto.If you look at family income, then you will have another different number for 10%, 1% etc. If you look at net worth, then BC is probably the highest in Canada.

Add that to the diminishing SFH stock that the bears lust after, and geographical constraints in Vancouver. Does that mean we are set for a crash like the bears claim/hope for? I don’t know, but neither do they.

piklishi
Guest
piklishi
Just wanted to add a few things. I know that a lot of ppl don’t make much money in Vancouver, but there are stats that show how much the combined income is in different neighborhoods. As the article from cbc mentioned, only 10% made 80k, I think that is per person. Noone by himself can afford a house, but if you are a couple and each makes 65k let’s say, thats 130k. Add that extra income from the rent which pays for taxes and utilities we are in pretty good shape. Not saying that buying a $1.5 or $2 mil home on that income makes sense. That’s crazy but I see it being affordable up to 900 to 1mil. I think we are due for a correction of 10% now. Already down 25% considering Canadian dollar. Not sure how the… Read more »