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.
There were a couple of interesting comments in last weekends free-for-all post on the same topic, the first from XYZ:
Well today was interesting. We left the house for an hour for a quick Costco run and when we were about 15 mins away from being home, my 16 year old daughter calls me really upset that some Chinese person just walked into her bedroom :O HER BEDROOM!!!! Apparently he closed the door and went on to wander through the rest of the house, and my son (11) noticed him when he got up from his computer to get his hourly snack and was in what I can only describe as state of shock.. Not every day you see some Chinese dude wandering around your house uninvited and unannounced.
Turns out this was the Realtor. (who’s name for know shall be withheld to protect the guilty, at least until I decide what my next course of action will be.)
Obviously I called the landlord and ripped him a new one. He said that he explicitly told the Realtor that they were not to disturb the tenants. Clearly the Realtor thought since our car was gone he would just waltz right in. :-O
We have an inspection scheduled tomorrow so the only thing that saved that Realtors a$$ from the cops being called was the fact that I needed a few minutes to confirm the inspection date and speak to the landlord.
All the while my daughter stood in her room scissors in hand ready to strike.
I definitely see a complaint being filed in the near future for trespass against this Realtor.
What would you do in this situation?
The second in a similar vein from DR
Alright folks, I need a little tenancy agreement advice. I have been after my landlord to fix some broken tiles in the kitchen from a water leak. There are now several broken ones with sharp pieces continually coming off. The building is having some renovation work done as many of the units are being updated.
I have been trying for several weeks to get the landlords (as it is family run) to discuss the long over due repair. I just learned from one of the contractors that the landlord entered my unit without notice or permission this morning to look at the tiles. Rather than communicate with me, he decided to just check things out for himself.
This is a huge violation of my privacy and rights as a tenant. I am more than mad at the moment, but I wanted to see if any of you bears have had similar experiences and what your recourse was.
By the way, I have been a longstanding tenant in excellent standing, and the landlords were extremely appreciative when I notified them of the leak because of the potential for serious damage. However, this failure to communicate has become a recent trend as every phone call is never returned and some requests just end up getting taken care of (again without letting me know).
Donald pointed out this discussion over at the SeattleBubble blog about 10 reasons NOT to buy a home:
- Renters don’t have to fix leaky plumbing, pay for a new roof, or buy major appliances.
- The moment you sign the closing papers, you lose ~10% of your home’s value.
- Better job offer in another city? Hope you can afford to sell…
- Lousy neighbors move in next door? Too bad, you’re basically stuck!
- Your down payment and equity are anything but liquid.
Read the rest of the list at SeattleBubble.com. One interesting thing to consider is this list is based on a theoretical situation where home prices are at reasonable levels and supported by local economic fundamentals. In a hot housing market where prices only go up and people fight for the right to overbid on a teardown in a bad neighborhood it’s always a good idea to buy instead of rent. Always.
Over at the The Star, our mayor has helped to write an opinion piece asking that the CMHC provide more loans for rental housing construction:
For most of us, housing is our biggest expense. One out of every five dollars we earn goes to build, buy, rent and run our homes. Facing high home prices, large personal debts, and an uncertain economy, fewer Canadians can buy a new home today than in the past, and they are choosing to rent instead.
Unfortunately, in many cities finding an affordable place to rent is nearly impossible. The most immediate problem is supply. Vacancy rates under 3 per cent push rents up. In Vancouver and the Greater Toronto Area, it’s 1.4 per cent.
Vacancy rates this low force our young people to move out of the city, threaten seniors on fixed incomes, and have a negative impact on local businesses.
That’s why this spring’s federal budget must put Canada’s rental housing market on solid ground, by pursuing low-cost, high-leverage policies that get jobs on the ground and build housing Canadians can afford.
It’s like magic, creating jobs and homes. What could go wrong with a ‘low-cost, high-leverage’ policy like that?
Until renters can take out a mortgage to pay their rent they’re limited by income to how much they can pay. This is different than buying because mortgage rates and easy credit can change ‘affordability’ enabling people to take out larger loans and ‘afford’ higher prices.
Since rent tends to be more stable and directly related to the local income it puts a theoretical ‘floor’ on how far house prices can fall. As soon as it’s cheaper to buy than rent you should have investors who can do math buying up property.
Of course there are other complicating factors: psychology, ease of credit and liquidity.
Bloomberg has an interesting article looking at the situation in the USA after their housing bubble popped.
Many people who are technically homeowners are really renters. They put little if anything down. In many cases, the equity is negative when, for example, home-improvement loans piggybacked on first mortgages and brought total indebtedness to more than 100 percent of the house value. Many also planned to refinance their mortgages with cash-outs due to appreciation before their mortgage rates reset upward or, in some cases, even before they skipped enough monthly payments to be foreclosed.
It’s easy to be in a negative equity situation if you buy at the peak with very low down payment.
Of course it’s different in Canada right? The CMHC even introduced rules in 2008 eliminating zero down payment mortgages and now requires everyone to put down a huge 5% down payment..
So now we call it a ‘cash back mortgage’ and there are so so so many ways you can get a zero down mortgage in Canada today and be on your way to negative equity!