Vancouver: the only city in the world?

So Vancouver is the most expensive city in Canada and getting more expensive – If you are renting or thinking of buying in Vancouver here’s a question for you: Are you tempted by any other cities in canada or the rest of the world? What keeps you in Vancouver – quality of life? friends and family? work? some combination of those items?

If you’ve considered moving what motivates that line of thought? The cost of living here? Increased career possibility? Change of scene?

How do you FEEL about Vancouver right now?

There are still good deals out there!

Check it out! If you bring cash this house will only cost you $462,000.. You might even get a deal as the seller is ‘motivated’ since at least April or so. It brings in $1450 per month in rent too! Can you make those numbers work?

I used the ever handy mortgage calculator to discover that if you put 5% down you’ll need an annual income of $157,631 to buy this house, so it’s quite the status symbol. And yet some people claim that Vancouver is in the peak of a bubble. pshaw!

Is Vancouver ‘Severely Unaffordable’?

I just found this story in the sun from way back in January – It’s about a study that ranked cities housing affordability based on the ratio between median house prices and median income, and guess what – Vancouver was rated worst in Canada, and 15th worst city in the world for affordability at that time.

This is the second year for the survey, which was developed to compare housing affordability around the world, the report’s co-author Hugh Pavletich said in a telephone interview from New Zealand.

“We felt there was a desperate need for an easily understood measure of housing affordability both within countries and across borders,” Pavletich said. “So it doesn’t matter what currencies we’re talking about, or even the house prices and the household incomes. The key thing is the multiple of household income it takes to buy a home.”

This multiple should not be greater than three, Pavletich said. He called Vancouver’s index of 6.6 “bloody absurd.”

“Historically back in the 1970s and 1980s within the property industry, it was always considered a rough rule of thumb that people should not have to spend any more than three times their household income to buy their homes,” he said.

Now as house prices get “out of hand,” this guideline has faded from public view, Pavletich said.

See? Things are different now! And since things are different that means the prices will never go down. Maybe ‘bloody absurd’ is the new reality?

In unaffordable cities, the key problem was the “strangulation of land supply” by local government, Pavletich said. Not allowing enough land to be developed was creating an artificial scarcity which is driving prices up, he said.

Three cities in Canada made the most affordable list with Winnipeg in third place worldwide with a house price to income ratio of 2.4, followed by Edmonton and Quebec City, tied at 14th with an index of 2.8.

The United States, with the world’s most unaffordable real estate, also had the most affordable, with indices of 2.2 in both Buffalo and Rochester, N.Y.

Pavletich hopes the survey will get people to question housing affordability and urge governments to actually set housing affordability targets.

Hmm.. I wonder how much of a role government can play in prices. Obviously things like interest rates and employment factors have some impact on prices, but is the current boom due to ‘not enough land’ to build on? If they opened up the land just northeast of terminal and main would that make a difference? Should they open up Stanley Park, Jericho beach park and the UBC endowment lands to condo developments?

Buy or Rent?

Are you paying someone elses mortgage? Probably not if you’re renting in a building thats just a few years old. The gap between rental costs and owning cost have grown rather severely over the last few years, a fact that makes some people wonder whether buying makes financial sense. This point is debated in an article in todays business edge.

“Today there’s more pressure to make your best offer first, and you don’t get the chance to come back with a counter-offer, usually,” Mastracci says.

“The danger is always that the market gets away on you. If it gets away and prices rise dramatically, as they have in certain locales across Canada, it really hurts when you go and plunk your money down on the table for your first purchase.”

According to a recent housing affordability report by RBC Economics, home prices continued rising faster than incomes during the second quarter. B.C. remained the least affordable province, but Alberta’s energy boom sent the cost of a two-storey home jumping $28,000 in just three months.

However, even in a torrid market “you shouldn’t think this is really going to be the end-all and be-all, your best investment,” Mastracci cautions. “It may not be – especially if you buy at a high time.”

Over 20 to 30 years most homeowners might get an annualized return of four to six per cent, he estimates.

So if you buy now and hold for 20 or 30 years you might make six percent per year. What if you had bought in 1980 or 1991? What if you buy in 2011?

What if a condo rents for $1500 per month vs. a monthly mortgage payment of $3000. What if you were incredibly disciplined and you put the $1500 monthly difference into a savings account or GICs?

What if the housing fairy came to vancouver and magically turned all homes here into wonderful, solid, trouble-free buildings?

That would be awesome.

Slowing market ‘returning to balance’

According to an article in todays Province CMHC has gotten out the crystal balls and they forsee a ‘return to balance‘ in the next year or so in the Vancouver housing market. Hopefully they’re reading the tea leaves and not smoking them. As prices and interest rates have inched up over the years they believe that the recent slow-down is a sign of things to come:

“In general, we see a trend toward more balanced conditions next year,” said Cameron Muir, senior market analyst for CMHC in Vancouver. “In the last few years, most markets in the province have been in the seller’s favour.

“The erosion of affordability is going to begin to impact the market next year. High home prices and increasing interest rates will make housing less affordable and squeeze out buyers at the margins.

“With fewer first-time buyers able to afford homes, it will ripple through the whole market.

“It’s not a disaster, it’s a return to balance,” Muir added.

Ever seen a see-saw when one person gets off? The unlucky fella left on the other end usually ends up with a bloody nose.