Tag Archives: gain

Happy buyers don’t have regrets

Are we having fun yet?

If you’re ‘in the game’ you know that the real estate market in Vancouver has been a frothy pond of fun for years. ┬áIf you don’t count transaction and renovation costs it’s easy to get rich flipping condos.

Or if you want to get more meta just resell presales contracts.

That’s right, we have people here who will buy the right to buy a building that doesn’t exist yet!

The funny thing about easy money is that it seems so unreal. This city is filled with people who could easily cash out even at current post peak prices and have a big chunk of real money, but will the majority do that?

Nope. The majority will stay put, renovate, buy back into the same market or turn their home equity into more debt via a HELOC.

In fact the majority couldn’t all cash out even if they wanted, we simply don’t have the buyers to enable that. Even when we had bidding wars we didn’t have enough buyers for a majority to cash out and now that sales have plummeted we really don’t have enough buyers.

A few lucky sellers will cash out and make money off this bubble. Likely because life changes caused them to move on. The majority will keep on paying their mortgages or get foreclosed on. Recent buyers will be paying more to keep their homes and may start to feel a bit trapped.

You saw this here just a couple years ago when buyers were complaining that developers were selling condos in their building for less than they paid and developers were suing presales buyers for money to cover the difference between their deposit and the lower resales value.

But you know what? They’ll be fine, they payed the price they felt their home was worth to them. A market decline doesn’t hurt someone that is happy with the price they payed and can keep paying their bills.

And if rates go up or job losses occur? Well someone without a financial buffer and emergency savings to deal with such a scenario really wasn’t ready to buy a house in the first place.

Why you shouldn’t demand lower prices

I’ve been reading this site for a while and I see a lot of people that are hoping for lower house prices in Vancouver without fully thinking out the repercussions.

Its human nature to be greedy and want ‘something for nothing’ but we should draw a line at actively wishing ill on others so that we may benefit.

A drop in property prices would cause a lot of harm across the lower mainland, affecting not only home owners but a whole economy of construction workers, real estate agents, lawyers, lenders and architects.

Instead of selfishly wishing prices would drop, you should try to realize the benefits of home ownership:

1) A tangible solid investment that can help you retire
2) Homeowners have a lower crime rate creating safer neighborhoods
3) Pride of ownership creates more civic responsibility

Here’s a useful editorial in the Telegraph on how home ownership benefits everyone:
http://www.telegraph.co.uk/comment/3644666/Everyone-benefits-from-home-ownership.html

They make a very strong argument for why governments should come to the aid of homeowners who have suffered from a house price drop or interest rate increase and are unable to pay their bills.

But there is something more fundamental about the housing market that should inform policy. Housing markets are different from lots of other markets in that actions by individuals affect not only the actors, but neighbourhoods and even society as a whole.
Allow your personal appearance to deteriorate, and you pay the price in lost job opportunities and a reduction in the number of people willing to be seen with you. The cost is yours. Allow your house to deteriorate, and your neighbours pay the price. Innocent bystanders get hurt when things go wrong in the housing markets.
First, the value of all homes declines as the neighbourhood becomes dotted with vacant houses and takes on a less attractive appearance. Second, society pays a price.

IF you are someone who is hoping for a real estate decline I urge you to read the full article and rethink your position.

Even if you think you would be unaffected you should remember that a decline in house prices effects the whole economy:
http://www.vancouversun.com/business/Home+price+drop+could+mean+less+spending/6773895/story.html

And it doesn’t take too much of a drop to put buyers in a position where they owe more than a house is worth. With a normal 5% down a 15% drop like that predicted by TD would be a disaster.

Using the Real Estate Board of Greater Vancouver’s benchmark price – the price of a typical home – for all residential properties in Metro Vancouver of $625,000, and the minimum down payment of five per cent, a homeowner would need $43,850 including property transfer tax and legal fees to close the deal. The total mortgage amount would be $593,750 plus $17,515 for the high-ratio fee. If the market value dropped 15 per cent over three years, the value would be $531,250, while the outstanding mortgage after three years would be $574,805.64.

A decline in house and condo prices affects real people who care for the neighborhoods they live in, is it fair to wish them bad luck simply because you feel prices are too high?