Canada's 'housing bubble' deemed close to bursting

[someone123]

Originally Posted by st7860

When you rent you're still paying your landlords property taxes, mortgage, and interest.

I'm not entirely sure what you're suggesting here. Are you saying that purchasing is guaranteed to be a better deal than renting, because the renters have to pay to cover the owners' costs? That's not how it works. Rental market rates can drop below the carrying costs of properties. Indeed, that is what has happened in Vancouver.

My building has both rentals and condos. Units costing $390,000 are being rented out for $1,400 a month. Even at 3%, weekly payments, and a 30 year amortization, that works out to around $1,600 per month. Taxes are another $150/month or so. On top of that there is additional risk in terms of damage or vacancy. You cannot get a mortgage for the units in this building and then rent them out to make a profit.

The case where I used to live in Kitsilano was even more extreme. That house is assessed for $2,000,000 and the ground floor rents for about $2,000 per month. Why would you ever buy that house? I guess maybe because you expect to be able to sell it for $3,000,000 or $4,000,000 in another 10-15 years? If what you say is true and there aren't many investors around to inflate prices, who is left to pay? Incomes aren't growing much here, debt loads are already high, and interest rates are already low.

[lio45]

Originally Posted by st7860

You're using complicated math and adding numbers like $35,000 which do not contribute to the purchase of an apartment

You didn't include the 60 months of rent that would have gone into your own place either.

Yes he did, these 60 months of rent are evened out by the 60 mortgage payments, which are exactly the same amount. (The principal part of the mortgage servicing then comes back as +$31k in favor of the "owning" scenario.)

His post was pretty clear and everything balances -- if you want to disagree, you can disagree with him on the future value of that currently-$300k-condo in five years. THAT is the unknown variable. If your crystal ball tells you it'll somehow be worth $500k in five years, then buying is definitely financially more interesting than renting for you. (As long as you don't end up being wrong on your guess re: future resale value, obviously.)

[st7860]

Originally Posted by someone123

I'm not entirely sure what you're suggesting here. Are you saying that purchasing is guaranteed to be a better deal than renting, because the renters have to pay to cover the owners' costs? That's not how it works. Rental market rates can drop below the carrying costs of properties. Indeed, that is what has happened in Vancouver.

My building has both rentals and condos. Units costing $390,000 are being rented out for $1,400 a month. Even at 3%, weekly payments, and a 30 year amortization, that works out to around $1,600 per month. Taxes are another $150/month or so. On top of that there is additional risk in terms of damage or vacancy. You cannot get a mortgage for the units in this building and then rent them out to make a profit.

The case where I used to live in Kitsilano was even more extreme. That house is assessed for $2,000,000 and the ground floor rents for about $2,000 per month. Why would you ever buy that house? I guess maybe because you expect to be able to sell it for $3,000,000 or $4,000,000 in another 10-15 years? If what you say is true and there aren't many investors around to inflate prices, who is left to pay? Incomes aren't growing much here, debt loads are already high, and interest rates are already low.

I just went onto www.realtylink.org and looked up 2 bedroom condos. Maybe the building you're referring to is not in downtown so rents are lower
2 bedrooms # 713 989 NELSON ST, Downtown, Vancouver West, $317,500.00, 3% interest, 25 year amortization, $79,375 down $1500/mo including property taxes and condo fees- rent is $1750

The kitsilano house probably had special zoning or was an extra wide lot.

Of course with a very low down payment renting is cheaper.

[st7860]

Originally Posted by lio45

Yes he did, these 60 months of rent are evened out by the 60 mortgage payments, which are exactly the same amount. (The principal part of the mortgage servicing then comes back as +$31k in favor of the "owning" scenario.)

His post was pretty clear and everything balances -- if you want to disagree, you can disagree with him on the future value of that currently-$300k-condo in five years. THAT is the unknown variable. If your crystal ball tells you it'll somehow be worth $500k in five years, then buying is definitely financially more interesting than renting for you. (As long as you don't end up being wrong on your guess re: future resale value, obviously.)

The reason why his 'professional' rent is so low are not clear as the neighbourhood wasn't stated.

Both of these Collingwood units would likely rent for what it costs to have the mortgage and fees and thats without extending the amortization to 35 years(which is available as an option)

# 405 3455 ASCOT PL, $278,000, 3% interest, 25 year amort, $69,500 down, $1333/mo including taxes and fees
# 310 3588 CROWLEY DR, $319,800, 3% interest, 25 year amort, $79,950 down, $1422/mo including taxes and fees

[dleung]

Originally Posted by whatnext

Or it provides people like you and st to do your "pay no attention to that man behind the curtain" schtick.

It's actually kind of sad that some strange form of ethnic loyalty prevents you from even acknowledging what's causing a big part of the affordability problem. I'm puzzled as many of my friends from HK look on the Mainland Chinese and their money as the Asian equivalent of the Beverley Hillbillies.

I'm pretty sure I said several times that we should tax the hell out of foreign property purchases and unoccupied homes. It's totally possible to ALSO acknowledge that there's an undercurrent of racism in some of the resentment expressed in this thread.

[someone123]

Originally Posted by st7860

I just went onto www.realtylink.org and looked up 2 bedroom condos. Maybe the building you're referring to is not in downtown so rents are lower
2 bedrooms # 713 989 NELSON ST, Downtown, Vancouver West, $317,500.00, 3% interest, 25 year amortization, $79,375 down $1500/mo including property taxes and condo fees- rent is $1750

This building is in Burnaby, where rents are lower.

Your comparison is freakishly slanted toward the mortgage scenario (big down payment, unrealistic interest rate for a 25-year period) and renting is still less when you include taxes ($100/month) and strata fees ($195/month). There's also basic property maintenance that's going to run you a few hundred a month over the life of your property; if you pay rent the landlord covers that.

The kitsilano house probably had special zoning or was an extra wide lot.

Normal zoning, normal-sized lot near 4th and Alma. If you look at the assessments, tons of average houses are up around $2M now.

[st7860]

Originally Posted by someone123

This building is in Burnaby, where rents are lower.

Your comparison is freakishly slanted toward the mortgage scenario (big down payment, unrealistic interest rate for a 25-year period) and renting is still less when you include taxes ($100/month) and strata fees ($195/month).



Normal zoning, normal-sized lot near 4th and Alma. If you look at the assessments, tons of average houses are up around $2M now.

A conventional(non cmhc) down payment of 25% is big?

Yes Kits is a premium area these days. Yes some people believe interest rates will rise. Some major(and small) banks offer a 10 year closed mortgage of around 3.80% which isn't too much higher than rate sare now.

[someone123]

A (highly opinionated) blog post about Vancouver and the housing market: http://sofard.tumblr.com/post/117352176556/how-to-stop-the-decline-of-vancouver

[st7860]

Originally Posted by someone123

A (highly opinionated) blog post about Vancouver and the housing market: http://sofard.tumblr.com/post/117352176556/how-to-stop-the-decline-of-vancouver

Yes that's the followup to a blog called the decline of Vancouver that made its away around Facebook a few months ago.

[rousseau]

Our new neighbour is spending $300,000 to fix up a house in which the previous owner would have been well-ensconced when the news came over her radio that JFK had been shot. The decor was never updated. It will be an owner-occupied duplex. She sold her house in Toronto for $1.3 million so that she could retire in Stratford. Her new abode would be worth quite a bit more than $1.3 million in Toronto, but she bought it for something like $350,000.

Makes you think. Or maybe, it makes you grit your teeth.

On the opposite side of the street, ten years ago my wife and I bought our house for about $40,000 more than it was worth because we were naive first-time buyers who fell in love with the place. The realtor we'd been referred to when coming over from a different city, a slimeball who was subsequently convicted of fraudulently altering the signature on a lease to make it look like it had been extended for an extra year, and is now persona non grata in Stratford but somehow has the gall to be practicing real estate a half-hour away in another town, saw us coming.

Us: What should we offer?
Him: There are a lot of people waiting to see this place, but you're lucky to be the first in the door for the showings. You should just offer what he's asking.

Being in love with the place, we were naturally very flattered to think our taste in houses so irreproachable that of course, it stood to reason that tons of other people wanted it too. Much later, we found out from another real estate professional in town that that was not true, and that we'd been bilked. That was probably fraudulent or non-ethical conduct on his part, I'm sure. 2.5% of $40,000 is $1,000. He wanted to "earn" that extra $1,000 on the deal. For us, that $40,000 was a significant chunk of mortgage that actually prevented us last year from making the numbers work on a house we really would have liked to move to. The machinations of that person of low moral character had a deleterious effect on our lives ten years into the future.

I try not to think about him. I don't really believe in karma, but somehow I suspect, from his personality and our interactions with him, that he doesn't lead an enviable life either financially or relationships-wise. That suffices for me, in a karmic sort of way.

Caveat emptor.

[lio45]

You fell in love with the place...

Crystal balls don't exist. Maybe without your extra $40,000 you would have missed it. You and your wife pondered it, and decided it was worth it.

I have over ten years of real estate under my belt, have been carefully researching my specific Florida market since the crash a few years ago, and I STILL managed to overpay a bit for one building a couple months ago... I knew I was probably overpaying, but I saw value in it that I believed others didn't exactly see (or not as much) and I did not want to risk losing that one.

In retrospect I now know for sure that I could've had that one for less (most of my other acquisitions were fine -- actually there's one other one on which I overpaid a bit for the same reasons) but I regret nothing. I wanted it, I did not want to miss that one, so I went the extra mile with the bidding.

On the other hand, in ten years I've seen the opposite scenario play out plenty of times: I think I can get a building for a lower price, and I end up missing on it because someone else paid more than I personally thought I could get it for.

It goes both ways.

So, the glass half full view is, you fell in love with the place, and you did what it took to not miss that deal.

If you had been able to tolerate the possibility of missing that one, you could've waited a bit, researched Stratford a bit more, and I suppose you would soon have realized the pricing on your loved one was too steep.

But you didn't, that's fine.

What happened to you sucks, but hopefully you'll find a bit of comfort in the fact that it happens all the time to others too

[someone123]

One of the things about real estate agents is that their incentives are not aligned with those of the home buyers that employ them. They want lots of quick transactions to maximize their income. This means that your snap decision to overpay is great for them. Buying a house you don't like is great too because it means more transactions; even if you don't hire them next time, there will be another sucker. As a result, their advice to buy should be given no weight whatsoever.

One observation I try to make is: what is the probability that I have come across an unusually good deal that is truly going to suddenly evaporate, and what is the chance the salespeople are just lying to me? Assuming that you really have hit a good deal when you are just starting out and have limited information about a market makes no sense. You are going to lose 99 times out of 100 if you do that.

[lio45]

Originally Posted by someone123

One of the things about real estate agents is that their incentives are not aligned with those of the home buyers that employ them. They want lots of quick transactions to maximize their income. This means that your snap decision to overpay is great for them. Buying a house you don't like is great too because it means more transactions; even if you don't hire them next time, there will be another sucker. As a result, their advice to buy should be given no weight whatsoever.

Oh, of course, that goes without saying.

I have enough esteem for rousseau to be confident that the decision in the end was between "should we indeed offer the listed price to make sure we don't miss that one considering we fell in love with it and therefore someone else might ALSO fall in love with it with every passing hour and grab it under our nose" and "should we wait and offer less, accepting the risk that we might lose it".

Agents are only needed to give you the lockbox code and/or (in occupied/bigger properties) warn all the tenants that you're coming for a visit. That's their only function.

[someone123]

Originally Posted by lio45

I have enough esteem for rousseau to be confident that the decision in the end was between "should we indeed offer the listed price to make sure we don't miss that one considering we fell in love with it and therefore someone else might ALSO fall in love with it with every passing hour and grab it under our nose" and "should we wait and offer less, accepting the risk that we might lose it".

Agents are only needed to give you the lockbox code and/or (in occupied/bigger properties) warn all the tenants that you're coming for a visit. That's their only function.

To me, the fact that other people fall in love with something just means you shouldn't be playing that game, and that the market is very exploitable (maybe to you, or maybe to somebody else). Sometimes it means that the less sexy stuff is a bargain.

I'm not sure there's a way to "win" in the current Vancouver real estate bidding wars, for example. Unless you have so much money that you don't mind wasting hundreds of thousands of dollars you probably shouldn't be playing at this point. Presumably Stratford is and was less insane though.

It's also worth noting that the "other people falling in love" idea is hard to reconcile with the hypothesis that the property was priced below the usual market value. I guess it can happen that properties with lots of potential buyers are priced below what people would pay, but is that the norm? Unless you know for sure that the price is lower than usual for the market, it seems like a poor bet.

[lio45]

Originally Posted by someone123

To me, the fact that other people fall in love with something just means you shouldn't be playing that game, and that the market is very exploitable (maybe to you, or maybe to somebody else). Sometimes it means that the less sexy stuff is a bargain.

I must admit that the notion of falling in love with a house is quite alien to me but I can imagine what it is.

Personally, every time I've overpaid for a building, it was because I saw a better long term value in it than what others at that time did.

With a crystal ball, of course, you can make sure you pay a bit less and STILL get the deal.

Without one, you'll end up losing deals often by trying to low-ball, and you'll occasionally overpay a bit when you personally see extra long term value that isn't yet built in the market price.

In rousseau's case though, it's their "nest", not just numbers on their financials. Just like it makes sense for people to pay tens of thousands for furniture they want/like, it also makes sense for people to pay tens of thousands to make sure they have the residence they want.

I'm not sure there's a way to "win" in the current Vancouver real estate bidding wars, for example. Unless you have so much money that you don't mind wasting hundreds of thousands of dollars you probably shouldn't be playing.

The only way to win is to be lucky enough to resell to another sucker for even more than you paid.

That's not something that can be controlled, so it's obviously very risky.

[rousseau]

We're happy in the house, so yeah, it wasn't just a bare bones financial investment. But the thing is, there was no bidding war on the place, we subsequently learned. There was no line-up of people anxious to view it. And the seller wildly overpriced the house. His family was leaving to go back to their home country. It was a perfect storm.

Stratford is small enough that the real estate agents pretty much know what's going on with every house that goes on the market, particularly if they're in the top half of the market.

Since we're not in the business of buying and selling houses as investments, we can look on the entire process with equanimity, because most every other aspect of our situation is positive

[lio45]

Originally Posted by rousseau

And the seller wildly overpriced the house.

Back when the Canadian dollar was low, plenty of Belgians/French/Swiss totally overpaid for "overpriced" (though not to their eyes) houses in picturesque villages in the Quebec countryside.

(I am also aware of a very typical case of a totally overpaying Frenchman buying a big Victorian in the Old North neighborhood of Sherbrooke... then still having tons of money left from the sale of his place in Europe)

It was almost known as the best, ideal way to sell... to them, the places are selling for peanuts.

That phenomenon is very well documented... if you're selling a nice big house in a place like Stratford, your "ideal" customer is someone who just sold a place in Toronto and considers that your overpriced-for-Stratford house is a bargain that's going to only require a ridiculously negligible chunk of their shitload of proceeds from the TO sale.

The listed price must have been very acceptable to you at the time, since you ended up paying it. And so it is for all of them, whether they're coming from Toronto, or Europe.

[st7860]

http://www.bmonesbittburns.com/economics/reports/20150504/bb201505.pdf
"There are, however, some winners. British Columbia is projected to lead the pack
this year, with real GDP growth expected at 2.6%. The province’s resource base is
much more diverse (natural gas, base metals, forestry and little direct exposure to
oil), while exports and manufacturing should benefit from the powerful
combination of sturdy U.S. demand and a weaker Canadian dollar. Central Canada
also stands to benefit in that environment, along with lower input costs through
the manufacturing supply chain. Importantly, the weakness in oil prices is largely
due to a supply shock, not sluggish external demand, especially in Canada’s largest
trading partner"

[whatnext]

Vancouver and the Death of Community:

...Look, I have no problem with who buys houses in Vancouver. What I do have a problem with why people purchase houses in Vancouver. When there is a significant amount of realty being purchased for investment purposes only, when homes in neighbourhoods sit empty, when new buyers make no effort to get to know their neighbours or contribute to the community in any meaningful way, that is where my concerns lie.

An example is a home in my parent’s neighbourhood. The offshore buyers purchased it for over $2 million. Yet, it sits empty. The lawn is mowed, the exterior lights go on and off on timers. Knock, knock…who’s there? Nobody. It would be better if the owners even rented the home to someone. A family or individual who would love to be part of the neighbourhood and member of the community. However, the investment is enough on its own…the owners, I am assuming, have no need for rental income....

http://thethirtiesgrind.com/2014/07/17/death-community/

[st7860]

That person has a problem with foreigners however he didn't mention that any person who buys a home pays transfer, property, school, sewage, sanitation; water, and various other fees/taxes so doesn't sound like anything is wrong there. Canadians who live in houses pay no taxes when selling regardless of their profit . Any person who doesn't live in a house pays taxes when selling.