Thursday, January 2, 2014

Happy New Years your home lost value again

Hey it's a new year.  To get the year started on an positive note, home owners around the Greater Victoria area will be getting their assessment to let them know how many tens of thousands of dollars their largest asset declined by this year.

It's a mixed bag out there, but negative across the board.

A whopping 10% decline in Metchosin, but who cares about those farmers, here in Oak Bay we are insulated.   Yep, a paltry $2000/month decline in value for the standard house there.  

Our assessment is down 4.6%.  Interestingly enough, the bank assessment done in June 2013, was 5% higher than the 2013 BC assessed value which is supposed to reflect value as of July 2013.  Seems like quite the variation.  Either banks like higher assessments, or the appraisal procedure consists of taking the current BC assessment and adding or subtracting a random small number (Just Jack are you offended yet?).   Also apparently the land lost value, while the building increased.  Didn't know that buildings age like wine...   Or maybe they noticed that I scraped the moss off the roof?  

The more sophisticated measures of price have made it clear that despite static medians and averages, the market continues to decline.   Assessments down 2% to 5%, and MLS HPI and Teranet both down 2.4%.  As you can see, the median price declines have flattened out due to changes in the sales mix, while the months of inventory has recovered from our little government meddling last year.   I would expect median prices to start declining again in 2014.


The VREB continues to expand the information they provide, which is great to see.  Many real estate boards are very secretive with information, so despite the interesting spin in their summaries, I commend whoever is crunching the numbers over there for making them all public.  Now please archive the full news release every month, not just the price summaries :)

Thanks to everyone for your contributions and comments on the blog last year.  It'd be a boring place without your input.

376 comments:

1 – 200 of 376   Newer›   Newest»
Alexandrahere said...

I am repeating this as just a minute ago, I put the comment down on 16 Dec's.

I just received my condo property assessment. The total assessec value has gone down by $80K!!
Quite the shock.

I wonder if the taxes will decrease. On the upside, it will look impressive when older condo's start selling for $50K over assessment this year.

Biggest investment mistake I made in my life was buying this one. At least I like where I live.....and I am so looking forward to dropping maybe another $30-$60K if the building envelope has to be replaced. Yikes.

Mike Lewis said...

What's the assessment of this flippers performance:

501 Richmond Avenue
MLS #272337 SOLD $576,000 (2010/01/30)

319312 (Listing date 2013/02/12 / DOM: 150 @ $689,000 / Listing expired)
326525 (Listing date 2013/07/19 / DOM: 81 @ $689,000 / Listing expired)
329443 (Listing date 2013/10/09 / DOM: 47 @689,000 / Listing cancelled)
330807 (Listing date 2013/11/26 / DOM: 21 @ $674,900 / SOLD $674,900 (2013/12/17)

Mike Lewis said...

Watch for this one to be back in the spring:

1587 Earle Pl

301864 (Listing date 2011/11/22 / DOM: 216 @ $685,000 then $659,000 / Listing cancelled)
312143 (Listing date 2012/07/11 / DOM: 113 @ $659,900 / Listing expired)
320187 (Listing date 2013/03/05 / DOM: 97 @659,900 / Listing expired)
325081 (Listing date 2013/06/15 / DOM: 138 @ $645,000 / Listing cancelled)

DavidL said...

Interestingly, assessments in my area of Saanich West are barely changed. The "land" for many SFH on my street have dropped by just $1000 while the "buildings" have remained the same. Mind you, the cumulative drop from 2010 to 2014 is about 10%.

Having lived in Victoria all my life, I've noticed that some neighbourhoods are quicker to rise and slower to drop in price. My neighbourhood is the opposite - one of the last to rise and first to drop. I'm sure that it all comes down to desirability and affordability ...

Just Jack said...

Not offended in the least.

I think most mortgage appraisals are crap. The typical home appraiser makes about $50 after expenses for doing say a BMO appraisal. And it shows. The reports are incomplete and full of errors and ommissions.

I have several clients that are absolutely pissed off with mortgage appraisals and appraisers. But none have done anything about it.

The appraiser carries Errors and Ommission Insurance up to $2,000,000 per occurance.

If you feel you have suffered damages from a poorly prepared appraisal report then you should take them to court and be compensated.


If you have not suffered damages but the appraisal or appraiser has missed important information then send a copy to:

Professional Practice
APPRAISAL INSTITUTE OF CANADA
403-200 Catherine Street Ottawa,
Ontario CANADA K2P 2K9
(613) 234-6533
Fax: (613) 234-7197
1-888-551-5521

The only way to get rid of bad appraisers is to sue them often or send their reports off to Professional Practice.

koozdra said...

2014 should prove interesting.

The number of whole houses coming on to craigslist seems to be higher than usual. Selling depreciating assets is a fools game.

Good news for the renter nation.

Just Jack said...
This comment has been removed by the author.
caveat emptor said...

My assessment in Victoria (SFH) barely budged this year but is down about 8% from its peak so broadly consistent with other market indicators.

Soon it will be time to review 2013 predictions and make 2014 predictions!

None said...

Well this makes me happy that I decided to rent even though I am paying $2600 a month (31.2K yr-1)

Oak bay 691K -> 667K = 24K
+ interest on mortgage (assume opportunity cost is the same as interest rates) @ 3% 21K + property taxes and upkeep ~ 8K.

Cost of ownership for an oak bay home last year was ~ 53K.

Of course my couchpotato made about 7% so it's even more. I figure I saved about 25K last year by delaying to buy by this one year. Not bad.

Just Jack said...

If you have gone onto the BC Assessment site and looked up your property you'll see an option for comparable sales.

That is bullshit. All they have done is list every property that has sold around your home. 90% of them wouldn't be comparable to your home. What similarilty does a 1995 built rancher have with a 1910 built character home. A 3,000 square foot home to a 1,000 square foot home. A townhouse to a detached.

It's just meant to intimidate you.

If you feel that your assessments are incorrect, you should immediately appeal them. The appeal board is made up of every day people and it is informal.

A client asked me to speak with BC Assessment a few years back. I went to their office presented my business card and explained that my client feels a large tree in his yard blocks his sunlight and that would have an effect on what he could sell the property. The assessor at the counter asked by how much? I said 5 percent. He said okay and changed the assessment while I was there.

None said...

I once appealed my property assessment when I lived in Halifax and they actually increased it MORE. That sucked.

koozdra said...

Four changes CMHC needs to make to rein in its mortgage market influence

"Interestingly, CMHC places the integrity of the underwriting primarily with the lenders themselves who profit from the mortgages, as the insurer seldom sees the physical documentation and very rarely spot checks mortgage applications at origination."
...
"In what can only be described as a massive policy blunder, this cap was eliminated in 2003. For nearly a decade, CMHC would insure mortgages of any size, from simple starter homes to opulent mansions, a truly epic case of “mandate creep.” In 2012, a nationwide limit was re-established; CMHC will no longer insure mortgages on homes that are purchased for more than $1,000,000."

koozdra said...

"CMHC currently has a program that allows buyers to purchase a second home with as little as 5 per cent down."

http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Second-Home.pdf

We're insuring the speculators.

Oh, what am I say, I'm sure they know what they're doing up there.

DavidL said...

Here are my 2013 predictions along with analysis:

My house assessment:
2011 --- $510K (actual)
2012 --- $480K (actual)
2013 --- $460K (actual)
2014 --- $430K (projected)

2014: My house assessment didn't change at all - it remains at $460K.

Interest rates:
Variable - up 0.1% on Sept 4th and another 0.15% (to 0.25%) on October 23rd to offset growing inflation.
Fixed - up 0.25% to 0.50% in mid to late 2013 due to investor exit from bonds to stocks (bond yields must go up).

2014: Variable interest rates didn't change as expected. Strange things are happening with inflation (energy, food, transportation are up, many other sectors are down) - the risk may now be deflation! Predictions regarding fixed rates were pretty much bang on!

Trends:
Victoria housing prices will drop more rapidly in 2013 than in 2012. Spring sales volumes will disappoint all, and eager sellers will have no choice but to accept offers below asking price. The rate of court-ordered sales will increase as compared with earlier years. Condos will lead the drop by up to 15% while the drop in SFH sales will be in the 5% (Broadmead, Oak Bay) to 10% (Sooke, Langford) range. The reduction in prices will slow down in 2014. As interest rates increase, housing prices will flatten - remaining fairly constant (not matching inflation). The nominal value of housing will "bottom out" in 2018 ...

2014: Pretty close to what was predicted! :-)

Leo S said...

If you feel you have suffered damages from a poorly prepared appraisal report

I don't think I even saw it.. Either way the report is fine by me.

Leo S said...

Ah yes, predictions. January 5, 2012 I said this:

VREB Sales for 2013: 5800

Actual sales are 5998 but pretty close.

6 month SFH average in Dec 2013: $565,000

Actual greater victoria 6 month average: $593,454
No good on that one. We know why averages have stayed up, but it doesn't make the prediction any less wrong.

BoC overnight rate Dec 2013: 1.0%

Yep. No change.

Average MOI for 2013: 10

Actually 8.76.

Teranet Dec 2013: 129

Not out yet, but will likely not be quite that low.

Mayfair Man said...

We purchased our house in November for $45,000 below the 2014 assessment. What are the chances of them lowering the assessment based on the sale price?

patriotz said...

IMHO not terribly good, since the assessment is based on the estimated market value on July 1, 2013, regardless of what you paid when you bought it.

caveat emptor said...

We purchased our house in November for $45,000 below the 2014 assessment. What are the chances of them lowering the assessment based on the sale price?

I appealed on similar grounds in 2008 when I purchased my place (assessment well above what I paid). My appeal was successful. I don't know if I got lucky or that is the norm.

Just Jack said...

Well Mayfair Man, as a percentage how much of a difference is the assessment from what you paid?

Because the argument would be that your home was in neglected condition back in July 2013, that the assessments do not reflect. Consequently you have been over assessed for 2014.

Marko said...

My predictions from January 5th, 2013. I don't think anyone will be able to match my accuracy :)

VREB Sales for 2013: 5950
6 month SFH average in Dec 2013: $580,000
BoC overnight rate Dec 2013: 1.0%
Average MOI for 2013: 9


Maybe we can have a predictions thread for 2014 in a few days?

Jack and Cate said...

Woohoo!!! Slide baby slide...!!!

caveat emptor said...

Here are most or all that made predictions last January in Leo's suggested format. My apologies if I got anyone's wrong.

Sales / 6 month Average / BoC Rate / Average MOI for 2013
Leo S 5800 / 565,000 / 1.00 / 10
Dave 5200 / 530,000 / 0.50 / 12
Dasmo 6000 / 580,000 / 1.00 / 9
a simple man 5150 / 535,000 / 1.00 / 11.25
marko 5950 / 580,000 / 1.00 / 9
caveat emptor 5400 / 556,000 /1.00 / 10.5
koozdra 5000 / 500,000 / 3.00 / 12

Looks Like Leo, Marko and Dasmo all did well.

caveat emptor said...

I predicted the national inflation rate to be 1.4% y-o-y. The latest is 0.9%

I also predicted unemployment of 5.7% in Victoria. Latest is 4.3%. However employment hasn't really improved much it's just that the labour force participation rate fell. I'd expect that number to creep back into the 5% range shortly.

patriotz said...

Maybe we can have a predictions thread for 2014 in a few days?

Wait for the December 2013 Teranet numbers to come out on Jan 14 first.

Mayfair Man said...

Well Mayfair Man, as a percentage how much of a difference is the assessment from what you paid?


The 2013 assessment was $650,000, the 2014 assessment was $600,000. We paid $555,000.

Dustin said...

Did you have a Yearly Condo Median & Condo MOI graph? Would be much appreciated for us condo owners.

caveat emptor said...

"The 2013 assessment was $650,000, the 2014 assessment was $600,000. We paid $555,000."

I'd appeal if you have the time and interest. With those facts you have zero risk of a higher assessment and a reasonable chance of a lower assessment.

My case had very similar facts and I simply made the argument - "Why rely on an estimated market value when the market value has been uniquely determined by an arms length transaction". They don't like to make small tweaks to the assessment, but in your case there is an 8% difference - significant enough.

Some people actually like the high assessment (I remember a discussion here). Figure they'll make more money when they sell the house than what they'd save in taxes.

Marko said...
This comment has been removed by the author.
Marko said...

The 2013 assessment was $650,000, the 2014 assessment was $600,000. We paid $555,000.

What you paid probably isn't reflected in the assessment as the assessment is based on July 1st, 2013 so might be worth appealing it.

I am not a huge believer in that higher assessment equals higher sale price on-resale; however, other realtors disagree with me on that. I personally think the lower taxes offset re-sale effects, if any.

Btw, great deal, great neighbourhood.

Mike Lewis said...

If you're not a regular here you just get ignored?

Marko said...

If you're not a regular here you just get ignored?

Hi Mike, welcome.

I didn't know how to respond to your post? A house was sold on Richmond for $576,000 and three years later re-sold for $674,900 after substantial upgrades. Do you think he or she did poorly? or well? I didn't get the drift.

Regarding Earle Place, thousands of homes will be re-listed this year. Not sure what makes this one so special?

SJ said...

Congrats on the predictions Marko.

We just bought a condo for 227K, 104K below 2012 assessment. It should be fun to see and appeal the latest assessed once we get the number.

Leo S said...

Did you have a Yearly Condo Median & Condo MOI graph? Would be much appreciated for us condo owners.

I can make a yearly condo median graph, but unfortunately not a Condo MOI because the public stats do not break down inventory by housing type.

info said...

. . Percentage Price Decline From Peak (3-month median) . .
. . . . . . .(Oak Bay, Saanich East and North Saanich) . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 0.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.5%. . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.0%. . . . . * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6.0%. . . . . . . . . . . . . . . . . . . . . . * . . . . . . . . . . . . . . . . . . . .
- 6.5%. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . . . . . . . . . . . . .
- 7.5%. . . . . . . . . . . . . . . . . . . . . . . . .* . . . . . . . . . . . . . . . . .
- 8.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 8.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.0% . . . . . . .* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . *. .* . . . . . . . . . . .
- 10.0%. . . . . . . . . . . . . . . . . . . * . . . . . . . . . . . . . . . . . . . . . .
- 10.5%. . . . . . . . . . . . . * . . . . . . . . . . . . . . . . . . *. . *. . * . .
- 11.0%. . . . . . . . . . . * . . .* . . . . . . . . . . . . . . . . . . . . . . . . . .
- 11.5%. . . . . . . . .* . . . . . . . * . . . . . . . . . . . . . . . . . . . . . . * .
- 12.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
--------------------------------------------------------------------------------
. . . . . . . .J. A. S. O. N. D. J. F. M. A. M. J. J. A. S. O.. N.. D.
. . . . . . . . . . . . .2012. . . /. . . . . . . . 2013. . . . . . . . . . . . . . . .



info said...
This comment has been removed by the author.
info said...

The 3-month median for the upper end of the single family home market in Greater Victoria reached a new post-peak low at -11.6%, breaking through the level of the previous low set in Feb. 2013 (-11.3%).

The upper end of the SFH market is made up of Oak Bay, Saanich East and North Saanich.

The overall SFH median for Greater Victoria has been subject to extreme upward skewing for a number of months. It has given a false impression of the strength/weakness of the SFH market in Greater Victoria since early spring 2013.

The 3-month SFH median for Oak Bay, Saanich East and North Saanich is far less subject to skewing than the overall SFH median and is, therefore, valuable as an indicator of the strengh/weakness of the upper end of the SFH market.

Similarly, the 3-month median for Sidney, Esquimalt, Colwood, Langford and Sooke is valuable as an indicator of the strength/weakness of the lower end of the SFH market.

None said...

Where would Fairfield fall in all of this?

Alexandrahere said...

Exerpts from "RateSupermarket.ca
BLOG/Moneywise. Will the Canadian Condo market keep booming in 2014?"

In Canada low rise condos = 36%
high-rise = 31% and rowhouses(townhouses) = 23%.

In 1981, there were 171,000 condo owner/occupiers in Canada.
In 2011 there were 1,154,000 owner/occupiers with a further 461 rental condos.

The percentage of owner occupied condos is noticeably higher in retirement communities such as Victoria, BC and Collingwood, Ont.

Monthly shelter costs, i.e. mort. payments, taxes, utilities and other related homeowner costs, are $500 less for condo owners than for SFD owners.

Alexandrahere said...

hmmm...one of the nicest streets in Esquimalt at 1036 Munro a 1930's home (very nice interior), just sold for $670K.......AND.....the nicest area of Victoria, i.e. in the Uplands, a mid 1950's home (all in original but nice condition), at 2666 Dorset just went for $665K.

caveat emptor said...

"Where would Fairfield fall in all of this?"

There was a former poster who posted under the pseudonymn 'fairfield'. According to him/her in Fairfield:
1) prices always go up
2) all of our children are above average
3) the sun always shines

As a resident I can attest that at most 2 out of 3 are correct.

Introvert said...

Happy New Years your home lost value again

Is your New Year's resolution to jam sentences together with no punctuation?

Most people are shitty writers it is terrible.

Introvert said...

Our assessment is down 4.6%.

Ours is down 3.35%.

Introvert said...

Having lived in Victoria all my life, I've noticed that some neighbourhoods are quicker to rise and slower to drop in price. My neighbourhood is the opposite - one of the last to rise and first to drop.

Care to share which neighbourhood that is? Just curious.

Introvert said...

Looks Like Leo, Marko and Dasmo all did well.

We haven't heard from dasmo in a while. I liked him.

Leo S said...

Is your New Year's resolution to jam sentences together with no punctuation?

My new years resolution is to put at least one grammatical error into each post.

Leo S said...

Any place to look up historical assessments? The PCS tool does it, but only for listed properties...

LeoM said...

Mike Lewis said: 1587 Earle Pl...

Take a look at the aerial view; this place backs onto the loading docks for Thrifty Foods and is next to their HVAC system. That means diesel trucks start arriving at 6am then non-stop until 4pm and HVAC noise 24/7.

LeoM said...

Tyee Road Condos: Does anyone know how all those relatively new condos are doing on Tyee Road?

Sales prices for the past three years versus the assessed values during the same time period, and then compared to the purchase prices when first sold.

Are people making or losing money?

DavidL said...

@Introvert
Care to share which neighbourhood that is? Just curious.
The Glanford/Carey neighborhood north of Tillicum and south of Mann seems to be one of the last places for prices to go up and one of the first for prices to go down. I lived in this area both in the mid-80's and currently.

Introvert said...

I see. That's an interesting observation.

Introvert said...

My new years resolution is to put at least one grammatical error into each post.

That shouldn't be too difficult.

Just Jack said...

25 condominiums sold along Tyee Road in 2013. However nine of the condos were in a new complex sold by one developer. I'm chosing not to use those sales as they are contract prices and may or may not reflect market value.

For the remaining 16 re-sale properties, the lowest price paid was $207,000 and the highest was $490,000. The median price for the typical condominium was $324,500 or $434 per finished square foot with an average exposure of 78 days on the market.

The Sale Price to Assessment Ratio for these sold condominiums ranged from a low of 91% to a high of 153%. With the typical condominium selling at around 95 percent of its 2013 assessed value.


The market for condominiums along Tyee Road appears to be in balance and not favoring buyer or seller. However the average exposure of 78 days seems to indicate that while prices are not necessarily declining, the condominiums are difficult to sell.

This is a small sample and subject to variability.

CS said...

Before recognizing, in the light of
Eugene Fama's Nobel Prize, the absurdity of attempting to predict the future of markets, I predicted a 40% decline in Victoria RE from peak to trough.

So far, the decline is about 9%. A further 5% prior to the 2015 Federal election is conceivable. After that an acceleration to 10% and 5% in the following two years is also conceivable.

In that case we'd be down 29% over six years. Adjust that for inflation and it would be almost exactly 40% to what would seem likely to be a new trough.

While acknowledging the idiocy of such predictions, I'll stick with my short position.

Just Jack said...

The difficulty with making any kind of predictions in the real estate market is that most of us assume that real estate is a free or open market.

It isn't.

Dis-savers are rewarded in this market or at least are on equal status as savers. That has raised the base price of real estate through out Canada.

New condominiums are the best example of this socializing of the market in that entry level new condominiums are around the same price everywhere in Canada.

Only when the housing market is over a million dollars do you get a return to the free market economy. Where savers are once again rewarded over dis-savers.

The question arises is what happens to the market if the government no longer guarantees universal access to home ownership at an interest that does not have provision for risk?

In my opinion, the government will eventually have to retreat from their position of guaranteeing mortgages and allow real estate to return to a free market economy. The universal mortgage policy did stimulate the economy for several years. However, high prices are now stagnating the economy with fewer sales and little business development along with higher vacancy and unemployment rates.

I think that the real estate market is highly susceptable to a black swan affect in the next few years that will pull that social safety net out from under the housing market.

info said...

As I have said, the US housing market has Fannie Mae and Freddie Mac which are back stopped by the US taxpayer just like CMHC.

Fannie and Freddie didn't prevent the US housing market from crashing. CMHC will not prevent the Canadian housing market from going through a deep price correction.

Just Jack said...

Fannie and Freddie didn't prevent the US housing crash in 2008.

Unlike in Canada, where CMHC did prevent a deep recession.

In the USA, Fannie/Freddie were a precipitating factor that lead to the credit crunch as Americans reached the pinnacle of personal debt.

While CMHC and Canadians were years behind the USA and had a lot more room to expand credit and personal debt.

I think it's unlikey that CMHC could pull that trick off today. As it appears that CMHC and Canadians are in the position our southern cousins were in 2008.

The Americans got caught hard. But not as hard as weaker economies like Spain and Ireland. Our economy is somewhere in between these countries. In my opinion Canada won't require a bail out by the IMF, but we will get a bitch slapping.

koozdra said...

Flaherty says Canada will face pressure to raise interest rates

"Mr. Flaherty downplayed the significance of soaring Canadian personal debt levels, saying they’re not a concern so long as the housing market remains strong."

I thought the stability of the housing market in Canada was a given.

LeoM said...

To: JustJack
Thanks for the Tyee Road information.

Marko said...

Monday, January 6, 2014 8:00am

MTD January
2014 2013

Net Unconditional Sales: 20 294
New Listings: 131 1,080
Active Listings: 3,207 3,870

Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year

koozdra said...

CMHC Statement in Response to Recent Articles on Mortgage Insurance and emili

You are in good hands friends. We have it all figured out.

info said...
This comment has been removed by the author.
info said...

"Fannie and Freddie didn't prevent the US housing crash in 2008.

Unlike in Canada, where CMHC did prevent a deep recession."

In 2008 to early 2009, many Canadian housing markets (including Victoria) had corrected 10-15% or more. The Canadian housing market in general would have gone through a deep, multi-year correction if it hadn't been for the dramatic, unprecedented, emergency intervention that turned the housing market around.

CMHC, Genworth and Canada Guarantee all provide mortgage insurance in Canada and they are all backed by the Canadian taxpayer.

In early 2009, the intervention was carried out by dramatically increasing the amount of mortgage insurance that was put through CMHC, Genworth, etc.. The government found ways to allow more people to become qualified for mortgages. For example, the self employed and recent immigrants were suddenly allowed to qualify for mortgages without proof of income or a stable employment history. Interest rates were also lowered to emergency levels to allow more people to qualify for home loans. CMHC and Genworth, etc. covered all of these high-risk, high-ratio loans. This dramatically increased the total taxpayer backed mortgage insurance through CMHC, Genworth, etc. in Canada from 2009 to 2012 and beyond.

CMHC was Canada's economic action plan as the rescued housing market helped support the weak and fragile Canadian economy after the great financial crisis of 08-09.

"CMHC went from $100 Billion in insured mortgages in 2006 to $600 Billion in 2012."

In 2006, the Canadian housing bubble was equal in size to the US housing bubble. After 2006, action was taken to further inflate the Canadian housing bubble while the US housing bubble burst and the US housing market crashed.

House prices in Canada increased dramatically after 2006 as a result of policy that lowered lending standards. On the other hand, house prices in the US corrected (see chart).

Canada's household debt to income ratio increased dramatically after 2006, while that ratio decreased in the US (third chart). Most of Canada's household debt is mortgage debt. The increase in household debt reflects the increased use of CMHC, Genworth, etc. after 2009 (and 2006).

Canada's housing bubble is currently much larger than the 2006 US housing bubble as a result of the government's use of CMHC, Genworth, etc..

Total taxpayer-backed mortgage insurance in force in this country is through the roof. It has increased dramatically since 2009. This has put the Canadian taxpayer in a very vulnerable position.

It is extremely unlikely that the feds will use CMHC, Genworth, etc. again in the same manner (as they did in 2009) to stop the deep, multi-year housing market correction that will be starting in Canada soon. They have already played that card.

What matters is what happens going forward. This time the Canadian housing market will not be rescued by CMHC, Genworth, etc. as it was in 2009.

Fannie Mae and Freddie Mac required bailouts in the US as their housing market corrected. CMHC may require a bailout as the Canadian housing market corrects.

CMHC will not prevent the Canadian housing market from correcting just as Fannie Mae and Freddie Mac didn't prevent the US housing market from correcting.

info said...
This comment has been removed by the author.
info said...

"While CMHC and Canadians were years behind the USA and had a lot more room to expand credit and personal debt."

Incorrect.

This chart shows that the opposite is true. At the peak of the US housing bubble in 2006, Canadians had a higher household debt to income ratio than Americans (third chart).

The fact of the matter is that Americans had more room to expand credit and personal debt than Canadians in 2006. Since 2006, Canadians have dramatically increased their personal debt while personal debt levels in the US have decreased.

In Canada, most of this household debt is mortgage debt.

I, personally, don't think that a major debt problem can be fixed with more debt. Basically, it was taking the easy way out. At best it will prove to be a temporary fix. Eventually all of that debt must be paid back. The deleveraging process is always difficult. The US economy faced challenges for years as a result of the deleveraging process that Americans were forced to go through. The same will happen with the Canadian economy. Both the American and Canadian economies are based (70%) on consumer spending. As people concentrate on paying off debt, adjust to less available credit and dealing with falling house prices, they spend less money. This causes problems for economies that are heavily dependent on consumer spending.

Housing bubbles temporarily help the economy as they inflate, but they cause problems for the economy as they deflate.

Canadians will be forced to face these challenges soon.

CS said...

Canadians will be forced to face these challenges soon.

Nah.

All we need do is get Mark Carney back. Wherever he runs the central bank house prices surge higher.

koozdra said...

"All we need do is get Mark Carney back."

He lowered rates. Not really an option anymore.

info said...

"In the USA, Fannie/Freddie were a precipitating factor that lead to the credit crunch as Americans reached the pinnacle of personal debt."

The US housing bubble peaked in 2006. US household debt peaked before the Fannie/Freddie crisis (third chart).

House prices in the US declined for 2 whole years before the Fannie Mae and Freddie Mac crisis in 2008.

In 2006, house prices in the US were deep into bubble territory. All housing bubbles burst and that is what happened to the US housing bubble in 2006. The average family could no longer afford the average home. The inevitable price correction began as a result of this.

After house prices corrected in the US for two years, Fannie Mae and Freddie Mac ran into problems in 2008, for obvious reasons.

It was after this that the US economy ran into big problems.

Personal debt in the US had started to decline before the Fannie and Freddie crisis. This is a sign that banks had tightened credit before the crisis.

Problems with Fannie and Freddie precipitated certain problems in the US and made others worse. However, that crisis did not start the decline in house prices or the decline in the household debt to income ratio.

caveat emptor said...

"dramatic, unprecedented, emergency intervention"

It's a new year but some things don't change

Just Jack said...

Their are lag periods in all business situations. If fewer people come to your grocery store on Monday. That doesn't mean you're bankrupt on Tuesday.

I can accept a two year lag period before Fannie was in serious financial problems. That the government didn't move quicker to nationalize Fannie and keep the money flowing, until several major lenders went bankrupt, was a precipitating cause. By the time the government reacted it was too little too late. There was a lack of confidence in the banking system.

And you can't dismiss the American Psychi. Nationalizing industries is something third world bannana republics do - not the USA.

In Canada we readily accept Crown Corporations and our banking industry has a long history with them. Not the same as American bankers - that's too damn close to communism.

Just Jack said...

Here are some actual price to income ratios in the last year.

A four suite building along Fort Street. Gross Income of $62,300. Sold for $995,000. That's a GRM before vacancy and bad debt of 16.

A 4 suite residential conversion in Fernwood. Gross Income of $43500. Sold at $995,000. GRM of 23. Sold with the idea of re-developing the site. Big price for a corner lot with less than 10,000 square feet of dirt.

Fairfield 4-suiter. Grossing 52,400. Sale Price $880,000. GRM of 17

James Bay 4 suites grossing 48 large. Sold at $845,000. GRM of 17.5

Oaklands. four suites bringing in some $60,300. Sells for $770,000 at a GRM of 13

Hillside Avenue grossing $35K. Sells for $640,000. GRM of 18

For the most part, these are not outrageous prices. Four suiters are back to 2006 to 2005 price levels. And seem to be correcting faster than single family homes with and without suites.

At the same time people are paying a smidge less than 500K for 1200 square foot rancher in
Fernwood.

Do investors know something home buyers don't?

Seth Perry said...

First time home buyer looking for help.

I created a Google Doc spreadsheet based off the 'Buying and Maintaining a Home: Planning your housing budget' worksheet provided by the 'Financial Consumer Agency of Canada' (link below).

Here is the public link to my spreadsheet. Are my numbers in-line with averages?

This is based off a $500,000 home, with 10% down and a 25 year amortization at a fixed rate of 4%. This is a basic budget worksheet for buying a home and has nothing to do with appreciation or depreciation of the home value.

Once it has been improved with your help, I can provide a link so others can make copies and create their own.

Cheers!

Google Doc Spreadsheet


Financial Consumer Agency of Canada

Seth Perry said...

While suggestions are made, I'll be updating the spreadsheet in realtime so it stays current.

Thanks for your help!

DavidL said...

@Seth

Great attempt at trying to capture all the costs associated with home ownership. I suggest doubling the home insurance from $38/month to at least $75/month. Although earthquake insurance may not always be mandatory, in my opinion - you are crazy not to have it! It costs me about $450/year.

Seth Perry said...

Thanks DavidL, I've added this as a new line item. This way people can choose to included it our not.

Just Jack said...

I assume that your downpayment was earning income before you converted it to equity. I'm just wondering why you haven't considered that loss of income as a cost?

koozdra said...

The alternate me.

The alternate me bought a house using the RRSP first time buyers plan. My alternate significant other and alternate me saved for years so that they could borrow the full amount to have a solid down payment. A solid down payment I thought buffers you against fluctuations in the housing market. How financially prudent of alternate me.

The house they now own is in Langford. To be good little prime borrowers and avoid the egregious CMHC fee they withdrew the entire fifty thousand dollars from their RRSPs for the down payment. No mom and dad to help out with the down payment there.

The cost of owning a house was an initial shock but over time the couple figured out a budget that was workable.

Alternate me still remembers the day the BC assessment came in the mail that really struck home for home for him. Our life savings were gone.

Of course the real blow was when alternate me lost his job. That poor son of a bitch. Nobody could have seen it coming. By the definition of unexpected things this was really unexpected. Alternate me searched and searched but jobs were really hard to find. But the bills kept mounting.

Alberta? Of course he's heard there's jobs there but he can't move because selling the house isn't an option. Every month that passes eats into their meager savings. But the bills continue to pile up.

Finally alternate me and my alternate significant other finally admit it to themselves. It's time. Time to declare bankruptcy and move. We'll be renters. Everybody's doing it.

Home ownership? no thanks, that's not for me.

ryleyb said...

Definitely more insurance money. I have a house around that price and insurance + earthquake = ~$1000

Just Jack said...

Repairs and maintenance of $833 is also a reserve for replacements such as roofs, hot water tanks, etc. If you are putting money aside then it should be earning interest.

If you are not putting money aside, then every few years you will have a shock payment such as a roof at $10,000 or a hot water tank at a $1,000. Most people would use their home equity to pay for those repairs at the time each occurred.

The validity of a Reserve for Replacement has been bantered back and forth among appraisers for the last couple of decades. Current appraisal methodology does recognize a reserve for replacement as an operating cost. Although in practice it is rarely done due to the complexity of estimating remaining life of the building components, future costs and discount rates. It's just too subjective. How many of us can estimate the present value of a roof that may have to be replaced in 15 years? That's what condominium depreciation reports are for - and they can cost $5,000 to have done.

Personally, when it comes to home ownership I wouldn't consider it. At $883 a month, your reserve might accumulate to close to half a million dollars after 25 years if invested. Furthermore, it isn't necessary to save this amount, since you can pay for items like the roof with the your home equity loan. You'll just have some mortgage creep and or have to extend your amortization period.

Seth Perry said...

@Just Jack

RE: Loss of earned interest on down payment (50K) during 25 year period.

I suppose you could argue that the loss of income over the 25 year period would come back in the appreciation of the home equity, as the home would have the full 25 years to appreciate.

A 50K investment over 25 years at 5% return would be worth $169,317.75 or would earn $119,317.75 in interest.

To be fair, if I added this as a cost when buying a home, I would need to start including appreciation estimates for the home equity over the same 25 year period.

I think leaving it out makes it a simpler calculation. I appreciate your suggestion though.

Any one else care to comment on this?

DavidL said...

CBC News: Long-term mortgage rates to rise soon, Stephen Poloz says
Bank of Canada chairman Stephen Poloz says he expects long-term interest rates to rise this summer as the U.S. Federal Reserve continues tapering, but he believes that would be a positive development.

Seth Perry said...

@Just Jack - Thank you.

RE: Repairs and maintenance of $833 / month should be earning interest.

I was thinking that, on average, a home owner would spend that $833 / month throughout the year. Even if you use this up every 2 years, would it really earn that much interest? To earn that magical compounded interest over 25 years, you would need the full principal to stay in the investment fund. But with shock costs, you are continually emptying the fund.

I suppose you could open a heloc, but then then the other mortgage calculation payments need to be recalculated.

I look at this like a vehicle repair budget. We budget $400 / month for repairs. We usually find that we spend it all within a year (give or take a few months), as the van needs repairs and new materials (tires) every so often.

Any one else care to chime in?

Just Jack said...

I usually try to make things simpler and easier. If money costs $525 a month per hundred thousand, I would look at a $500,000 home and estimate the monthy costs at 5 X $525 or $2,625 a month. Assuming a 20 percent down payment.

For example, the new house that sides along Oaklands School listed for $1,129,000. I look at that home and think. That will cost someone about $6,000 (11.29 x $525) a month to live there. Allowing for the lost income from their downpayment. And yet you could rent the entire home including the one-bedroom basement suite for 60 percent of that cost. No brainer here - take the pencil and cross this property off the list to buy as the cost of home ownership or the difference of $2,370 a month is too high. I can wait and be the second owner of the home at a far lower purchase price.

Granted - this is not a scientific way at looking at value. But it's quick. And if you're looking at a hundred homes it's a way of shortening that list.

Just Jack said...

It gets messy when you try to add in future values. That's a future balance sheet entry. If you were to do that, then you would have to discount the estimated future value of the property back to today. You have to discount that future value because when someone says that their house will be worth a million dollars 25 years from now chances are a Big Mac will cost $100 then too. A million, 25 years from now isn't the same as a million today.


Right now we are just looking at the annual or monthly income and expense side of home ownership. The balance sheet not considered.

totoro victoria said...

A repairs and maintenance budget of $833 a month seems high.

If you are including a lot of wants (ie. renos and upgrades) instead of musts, then you could easily spend this amount.

The thing with renos and upgrades is that you can often save money by using second-hand stuff and recoup the costs or more when you sell if you are strategic about the reno.

I have paid a fair bit for renos. This has, in the past, been recovered in the sale price.

We buy places with newer roofs, get the drain system checked, and avoid big trees in the yard. We buy newish appliances second-hand.

We average $100/month in repairs and maintenance per SFH. This year I expect this number to be the same. It might increase in the future as we have three hot water tanks that will need to be replaced in the same year.

I don't worry about setting aside money for repairs specifically as we have a general emergency fund.

An as far as alternate Koozdra goes, well, if you are going to rely on BC Assessment for market value of your home and use this as a reason you can't rent it out and move for a job, you deserve your self-created chaos.

In your alternate reality you are looking at a mortgage payment of $800/month. Two people working at minimum wage jobs should be able to afford this payment and expense.

If you can't get a minimum wage job while you are looking for something better something is awry. If a couple can't afford $800 a month, they have more problems than a decline in home valuation and loss of one income.

Now, if alternate Koozdra was going through a nasty divorce things could take a turn for the worse.

As it is, you are right, with this type of problem solving and lack of financial management skills, alternate you should not be a homeowner.

Seth Perry said...

My spreadsheet was an exercise that allowed me to get a much more calculated perspective on the cost of buying a house for the first time. I would still appreciate comments from everyone so I can fine tune.

When I look at the upfront costs, monthly costs and the forecasting of flat prices for 2014, 2015, I don't see any logic to buy right now. The benefit of putting money into a balanced portfolio, that should earn 4-7% seems like a much better option. I'm much more liquid this way.

My question is: Why are people still buying homes right now? Is it just all emotion? I just don't get it.

I understand that people who are already in the market may be pulling a lateral move to a new location or perhaps downsizing, but isn't buying a home in 2014 and 2015 a sure fire way to loose equity for first timers?

Perhaps first timers are hedging by offering way under assessed? Is this what we are seeing right now?

Just Jack said...

When you first buy a home there will be immediate repairs.

Immediate repairs are things that are broken. Windows, leaking roof, non functioning septic, etc.

You might not like the fridge or the laminate floors but that does not make them immediate repairs.

As for replacing used appliances with used appliances.

I don't think that is such a good idea. Buy new, get good quality and a good warranty. I wouldn't buy a used mattress or a used stove.

Renovations are not immediate repairs either. Getting your money back on renovations depends on how much you spent and more importantly WHEN you did the renovation. A $50,000 kitchen reno done 15 years ago will add nothing to todays re-sale value. Same with carpets, hardwood flooring etc. There now old and dated in appearance.

Best to do all that immediately prior to selling. Generally, the least costly items that you can do yourself will give you the best return prior to selling. Cleaning, painting, yard work.

A new kitchen and bathroom done by the trades would likely cost more than any increase in your home value today. But your home will sell faster and that will make your real estate agent happy too.

Since people seem to always under estimate the cost of renovations. It would be better to negotiate a full price offer with a kick back of $25,000 for a new kitchen and bathroom to the purchaser. Chances are the purchaser will never do them and just spend the money on a big screen TV anyway. But that's the art of the deal. You win - they win.

Seth Perry said...

@ totoro victoria - Thank you.

I looked at 3 or maybe even 4 websites that offered guidance on the reno / repair / maint. costs and they varied from 1% - 4%, so went with 2%. You budget $100 / month or $1200 / year. What percentage does this work out for you? (if you don't mind me asking.)

The 2% for repairs / renos / maint. in my example contributes significantly to the monthly costs and so more input from others is appreciated.

What's been your experience for Repairs / Maintenance – (e.g. roof repairs, painting, plumbing etc…). I'm not talking major renos. Mostly repairs and maintenance with some minor renos.

1%, 2% of assessed value?

Cheers!

Al + TOH said...
This comment has been removed by the author.
Al + TOH said...

WRT house owner costs, if it is SFH, there should be garden cost as well. As DIY, we spend about $300-500/yr (9400sft land). It costs more to hire landscape companies; but less if you just have lawn.

Just Jack said...

It's a right of passage.

First comes love
Then comes marriage
Then comes baby in a 1700 square foot side split with single wide carport.

Why do we spend so much on getting married. Because we believe it happens only once and like the ads for engagement rings says.

"A diamond is forever"

Which is a lot better than their first slogan...

"this oughta shut her up"

We do it, because we want to prove to our friends and families that we can - or as I prefer to think rub it in their noses that they can't.

Realistically, people are not going to get rich buying a home today. We all know that - we just want to look rich. And we will do that at any cost. Because none of us want to hear from our Mother...

"Howard, your younger brother just bought a house- why can't you?"

Eh Tu Mama!

koozdra said...

"An as far as alternate Koozdra goes, well, if you are going to rely on BC Assessment for market value of your home and use this as a reason you can't rent it out and move for a job, you deserve your self-created chaos."

Tell that to an entire generation. They had it coming.

"The bank said I could have anything I wanted."

Alexandrahere said...

For those of you who live or would like to live in Gordon Head here is some info:

In the past ten days or so for SFH min 2 beds and 2 baths, priced between $375K & $775K, there have been 4 sales according to my pcs.

1845 San Lorenzo sold for $628K,
1665 Longacre sold for $755k,
1605 Mileva sold for $530K, &
4463 Tremblay sold for $720K (rounded off).

I certainly don't see prices coming down in that area. Do you?

koozdra said...

"I certainly don't see prices coming down in that area. Do you? "

Prices will never come down. The Canadian housing market is invulnerable.

Lower rates -> higher prices
Higher rates -> higher prices

Just Jack said...
This comment has been removed by the author.
info said...

@ Koozdra

"Alternate me still remembers the day the BC assessment came in the mail that really struck home for home for him. Our life savings were gone."

SFH prices across Greater Victoria have declined at least 10.5% since 2010 (some Canadian real estate boards have recently fudged their sales and price data to make the numbers look stronger, so we know the total price decline is at least 10.5%).

. . . . . .Percentage Price Decline From Peak (MLS HPI). . . . .
. . . . . . . . .Greater Victoria - Single Family Homes. . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .0%. . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 0.5%. . . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.0%. . . . . . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.5%. . . . . . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.5%. . . . . . . . . . . . . . . . . . . . . . *. . . . . . . . . . . . . . . . .
- 6.0%. . . . . . . . . . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . . .
- 6.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 8.0%. . . . . . . . . . . . . . . . . . . . . . . . . . *. . . . . . . . . . . . . .
- 8.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . . . . . .
- 9.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .* . . . .
-11.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
------------------------------------------------------------------------------------------
. . . . . . . . .10. . . . . . . 11. . . . . . . . 12. . . . . . . . 13. . . . . .

(continued)

info said...
This comment has been removed by the author.
Just Jack said...

Ah Ha! The gauntlet of Gordon Head is thrown down...

slap, slap

And dammit you're right.

There are so few sales in Gordon Head each month, I grouped non water view sales by quarter (25 to 30 sales each) and looked at the median Sale to Assessment Ratio to see how that changed. In Q1 of 2013 Gordon Head boxes were selling between 95.3 to 96.6 percent of their assessed value.

Q1 -95.3 to 96.6 percent
Q2 -99.3 to 100.5
Q3 -96.8 to 97.5
Q4 -101.0 to 101.2


Whew - caught the your - you're in time

info said...

(continued)

Consider a first-time buyer who bought a house in 2010.

If they had paid $650 K for a house in 2010, the value of that house would have dropped at least $68,250.00 (10.5%) over the last 3-4 years. That would work out to be a loss of $1,625.00 per month, each and every month since the date of purchase in 2010. The current value of the house woud be $581.8 K, at most.

Most first-time buyers use the minimum downpayment of 5% to purchase their first home.

5% of $650 K is $32,500.00. That would have been lost in the first year and a half after buying.

Note that I didn't include other expenses in this example. Other expenses would include:

* the CMHC fee
* land transfer tax (no exemption for properties valued $450 K or higher)

* monthly maintenance (a new roof can cost a fortune)
* property taxes

These expenses would also have to be added to the total amount lost ($68,250.00) over the first 3.5 years of "ownership".

At the time of sale, there would be more expenses, such as:

* realtor commission

Note that at the beginning of the mortgage, most of the monthly payment goes toward interest, not principal. Therefore, the principal amount owing on the home loan wouldn't have decreased very much over the first 3.5 years of "ownership".

If they wanted to sell their house and move, they would have to pay the bank a lot of money (the difference between the amount owing and the (decreased) current value), or they could claim bankruptcy. They would also have to pay the (very expensive) realtor commission, among other expenses.

I could change the year of purchase to 2009, 2011 and 2012 and show that first-time buyers who bought in those years would also be stuck in their homes, unable to move without paying the bank tens of thousands of dollars or claiming bankruptcy.

Housing bulls love to look at the monthly payment only and eliminate all other considerations when they talk about renting vs buying.

Even with the (temporary) historically low interest rates of today, there are tons of examples of houses in Victoria that can be rented for less than what the monthly cost of "ownership" would be for the typical first-time buyer (mortgage payment, property taxes, maintenance, etc.).

More price declines are on the way for Victoria. Recent first-time buyers are in for a long, hard ride.

koozdra said...

"Most first-time buyers use the minimum downpayment of 5% to purchase their first home. "

But wait it gets better. What if you sunk your lifes savings into the downpayment and borrowed from yourself to do it.

Now all of it just disappears.

The Canadian economy: Money appears, then it disappears. Those who made money and cashed out have money. Those that stayed ... well...

I would have no reservations about declaring bankruptcy. It can be the defining attribute of our generation. "lost it all in the recession dude, declared bankruptcy".

At least the CMHC and the first time home buyers plan was around so that alternate me could buy in at such an inflated price.

People like alternate me are the people that will screw you over.

Oh alternate me, ruining everybody's good time.

totoro victoria said...
This comment has been removed by the author.
caveat emptor said...

Recent first-time buyers are in for a long, hard ride.

Unless of course they just keep owning and living in their house as many do.

Then they will most likely do OK in the long run, though they of course missed the opportunity to buy later at a cheaper price.

totoro victoria said...

JJ said
"As for replacing used appliances with used appliances.
I don't think that is such a good idea. Buy new, get good quality and a good warranty. I wouldn't buy a used mattress or a used stove."

I agree with buying quality, but the math for new does not work in today's world of people endlessly upgrading stuff to the newest style.

I am looking at my one-year-old double door LG bottom freezer fridge right now. $300 on usedvic because the owners had moved from the Okanagan and brought their stainless appliances with them. I was fine to save $1700 from the new price.

I can also see my brand new white Maytag over-the-range microwave rangehood. Bought still sealed on usedvic for $100. The owners got it as part of a package with their new stove and didn't need it. I saved $200.

Or the fifties crystal chandelier we installed a few weeks ago. $60 for a great dangly glittery pile of real crystal.

Almost all of our furniture was inherited or purchased second-had. In fact, the only purchase I regret was that of a new furnace. Bad advice to replace it with a new warrantied one. I could have, like my friend, bought a reconditioned one with a limited warranty. I would have saved $1500 and the annual service fee - would've been fine to do the servicing ourselves.

Just Jack said...

But look what happened to the volume in sales for Gordon Head

2008-105
2009-138
2010-138
2011-110
2012-95
2013-120

In the past when we've seen a significant increase in volume we saw a significant increase in price too. Yet last year - prices only moved marginally.

Therefore, the incentive is greater for people to leave GH than to move to GH.

If you look back at historical sales activity you'll see this as a precursor to a price fall.

Kinda like a dead cat bounce.

If you're looking at prices - you're looking at the past.

info said...

"Recent first-time buyers are in for a long, hard ride."

"Unless of course they just keep owning and living in their house as many do."

How did that work out for first-time buyers in the US who bought near the peak" Not so well.

As house prices fall, the economy will struggle even more than it already is. This will result in more job losses, hours lost due to cutbacks, etc.. First-time buyers will face many challenges with Victoria's job market, economy and higher interest rates. Many will have to sell, but will be unable to do so. This is how it played out in the US and many other countries around the world where housing bubbles temporarily provided fuel for struggling economies, only to see those economies struggle even more once house prices started to decline. The same will happen in Canada.

It could take at least a decade for house prices to recover in Victoria once the bottom is reached (it has been 8 years in the US and prices are nowhere near the peak of 2006 and Canada's bubble is bigger than the 2006 US bubble). Not many first-time, high-ratio, high-risk buyers will be able to weather the coming storm.


totoro victoria said...

"@ totoro victoria - Thank you.

I looked at 3 or maybe even 4 websites that offered guidance on the reno / repair / maint. costs and they varied from 1% - 4%, so went with 2%. You budget $100 / month or $1200 / year. What percentage does this work out for you? (if you don't mind me asking.)

The 2% for repairs / renos / maint. in my example contributes significantly to the monthly costs and so more input from others is appreciated.

What's been your experience for Repairs / Maintenance – (e.g. roof repairs, painting, plumbing etc…). I'm not talking major renos. Mostly repairs and maintenance with some minor renos.

1%, 2% of assessed value?"

I don't use assessed value. In some areas a home is $100,000 and in another area the same home might be $500 000. % of assessed value has never made much sense to me.

Here is what I do:

1. I don't buy homes older than 1950. I'm just not prepared to pay the cost to reno and maintain. If you want an older home up your budget a bit.

2. I carefully check the biggies: roof, kitchen, bath, perimeter drains, big trees, previous flooding, siding, furnace... We got the sellers to replace the roof on one home as a condition of the sale. I either reduce the offer or skip on properties that need expensive work within the next five-ten years.

3. I do major renos that make economic sense ie pay for themselves through rental income within five years or will do so through resale and have a current high return for space utility. My view is the following makes sense: adding a suite or putting up walls to add bedrooms that are needed. I do some minor cosmetic stuff like painting and changing ugly light fixtures as well.

4. As far as percentages go, we spend about .002% of appraised on repairs and maintenance if I'm calculating the numbers correctly. This number won't be accurate for everyone because our places are in good shape already and we do a lot of stuff ourselves. This number does also not take into account that ex. the roof will need to be replaced in 20 years.

We have historically spent much more than this on renos, even buying second-hand materials, although we are almost completely done now.

5. I find good affordable repair people and treat them well. We have overpaid for plumbing and electrical in the past. It takes time to find good tradespeople and you can spend a lot more than necessary very easily. You can paint yourself - if you don't want to you have to find ask around for a good painter who charges a reasonable rate. Our drywaller was the referral source for a lot of very good tradespeople.

koozdra said...

By the definition of volcano eruption a volcano erupts when hot magma explodes from the top and starts spilling down the sides.

The volcano has not erupted when the earth shakes. The volcano has not erupted when smoke start coming from the top.

The crash deniers are the people living on the side of the smoking volcano. Trying as hard as they can to convince themselves that the tremors they are feeling beneath their feet are nothing to worry about.

Remember the bull mantra: "it's not a bubble till it bursts, it's not a bubble till it bursts, it's not a bubble till it bursts"

info said...

"But look what happened to the volume in sales for Gordon Head

2008-105
2009-138
2010-138
2011-110
2012-95
2013-120"

Remember that 2013 was the first year that real estate boards across Canada were allowed to include private sales in their sales totals.

If we adjusted for this, total sales in 2013 may be a lot worse than what the VREB has stated.

koozdra said...

With video..

Long-term rates may rise soon, Stephen Poloz says

"Assuming no unexpected shocks occur the consumer should be fine"

We aren't anticipating any unexpected shocks though, so we should be good.

caveat emptor said...

Flaherty was just blowing smoke about short term interest rate "pressure".

info said...

This condo in Clearwater, Florida is valued at $183 K.

Built in 2008, this spacious 2 bed, 2 bath condo has 1700 sq. ft. of living area. Florida's weather is hot and sunny year-round. No worries, you will only be a minute's walk away from the condo's beautiful pool.

A similar condo in Victoria would probably cost $400 K or more.

totoro victoria said...

Koozdra - alternate you has personal financial management problems. Trust me: it is not a house thing, it is a you thing.

If alternate you is out there throwing in the towel because of their assessment, alternate you might benefit from some counselling.

FYI bankruptcy rates are extremely low in BC (less than 2%) and have been decreasing since 2009. September 2012-2013 decreased an additional 1.3%.

caveat emptor said...

"Not many first-time, high-ratio, high-risk buyers will be able to weather the coming storm."

If you restrict your comments to high ratio/high risk borrowers then I do agree that an awful lot are going to get in trouble in the coming years.

Now is not likely to be a good time for marginal buyers to get in the market - at least not in Victoria

koozdra said...

"Koozdra - alternate you has personal financial management problems. Trust me: it is not a house thing, it is a you thing."

Alternate me is a big jerk. Too bad alternate me is so common. Bankruptcy comes after the crash not before.

koozdra said...

"Now is not likely to be a good time for marginal buyers to get in the market - at least not in Victoria"

At these ridiculous prices my entire generation are marginal buyers. A 20% drop will wipe everything out.

totoro victoria said...

Why would someone buy a house now?

Oh, the same questions get repeated but here goes:

1. Interest rates are low. If they rise you might pay more for your home monthly even if prices drop.

2. You are paying rent otherwise. Do the rent v. buy and decide if the numbers work. You need to account for all expenses plus principal pay-down upon final sale and any appreciation/depreciation. It is a bit of a crapshoot but my view is that if you can hold for more than seven years you hedge your bet quite well.

3. If the rent v. buy doesn't work, consider getting a place with a suite. Rental income is a good hedge against the rent v. buy variables going against you.

4. Get a longer fixed term mortgage if you are worried. We got a ten-year at 3.69/79 (can't remember off-hand). I really like that because we know what our payment will be. I have to renew a mortgage this year on one place and will go for five-ten years but shorten the amortization to fifteen years. I don't know what rates are going to be in five-ten years and I'd rather pay down the mortgage between now and then. Removes the worry of higher rates in future.

5. Having a family home that is yours to fix the way you want to and you don't get kicked out.

All that said, no harm in waiting longer. Prices probably will drop a bit - rates are already a bit higher than they were a few months ago. If you have a big down payment you will benefit more from waiting.

Finally, no-one has a crystal ball. Timing the market is not a superpower I have. Life itself is time limited. I've preferred to invest with cash flow positive properties at low interest rates now. In ten years who knows how this will impact my net worth, but it should be okay.

koozdra said...

Anybody can rent their houses out. It's so easy. Managing a rental from another province.. super easy.

Selling is stupid. Hoard, hoard, hoard. Very easy at these low interest rates.

totoro victoria said...

Anybody can rent their house out. It can be very easy to do imo, much easier than declaring bankruptcy.

You have to expect to do some work though, and be informed and careful with how you go about it.

What can be silly are scenarios and opinions which are not based on practical experience or math.

David said...

"My question is: Why are people still buying homes right now? Is it just all emotion? I just don't get it."

It actually makes sense right now for some property in the core. You do have to search awhile. Here are the numbers for this one I just bought if it helps for your spreadsheet. I was renting a similar unit two streets over for almost 3 years for $1350. I have owned 17 properties in my life. The key for this one is I got it for 86900 below assessment.

PER MONTH
Transaction/PTT/Downpay interest loss -- 143 (@3.5%)
Mtg interest cost-- 355
Bldg fee & Insur -- 284
Taxes --183 (possibly less?)
Insur -- 32 (cheaper than renters insurance was)
TOTAL --- 997

Utilities heat,water included in bldg fee. Note that I also didn’t require mtg insurance which is why I have a large opportunity expense of 144 per month. However I have so far made excess to investment rates when I sell, so I do get that back and more. I did not buy outright since rates are so low and I can pay out quickly if rates rise. One reason I got a good deal on this one was some thigns were dated and was vacant for over a year. However I add value the same as Kermit was saying. I buy things, antiques from garage sales and refurbish. Example, add vessel sinks to 1920 vanities that I paid less than $100 for. A half days work and $15 for stain and urethane and voila, more beautiful than 1922 and a functional sink to boot. It helps if your handy and enjoy refurbishing to make extra money on property.

koozdra said...

"Anybody can rent their house out."

The rental market can handle anything.

koozdra said...

"Anybody can rent their house out."

I'm surprised they didn't figure that one out in the states. They could have prevented the entire house crash. If only they read this blog.

totoro victoria said...

Victoria's vacancy rate is 2.7%. Price your rental slightly under market and maintain it well and there will be no problem finding tenants.

When we advertised a suite for September 1 we had so many applicants we stopped scheduling appointments.

totoro victoria said...

Unless of course you are more interested in rambling on about a theoretical future that is very crashy and hopeless.

koozdra said...

I prefer to keep rambling.

patriotz said...

Now is not likely to be a good time for marginal buyers to get in the market - at least not in Victoria

If it's not a good time for marginal buyers to get in the market, it's not a good time for anyone to get in the market.

Just Jack said...

Best asking prices in the core districts today are:

A 4100 square foot home on 5 acres along Prospect Lake Road. Asking $799,000. Assessed at $1,159,000. Bring your bobcat and hammer.

Or a house on Skinner. As Is -Where Is for $299,900. Assessed at 442,000. As Is where is? - what's that - a meth lab?

Waterfront on Parker Avenue. Assessed at $1,272,000. Asking $925,000. A quick bungy jump to the seashore.

And for those picky people - you know who you are. 151 Dennison. Probably one of the top 50 water view properties in Oak Bay. Assessed at $1,727,000. At one time the asking price was $2,200,000.

Bought in 2007 for $1,416,000.

And now asking $1,398,000.

The ultimate

"this oughta shut her up"

property.

caveat emptor said...

"If it's not a good time for marginal buyers to get in the market, it's not a good time for anyone to get in the market."

If you have the money and you want a house then it's always a fine time to buy.

Leo S said...

If you can't get a minimum wage job while you are looking for something better something is awry.

You've hit on the problem with high ownership rates. It is not good for the economy when skilled people are looking at getting non-skilled jobs just so they can keep their house. It would be much more productive if they could easily get up and move to Alberta and get an appropriate job, but houses restrict mobility.

Leo S said...

As far as percentages go, we spend about .002% of appraised on repairs and maintenance ..... This number does also not take into account that ex. the roof will need to be replaced in 20 years.

I spend $200/month on food. If I don't count the milk and the meat and the bread.

I agree that percentage of house value as a way to estimate maintenance makes no sense though. It works well when valuations are sane (i.e. probably a good rule of thumb in the US), but not here.

Leo S said...

1. Interest rates are low. If they rise you might pay more for your home monthly even if prices drop.


Much better to have a lower mortgage at a higher rate than a higher one at a lower rate.

2. You are paying rent otherwise.

That's just a fact, not a reason to buy. Although it does seem that many people have an innate distaste of paying rent, no matter how high or low it is.

3. If the rent v. buy doesn't work, consider getting a place with a suite.

Now we're comparing apples and oranges. That's like saying if you don't have the money get a second job.

4. Get a longer fixed term mortgage if you are worried.

Again, not a reason to buy.

5. Having a family home that is yours to fix the way you want to and you don't get kicked out.

Now that's a reason! The joy of home maintenance.

Here's our reasons:
1. Rent/buy calculations with the rented house worked out about even (flat prices), whereas before when we rented an apartment we were saving buckets of money by renting. So in a declining market it was still cheaper to rent, but we could live with the difference.
2. Mom in law retiring and moving down to live with us. Free daycare for the little one! :)
4. Prices down somewhat, chance of large decline decreased (compared to a few years ago).
5. Got a bit tired of tracking everything after 5 years.

Leo S said...

I look at this like a vehicle repair budget. We budget $400 / month for repairs. We usually find that we spend it all within a year (give or take a few months), as the van needs repairs and new materials (tires) every so often.

Holy moly. $4800/year in van maintenance? Hope it's a work van at least.

Leo S said...

If you have the money and you want a house then it's always a fine time to buy.

95% of the population cannot afford to think this way.

Leo S said...

The third reason is secret.

Seth Perry said...

@totoro victoria

"A repairs and maintenance budget of $833 a month seems high."

"We average $100/month in repairs and maintenance per SFH"

"I don't worry about setting aside money for repairs specifically as we have a general emergency fund."

"As far as percentages go, we spend about .002% of appraised on repairs and maintenance."

$100 / mth seem very low. If you needed to put on a new roof, that would take you several years to come up with the money and that's not factoring other repairs / maint. / renos.

You also said "an emergency fund", that that's part of my $833 / month that I factored in on the spreadsheet. So you ARE saving more than then $100 / month you state.

I guess the moral of the story here is be very choosy with the home you purchase, to keep your maintenance costs down and it looks like you've executed that well.

@Al + TOH

"garden cost as well. $300-500/yr"

Thanks! Added.


@Just Jack
RE: Why are people still buying homes right now?

"We do it, because we want to prove to our friends and families that we can - or as I prefer to think rub it in their noses that they can't."

"Realistically, people are not going to get rich buying a home today. We all know that - we just want to look rich. And we will do that at any cost. Because none of us want to hear from our Mother.."

I enjoy reading your posts because I feel like you understand the psyche of the house horny.

@totoro victoria

RE: Why are people still buying homes right now?

"Interest rates are low. If they rise you might pay more for your home monthly even if prices drop."

"You are paying rent otherwise." "hold for more than seven years you hedge your bet quite well"

"consider getting a place with a suite. Rental income"

"Having a family home that is yours to fix the way you want to and you don't get kicked out."

When I review my spreadsheet that I shared, I can already tell that renting is more attractive at this time. Perhaps if you buy and hold for many years, the appreciation might reward you, but, when you compare it to renting and then investing the savings in a balanced portfolio, it appears to make more sense to rent right now. A house with rental income would offset the monthly expenses, but, they you have to be okay with tenants and you need to buy a house that is suitable for tenants.


@David - Thanks for your response.

RE: Why are people still buying homes right now?

"It actually makes sense right now for some property in the core."

Your example :
"Income $1350"
"Expenses: 997"

That leaves a balance of $353, but, according to my spreadsheet there are more expenses and monthly costs and you have not included them in your example. For starters, what about maint. / repairs?

Even with an income property, there is a time commitment and stress factor finding renters, and keeping them.

ref: Your expenses list
"Transaction/PTT/Downpay interest loss -- 143 (@3.5%)
Mtg interest cost-- 355
Bldg fee & Insur -- 284
Taxes --183 (possibly less?)
Insur -- 32 (cheaper than renters insurance was)"


@totoro victoria

"Price your rental slightly under market and maintain it well and there will be no problem finding tenants."

Perhaps you are right. My family has been looking to move into a 3 bedroom from our 2 bedroom that we have now. We see many that are sitting on UsedVic and Craigslist for several months. Some with significant price reductions. I guess it has to be priced below market to get renters today, especially if the place hasn't been updated.

patriotz said...

"Price your rental slightly under market and maintain it well and there will be no problem finding tenants."

Perhaps you are right.


Totoro is right by definition. Anything that is priced under market gets an abundance of takers.

The problem is how well the under market rent is going to cover ownership cost. My view, and yours as well it appears, is that even the market rent doesn't cover it when allowing for all costs and contingencies.

dasmo said...

"Holy moly. $4800/year in van maintenance? Hope it's a work van at least." I think Seth has a Westy...

koozdra said...

http://www.cbc.ca/player/News/Business/ID/2428772057/

"Households have done the heavy lifting. Now it's time for households to take a back seat and stop borrowing so much"

Lower housing prices will do that. How orderly will the exit be when the vast majority of Canadians are carrying so much debt?

Leo S said...

>> I think Seth has a Westy...

So the $4800 is to rebuild it when it inevitably goes up in flames once a year..

totoro victoria said...

Slightly under market can be as little as $50 less per month to attract renters on a $1500/month rental and $100 on a $2000/month rental.

As far as covering the costs of ownership with rent - no, a typical SFH or condo purchase at today's values will not cover the costs of ownership unless you count principal pay down - which I don't. You need a home with a suite or a multi-family of some sort imo. Not for everyone.

If you are just looking for an investment I would avoid Victoria because there are much better markets to be in for cash flow. You'd have to bank on long-term appreciation which, imo, will occur, but it may not match the returns you could get on your invested capital.

If you can see little reason to buy right now based on your calculations then you'll be a happier renter.

Of course, the reality is that many renters will not invest the difference between buying and renting. Forced savings in the form of a paid-off mortgage have saved the day for many retirees.

As far as house maintenance and repair costs go, you need an emergency fund, but I'm not going to budget specifically for components that will need replacing after the time I plan to sell.

When I buy something I evaluate the remaining lifespan and consider whether I will ever need to replace it:

1. Appliances - gas ranges: 15 years; dryers and refrigerators: 13 years; dishwashers (9 years) and microwave ovens (9 years).

2. Cabinets - last fifty years or more.

3. Countertops - last a lifetime.

4. Decks - twenty years.

5. Exterior doors - twenty-forty years.

6. Electrical - lifetime.

7. Sinks/tubs/toilets - fifty years. Faucet - fifteen years.

8. Carpet - eight-ten years; wood - lifetime; high end laminate - 30 years; vinyl - 10 years.

9. Furnace - twenty-five years; hot water tank - ten years.

10. Paint - fifteen years.

11. Windows - twenty years.

koozdra said...

"Of course, the reality is that many renters will not invest the difference between buying and renting. Forced savings in the form of a paid-off mortgage have saved the day for many retirees."

Yet it's the homeowners that are in the most amount of debt. I guess given he opportunity to dip into those sweet sweet house winnings are far to great. But are the winnings temporary?

We shall see (spoiler: they are).

caveat emptor said...


Yet it's the homeowners that are in the most amount of debt.

Also the greatest amount of assets.

The real question is: take homeowners and renters with similar demographics (age, education, family status) - who has the higher net worth?

I would guess it is the homeowners. Not because housing is such an amazing investment, but because it is better than no investment at all

Seth Perry said...

@dasmo

"Holy moly. $4800/year in van maintenance? Hope it's a work van at least." I think Seth has a Westy...

LOL. Nope, it's a family van but I made a mistake, we budget $200 / month. I don't know where I got the $400 from. I track budgets in Mint and it says $200. As a reference, here is our maintenance spending over the past two months.

* New tires - someone pls tell me why I bought winter tires :(
* Brakes
* Water Pump
* Oil Change
* Thermostat

It adds up.


@Leo S

"So the $4800 is to rebuild it when it inevitably goes up in flames once a year.."

Are Westy's that bad? The old VW vans look so cool. I've always wanted one but now I'm having second thoughts.

@totoro victoria

Do you have a Price per / sq ft when it comes to renting? What should we be expecting to pay for a 3 bedroom, 1200 sf feet?

Currently, we are renting a 2 bedroom, 1100 sq ft space for $1100 (includes everything).

Thanks for the lifespan list, that is very helpful. Cheers!

koozdra said...

"who has the higher net worth?"

Temporary net worth. A housing crash will wipe out a vast amount of "wealth".

Many people have had landfall profits from their houses. The question is did they cash out?

No, they just let it sit there. A lot of people that sell just reinvest in the same asset class by "climbing the property ladder" and taking on further debt.

How will their net worth look like after a 30% crash (real terms) nationally?

Many nouveau riche of Canada aren't good money managers.

koozdra said...

"who has the higher net worth?"

Temporary net worth. A housing crash will wipe out a vast amount of "wealth".

Many people have had landfall profits from their houses. The question is did they cash out?

No, they just let it sit there. A lot of people that sell just reinvest in the same asset class by "climbing the property ladder" and taking on further debt.

How will their net worth look like after a 30% crash (real terms) nationally?

Many nouveau riche of Canada aren't good money managers.

totoro victoria said...

There is a large difference between debt secured by an asset and consumer debt. Net worth is key.

Home owners have a much higher net worth than renters in Canada. I believe that even if you take appreciation out of the picture, this is due in part to the forced savings effect.

Marko said...

Sometimes renting below market value makes sense. I lowered my tenants rent this year in exchange for a second one year lease. Primarily because I prefer lower passive income (great tenant, didn't bug me once last year) than top dollar where you might be more likely to have higher turn over which includes showing the unit, move ins/move outs, etc.

koozdra said...

Yet it will be the homeowners that will suffer the most in a crash. Renters have nothing to lose but everything to gain.

The only reason rents would go up is if we have many more renters. If we have many more renters then we have less homeowners (for whatever reason). That's the time to buy.

patriotz said...

The real question is: take homeowners and renters with similar demographics (age, education, family status) - who has the higher net worth?

I would guess it is the homeowners.


The homeowners, because the vast majority of them bought when prices were lower than today. It's that simple.

Equally simple that those who bought post peak will be worse off.

koozdra said...

"Sometimes renting below market value makes sense."

Yup agreed. The amount I pay for the place I'm renting now always surprises people. It was vacant for six months before we found it.

Good tenants are hard to find.

totoro victoria said...

It depends on your investment window. Whether prices crashed or soared I would not be looking at real money until I sell. Principal pay down, appreciation, depreciation - all not realized until sold.

So, until I sell, what is relevant are monthly shelter costs.

koozdra said...

"So, until I sell, what is relevant are monthly shelter costs. "

You are very rational. Too bad many are not.

A disorderly unwindings are not caused by people like you.

Sit back, relax and enjoy the show.

Marko said...

The homeowners, because the vast majority of them bought when prices were lower than today. It's that simple.

Vast majority? We've had almost 40,000 sales since 2008 and prices are lower today than they were January 1st, 2008.

patriotz said...
This comment has been removed by the author.
patriotz said...

What matters to a homeowner is when they first bought.

The majority of those sales are trade ups, trade downs, trade sideways, or investment properties.

Marko said...

The majority of those sales are trade ups, trade downs, trade sideways, or investment properties.

True, only 10,000 are first time buyers.

totoro victoria said...

"What matters to a homeowner is when they first bought."

What matters to me is the position I'm in when I sell and, until then, my monthly cost of living. My goal is to save money on monthly costs by owning - which I do because of rental income.

As far as net worth goes, homeowners have, on average, a much much higher net worth in Canada than renters - even when you remove all home equity from the picture.

This is not because they bought prior to 2008.

My view is that most people with higher incomes have traditionally purchased homes and made other types of investments.

Those who can afford to buy yet continue to rent and invest the difference are likely a very small minority in Canada.

caveat emptor said...

What matters to a homeowner is when they first bought.

The benefits of forced saving occur no matter when the RE was bought.

There must be renters who bank 100% of the cost savings of renting, invest it wisely in low fee options, and avoid making stupid mistakes like panicking and moving everything to money market funds after the market has crashed by 50%. There MUST be such people. I've just never met any.

totoro victoria said...

I've never met In real life either, but I sort of believe they do exist.

And how can you wisely invest the difference for a long enough period of time if you are using the savings for a down payment? What has low enough transaction costs and high enough short-term safety to allow a cash out as and when needed?

Like housing, other types of investments require an adequate window of time to hedge against market volatility.

patriotz said...

There MUST be such people. I've just never met any

You just met one. I saved my money and bought after the 1980's crash with 40% down.

And regarding "forced savings" - there aren't any if your ownership expenses are higher than renting. That's throwing away money.

What good did the "forced savings" do for those who bought at the top in the US in 2005, or at the top in 2010 in Victoria for that matter?

totoro victoria said...

Ahhh... yes, I'm not sure you do exist though.

And how much of the waiting was planned for a crash vs. you were saving a down payment and ended up with 40% because of the crash?

Not saying it was not all part of a mastermind plan, but I would say it was less likely more likely to be lucky timing for a lot of people.

totoro victoria said...

I would say that even those who bought at the peak in the 80s and held ended up swimming in appreciation, not to mention the forced savings of the need to pay down a mortgage.

As far as the US goes, I suppose we will have to check back in in five years or so and see how those folks are doing.

Just Jack said...

My neighbour owns his home and survives on a marginal pension. He's very carefull not to use too much electricity and only has a small lamp on at night as taxes, utilities and maintenace take a big bite out of his budget. He never saved money as he chose to pay off his mortgage instead. Being a leading edge baby boomer he has outlived his spouse.


Because of his house, he has a net worth of $475,000.

He died on Monday.

Animal Spirit said...

caveat emptor - we do similar to patriotz - putting away the differential between renting and owning into a house downpayment fund monthly. While we're not investing the money overly well, we use the fund as our own lendor to personally fund (and repay automatically) things like a car loan. Saves around 4% monthly on interest charges on $15K. Not big money, but worth it.

And, if you wish to meet a real live person who does this, just drop a note and we can arrange it - would like to meet the contributors here just to chat.

Oh, and we almost bought a house in the spring, but it failed septic inspection miserably (to the point of the inspector calling VIHA on the spot and VIHA putting a 90 day fix order on it). The house subsequently sold to someone else for 30K less than our final (which was quite bearish to begin with), so the owners took a big bite.

All is good though for us financially as my better half had to take a big chunk of time off work due to health issues, which would have made it tight for us. The lesson for us was to always price in risk of loss of income into what we can afford. For the moment, we'll keep renting our 2 bedroom upper in a character by the water for $1100 per month and putting up with our nutsoid landlady who has only raised rent by $40 in 8 years.

Alexandrahere said...

Totoro is right for the most part pretty well every time she "speaks". All of you intelligent people in here really know this down deep.

That is not to say that some of you on here who rent aren't doing the right thing by not purchasing a home at this time.

Most people I know that own a home are much better off financially than those that have always rented. Real estate, is a common topic around the dinner table with friends and around the coffee machine with co-workers. It is now, and it always has been.

People that rent tend to spend more of their discretionary money over people that own. Period. Now Jack will argue that these (owners) need to get a life and enjoy themselves more. But they do enjoy themselves.....but they enjoy themselves differently. They tend to have people over more for dinner (bar-b-ques etc), than those that rent. They learn how to ENJOY their daily, monthly, yearly household maintenance tasks. That is why so many become avid gardeners, woodworkers, brick layers, sewers, small appliance repair persons etc. If they didn't have the skills of balancing their budgets when they first bought, they are truly forced into learning how.

Some choose to rent part of their homes out.....this works for some and doesn't for others. For Totoro and her family, it does, so good for them.

One of the best skills any parent can teach their children is how to prepare a plan considering both long term and short term goals. Learning how to delay immediate gratification is a biggie. (In pretty well everything, he he)

When I prepare a budget, I have on the one line: maintenance, repair AND replacement. So, replacement of a roof ($7,000-$12,000) every 20 yrs = say $45 per month. That figure (and money) gets carried over every year and does not get spent until the new roof is needed. I can tell Totoro feels, happy, safe and secure by setting up and adhering to these types of practices. I know I do and always have. We are all different.

caveat emptor said...

Animal Spirit - good to hear your story! And my post was a little over the top. I do actually know renters that have saved up good chunks of cash. In fact I was one of those renters myself...I do believe it is a pretty small minority that are able to do this.

I meant no disrespect to renters in general. Just that - human nature being what it is - it is very hard for most people to save unless they are "forced" to do so. In my observation way too many people spend all their available income absent some sort of forced savings plan.

caveat emptor said...

Just Jack

It's a shame your neighbour didn't defer his land taxes. It sounds like he would have been eligible and could have really used the 2-3 K per year that would have freed up.

He might also have been a good candidate for a reverse mortgage (not a great product IMO, but a solution for some people).

caveat emptor said...

@patriotz You just met one.

Good to hear. Obviously I was being a little over the top when I said I've never met one!

"What good did the "forced savings" do for those who bought at the top in the US in 2005"

People bought stocks in 2007 and 2008. In 2009 they looked like fools for having done so. Now in the fullness of time buying stocks in 2007/2008 has turned into an OK (if not brilliant) financial decision.

In a similar manner buying real estate in the US in 2005 may work out OK for many people even though nothing in the future will ever make 2005 a "good" time to have bought relative to say 2010.

totoro victoria said...

That is a sad and avoidable scenario JJ. Someone should have helped him figure out a better way. Sometimes people get stuck.

totoro victoria said...
This comment has been removed by the author.
Just Jack said...

Very few retirees defer their taxes. They were of the generation that paid their bills and wouldn't have some other taxpayer carry their burden.

And the reverse mortage only allows a small portion of your home equity (depending on your age) to be released to you. Unless real estate prices are appreciating over 5 percent every year; the reverse mortgage, in my opinion, is garbage.

And Alexandrahere why hold back when it comes to renters versus home owners. Just come out and generalize that all renters have buck teeth and small dicks.

True in my case but not necessary all cases.

Just Jack said...

Actually, that's how he made his money since he retired. He would buy a house, fix it up, wait till it appreciated then sell it. Then do it all over again. There were times he made a hundred grand on a deal and could live well.

He just got caught in a flat market for the last five years.

totoro victoria said...

Also, what do you mean by marginal pension?

My understanding is that OAS and CPP would be approx. $1000/month and at this rate you are eligible for an additional GIS of $750/month?

If we put the costs of a paid off home at $400/month (insurance/taxes/garbage/water/sewer) I'm not sure that you cannot survive on the remainder, barring large repair bills.

Or did you mean he received an additional small pension from his work?

koozdra said...

"People that rent tend to spend more of their discretionary money over people that own."

Hahahahaha, you're hilarious.

Leo S said...

As far as net worth goes, homeowners have, on average, a much much higher net worth in Canada than renters - even when you remove all home equity from the picture.

You've brought this up a few times on this blog but I don't get the point. So what? Obviously renters are more likely to be younger and thus have lower net worths. Even if we adjust for demographics we might find that owners in general have a higher net worth. But what does that say about the value of investing in real estate? Nothing.

We could probably say that people who buy second hand appliances out of the classifieds have a lower net worth than people that buy new. Does that affect your decision in any way? Does it make it a bad idea to buy used? No, it's irrelevant unless you are keen to demonstrate to others that you have money. In that case you better buy a house and buy your appliances new.

Leo S said...

Totoro is right for the most part pretty well every time she "speaks". All of you intelligent people in here really know this down deep.

Attach enough qualifiers to your statement and it indeed becomes hard to object. For the most part pretty well...

People that rent tend to spend more of their discretionary money over people that own. Period.

Let's see the evidence. Part of the reason owners in the US were in trouble was because they were financing their extravagant lifestyles via their home equity while the market was appreciating. In other words, many owners were spending OVER 100% of their discretionary income.

They tend to have people over more for dinner (bar-b-ques etc), than those that rent.

Haha, this is amusing fabrication.

They learn how to ENJOY their daily, monthly, yearly household maintenance tasks.

Riiiight.... Indeed as soon as we bought I immediately started loving mowing the lawn. It's a kind of Stockholm Syndrome I guess.
This is a ludicrously weak line of argument. So you're saying the avid gardeners out there would not like gardening if they rented? The do it yourselfers would not like fixing things if they didn't own?

Learning how to delay immediate gratification is a biggie.

one might say that waiting until you can actually afford a house before buying it might be the manifestation of such a skill.

Leo S said...

In my observation way too many people spend all their available income absent some sort of forced savings plan.

Perhaps. But there's the wealth effect from appreciating real estate.
Your house goes up in value, you feel rich and spend more. Interestingly enough, it doesn't seem that wealth in the stock market has the same effect (or at least to a lesser degree).

totoro victoria said...

"But what does that say about the value of investing in real estate? Nothing.

We could probably say that people who buy second hand appliances out of the classifieds have a lower net worth than people that buy new."

I think history shows the value of investing in real estate and the very fact that people continue to desire it speaks for the future of the market.

If you are trying to say it is a brave new world, well, only the future will demonstrate this. I do agree that we won't see the astronomical appreciation rates in the next years, but my money is on good choices in housing holding their value over the longer-term.

I do not believe that people who buy used appliances out of the classifieds generally have a lower net worth.

If I'm in a minority, I'm in good company. The average millionaire (used to seem impressive :)) owns their own business and owns their own home.

Half of millionaires in Canada are immigrants, and 7/10 of them did not inherit wealth but made it themselves - 1/3 of them female. Eighty percent of millionaires drive used cars.

My guess is that if it comes down to used appliances, you'd be surprised at who is buying them. Credit is easy to come by so if you want new the majority can get it.

The thing is, the habits, motivation and strategic thinking that create wealth do not fade away once you have it.

Every dollar you spend represents a part of your life - your life's energy in a coin. I'd rather give the difference between new and used to charity or to my neighbour who needs help with the electric bill.

My dollars need to either be my employee out making more money, or be out there in the world doing someone a good turn. A consumer desire for new anything doesn't make me feel good. I know I'm not alone.

totoro victoria said...

"So you're saying the avid gardeners out there would not like gardening if they rented? The do it yourselfers would not like fixing things if they didn't own?"

Absolutely. I enjoy maintaining my things. I don't want to maintain other people's stuff unless I get paid or am doing it charitably for someone who deserves some help.

caveat emptor said...

"He just got caught in a flat market for the last five years."

Owning a 1/2 M$ home outright put him in a better possition than most retirees. That half million dollars would have given him lots of options for living comfortably including the obvious one of selling the place and living off the proceeds plus CPP, OAS, GIS (if eligible).

As totoro pointed out merely the OAS plus GIS (assuming zero CPP and zero pension) should have been enough to keep more than one light on and add a bit of variety to the Alpo diet.

totoro victoria said...

That report is nine years old Leo.

The real estate wealth effect appears to have changed. Rising values are now generally viewed as a nest egg and not a piggy bank. How long will this last, I don't know.

I will say that it is obvious that you would borrow against home equity if you could get a low rate HELOC. Stocks do not offer the same benefit. How many businesses in Canada have been started with a HELOC - loads.

2013: http://www.businessweek.com/articles/2013-05-09/as-home-prices-rise-consumer-wealth-effect-may-be-smaller

http://blogs.wsj.com/developments/2013/02/26/housings-wealth-effect-isnt-what-it-used-to-be/

totoro victoria said...

Also, the only point to pointing out that renter's have lower net worth is as counter to the Koozdra (this reality) statement that homeowners are going to starting shaking and blow up when prices decline.

I agree that it is obvious that younger and lower income folk are more likely to be renters. It means nothing about whether real estate is a good investment or not except that there is a market for it.

koozdra said...

"The real estate wealth effect appears to have changed. Rising values are now generally viewed as a nest egg and not a piggy bank. How long will this last, I don't know."

This is completely wrong. You are out of touch with reality.

koozdra said...

"I agree that it is obvious that younger and lower income folk are more likely to be renters."

Madame, you assume too much.

caveat emptor said...

"Mom in law retiring and moving down to live with us."

Leo - that gave me a chuckle. It puts you in an elite minority of Canadian men that regard the possibility of the mother-in-law moving in as one of the pluses of home-ownership!

Just kidding of course. The possibility of free, family provided childcare is HUGE. That alone would tip the scales in favour of homeownership if the home was the clincher for that. If you have a second kid and mom in law is still willing to look after them you'll be saving anywhere from 1000-2000 per month.

Sadly my nearest relatives and in-laws are hundreds of km away and not interested in a new chiild-care career :-)

totoro victoria said...

I assume nothing. I research. You should have learned that already Mr. Koozdra.

Just because you likely have a higher than average income does not mean you fit the average profile of a renter in Canada - which indeed has a much lower income than average.

You have formed your viewpoint on real estate based on your own life experiences which are different from those of the average Canadian. How can you expect to fit the norm?

The good news is that, as a hard-working fellow, you are likely to make it to a higher socio-economic strata. I admire that.

The bad news is that all the posts in the world here and on Mr. Turner's site are not going to cause a crash. If doomsday chitter chatter volume could do this, we'd already be there.

totoro victoria said...

My MIL lived with us when the kids were young. Biggest gift in the world.

Leo S said...

I do not believe that people who buy used appliances out of the classifieds generally have a lower net worth.

That's not the point. Different example then. Boat owners in general have higher net worth than non boat owners. Doesn't mean non-boat owners should be looking to get buy boats.
Whether a house is a good investment for yourself or not is completely independent of the net worth of owners vs renters.

caveat emptor said...

Net worth of renters and owners

http://publications.gc.ca/collections/collection_2011/schl-cmhc/NH18-23-110-018-eng.pdf

See page 7 - Median net worth of: renters - 14,000, homeowners - 327,000 (219 K owners with mortgages, 525K owners without mortgages). 2005 figures. No doubt much has changed since then, probably not in the direction of making things better for renters.

No surprises! And I certainly wouldn't imply that buying real estate makes you richer. More like being richer "makes" you buy real estate

Leo S said...

That report is nine years old Leo.

Human nature does not change in 9 years.

I will say that it is obvious that you would borrow against home equity if you could get a low rate HELOC.

Bingo. Easy and cheap to borrow on a HELOC. So why not get that new kitchen. After all you can almost convince yourself that it will raise the value of your home. Not only do you feel wealthy when your home appreciates, you can actually take that wealth and easily spend it!

http://www.businessweek.com/articles/2013-05-09/as-home-prices-rise-consumer-wealth-effect-may-be-smaller

They show right in that article that home equity extraction peaked along with prices. Of course there is no wealth effect when prices are decreasing, in fact it is negative. The idea that because prices are up a bit from the bottom in the US and people aren't back to extracting cash from their homes is not evidence against the wealth effect. Homes there are still far below their value from a few years ago, there is little equity to get.

Same with the other article. Wealth effect is subdued because prices are still way down in the US. Not surprising, and not an argument against the phenomenon.

Leo S said...

Leo - that gave me a chuckle. It puts you in an elite minority of Canadian men that regard the possibility of the mother-in-law moving in as one of the pluses of home-ownership!

Lucky to have a MIL that lives her own life and doesn't interfere with ours. And having grandma around is a big value for the little one of course.

Also as an INTJ I value efficiency, and this house would be too big for just us... Maximum utilization!

Leo S said...

Here's an analysis of the housing wealth effect in Canada.

"Similar to results obtained with US data, the housing wealth effect is estimated to be larger than the financial wealth effect"

patriotz said...

I think history shows the value of investing in real estate

You forgot to add: "when the price is right, and the folly of investing in RE when the price is wrong".

What is so hard to understand about this simple concept?

totoro victoria said...

No, if you buy and hold, similar to any other investment, history has shown that real estate has generated positive return even if a home was bought prior to a "crash".

While there is no guarantee the future will be the same, my bet is that in ten years this will again prove true.

It is better to buy low and sell high, but imo you will still do okay if you buy high, wait it out, and sell higher.

Again, currently I have a 10-year 3.79% mortgage. The lowest 10-year rate available today, just over a year later, is 4.28%.

At 4.28%, if house prices dropped 8% and I still put only 20% down I would still be making the same monthly payment as I am today - just a higher percentage would be applied to interest. Each rate increase erodes the benefit of price drop for those of us with large mortgages and small down payments.

In addition, I have rental income to reduce my cost of living below what a comparable place would cost to rent. If my income dropped for whatever reason, this would be a significant advantage. This is an option open to others.

Similar to timing the stock market, the housing market is difficult to predict.

I do understand that many people would not agree with me. That is fine, I'll continue to live with my own choices.

caveat emptor said...

"when the price is right, and the folly of investing in RE when the price is wrong"

Very important for those buying and selling frequently. For longer holding periods it has mattered less when you bought. Just like equities, good and bad times to buy, but over the long term it has worked out for most. Bear market in stocks - sit back and enjoy the dividends. Bear market in housing - sit back and enjoy the imputed rental income.

koozdra said...

Totoro and the ten year promise.

Hold for the magical ten years and you will prosper.

My crystal ball tells me that you are wrong.

totoro victoria said...

Well, I just don't have the future locked down like you do. Maybe you should start charging for your psychic real estate advice.

totoro victoria said...
This comment has been removed by the author.
patriotz said...

For longer holding periods it has mattered less when you bought.

Did you miss my post where I pointed out the massive difference in present value between someone buying RE at the top in 1981 and someone buying at the bottom in 1984?

Contrary to what you are claiming, time doesn't reduce the consequences of making bad investment decisions, it magnifies them.

The "buy and hold" argument for stocks works when you're buying a little bit every month. It doesn't work for stocks or for RE when you're making a massive one-time leveraged purchase.

totoro victoria said...

Did you forget this post?

"At the end of the day, if you bought at peak in 1981 for $126,000 or bottom in 1985 for $93,000, in 1991 your home was up to $197,000 and, in 2012, to $600,000."

I'm okay with either of those scenarios.

totoro victoria said...

In my view, neither of those purchases was a bad investment decision. What would have been bad was to buy for $126,000 and sell for $93,000.

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