Tuesday, February 20, 2007

Budget Day in BC and a little Hunting

Here's today's budget highlights (you can see the whole budget on the BC Gov website)[I should also disclose that I am not associated with any political party or organization and have consistently voted Liberal in BC since I've been eligible to vote]:

1. "First Time Home Buyers’ Program is enhanced to exempt first-time buyers across British Columbia from paying the Property Transfer Tax on homes valued up to $375,000. This will save first-time buyers up to $5,500" An increase from 325K

My thoughts: after checking out what's available in this price range, I'm none too thrilled. Considering that every 10K in purchase price at today's interest rates adds about 100/month to mortgage servicing, $5,500 isn't much. That's about $50/month on your mortgage payment. Whatever it's value is it is a tax break and I'll take it, but it won't impact my decision to purchase AT ALL.

2. "The government will introduce legislation to allow people to start deferring their property taxes at age 55, rather than age 60. This provides added budget flexibility for those on fixed incomes."

My thoughts: Great call Gordo... this isn't the largest, most-wealthy demographic in BC is it? This is a tax cut, given to the Grit's largest supporting demographic. And it does nothing to help those who can't get into the market. I doubt very much if this tax break will filter into rents either, so those of us renting don't get a break either.

3. On renting: "An additional 5,800 families — more than 20,000 in total — will now be eligible to receive up to $563 a month to help with their housing costs"

My thoughts: I'm all for helping those on low incomes find suitable housing... especially if it makes our downtown experience more pleasant for visitors.

4. "10 per cent personal income tax reduction for individuals earning up to $100,000"

My thoughts: before you think your tax bill just dropped by 10%, it didn't. This is 10% of BC income tax which is really just a blip on the total income tax bill you pay each year. My and the future wife (annual income roughly $70,000) average savings maybe $1800 [when they conveniently compare it to pre-2001 taxation]. What's that per month in a mortgage? Roughly $45 or an extra $4K in purchase price. When you bought a house in 2001, chances are you paid closer to $250K rather than the $520,000 it costs for a similar home in this market. Hardly keeping pace with the housing inflation rate I'd say.

5. Home owner grant increased threshold to $950K.

My thoughts: paper millionaires rejoice! Especially if you're a "low income senior, veteran, person with disability, and other qualified individuals"

I'd keep looking for more, but it's a bit boring, so search for yourself further if you'd like. Really, as I see it, this is an appearance of doing something without really doing much at all. Am I disappointed. Not really, I'm a bit of a fiscal conservative and would much rather the debt go down and the streets get cleaned-up before tax cuts that barely make a dent in the housing price crisis. If the Gov't really wanted to do something substantial, the only answer would be market intervention and I would never suggest that. This write-up is provided only for information purposes, I'd rather not engage in a partisan political debate, but just wanted to apply the housing affordability budget for those interested in the House Hunt land.

On to hunting. Completely devastated today. It is looking like our pipe-dream of home ownership is a dream without even a pipe to sell for a down payment.

Looked at one condo. Priced 5K above assessment. Huge, 2bed 2 bath, low monthly assessment ($135), hadn't been updated since it was built in 1975 (shag carpets and all). Our price per month on this baby $1400/month (when we include assessment, taxes, bills etc). $1400 to live in 1970s paradise!

Checked out half a dozen houses, all with suites except two (one had potential)... I won't go into detail because its not worth the effort. None of these were over $400K, but none could get the kind of monthly income we'd need to even approach the $1400/month of the condo-related payments... in one case, we'd be paying $1200/month to live in a dark, dingy one-bed basement suite nowhere convenient to our current working/studying lives, that is currently rented for $600/month inclusive.

9 comments:

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

This is amusing, I'd almost think you were me if I didn't know better. Recently engaged, living near UVIC, have to move by June 1st (so early on the looking). Considering looking at possibly buying a house w/ suite or maybe a condo but appears to be no value out there.

Minimum requirements are 2bd, 1bth(pref 1.5) and insuite laundry.

And rentals I have viewed so far suck. Of course, I have the added difficulty of finding a place that will take pets. =)

HouseHuntVictoria said...

Village,

I would imagine there are a few of us that fit this category.

We're having fun, believe it or not, looking at places. The no-fun part of the experience is crunching the numbers and realizing just how much owning would eat out of our income.

The real history on the Victoria market over the past 60 years is that every 10 years the market has doubled. Without fail. We may be seeing a top now, and I'm not convinced that there is room for another doubling from 500K to a mil, but history calls me an idiot.

My Dad keeps saying that back in 1981 he couldn't see it either, icomes weren't keeping pace then either. He was as confused as we are now...

Vicguy said...

househunt,

Good site, I am not into buying for another year or 2 but is interesting to see what is out there.

Your dad was on the money,many did not see it coming. I was the lone "idiot" in my group in 1981 who said "it can't go any higher,who can afford it?" and I sold at this time of the year as it started to show the cracks just as it is now. I was told I was a fool and will never own again,where was I gonna live, how can you go back to renting, etc etc.... well the rest watched the walls come down around them and it wasn't pretty believe me,was hard to not say " I told ya so" but I had to bite my tongue many a time.

With the high inflation numbers out today in the US you can kiss lower interest rates goodbye,more reason to be highly cautious at this juncture. When the tide turns it happens very fast.

Village said...

Yes, there are likely a few of us out there.

Overall, housing may double every 10 years. But there can be some very rough times along the way. I also wonder where the money is going to come from. During the late 70's+ as a culture we shifted from a single working family to dual incomes. That might have been covering for the lack of income growth. Now we are going to need to combine family incomes to keep going.

It's a curious enigma. Personally I'm betting on a downturn in housing that will spill into the economy. Certain area's will always be unattainable to me, Oak Bay comes to mind. But area's on the outskirts of town and farther away like Sooke I expect to be hit hardest. I also figure condo's/townhouses will be hit the hardest as well. Being that they usually are the last to run up in prices and the first to go down.

Back in 81' didn't interest rates start climbing obscenely high and shake out the market? My parents bought in 85' for $50k, on a house that was original $120k. Rates were by today's standards obscene 18%. We won't see 18% again (well I doubt it) but a 2% move which isn't out of the question will bury a large number of people.

You wouldn't happen to have come across any sites that have up to date information on foreclosures and defaults? One thing I hate is it seems very difficult to get statistics for Victoria that you can use to get an idea of the market looking forward.

HouseHuntVictoria said...

I haven't seen any sites with up-to-date info on foreclosures but there are plenty of realtors who have lists and offer them up to you if you'd be willing to register with them first. I'd be wary.

I wouldn't expect to see too many on a list like that though. I figure that with things still selling relatively quickly, anyone who miscalculated and stretched themselves too thin can still get out in a timely enough fashion to save themselves from a foreclosure. Job market is still pretty hot around town, and if you've qualified for a mortgage in the past two years, you likely still have a pretty good paying job.

It'd be an interesting stat to see if anyone is getting out and taking a loss, still oweing money on their property even though they no longer own it.

I went to look at a place today. Owners bought last year, tried to subdivide property with no luck, selling this year. Total dump. Sold in 5 hours this afternoon. Rediculous.

Lots changed since the early 80s... no one in the economics industry believes that anything like that will ever happen again, mortgage rates are tied to the bond market and it hasn't done well for years now. When you see US bond rates go up that may trigger some rate hikes, I'd watch that over their inflation numbers, especially with oil being low now.

You can walk into a bank and get 0 down mortgages at prime minus 1% these days, bringing you close to 5%. My numbers are so tight right now that I think all it will take is a two point shift up to 7% and you will see tons of listings as people can't make a go of it anymore.

Village you're right about the four income households... I remember reading something in the TC a year or so ago about two couples (siblings and spouses) who went in together just to own. We have talked this over with one of our siblings too...

VictoriaREBear said...

"Rates were by today's standards obscene 18%."

True. That was the NOMINAL rate. However, inflation (prices AND
wages/salaries)
at the time was running at about 15%, giving a real rate of 3%. Nowadays, we have 6% nominal rates but 3% inflation, giving the same 3% real rate. So, don't believe the realtors and other vested interests when they tell you that today's "low, low" rates are going to keep the market afloat. This market has been fueled by easy money lending policies and speculative fervour; nothing more.

Village said...

I don't think our culture is ready for the four income households to make up the difference. Much of our drive is to grow up and move out and be independent. It is more the style of living seen from immigrants. Unless you count the 30yr+ child basement dweller. =)

I wonder how many people purchased homes they could not afford requiring 20% appreciation a year and when that stopped intended to sell.

What worries me is I see the same mentality here as during the tech stock run up. The fundamentals no longer counted, everyone piled in and everyone looked like a genius right up until they didn't. Now everyone is a real estate mogul, with untold amounts of available equity and buying BMW's and thinking they are a genius.

History may not repeat, but it does rhyme. =)

HouseHuntVictoria said...

I agree with both of your posts. The real rates are the same now as before.

I like that tech stok analogy. I remember going to parties in 2001-02 and hearing all these non-stock owning friends of mine talking up cisco and nortel like it was yesterday. Now we all bs about real estate.