Saturday, May 5, 2007

Priced Out Forever!

Picture this: we're sitting quietly enjoying our Saturday morning ritual of a strong home-made americano on the couch, reading Victoria's Truth's weekly MLS update, and listening to CBC's Absolutely Canadian on the telly. My groggy-morning ears perk up to the words "Vancouver real-estate" and the story goes something like this...

A boomer-dad is hanging out in Granville Island with his two children, both under 10 years old. They're doing all the things young families do: checking out sailboats, looking at condo construction, and contemplating the future. Says Dad: if I don't buy my children a place to live now, they will be priced out forever.

Picture cuts to a townhouse showing with his realtor in East Van. List price is $340K. It seems Dad thinks it's a good call to buy them a house now and give it to them when they're 25; in the mean time he'll rent it out. His financial advisor [CBC did interview him] said it makes sense for this family, get advice for your own before acting like this. Realtor says, we're selling people a second or third home all the time for this exact reason.

By this time, I've spat my coffee on the TV screen 10 feet away. I always thought the CBC to be the last bastion of unbiased information left in this land; after all it's funded by government and not by commercial revenue. Oh, the disappointment we felt... OK, I'll cut the sarcasm.

Man this boomer generation just never ceases to amaze me. Apparently the first decade of the 21st century was supposed to be the most spendy in history. The second decade will likely prove to be the biggest crash and burn the world has ever seen if they keep this up. But don't worry. This time it's different: everyone wants to be here.


Anonymous said...

HHV, I was surprised when I saw this.

Only because on the other site I'm own someone asked about this exact same thing.

They came into some money and are wondering if they should put in on their mortgage or buy a condo for the kid's future.

Lots of people were pushing the buy the condo one. I gave them some sobering thoughts and also advised them to talk to a financial adviser first. Seems like that may not have been the best advice.

I asked again just recently what they had decided to do and they are going to use some of the money to buy a used car. Haven't decided on the condo yet.

We think the reason there has been a spike in condo sales is because people are using the equity from their houses to buy condos as future investments.


Anonymous said...

And rent them out I imagine?

Vicguy said...

That is pathetic,people are throwing in the towel sucked in by the media and they love to show these stories so they can be the first to uncover the hot new trend.

So Dad borrows say half the equity from his home to buy out the condo then what happens if the value of his home goes down say 20% ? If he owned a $700,000 home he is down $140,000 on the house and if the condos crash then say a $300,000 condo is now down $70,000. Now if Dad is still carrying a mortgage of say $200,000 then his leverage is now reduced huge. He would still have to pay the mortgage segment that isnt covered on the rental of the $300,000 and pay tax on it too.
It's obvious there are some very stupid people out there with too much money.

Anonymous said...

Not even too much money. Hisotry has never seen this kind of household debt. So much is riding on debt.

Anonymous said...

Hey Vicguy
You must be fun at a party. Things don't always turn out for the worst. Often times, planning for the future turns out to be positive.

You say there are too many stupid rich people out there. And it seems that you are "smart" and poor. Do you see any irony here?

hhv said...

Anon @ 7:27 am

And it seems that you are "smart" and poor. Do you see any irony here?

The only irony here is that you equate home ownership in a hyper-inflated mkt with "rich". You know NOTHING about Vicguy's personal finances apart from the fact that he chooses to not own a home right now.

If you're a bear, you applaud VG for his prudence. If you're a bull, you berate him for his market pessimism. Fair enough. I'm not sure where anyone has the ability to step in and label someone "poor" because they choose to not buy a house.

Last time I looked around, if you didn't pay cash for a house in this market, that would make you "house-poor" not rich.

We laughed at those "life of the party"'s in 2001, right after the tech stock bubble burst. Those same "life of the party" types were all Cisco this, Nortel that, driving new Lexus's etc... by 2002 they were licking their wounds.

Oh, but I know, this time it's different. Everyone wants to be here.

Anonymous said...


I agree with you. We have been in the market 20 years in Europe, Toronto and here. We are not new on the property ladder and have made money. However we need a larger house because our family is growing. The jump fromwhat we have in Oaky Bay to something 1,000 sq. ft. larger is huge. We could go to the bank and borow the money tomorrow if we want. I want to because I would like a bigger house.

My husband who has been in the financial markets for 20 years, London, Paris and Bay street has seen crashes before. He also was right in there during the Tech Stock Bubble and rfuses to borrow money in a market that he perceives will crash sometime soon. I need the space but he is being prudent. Too many of his friends lost money in the UK with property. People have short memories.

Everything points to a bubble.

Anonymous said...

Uhm, does anyone think that just maybe mommy and daddy don't owe their damn kids a bloody house. Damn, I know some kids when I was growing up had their parents buy them a car but my folks, who aren't poor (not really rich either) got me to work and pay for my own cars and not in a million years would I have expected them to buy me a place to live. I know this market is crazy and I know I sound like some reactionary right-winger (I'm actually probably more left-wing than most on this blog) but how are you supposed to teach your kids to go out and work hard for themselves with this kind of crap.

..."buy my kids a condo" - holy cow!

Vicguy said...

"You say there are too many stupid rich people out there. And it seems that you are "smart" and poor. Do you see any irony here? "

How would you know how big my bank account is and wether the money I do have would be better spent reinvesting it over and over instead of plunking it down on an overpriced box ?

I believe we are discussing the overvaluation of the real estate market and how stupid people can be when affordablity is maxed and people conitinue to panic buy like its the end of the world.
Obviously you are one of them that got sucked in at the top or lucked out on price rise. Is it not OK to question someones financial decision when prices are at an all time high ? Do the math bud,if your a millionaire go for it,buy a whole block of leaky condos for your kid but the average person in my opinion would be making a crucial mistake. Did you get that part ? "my opinion".

Vicguy said...

"We laughed at those "life of the party"'s in 2001, right after the tech stock bubble burst. Those same "life of the party" types were all Cisco this, Nortel that, driving new Lexus's etc... by 2002 they were licking their wounds."

I think the catch phrase this time will be " granite" and "stainless steel". Don't you just love parties where everyone's house looks exactly the same ? ZZZZZZ :)

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