Blocking out the scenery breaking my mind, do this, don't do that, can't you read the sign?
Just got back from a fantastic weekend in Vancouver, enjoying the West End and running the trails in Stanley Park. Mrs. HHV's new pad is great, close to everything and costs us $50 a month more than we were paying in Victoria. Which, turns out, is a net savings of $100 a month because she walks everywhere and the gas bill for our 4 cylinder car is less than a quarter of what it was here. But I digress.
Man, are there a lot of properties for sale there. Everywhere we went downtown, there was either a place being built or a building with a half dozen or more for sale signs. And lots of rental suites available too. We even drove out to Pitt Meadows to her boss's place today and on one corner of their fairly new development there were 8 For Sale signs. I had a bit of a perma-grin going on all weekend. This sure is fun to see some of the regular posters on this blog's predictions play out.
The writing is on the wall. Anyone who hasn't seen it yet is either not paying attention or is blinded by emotions. The peak was sometime this spring.
Back on the homefront, my neighbours still haven't sold their place, but they did tell me they got two lowball offers on the same evening last week (why their Realtor couldn't parlay this into competing lowball offers is beyond me). Looks like they may take one of them. The last three weeks has demonstrated that the market is indeed different now and their confidence isn't what it was.
Every few months, the Mrs and I take some time to review our finances and our plans to see how well we are on our way to making them happen. We've decided that number one priority this year is to eliminate any debts (we still have a bit left in student loans to go) and number two priority is to preserve savings. She has a great stock purchase plan through her employer and I happen to believe bank stocks are starting to get back into value range, all factors considered.
We expect this market to turn slowly. First new condos will burst. They already have in Victoria. I believe it will take the Vancouver condo market to turn ugly to be the "climber falling over the precipice" that drags the rest of the market kicking and screaming with the MSM coverage of bursting bubble. SFH in outlying areas and re-sale condos in urban centres will go within a few months of one another.
We set our benchmark for coming into the market: no more than 35% of our pre-tax income for a SFH or very nice townhouse (without a suite) in a neighbourhood we like. Until this happens, we don't buy. If the market doesn't correct to what I believe it should, then we won't buy here. We have had no trouble finding good quality rental accommodations. We don't believe that we will in the future. If we can't find what we'd like when it's clear the market has run its course, we will consider leaving for the right opportunity.
In the meantime, as Patriotz says, we'll just "grab a bag of popcorn and watch as this show plays out for the next couple of years or so."
It will be pretty cool when we buy our first place and our parents and friends say to us: "are you crazy, real estate sucks, what are you thinking?"
What are you waiting for? When will you buy? And what will it be?
211 comments:
«Oldest ‹Older 201 – 211 of 211I'm waiting Patriotz.
Looks like it is really just beginning in the U.S.:
"The Next Real Estate Crisis"
http://www.businessweek.com/lifestyle/content/jun2008/bw2008065_526168.htm
s2 - I really thing you should read the book called A New Earth by Eckhart Tolle. It will really help you with your ego problem.
Siobhan:
Thank you for replying to my question. The numbers you calculated are quite interesting. This condo market is going to be really interesting to watch over the rest of the year. There are a lot of units being completed in a few months (Reflections, Juliet etc.) I wonder how many pre-sales will take a hike and lose their deposit after they see the writing on the wall?
I heard an ad on the radio for Reflections in the past couple days. I missed most of it, but the jist of it was that the developer was paying your downpayment (whatever that means).
Olives,
Reflections has had a number of sales promotions over the last year. Lower payments first year, closing cost assistance and a draw for a $3000 BBQ. I saw another developer in Langford offering teaser rates just like they did in the U.S.
When I lived in Ottawa during their big downturn a number of years ago the developers offered all kinds of deals when things got rough. Better mortgage financing, "free" upgrade options and they threw in the appliances. When that stopped working they lowered prices. Remember, these guys have to sell.
Speaking of Ottawa. Before the market corrected everyone was saying that it was a special place because of the federal government and the secure jobs.
Good grief. Up the wazoo isn't a bunch of moms on some website.
Up the wazoo is when you get a letter from Microsoft's lawyers. Now that is up the wazoo. :-)
S2 (rushing out the door to my real life so no time to log in)
Tony Dansa: "It's called efficient allocation of capital and risk management, your investment is even worse than I thought since you pay carrying costs on it as well. No surprise that people holding RE as an investment now are completely clueless when it comes to investing.
I'm a little lost at calling someone stupid for making a choice to buy and hold real estate for the long term. In the situation annon. sounds he is in an affordable situation for him. I think we miss the point if we think everyone is stupid not to sell when prices are high.
Fodder what are you talking about? Affordable for him? I'm talking about return on capital and risk compensation, do you understand that he is not realizing any return on his investment? He is paying to hold the house hoping for future appreciation to make his alpha at a time when real estate valuations are at extremes.
If you think this is wise then I have a great deal for you, lend me 300k and pay me $500 a month (inflation adjusted) for the pleasure, I'll pay you back 300k in real dollars in 20 years."
I did a rough calculation. Adjusted for the fact that I'll pay the mortgage, realty fees, income taxes, etc, to sell, I'm making about 5% on what I would actually see if I sold today. Let's not forget that inflation eats at that mortgage as well - say, 2.5% (that's your rent factor,) so I'm making 7.5% on a property that I will hold for the foreseeable future - possibly indefinitely, maybe sell it to the kids.
The other advantages are: I'm not paying tax on that return and because I'm a savvy taxpayer I'm actually incurring losses, my mortgage goes down (more and more) every month, and this will provide me with a third income within about 10 years.
When we bought the property we calculated an 8 year cash breakeven point and have beat that due to rental turnover and increasing market rents.
Now, would I recommend that someone go out and buy this house for the $600K+ that it would cost today or the $620,000 that it will cost in a year? (just kidding guys, wanted to see if you were paying attention) Of course not, but to suggest there is no return on capital or worse that I'm losing money on my investment is simply chest beating. You do not know the first thing about the property or my investment structure. I hope you are not a financial advisor.
Um...tap..tap.tap. Um,tap.., what are we waiting for?
Housing today is not any more risky than it used to be, it's just severely overvalued. That's something entirely different from risk. If you buy a house today it's almost a dead certainty that you or a greater fool will lose money on it.
Patriotz, I won't get excited but I have to disagree with you. I can invest in a GIC with a guaranteed rate for x number of years, I know exactly how much my investment will yield when it matures. What I don't know is what will happen with variables such as inflation over the same time period. There is a risk that I will have lost real dollars by the time my GIC matures if inflation is ahead of my guaranteed rate.
Rents are not set in stone and are usually correlated to the health of the local economy. Granted rents are not likely to fall, though they can and have, but you also risk losing yield to inflation that is not associated with wage inflation. Your rents could stagnate while your other costs are inflated if wages don't keep pace.
Lastly you have significant risk in RE investment with the relative illiquidity of your investment and the inability to pare your stake to minimize exposure to external risk.
You may be right if you consider the textbook definition of risk but there's a reason that professional RE investors usually won't even look at anything with less than an 8% cap rate.
I think people need to be more careful when looking at the numbers in this market. What's happening in the condo market is completely different than the SFH market.
Listings for condos are up and sales are down, which together creates a high inventory number (say 10 months).
However, sales for SFH are not down that significantly (15% in May), nor are listings up too significantly. Together the inventory number is only 3 months! That's pretty much as low as inventory ever gets (assuming 3 is a sellers market, 6 a balanced market and 9 a buyers market). When you look at prices below median, sales in the SFH market are even stronger (220 sales for 397 listings < 2 months MOI).
Anno said: "I think people need to be more careful when looking at the numbers in this market. What's happening in the condo market is completely different than the SFH market."
Read through these threads, the bears use one sided, skewed numbers at all times and in fact attempt to predict the future prices or rents by them. You will read here that rents are only up 1% year after year.....? In fact, BS. This may be if you look specifically and only at institutional numbers - ie multi unit apartment buildings and then only those that would care to respond; it turns out that this is not the market discussed and absolutely irrelevant.
As a landlord, our rents increased 25%+ over the past few years and we are told that we are way undercutting ourselves.
I saw an outragous statement earlier going on about how inflation is going to eat away at any real increase of your home. Would that be the same inflation that is going to increase rents?
$1,200+ Util. for a basement suite? Apparently so. What will 2010 bring? How about 2015?
You will see inflation bantered around, but it is conveniently forgotten that inflation also eats at mortgage principles and is reflected in increasing rents.
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