Saturday, February 28, 2009

Buy vs rent: FTBer condos

Some discussion in the previous post inspired this one.

When calculating buy versus rent ratios, remember to calculate apples to apples and not apples to oranges. It may be difficult to find two granny smiths, but in some cases you can.

Take this example from Craigslist and These aren't the same unit, nor the same building. But they are two similar units in buildings that almost touch in a neighbourhood that would be considered "affordable" for FTBers. So think of it as comparing a granny smith to a golden delicious.

For the renter, it's going to cost them $1100/month, plus utilities.

For the owner, it's going to cost them somewhere in these ranges (assuming 4.5% interest):
  1. Using a 5% down and 35 year mortgage: $939.00 + $196 (actual) strata + $75 (approx) property tax = $1210/month plus utilities
  2. Using a 5% down 25 year mortgage: $1105 + $196 strata + $75 PT = $1376/month plus utilities.
Given these scenarios, I can understand, all things considered, why a FTB couple may be tempted to jump on the ownership bandwagon. Except all things haven't been considered yet.

Condos have lost 26% of their value market-wide in Victoria. Sales to listings ratios are under 10%. Active listings are very high. There is over a year and a half of supply on the market. And more new condo developments will be completing soon, adding even more inventory into the market. Check out the news on Reflections if you want to see what will likely happen, price-impact wise, to the entire condo market in Victoria over the next year or two.

If you rent that Quadra Village condo, your shelter cost will be fixed at $13,200 for the year. If you buy the condo, you will likely lose about 1% per month over the next 12 months or $25,200. You will also not be building any equity in your mortgage because almost the entire amount of your payment is interest, especially if you opted for the 35 year amortization.

My advice for FTBers considering this scenario, hang onto your money, save a bigger down payment, and wait for sales to listings ratios to get much closer. Currently there is 18 months of condo inventory. When there is 4-6 months of condo inventory (MOI) on the market, you will start to see a bottoming out of prices. The question no one can answer right now is: how long will that take? The clues will be found in the sales to active listings ratio, when it creeps up over 60% or so, you can expect to see the MOI number drop fairly quickly.

Even if you can see yourself living in this condo for the next five years, you will gain more by waiting a year, and renting from the guy leaving town, than you will by buying today.


Anonymous said...

I think it's clear that condos in Victoria are a solid investment based on your analysis. We've reached the bottom of the market and this spring it will resume the upward momentum. If you do not buy now you will be priced out forever.

NanHousing said...

Does your calculation include CMHC fees? What about maintenance to the actual units (appliances etc)?

There are a lot of intangibles as well. If you rent you can freely move whereas if you buy you can't move easily or have to rent out your place.

There is also a "hidden" fee if you know you will eventually sell your place and that is the realtor fees which are not cheap.

Also, who knows what the interest rates will be after the 5 years are up.

And not only do you lose equity on a place in a falling market, you lose other opportunities to invest the down payment in say a GIC.

hhv said...

Yes, NanHousing, my analysis was overly simplistic, but on purpose. Even using the simple calcs I did, it's clear to this FTBer anyway, that buying a condo in Victoria right now is not a good idea.

Anon @ 6:40, why can you not add something real to the discussion or keep your fingers off the keyboard?

greg said...

35 year mortgage? shame on you for suggesting such a terrible, terrible thing.

roger said...


Don't forget to add the condo fees which can be $175-250 per month.

Folks considering a condo should watch this condo stats slideshow.

hhv said...

Yes Greg, shame on me indeed!

hhv said...

Roger, the strata for the unit is $196. I added it to the calc.

roger said...


Yes you did. I need new glasses. :>)

omc said...


Could be $10k, could be $100k, I don't know. Feeling lucky punk?

Anonymous said...

I would be remiss if I didn't pass this along, for what it's worth. It is being reported that the Chinese are counterfeiting gold and silver coins of all kinds and even old copper pennies. So far the weights aren't matching up, so with a digital scale it's easy to spot the fakes.

Coin counterfeiting

Of course, while this is just the Chinese doing what the Chinese do, it will be extremely handy to scare the little people off gold, and leave it for the uber-riche at bargain-basement prices.

Don't be a little person. Forewarned is forearmed.

Anonymous said...

I'm looking forward to the February numbers...

omc said...

We have a friend who is looking to move to a bigger house right now due to an extra member. They are using probably one of the most well known realtors in town. His take on the market? No rush to buy, prices have bit to fall.

I guess you can tell the truth if you aren't desperate.

Anonymous said...

I'm looking forward to breaking into Dow 6000 territory tomorrow. Should be good for a few headliners.... assuming our newspapers don't go bankrupt first.

Nanaimo Dude said...

I have been reading the blog for just over a year now and it's had some great advice and I'm glad that I did not purchase a house in the last couple of years. We went to some open houses today and I have to say that it was the first time that I a have heard a agent tell us that house prices where going down. We looked at some new houses being built in the south end of town. We were told you could knock off at least fifteen thousand off the price and would get a three thousand dollar appliance bonus. The same with the house across the street but were offered ten thousand off the price or a new car. We were at the two open housed for about 30 minutes and were the only ones to view. It is tempting to buy as we have almost seventy five thousand saved for a down payment. Then I read your posting and it snaps me back into reality. Thanks for taking the time to do this blog really appreciate it.

roger said...

Nanaimo Dude,

Are you looking to buy in Nanaimo or Victoria?

NanHousing said...

Nanaimo dude, if you are indeed buying in Nanaimo, you should take a look at the latest stats packages cause it isn't pretty.

This month inventory of houses reached 700+ houses which is possibly an all-time high.

Click on some of the links on the main page of this blog. There are some good ones there.

NanHousing said...

From our good buddy Garth:

The latest GDP numbers, which measure the size of the economy, will be the worst in your lifetime. They’ll show Canada’s activity collapsed in the last three months of 2008 by something close to 5%. What does that mean? Well, a 10% contraction over a year equals a depression. So guess what a 5% drop in 90 days means…

greg said...

hhv -

I just want to point out that earlier "greg" wasn't the usual greg. However, I agree with his point. This housing malarkey has brainwashed even some bears into into doing calculations using 35 year mortgages, as though they are somehow the norm, because as long as it isn't 40 years, somehow that's now seen as reasonable.

Bring back the pricing supported by 25 year mortgages, thanks very much...

Anonymous said...

Hey guys, if you see this van near your neighbourhood, it's time to celebrate! Yep, the Tax Payers Prize Patrol (aka. Bailout Prize Patrol), is giving away BILLIONS! Don't miss out...

... on your unintentional contributions.

Anonymous said...

Feb 26th - Glenn Beck charts out the US housing crisis. If the US is destined to go into a great depression, then according to the housing value drops, we're only 1/3 of the way there...

George was smarter than people gave him credit for.

"This sucker's going down" - George Bush.

Nanaimo Dude said...

Roger- I'm buying in Nanaimo.
NanHousing - I tried posting on your blog but it would not let me post any comments, but we are waiting until fall to begin looking hard. It's just tough to fork over all that rent money at the first of the month.

beagle said...

The latest GDP numbers, which measure the size of the economy, will be the worst in your lifetime. They’ll show Canada’s activity collapsed in the last three months of 2008 by something close to 5%. What does that mean? Well, a 10% contraction over a year equals a depression. So guess what a 5% drop in 90 days means…
Correct me if I'm wrong but aren't GDP numbers already annualized? And the numbers that came out were 3.5% for the last quarter. Not that it isn't horrible but I think Garth is pumping it a little.

Mr.4AM said...


Unless they say the numbers are annualized, they aren't. For example recently it was announced "QoQ" (quarter over quarter) Japan's GDP contraction of 4.6%. The next day you saw the headlines saying their seasonal adjusted contraction was 12.7%. Which is a HUGE contraction erasing some 4 years+ of GDP growth. So no, GDP is not already an annualized rate and is reported quarterly.

A couple of weeks ago Europe announced their 15 country average was a 1.5% contraction for Q4 2008.

But they have nothing on Canada with 3.4% quarterly contraction.

And of course our friends down south would not be outdone by us Canucks, so the USA reported a *MASSIVE* 6.2% contraction Q4 2008 after they revised their numbers from the rosy estimates of 3.8% contraction.

All that's left to do now is to turn on CNN/MSM and listen to the "experts" tell you how nobody saw this coming and how now's a good time to buy & hold! LOL

This ain't over by a long shot. At this rate, Dow 5,500 by end of 2009 could be looking optimistic.


beagle said...

Economy takes 3.4% dive

Gross domestic product contracted at an annual rate of 3.4 per cent over the final three months of the year, the biggest decline since 1991, Statistics Canada reported Monday.

Anonymous said...

Who will carry the bear flag after HHV?

Roger, Mr.4am...?

roger said...

Nanaimo Dude

If you are even considering buying in Nanaimo I suggest that you take a look a these detailed stats (pdf) for Nanaimo. Low sales and rising inventory. And take a look at the sale price/listing price ratio. It is not a pretty picture for sellers.

Nanaimo Stats - Jan-09

Mr.4AM said...

How to explain the 2009 bad economy to your children with a donkey story. Pretty funny.


Anonymous said...

Bears, and Roger,

A really good article on Macleans,

beagle said...

Mr4am, this chart at stats can tells me that the GDP change for the 4th quarter was -.8 not 3.4%
I just want to make sure we don't pump things on the way down like we accuse the bulls of pumping on the way up

Stats Can GDP chart

B2B said...

Equities are indeed being hammered again. But they're clearly closer to bottom, having dropped 50-75% worldwide, than housing. And equities have always wildly outperformed housing long-term. Most importantly, you can pick and choose small measured investments in equities starting today, unlike real estate which is pretty much all-in on the day you buy.

So indeed, by all means stay mostly in cash, but clearly good cash-rich businesses such as Microsoft and Berkshire Hathaway are a better buy today than a condo on Quadra. Or look at oil companies such as Royal Dutch Shell and BP if you want to see ultra-low P/E, mountains of cash, and high dividends.

greg said...

VREB stats for February are out, check them here.

Anonymous said...

Regarding the blog post, what sort of offer would be low enough to make you think it's a good investment? Say a condo is asking $250k, would an offer that is 25% below that be a fair price? Or is there no way to tell other than waiting and seeing?

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

VREB has released their stats package. Click HERE

February 2009 Statistics - Monthly Analysis

January 2009 (last month) shown in ()

MLS Sales - 403 (247)
MLS listings - 3844 (3678)

SFH Average - 542.4K (526.1K)
SFH 6 mo. Avg. - 544.4K (546K)
SFH Median - 485K (475K)
All SFH Sales - 223 (141)

Condo Average - 287K (259.7K)
Condo Median - 250K ( 255K)
All Condo Sales - 109 (62)

Town Average - 381.4K (394K)
Town Median - 360K (382.5K)
All Town Sales - 47 (32)

Year-over-Year Analysis

GV - Greater Victoria
February 2008 shown in ()

MLS Sales - 403 (619) - Down 35%
MLS listings - 3844 (3311) - Up 16%

GV SFH Average - 542.4K (587.3K) - Down 8%
GV SFH Median - 485.3K (543.5K) - Down 11%
GV SFH Sales - 223 (295) - Down 24%

GV Condo Average - 287K (334K) - Down 14%
GV Condo Median - 250K (299.9K) - Down 17%
GV Condo Sales - 109 (176) - Down 38%

GV Town Average - 381.4K (424.2K) - Down 10%
GV Town Median - 360K (392K) - Down 8%
GV Town Sales - 44 (69) Down 36%

Reid said...

Interesting comments from Markum on how sales in Feb 08 were exceptionally strong, but Feb 08 SFH sales were down some 16% from Feb 2007. So Feb 2009 does not look all that great when you compared against the actual peak volume of 2007 (down almost 40%).

hhv said...

Forgive Chris today, he may be a little dizzy.

roger said...

It's spinorama over at VREB. Here is a look at some of the comments and then the facts.

1. Victoria Real Estate Board President, Chris Markham, says the dramatic increase in sales is a very positive sign. "The big increase in sales over January is very good news and shows us that despite the widespread economic uncertainty we still have a vibrant local housing market."

Sales always go up dramatically every February. There are more buyers every spring even in a bad market

2.Markham added that although last month’s sales were still well below the figures for February of last year, it’s important to remember that the early part of 2008 was still marked by an exceptionally strong market.

Wrong again. Last year February sales were lower than 2005, 2006 & 2007. Take a look at this graph. All of 2008 was not strong compared to the previous three years.

3. "It was not until the latter part of last year that we saw significant declines in the number of sales," noted Markham.

Take a look at the graph above. Sales always drop off in the latter part of the year. This is the usual trend and is nothing new.

4. Markham added that overall continuing stability in prices last month is also welcome news.
Sure prices rose somewhat for single family homes. But the condo median and townhouse average/median all dropped. And there was no mention of the drop in prices for all housing year-over-year.

I can't figure out whether the folks that issued this press release are incompetent with stats or just deliberately misleading the public.

Nick said...

Roger said: "I can't figure out whether the folks that issued this press release are incompetent with stats or just deliberately misleading the public."

Ha, two guesses and the first one doesn't count. I can't wait to see the headline in the TC tomorrow, I'm sure it'll be something like "Real estate on the rebound."

These folks are shameless. If they were on the Titanic watching first class passengers fleeing on lifeboats, they'd be selling the steerage passengers on their prospects of moving up to a nicer room.

roger said...

Nick said,

These folks are shameless. If they were on the Titanic watching first class passengers fleeing on lifeboats, they'd be selling the steerage passengers on their prospects of moving up to a nicer room.

Nick gets my vote for best Real Estate Shill Comment of 2009

womp said...

Man, I can't preempt you guys ;) I even had 75% of my post prepped last night so I could finish it off during lunch break.

Roger your comment is pretty much what I just posted. The spin is back in full force.

B2B said...

Nick gets my vote for best Real Estate Shill Comment of 2009

Seconded! Nice one, Nick.

combat wombat said...

Anonymous on March 2, 2009 11:48 AM:

There's something called Fair Value you can use to help you determine what a price should look like. womp actually made a spreadsheet calculator to determine Fair Value based on a few things, he had it linked at