VREB miscommunication

Over the weekend, the VREB published this in the local paper (H/T to Roger and GoneTooFar for links). Through crafty layout, they made their advertisement look like a factual education piece. But it was so full of fallacies that we can't just let it go un-responded to, can we?

I won't cut and paste the whole thing. But I'll rebut a few points below.

• If you are 35 now and just buying your first home, you will likely be mortgage-free when you are 60 and sitting comfortably on a considerable asset.

Maybe. If you take out a 25 year mortgage. But the average first time buyer in Victoria these days doesn't. 35 year amortizations have become the new norm at today's prices. So while past experience suggests this claim may be accurate, it is completely unknown, and relatively unlikely, that future experience will prove this theory correct. You see, 25 years ago, a 25 year mortgage was normal. And it was normal for people to pay off their mortgages in 25 years or less.

Today, normal is entering the property ladder, using extended amortizations and moving through the market in multiple transactions, constantly refinancing and removing equity from homes to purchase new homes worth more. We don't know what future experience will be in terms of mortgage pay downs because we've never seen the kind of mortgage product innovation we have today during past real estate cycles. The VREB is applying the old rules to a new game and expecting the same outcomes. I say the ref should be calling a penalty on that play.

• Buying a home is a very effective way of saving regularly over many years. Even if you never buy into another retirement or investment plan, you are effectively putting money away for the future.

What this point should have said was "Buying a home is a very EXPENSIVE way of saving regularly." Can you think of a financial product that is more expensive to purchase, costs you more to sell, costs you more to maintain, costs you more to service and gives you worse liquidity? I can't. Some rough back of the napkin math I did on the weekend on a $375K purchase worked out to be an approximate 35 year cost of $1.25M. In other words, just to break even, you'd have to sell that property for $1.25M once you'd completely paid it off, and then where would you live? That's highly possible as it's only a 3.4% annual ROI, but I can think of many more effective ways to save and invest less money for greater 35 year returns at far less cost and far greater liquidity.

Furthermore, any other industry that offers the consumer an investment product or investment advice has mandatory disclosure requirements on every piece of advertising it does. Why is the real estate industry allowed to market their products as investments with no mandatory disclosure statements, no requirements whatsoever about qualifying consumers etc and no industry financial regulatory oversight?

• Owning a home of your own means you and your family can set down roots, get to know your community and involve yourselves in it.

This is true. Our communities hate renters. Renters are a scourge. An infestation. They destroy communities. So naturally, communities exclude renters and excluded people tend to be rootless and uninvolved. It's a vicious cycle. You owe it to your families to never let this happen to you. Be a Star-bellied Sneech, not one without.

If I'm a member of the VREB, I'm embarrassed by this advertorial. I also find it odd that in the middle of a great big first time buying boom, the VREB felt it wise use of dollars to try to further appeal to first time buyers. Could they know something we haven't seen yet? Like maybe the buying is slowing down again and that FTBers are either exhausted or parked on the sidelines expecting to pay less again in the near future?