Monday, January 4, 2010

Patience

It's been almost three years since I started this blog. In that time, my wife and I have paid around $27,000 for shelter. Had we bought a condo in the first few months of our house hunt, over these past three years we would have paid around $65,600 for shelter, of which about $16,000 would be "equity" and around $50,000 would have been the cost of renting money, otherwise known as interest.

Do we regret not buying? Not. At. All.

Over the three years I've been writing, we have moved three times, my wife has changed jobs three times (all with the same employer mind you, but different locations), I've started my own business and we've managed to save more money than we would have built in equity and still pay down a significant amount of student debt. Looking back, I wouldn't change our decision at all. I'd even say I'm glad we didn't follow the vast majority of our peers and jump into the market at a time in our lives when we were "supposed" to.

We've watched friends and family sell homes to buy other homes. We've seen them earn real profit--all immediately spent on something bigger, newer, movable (read cars) or go to pay some other debt that was nipping on their heels. We've gone to bed at night thinking that could have been us and woken up knowing better than it *would* have been us--because none of those friends and family first bought in the past few years. The friends and family we do know who have first bought in the past few years live in homes we'd never want to live in and deal with location and home-specific costs and issues we'd never wish on anyone.

I've learned a lot about real estate and the real estate market through writing this blog. But the most important lesson I've learned is the importance of the long view. Every January my wife and I chat over a glass of wine about our dreams and plans for the coming year. We always ask the question "will this be the year we buy a home?" Our desire to plant roots is strong, but we recognize it's an emotion, not logic, driven desire.

At the beginning of 2009, we couldn't honestly answer the home buying question. We watched the market in the fall of 2008 drop consistently and rapidly with no signs of stability on the near horizon. We saw a market headed down fast and furious and thought we may find something that fit our parameters late in the fall of 2009. When the market re-ignited in the spring, we shelved that thought and focused on other things.

This year we know we won't be buying. We'll continue to rent. We'll continue to watch the market. We'll continue to learn and I'll continue to write. We'll continue to enjoy the flexibility, the freedom and the financial rewards of renting shelter. We'll continue to sleep well at night knowing our financial plan is working for us. We'll continue to be patient.

32 comments:

Alex said...

I've been reading your blog for about two years, when we were looking to buy our first place. We ended up buying a townhouse in Vic West, and will likely be selling and buying again within the year.

Your posts are, without question, the best analysis I've found of the market in Vic, and the market in general. I just wanted to say thanks for sharing the results of your research.

Leo S said...

Hey it's like our situation to a t. Even the rent is with a dollar fifty of ours. We also thought we might buy in Fall 2009, but then the market went bonkers. Ohwell, it was certainly the right decision to hold off.

omc said...

just a repost because of a new thread.

think,

No the basement wasn't disclosed. Another buyer working for with our realtor had paid for an inspection. That means the actual buyer must have had no inspection. There was a bunch of masonary work that needed to be done and I say a mason there for a couple of days so I assume they did a patch job on that. How do I know the price? A bit of a guess from the very quick, rough description I was given. I used to be in the trades and I am an engineer though.

We are looking at family type houses so I never bothered looking at that one, that and no overhangs on stucco.

I took a quick look at the house at 1079 Deal, and that one is probabaly worse.

Yes we are renting, and will have to find another.

Did you see the collapsed roof section on the caddy bay road house? I also try to drive past a house 1 hour ahead of a showing to see if there is any monkey business. The owner of the caddy bay road house had every window wide open in the cold. If I had my glasses on I would have caught the roof from across the street.

Mr.4AM said...

HHV, way to hang in there with sanity! I'm trying to do the same, but I have no intentions of buying within the first down year.

Once the downturn trend really starts and government policy supports a down market (hst+no housing stimulus+higher interest rates, etc), we'll be looking at a down market for years in a row to come.

I often read on here people talk about whether a home is an investment or just a 'home' and not an investment.

The problem with opinions, is that they are only a fractional perspective of reality, often viewed through the monocle of emotion. In other words, you can think whatever you like, but the reality is what it is - no exceptions.

A home will always be an 'investment'; wherein 'investment' means that you took a large sum of money that could otherwise be earning you interest and plunked it down to purchase a house. One's emotional ties to their home does not change the performance of your purchase, or the debt committed to. If you choose not to care for its performance, again that is nearly always only a temporary opinion.

If you ever end up upside-down on your mortgage and can't afford the payments, watch how fast you start caring! Conversely, if your house goes up 100%+ in value, watch the level of jubilation that comes out of your mouth when you confide this fact to your friends/family.

When you sign on the dotted line for the biggest loan in your entire life - IT IS AN INVESTMENT (of your hard work into an asset class), period.

Can you enjoy your 'investment' at the same time and call it a home? Sure thing, but let's be real and not pretend the monetary aspect doesn't affect us. We're only fooling ourselves if we do, now and for the next 25+ years.

Mr.4AM

Reid said...

The thing I find interesting about the last 30+ years is that the early baby boomers have made out so well. They got the early jobs (many are still sitting in great government jobs), many had defined benefit pension, bought houses when they were cheap and have seen house and equity markets surge. Those that have been financially prudent are sitting pretty mainly because of when they came into this world.

But as we look forward when interest rates rise and housing prices correct, many recent buyers see themselves “underwater”, it will force these younger folks to sell or be foreclosed upon. If this happens in large enough numbers, markets will change and prices will drop and could drop hard. Assuming this all unfolds, guess who buys up the houses at the new reality prices. No, it will not the HHV’s as there just are not enough of them, but rather it will be the older financially literate baby boomers. As prices drop, the investment quality of these properties will once again emerge and the financially established people will buy these houses based on their true investment quality. They will generate a decent return on their short term money and longer term capital gains will once again be a “real” possibility.

And guess who gets hammered; the younger crowd who has used these boomers as their benchmark to support their buying decision. There will be a lot of really pissed off people if this all unfolds, but on the positive front it will force people to think and actually do some research before they drop $500k+ on a house.

caveat emptor said...

Mr 4AM - is a first house really an investment?

I agree that a lot of people think of their home as an investment. That doesn't make it so.

You say
"'investment' means that you took a large sum of money that could otherwise be earning you interest and plunked it down to purchase a house". Using that definition and changing the last word you could call any large reasonably durable purchase an investment. I could plunk down a large sum of money that would otherwise be earning interest to buy an Italian sports car. Is that an investment too? A lousy one for sure, but an investment still?

A more normal definition of investment is something along the lines of "the dedication of resources or assets to creating financial benefits in the form of income or profit in the future". Using that definition no-one should be treating current Victoria home purchases as "investments". After accounting for the costs of home ownership and buying and selling it's fairly unlikely that anyone buying a Victoria home now will sell at an after inflation profit.

The fact that it is either not an investment or else a lousy investment doesn't mean that someone shouldn't buy a Victoria home if they can comfortably afford it and the emotional, intangible, and hedge benefits of owning your own home outweigh the costs.

Sadly - few even contemplate that analysis and instead go with the dominant Canadian middle class view, which is that if you don't own your own home, and the earlier the better, you are some kind of loser.

Cheers

Just Jack said...

I think of an investment as being something where there is a reasonable expectation of profit. It need not be an asset, as one can invest in education.

For real estate, profit could mean a positive income flow from rent or future appreciation.

Today, you can go and buy a $600,000 Gordon Head box with a basement suite. Put down $200,000 and have a positive cash flow, even if prices fell.


That would be an investment - albeit a dumb ass one.

As for the early baby boomers making out so well. If their paper wealth is heavy in real estate, they could easily be working past their 70's. Their wealth could easily become debt that will only be paid off in the sale of their estate. Leaving nothing for their heirs.

And don't count on the baby boomers to pull real estate out of a tail spin. The first of the boomers are now hitting 65 years old. They DON'T buy second or third homes at 65. They SELL, especially as prices fall - just like they did in the Dot Com days.


So how much are your Beanie Babies worth today?

Just Jack said...

THIS TIME IT IS DIFFERENT!


2009, saw increased sales and flat prices, signifying an end to any significant increase in prices for the future.

But what is truly different, is that this increase in sales came at a cost to the rental market. The low interest rate policy is causing a serious problem to landlords. Increasing vacancy rates and lower rental rates.

No matter what the government does to amortization periods or down payments, the shot gun is loaded and pointed at the head of the home owner. If Flaherty makes changes to CMHC, this will blow the first time owners out of the market. If he does nothing, then the empty suites and lower rents will kill the market for rental properties.

If you had bought anytime in the last three (3) years you have not made any significant coin on real estate to compensate for the costs that you have incurred. So those 20 somethings living in Bear Mountain are finding it near impossible to stay afloat with their credit card charges and not being able to refinance this debt back into their homes at the lower rates.

As all markets that have gone this way before, the pendulum swings both ways.

Its sad to think, that we are relying on someone in Bare Mountain playing nintendo in their gonchies to save the real estate market.

Skeptic said...

How many times have you heard real estate bulls say that wages will keep increasing and offset higher interest rates?

Well it isn't going to happen. Here is a graph from CMHC and Stats Canada data.

Wages over the years

After accounting for "official" inflation (CPI) median owner salaries only increased from by 8K over 16 years! (1990-2006)

HouseHuntVictoria said...

Just Jack,

What's more is many of those first time buyers are relying on other renters to help them make mortgage payments they can barely afford even with the "mortgage helper" in the basement.

I heard a number of people over the holidays seeking new tenants because their old ones moved out or their new suite is finally ready. I don't think people really grasp just how close to the edge our market is precisely because of the renting/owning imbalance created by a 8 year bull run fueled by low interest loose lending.

Double-Agent said...

The spinmeisters are at work again over here at VREB. Here is the latest article from their publication division, known locally as the Times Colonist.

'Strong, balanced' real-estate market expected

"Given the significant worldwide economic downturn, we were very pleased to see the real estate market recovering so quickly," Randi Masters said yesterday....

There were 8,096 sales through the Victoria board's Multiple Listing Service last year, up from 6,519 in 2008.


Cherry picking the stats again! 2008 was a slow year. 2009 was similar to 2006 (7958 sales) but lower than 2007 (8931 sales) and 2005 (8532 sales)

Interest rates will play a major role in the market's recovery this year, Masters said. "I think interest rates will likely remain low and if they do go up, will probably creep up as opposed to jumping."

Where did Randi Masters get her economists degree?

Helmut Pastrick, chief economist for Central 1 Credit Union, agrees the market will improve this year. "For the residential sector, I think it will be another very good year [with a] high level of [seasonally adjusted] sales, and higher level of prices than we saw in 2009."

"As the housing market continues to evolve, I expect to see further price gains in 2012 and 2013 and even higher mortgage rates as well, as during the normal course of recovery central bankers will be bringing rates up as a matter of course," he said.


Why do people listen to this joker? He has not made one correct prediction in the last 3 years.

Here is the best stat output that came out of VREB this year. Houses and townhouses have peaked. Condos are on the way down. Pass it around to your friends at the office. (Download link in upper left corner).

Annual Average Prices

Just Jack said...

If Flaherty is basing his actions on comments by Helmut Pastrick you might expect changes to CMHC's 5% down and 35 year amortizations.

Luckily for home owners, few people listen to Helmut.

I am still trying to understand his phrase "as the housing market continues to evolve"

So I guess realtors must be somewhere on the evolution line like this:

Austalopithiecus Africanus
Homo habilis
Pemberton Homos
Homo Erectus

Double-Agent said...

CHEK news had a feature on renters on the 5 PM news. They said it was a renters' market with prospective tenants dictating the price. Inventory is increasing rapidly and one property management firm has 4 times the rental listings. Tune in at 6 or 11 PM.

They also had a real estate segment on property north of the Malahat. Prices have dropped. The the average sale price of a single family detached home across the VIREB region for 2009 was
$$330,499 - a five percent decrease from 2008.

think said...

omc,
no, I must admit I missed the roof on the house on cadboro bay road - can't believe someone would buy that house after the inspection (I guess they didn't have one...). Yeah, I went through the house on Deal st. and it probably was a sale just for the land - it was a nice lot though and down at the end of a cul-de-sac. We are in a similar situation to you I think... My real estate agent says the market is very "shallow" - only a few frenzied buyers fighting over the same over-priced crap...once these nuts are done buying things may flip-flop again...all I know for sure is that now is the most risky time to buy...
I have just returned from Silver Star mountain in Vernon...I know some owners on the mountain - word is business is down 10-15% for rental bookings, and house prices on the hill have dropped about the same and are currently flat, also one of the new condo developments on the hill (Firelight) sold out in the fall but multiple units are currently for sale as buyers were unable to close on their purchase........the house of cards will fall in Victoria too....

omc said...

think,

The house I am referring to isn't the one that sold at the end of the cul-de-sac. It is on the market right now at over assesment (MLS 271163). It is a 1911 house by the new condo building, by the marina. It has a lot value of maybe $500k, so they are trying to get $300k for the structure. The listing realtor is extremely misleading, to the point I think he counted the same romm twice for square footage. once as a "family room" and another time as a "bedroom". The "renovated kitchen" is at least 30 years old and in shocking condition, as is the rest of the house. This is without the very failed foundation and extensive structural damage. My opinion is it is dozer bait.

The one that sold at the end of the cul de sac knda surprised me at the sale price.

If the market is shallow, I wouldn't know. They are crazy and frenzied though. I don't know if we are after the same houses. I am going to be looking for a house in need of a fair amount of renovation as I can do much of the work myself. That and I will soon have 2 very young kids at home so I never bothered looking at houses like the dump on margate.

think said...

omc,
what did you think of 1289 Hampshire Road? It sold in December for 762,500ish. The one on Deal - I am going to look at it this week - apartment buildings in the back yard right? The price is a joke. I think this market will change sooner than we think, I read in the paper today that home foreclosures are the highest now since the 80's...

omc said...

think,

I haven't actually looked at that many houses lately, so I didn't look at the hampshire one. I could tell it needed alot of work just from the pics. The kitchen is in 2 parts? The price started too high and they just waited for a sucker.

Every once in while I get POed and take a look at what is out there and find out that the market is actually much worse than I thought.

On the deal street house notice the exposed front deck as you enter. It has been left in a bad state of repair for many years and the whole front of the house is rotten. You can see this from the rot under where the stucco is falling off. Save yourself some time and just walk into the basement; you won't need to see anything else. Feel like putting a new foundation in? If you don't understand why it needs a new foundation from looking at this, take some one along who does. If you take a few minutes more looking around you will see that there isn't anything worth saving.

Take a walk up to the side kitchen door and notice they did the front part of the house's roof, but not the back. Water is directly entering through the roof. A door that is 6 foot tall? The house is also VERY small.

I wouldn't waste the time with a viewing as you can see enough just walking up to this one. I could fill an entire page with DIY electricaland heating, extrememe settling etc.

Lot value only, and it is beside the apartments.

Skeptic said...

There has been lots of discussion in the press and in economist reports about Victoria and Vancouver house prices. Some say we are experiencing a bubble in BC. Readers might find this graph interesting.

Bubble in BC

What do you think?

caveat emptor said...

Bubble - of course not. Call it the real estate market belatedly recognizing that we are "The Best Place on Earth". That means prices can rise at 10-20% p.a. for ever right?

VillageBC said...

For some reason, I don't feel this will be a down year. I expect there to be modest gains, but generally decent. I would consider buying, if I could find a place that seemed like value for my money.

So... market must be about ready to crash since I feel like capitulating. =)

Skeptic said...

So who are these buyers in Victoria?

Face of the post-boom homeowner

According to Ipsos Reid, 38 per cent of prospective buyers in B.C. were first time homeowners in January 2009. Come November 2009, however, that proportion shrank back down to previous levels, at 18 per cent.

The big push of first-time buyers is done, said Hanson Lok, senior research manager with the polling company. “Those who were waiting to buy, they already saw the opportunity and they went into the market and they bought,” Lok said.

Not so in Victoria.

As of November 2009, the Victoria Real Estate Board started tracking buyers’ demographics for the first time. The numbers revealed that first time buyers were still making up almost one-third of all residential sales.


----------------------------------

Why are they buying now?

With a new baby, two good jobs and some financial help from family, Sara and John Antill were ready to take the plunge.

“We wanted to be paying ourselves rather than paying a landlord,” Sara explained.

Historically low interest rates and market conditions were also a factor. “We felt like it was time to get in before things started picking up.”


----------------------------------

Same old story. No understanding of loan interest costs, future mortgage rate increases and rising monthly payments.

This will get ugly. Want to bet the Bank of Mom and Dad will be making more loans/gifts to new buyers?

Robert Reynolds - GBA said...

Rrsp season is here and we all get an extra 5 grand to stuff into a TFSA

keep growing those downpaymenta people the bigger they are the better you will be when you buy regardless of the RE market.

A reminder that you can find current market surveys for term deposits offered by insurance companies on my website term deposit rates sure do suck at the moment though :(

1% for 1 year or 2.55% for 3 are about the best out there ATM

the stock market has been doing great but I get the feeling this march bull is running out of steam so be cautious.

PainInThe said...

Patience is ALWAYS rewarded.

think said...

omc, you were totally spot on about that house on deal - shocking really...

Dave said...

OMC, why are you looking to buy something to renovate? Are you planning to buy and then sell after a few years? What price point are you looking at?

omc said...

think,

Knowing what to look for totally changes you perception of this market. There is a whole bunch of junk out there at the moment being peddled by people hoping to take advantage of the current market. These houses would never sell in a sane market. The one on Caddy bay road was bought in 2007 in a bidding war, with I assume no inspection. The woman that bought it sold it in a similar market, again with I assume no inspection.

Dave,

I am looking for, or will be looking for something to renovate because there is no value what so ever in the fixed up market. I can do the lions share of the work myself which saves an enormous amount of money. I also have different standards compared to much of what I have seen lately. We are looking to be all in (house and renos) some where in the $800s. The plan is long term, not flipping.

Dave said...

OMC, send me an email - daveactive@gmail.com

No, I am not a realtor.

Just Janice said...

As I'm odd, I've been watching the unemployment numbers for Victoria very, very closely. The December numbers aren't good (at least from a people out of work perspective). According to Statistics Canada, the three month moving average of seasonally adjusted unemployment in Victoria went from 7.1% in November to 7.6% in December. According to BC Stats, the seasonally adjusted monthly numbers for Victoria was 6.5% in October and 7.7% in November. This implies that to get a 3 month moving average of 7.6%, the one month seasonally adjusted unemployment rate in Victoria must have been about 8.5%.

Ouch.

Particularly considering that just a year ago the seasonally adjusted monthly unemployment rate in Victoria was 4.1% (December 2008).

Just Jack said...

Along with the higher unemployment rate, I'm expecting the level of bankruptcies and "foreclosures" to increase right after the government stimulus package ends.

Since all government stimulus programs are designed to bring future demand forward, I would expect a precipitous drop in demand shortly after the government stops juicing the market.

Skeptic said...

On the parrot front...

Royal Lepage gives Carla another cracker...

'Seller's market' for real estate: report

omc said...
This comment has been removed by the author.
Claire said...

Thank you for validating my decision not to buy last year. I will wait it out in my crappy 1970's, outdated apartment until I can truly afford something in Victoria!