Saturday, October 1, 2011

Rents matter, big time

Ben Rabidoux, the economist author over at The Economic Analyst, has been filling the interwebs with quality analysis of the Canadian housing market for a while now. And today he hits another one out of the park with his post titled House prices and rents: Why they should track each other and why it should concern us that they haven't.

Here are a few choice quotes:
All of the usual factors that people tend to associate with rising house prices, namely rising population, income growth, limited supply, and the general desirability of a particular city or area, should affect the price of renting a home as well as buying a comparable home. 
There are two main factors that can cause the value of a house to rise faster than the rents that a comparable dwelling would command... cheap and readily available credit... [and] ...what economists call the ‘ownership premium’.
The main point to understand is that a house is ‘worth’ either the sum of its future rents (for the investor) or the sum of the rents saved by the owner of the house, discounted for future inflation and an expected return.
So rents do matter. What does the gap between current rents and house prices look like in Victoria today?

24 comments:

DavidL said...

Off topic: The new mobile format for HHV looks great. (Not sure if this is due to Blogger or a new style setting by HHV.) Anyway - nice look.

Paula said...

Great article, and when he quotes the home buyers as saying, “Our town is growing. People want to live here. ...Why wouldn’t house prices go up?”
It reminded me of this article in today’s Vancouver Sun:
http://www.vancouversun.com/business/population+growth+improves+slightly+second+quarter/5488100/story.html#ixzz1ZYjfpkB0
“Although inflow still exceeds outflow, more people have been leaving the province than in the past, a reflection on B.C.'s struggling economy.”

Animal Spirit said...

Great post HHV.

For comparative purposes (though one needs to compute the ratio of price to rent in Ben's figure to match CR's one), Calculated Risk posted the Case-Shiller 20 owners equivalent rent since 1983 today.

If the metrics are the same, we could be running a ratio of around 1.75 right now. Our maximum would have been around 1.8 in 2007. For those of us who have rent below relative market value (we've been at the same place 6 years now and rent has only increased $40 the whole time), our personal calculus would be much higher (we have had a 3.5% rent increase instead of the 30% average, meaning the oem would be 2.5 instead of 1.75).

The average owners equivalent rent for Victoria quite clearly shows that prices are too high. Combined with the astonishing September inventory levels and blase sales, this puts downward pressure on prices.

Introvert said...

Combined with the astonishing September inventory levels and blase sales, this puts downward pressure on prices.

Actually, no, it doesn't. Prices are pretty stable.

Two of our regular contributors, omc and EagerBuyer(Not), have quit the blog because they got tired of reading--over the course of years--false predictions and wishful statements, of which this is yet another example.

jesse said...

There are no meaningful price drops ergo high prices are justified. Yeah... sure...

Leo S said...

Two of our regular contributors, omc and EagerBuyer(Not), have quit the blog because they got tired of reading--over the course of years--false predictions and wishful statements, of which this is yet another example.

People come, people go. What does it matter to anyone else or their personal calculation about whether to buy a house?

Animal Spirit said...

thanks for the trolling introvert. Please notice that I said 'puts downward pressure on prices'.

Peer pressure doesn't work on me - try another tactic.

HouseHuntVictoria said...

Thanks for the Sunday morning laugh Introvert. "The economic laws of supply and demand don't apply to Victoria's real estate market..."

Delusional.

Alexandrahere said...

CMHC is currently doing a telephone survey (they called me), requesting info from households that are renting strata title properties. They weren't interested in my responses as I own. Did anyone here get surveyed?

Alexandrahere said...

I just googled CMHC and see they also did a survey in Aug in Sept in major Canadian cities asking property managers of condominiums regarding rental trends.

SilverSurfer said...

Alright, here's your chance to be heard Victoria!! All the financial and political unfairness we've been talking about in this blog for years, with particular focus on the Real Estate shenanigans... Now's your chance to be heard!

Inspired by the #OccupyWallStreet / OccupyTogether revolution that has this past week started to spread EXPONENTIALLY throughout the world, Victoria is also participating.

Time to take a break from blogging about your frustrations with the system and SHOW UP TO SPEAK UP!

See you there at OccupyVictoria, October 15th, Centennial Square. Pass it on!


SilverSurfer

SilverSurfer said...

Link to the #Globalchange October 15th protests. Victoria is now on the map. We are the 99%, and we shall be heard. Start making your signs.

phil said...

Correct me if I'm wrong, but it seems like most of those Occupy revolutionaries are simply upset with there bad decisions of taking on too much debt. It would be like recent Victorian home buyers or maxed-out credit cardholders showing up in Centennial Square in two weeks to blame someone else for their stupidity. I mean, if you're going to blame banks & governments for accessible credit, then you may as well protest and put donut stores out of business for making people fat. Bottom line, if people aren't held responsible for their actions, we're all doomed.

SilverSurfer said...

Phil, you are making too big an assumption. People are protesting for all kinds of reasons. The protests are now going global. Each city/country will have their own issues to focus on. You can not generalize.

Craig said...

So, as I see it, this is solidarity, an occupation and a revolution against the greed and corruption of some vaguely expressed 1%.

Fight the power anyone?

The real reason we're screwed today is that the MAJORITY of people loaded up on personal debt and the MAJORITY of people voted for politicians who loaded up on public debt.

But you go, guy, wave your placard and don your mask with the other children in a noisy fit of resentment.

Craig said...

And I bet if someone bothered to poll the silly children with their signs there would be unanimous approval for more government spending, higher taxes and more change we can believe in, which is really another way of saying change that we can drown in.

Alexandrahere said...

It seems the "young" people in this country have an overwhelming sense of entitlement.

Apparently my grandfather walked two and one half miles every day to school in 10 below zero weather and ate lard and bread for breakfast and now my girlfriend picks her 14 year old grand daughter up from school when she phones on her cell because it is raining out.

But then, as one blogger mentioned, we "old people" (over 47 I presume) are just a bunch of whiners.

a simple man said...

There is far too much entitlement these days. Ask any professor how the landscape has changed over the past decade.

Renting rocks.

SilverSurfer said...

Craig, what's with all the strawman arguments?

Craig said: "The real reason we're screwed today is that the MAJORITY of people loaded up on personal debt and the MAJORITY of people voted for politicians who loaded up on public debt."

The first is a symptom, not a root cause. The second could not have been accomplished by "children" (they cannot vote), but by ignorant men & women.


Craig said: "And I bet if someone bothered to poll the silly children with their signs there would be unanimous approval for more government spending, higher taxes and more change we can believe in, which is really another way of saying change that we can drown in."

Wow, why so judgemental already? It doesn't even start for 2 weeks. I will be there and for the record I do NOT approve more government spending, or higher taxes , or subscribe to hopium (change we can believe in). You of all people should be there.

Alexandrahere said: "It seems the "young" people in this country have an overwhelming sense of entitlement."

So let me see if I got this straight, the Boomer generation propogated the credit system, waged massive wars, replicated like viruses, and left a massive debt to their children and even grand children... and we "young" people have a sense of entitlement?! Please... look in the mirror before speaking.

SilverSurfer said...

From the facebook group OccupyVictoria:

"This is not ‘merely’ a vague protest against the ills and failure of global capitalism - we all know about how a few predatory bankers and Wall St. traders sparked the current world financial crisis.

Rather, this is the time to show solidarity with all the people of the world rising up in global revolution, to come together and create a genuine people’s assembly of Vancouver Island in the spirit of true participatory democracy. Direct democracy comes from the people living in the communities in which decisions are made. Real democracy means being mutually respectful of all the diverse voices that join the conversation. Radical democracy is grassroots, from-below, non-violent, and committed to mutual aid and collective decision-making.

What are our demands? Let US, the people come together and decide collectively. So many of us here in Victoria are already working in our own small ways towards a vision of a better world – let’s peacefully assembly and bring it all together! We will stay as long as it takes."


The assembly is tomorrow night at 7PM. The following will be the agenda:

"October 3rd, 2011
Victoria General Assembly (AKA 'Occupy Victoria')
Centennial Square, 7pm

- Discussion of the possible General Assembly format (note that any format brought to the assembly will be, of course, subject to change if need be) and consensus on the format.

1. Adoption of proposed agenda.

2. Short introductions by everyone present; why each of us is here.

3. Location - Centennial Square; any concerns to be raised regarding this location choice. Consensus?

4. Usage of the term 'Occupy'; do we want to refer to this as an 'occupation'?

5. Working alongside local governance: how much do we want to work alongside them? Do we want to attempt to apply for a permit? Should we make them formally aware of this protest in advance?

6. Brainstorming and discussion on spreading support and knowledge about event; Branching out to local groups and networks to spread support; postering, social media, etc.

7. Establish ideas for working groups (i.e. legal, media, logistics, food, etc.) and break into groups for 15-20 minutes.

8. Setting the date for next assembly (within the week).

- Bring assembly to a close."

HouseHuntVictoria said...

Please keep discussion relevant to the post.

SilverSurfer said...

You're right HHV, sorry for Occupying your blog ;-)

Marko said...

Monday October 3, 2011 7:55am:

September

September

2011

2010

Net Unconditional Sales:

458

395

New Listings:

1,303

1,211

Active Listings:

4,940

4,323


Please Note
•Left Column: stats for the entire month from this year
•Right Column: stats for the entire month from last year

a simple man said...

hmmm...10.75 months of inventory. That is pretty high.