Victoria, BC real estate blog - "because we never know when interest rates will be increased to stimulate the economy" ~ VREB
What does that graph mean? I don't understand it. Perhaps a few more details explaining chart would help me judge for myself.
I haven't really thought about what it means. Perhaps it just means that the current weakness is dragging down the rate and there is no trend at all. Mostly just posted because of 200 comments approaching.The data is YoY change in SFH average price. The line is a linear trend line. Not really sure what else I can explain about that.
I think I might be a bit more basic :) I don't understand what "real average" house price means. Is the downward trend one of inflation adjusted prices? How did you get the red line? Is it an average of each year's price increases adjusted for inflation?I'm not a stats or math person so I might need a bit more of the background than some.
Sorry, yes the data is change in the inflation adjusted price. The chart title is more than a little awkward.The red line is just a linear trend line from excel. Ie, best linear match to the data.
Here is an island specific comment from vreaa"My comment is somewhat off topic as it deals with real estate in the Comox Valley. But I think that what happens here may portend what is soon about to happen in Vancouver.Despite a huge run up in listings and slow sales, prices here have held. Now the rush for the exits appears to have begun. Yesterday on Craigslist two bare properties located on the edge of the provincial Liberal government and Courtenay council backed “Jewel in the Crown” (local council description) subdivision which a year ago were listed for around $600k each are now asking $339k and $349k (vs. assessed value of $431k and $437k). From what I have heard the vendor is going to be taking a substantial haircut."
The point is, I've said before the average real return has been about 4%. However those returns seem to have been decreasing over time instead of staying constant
Drawing a line through such noisy data really had little value. it looks like you have some high leverage issues as well.
Okay, I think I understand a bit. My interpretation of this chart is that there are signficant declines every 5-10 years and similar meteoric gains.If you buy and hold for at least 10 years you are hedging against the drops if this pattern continues. I'll take 4% return on my leveraged purchase - tax exempt - any day. Bonus that you would pay to rent somewhere anyway.If you buy and have to sell during a decline could be catastrophic. If you buy and sell after a big rise it is a windfall.As far as declining returns. I don't know, I think you have to factor in rates there too. I don't think I understand enough about it at this point.
the average real return has been about 4%. 4% only for the last secular upswing (50s 'til now). The long run average real return is closer to zero.
Again, I don't buy the argument that the future will be like the distant past for real estate. The market is too different. Just speculating, I would say that 80s to now is a better predictor of the patterns of the next 20 years.
The people that think things will never change are always the most surprised when they do.
It is interesting that the 80s show a 50% market drop. If you bought at the height in 1981for the average price of $130,000 and held for ten years the home would have been worth $190,000, despite the intervening 50% drop in value. That same average home was valued at over $600 000 in 2012.Given that we know that most people don't invest in the stock market or have other investments, a home is not a bad deal even with a purchase at the top of the market - if you hold.
I can see the secular growth rate slowing as the city and region has become more stable as a place to live and do business etc. 1960 was still pretty rough. Victoria got worse before it got better. The entire George was a write off with sewage stench and industrial pollution. Heck, it still stunk in the 80's! You can only swim in it now again after how many decades? As we changed from a gold rush outpost to a "world class" city the value of real estate increased accordingly.
Again, I don't buy the argument that the future will be like the distant past for real estate. The market is too different.Possibly, but the "distant past" has a repeating pattern. Give me 10 minutes and I'll will whip something up on LeoS secularity : ) I may be able to show why LeoS ^real prices^ appreciate faster in the first part of the secular upswing too like he shows above.
"If you bought at the height in 1981for the average price of $130,000 and held for ten years the home would have been worth $190,000, despite the intervening 50% drop in value."Lets do some math!1981: 130,000Assume 2 percent inflation for ten years.130000(1.02)^10 = 158,469So you made 30 thousand dollars in 10 years. Now for some subtractions:Property tax for 10 years.Repairs.Cost of trades (realtor/lawyer fees).Interest paid on the original purchase amount.Now, how much have you made on your investment?
There is no 50% market drop in the data. There is a 25% price fall followed by an 8% fall, a 10% fall, and a 6% fall. Together they work out to a cumulative drop of about 42%. Inflation totaled around 20% over that 4 year time period (82-85) so about half the drop would have been a fall in nominal house prices and about half would have been failing to keep up with inflation.
You can if you want Dave, but that argument has been floated here before based on the Herengracht Canal real price index 1628-1973 as analyzed by Shiller. I'm not drinking that particular koolaid, but some might adopt it and not purchase I suppose. Each to his own. Too bad we are mortal and only have an approx. forty year window to buy and benefit from real estate or we could see if this proves out.
totoro - you are mortal? My perceptions are crushed.
koozdra - you forgot to put in a figure for either rental income or what you would have paid in rent. you have also not accounted for property pay-down over this time period. Now how much have you made?caveat emptor - I ball-parked based on the graph posted by Leo and it looked like 1980s was a peak to trough of 50% - if it was 42% so be it. Same same overall and slightly better for a purchaser holding through that.I don't care what the drop was from, nor do I in real life. I care about ROI overall as an investment.
"koozdra - you forgot to put in a figure for either rental income or what you would have paid in rent. you have also not accounted for property pay-down over this time period. Now how much have you made?"Were suites a big thing back then? I though it was only recently that the middle class was shacking up together to afford homes.
@koozdraactually inflation 1981 to 1991 = 74% cumulativeInflation Calculatorso your 130,000 house would have had to appreciate to 226,000 to break even on inflation (0% real return).OTOH someone who bought in 1981 would have had an easy ride in one sense. Every time they renewed their mortgage they would have had lower interest rates. I believe we have several more years of low interest rates ahead but certainly not 30 more years of declining interest rates.
And rents stayed the same between 1981 to 1991?
Also, I'm not sure on that 2% inflation adjustment on your 130,000 of mostly leveraged investment value. If you are comparing buying to not buying and fully accounting for the costs of ownership vs. rent, well you don't get anything on an asset you don't own. I don't think there should be an adjustment here when making this comparison.
@ totoro peak to trough is the wrong way to read the graph because it is NOT a graph of price it is a graph of the annual CHANGE in price.The 50% drop you speak of is a market switch from 25% real annual price increase to 25% real annual price decrease.The actual price over time would be calculated by multiplying the starting price by each annual change
"so your 130,000 house would have had to appreciate to 226,000 to break even on inflation (0% real return)."Really. I suppose if you purchased with cash that you would have otherwise invested then maybe we could talk. If you financed your purchase and would have to pay rent somewhere else or, alternatively, earned rental income, then no.Give me this type of zero percent return I'll take my tax exempt $100 000 profit (including mortgage paydown over ten years on a 100 000 at 7 percent) on my initial $30,000 down payment any day of the week.
Well that took longer than thought. Thought I should find a disclaimer too (since I mentioned LeoS name ; ) The Us price may not be aligned perfect.You know me too well totoro. So, is there a pattern. Maybe? Notice I added interest ratea at bottom and how they seem to follow a pattern too. Also regarding Leos graph, notice how fast the real appreciation is at the beginning of the upswings (1670's, 1950s). Ok I have to go to work now.
caveat - yes, probably misread the data - didn't understand everything at a glance. I did look at the historical stats before posting and 1981 peak was 130 000 dropping to 93 000 in 1985 - not fifty percent, although might be if adjusted for inflation I suppose. My overall comments on this are the same.
@totoro, if you bought for $130,000 at a peak in 1981 it is pretty unlikely that the place would generate a good rental return.Even if it was, and assuming it made enough money to cover maintenance, transaction costs, etc. so that you could sell in 10 years for a $60,000 profit, the same money invested in a 10-year GIC would have been worth over half a million 10 years later.And reinvested twice in 10-year GIC's would be worth over 2.2 million in 2011.To make the comparison fair you would have to calculate rental income re-invested over the 30 years, but I would ballpark that at under half a million.It's difficult to see how the home was "not a bad deal".
hi totoroI actually agree with you that a Victoria house in 81/82 wasn't a bad long-term investment despite the ensuing plunge. My comments were just to correct the calculation of inflation and the reading of the graph.And you are correct that the inflation comparison 130K to 226 k only fully applies if you bought the house with cash in 81/82One of the best things about buying in the early eighties was continuously falling mortgage rates since.Victoria housing may not have been the best investment you could make in 1981/82 (US stocks or Vancouver would have been better) but it was a more than adequate investment.
FatjayI come up with more like 1.6 million for GICs over 1981 to 2011 (starting with 130 K. Assuming you paid 1/3 of your interest to tax every year you would have ended up with closer to 800 K
Anyone got a time machine? :-)
fatjay - you do not get to compare a ten year GIC return on $130 000. Only on your $30,000 equity which is equal to the $30 000 you put as a down payment.What would the ten year return on a $30,000 GIC be?You need to compare this gain with the $100 000 gain you made on the home over the same time period. Don't forget to add or subtract any rent/mortgage differential over this period.
Also, your 1981 house would be valued at over $600 000 in 2011 and would be fully paid off. We'd have to calculate based on your $30 000 initial investment in a 30-year GIC. At the end of the 30-year period you own your home outright and pay no mortgage - only maintenance and insurance (ballpark $200/month) If you rented, factor in that you continue to pay rent.
koozdra - even if you did not have a suite you have to pay rent somewhere if you do not own unless you live in your parents basement or one of those abandoned million dollar homes JJ has found. Instead, you pay a mortgage, part of which goes to equity paydown.
"At the end of the 30-year period you own your home outright and pay no mortgage - only maintenance and insurance (ballpark $200/month) If you rented, factor in that you continue to pay rent."You have to figure in opportunity cost as the renter would continue to make money of their investments.
I was just offered a 2.89% preapproval for a mortgage with a 4 month rate hold at one of the big 5. Cheap. Money.
TD has been offering my clients 2.89% straight up without any negotiating.
I'm renewing mortgage soon (fall). I've been on a very good variable but think I'll go fixed this time.Trying to decide what is better 10 yr @ approx 3.65-3.7 or 5 yr @ approx 2.85-2.9.
If you bought at the height in 1981for the average price of $130,000 and held for ten years the home would have been worth $190,000, despite the intervening 50% drop in value. Most people here are interested in buying at some point. I doubt you will find many people that say real estate is a bad investment over the long term. The choice is not between buying in 1981 or buying in 1991. The choice is between buying in 1981 or buying in 1982, or 83, or 84. The Dow Jones has now surpassed its 2007 peak. Does that mean 2007 was a smart time to invest? No** Hindsight is 20/20 of course, but it's pretty clear we are not on the cusp of a recovery yet, so there is essentially zero risk to waiting it out for a bit more, and lots of potential reward.
2.89% - you ain't seen nothing yet as far as low rates. Interest rates will keep going lower along with prices for a while yet. In late Feb, I mentioned fixed (mtg) rates would start falling again. That rate has since fallen ~10%, down to 1.82%. Notice how ^rates and home prices have fallen together here for years now.
Also, from my previous link^^ you can see how some of the largest price falls come from extremely low rates (late 1730s for instance).
TD has been offering my clients 2.89% straight up without any negotiating.That has been another boon of waiting. Even though prices haven't come down much, interest rates keep getting better. Hard to imagine they would get even lower, but I wouldn't be surprised if they stayed around these levels for a while. What will be very interesting is if this provokes Flaherty into another round of tightening. He must realize that wagging his finger at banks for low rates doesn't work.
Bond mutual fund flowsThis is a big reason why rates have stayed low. Investors have been putting massive amounts of money into bonds, driving down the "yield" or rate. Mortgage rates are based on the bond market and hence we have continuing low rates.Right now we are in a "bond bubble." The last 2 months mutual fund sales hit an all-time high. Previous high....2001. In 2001 the money went into technology. This year it went into bonds. If the bond bubble bursts we will see higher rates in a hurry.
opps,Bond mutual fund flows
reasonfirst - opportunity costs are factored into the $30 000 investment into a GIC. Only addition to this would be if rent is much cheaper than owning per month after accounting for principal paydown.
Leo - I agree, no downside to waiting if prices are going lower and rates are not rising. Those who bought at peak and will hold for 5-10 years will also experience good ROI even without a suite if the pattern in your graph holds true in the future.
I have to wonder about the pricing strategy of 415 Bolenskine Rd (MLS® 319762).Originally listed for $410K on February 19th, raised to $414K on March 1st, then bumped up again to $425 on March 20th. Perhaps a "buy it before you get priced out" scheme? It is now listed more than $50K above the assessed value of $370K.
Totoro:All your principal paydown has an opportunity cost. But I know we've had this discussion before and it is too "academic" for you.
Those who bought at peak and will hold for 5-10 years will also experience good ROI even without a suite if the pattern in your graph holds true in the future.Likely yes. Although the pattern cannot continue forever. It has been driven so far by demographics and loosening credit. Housing cannot outpace inflation (or rather, income growth) in perpetuity.
Yes, please bring the conversation back down to my level. I count the pennies in my pocket at the end of the deal. Seems to work out okay.Principal paydown is not a lost opportunity cost in my books unless you actually would have had that money to invest otherwise for some reason. Principal paydown could be drawn out and reinvested (and the interest deducted against profits), but this would be part of the overall gain of the initial investment.
There was no 50% drop in real estate from the peak in 1981 in Victoria....at least not in Saanich East.Late 1980 to early (before May) 1981, the average 1970s Saanich East homes in the areas of Mount Doug, Gordon Head and Lambrick park sold for about $129K. Those homes at the lowest point in the decade went for approx $97K. Those same homes when they were new (from 1973 thru 1975), went for approx. $34K in 1973 to $42K in 1975.
In the TC today re the Jack Knox article...just before the half way point in the article: "Homeowners in the city of Victoria take the lightest tax hit in Canada, the magazine said. "Property taxes on the average Victoria home are just $939 a year." Huh?
alexandrahere - posted this above:1981 peak price 130 000 dropping to 93 000 in 1985 (low)That was average for Victoria as a whole.
Thanks Totoro....so I was bang on...my numbers are purely from memory though.
If you financed your purchase and would have to pay rent somewhere else or, alternatively, earned rental income, then no.You think someone buying in 1981 would have been paying about the same in mortgage payments as for rent? Do you know what interest rates were back then? The ratio of ownership costs to rent was the highest ever. Yes all the way up to today.I can tell you from experience that even in the mid-1980's, after interest rates had fallen to around 12% and prices by about 35%, renting was still a bit cheaper.
I took an interest in observing the real estate market in Victoria in 1980 when my parents (who were divorcing) tried for more than a year to sell their home. The market was so depressed due to high interest rates than that very little was selling. The best time to have purchased during the 80's was between 1985 and 1987 - as prices bottomed out and interest rates had dramatically decreased (from a few years earlier).Many people who purchased in the early 80's were immediately in a negative equity situation, some could not keep up with the skyrocketing interest rates, leading to bankruptcies, etc. I remember ... I was there.
@patriotz By the summer on 1986, rates had dropped to about 8% and a nice starter home could be purchased for about $70K. Payments with a 25-year amortization were $534.25 - less that rent. (As usual, after adding: property taxes, insurance, maintenance - the cost was more than renting.)Historical rates: http://www.bankofcanada.ca/wp-content/uploads/2010/09/selected_historical_page1_2_3.pdf
Anyone know what 354 Moss went for and what it went for last sale? Looks like they added a lot to the curb appeal but don't really know how substantial overall they added value.
"Principal paydown could be drawn out and reinvested..." or you could sell and reinvest. Still makes it an opportunity cost.
Moss went for $655,000. In 2011 it went for $590,000.
@totoro, the return on 30k invested in a GIC would still have been better than the leveraged return on the house (a final value around 120k), particularly when you factor in that a good mortgage rate in 1981 would have probably been in the mid to high teens.Considering transaction costs, maintenance, opportunity cost on payments, etc. the return on an investment in the house would be lucky to be in the black after 10 years.
"Still makes it an opportunity cost."Without the paydown to start with you would not have the money at all. You can withdraw and reinvest or keep your equity as is and have a lower payment and invest the mortgage difference instead. Many ways to cut it but the penny in the pocket test says no paydown pennies but for the initial purchase.
I dunno fatjay - I'd need to see a chart that accounts for taxation issues and what you would have paid in rent to agree with your GIC analysis. Also, wait a couple of years and you would have had a significant upswing.
You could have bought real estate in many different places in Canada in the 70s or 80s and done OK over the long term (impressive looking nominal returns, real returns ranging from zero to very decent) as long as you made it through the big hiccup of the early 80s interest rates.One of the reasons boomers are so infatuated with real estate is precisely because it has done pretty well for them. EVERYBODY (excepting real estate blog geeks)looks at the nominal return rather than the real return which exaggerates the performance of RE since it is often held for long periods of time.And if you are lucky you buy into a market before a permanent change in its desirability and price level. Examples (A)- building lots on Chestermann beach in Tofino selling for $20K in 1974. (B) Three story house in a nice part of Kitsilano for just over 100 K in 1976. Probably never see those inflation adjusted prices again (100K and 400K respectively in 2013 dollars)
By the summer on 1986, rates had dropped to about 8%Bank of Canada says about 11% for 5 year term. I personally recall paying >=10% all though the 1980's.What someone should do is run a 1981 purchase though the wait or buy spreadsheet and see at what point in the future someone renting from 1981 and then buying would come behind the 1981 buyer. My gut feeling is that it would likely be past 2000. I'll do it myself this weekend if I have time.
1981-1991Invest your $30 000 - here are the rates:http://www.marykeetch.com/gic/Don't forget to pay tax on the GIC interest income - no TFSA back then. DOn't forget to deduct your initial investment from the final amount.I do not believe you hit $100 000 after ten years assuming 30% taxation, but the math folks would know better.
Bottom line, real estate is a horrible investment over life's long-term. Take any 100 year period - say 1890 to 1990 - and the real return is zero percent. If instead you owned something like equities, you would have monumental real gains which are derived from business and technological innovation. It's understandable why everyone thinks the opposite, as most can only remember the RE secular up.
That's not to say one can't gain much real wealth from RE. But you have to either be lucky to have beat your generation to adulthood and then beat them again to retirement OR you must understand how to time the shortterm gyrations. To time it well, you're going to need to know a bunch the arrows in your quiver - rates, demog, immig, local econ's,,,, the price of rice in Bangladesh ;) That would be neat to see patriotz.
Thanks Marko - i don't think they made much.I sort of got the feeling they were flippers who would live in the house for a year + to avoid capital gains tax.
I should google my 100 year claim of 0% real return, before someone challenges it.Adam Johnson also noted that this was in line with Shiller's assessment that real U.S. home price appreciation from 1890 to 1990 was just about 0 percent.http://www.businessinsider.com/robert-shiller-home-investment-a-fad-2013-2
Bottom line, real estate is a horrible investment over life's long-term. Take any 100 year period - say 1890 to 1990 - and the real return is zero percent.You are ignoring the rental value. Include that and you will get around 5% providing the property was not bought during a bubble (or conversely not bought during a period of abnormally low prices like the 1930's).Buying a house at a reasonable price is actually a pretty good investment for an owner-occupier.
The few baby boomers I know of that never bought a home, had zilch in the bank in the 80's and they have zilch in the bank now. Even though they both worked and had stable and secure average to above average paying jobs; they did nothing but whine at the water cooler about the cost of housing. When they hit 65 they will be receiving the seniors supplement. In contrast, most of the boomers that purchased a home in the 70's and 80's did well for themselves in the long run, and thus are at least not putting that part of the financial burden on the tax payers.For young people below 28 yrs of age, the future does not look bright right now. What do they do? University is expensive and they can't get into many without a B+ average. To accomplish that many of their parents have to hire tutors, especially in math. Man, they can't even live with anyone now without getting a "pre-move-in agreement". Buying real estate is a no-no, GIC rates are terrible, and they must realise they might have to make three or more career moves in their lifetime. The kids & grandkids of those babyboomers who did not purchase real estate are for the most part up the creek because they in turn will inherit zilch.
Buying a house at a reasonable price is actually a pretty good investment for an owner-occupier.The voice of reason! At a reasonable price is one of the keys. The other is to own long enough that transaction costs don't kill you
The kids & grandkids of those babyboomers who did not purchase real estate are for the most part up the creek because they in turn will inherit zilch.Think the kids of the RE-owning boomers are going to inherit much? Take a look at the graphs at the head of the previous thread. And then check out what assets boomers have for retirement other than their houses.
I will do that patriotz. My comments are about people that I know personally. Yes, I think people that owned homes in Canada will be able to leave more to their kids and grandkids than those who didn't. Not one of my friends that owned homes will be collecting the seniors supplement. Of course many of them worked in the public sector or own/owned their own businesses.
You are ignoring the rental value.I wasn't referring to rental property, only personal.Buying a house at a reasonable price is actually a pretty good investment for an owner-occupier.Simply not an "investment" for an owner-occupier over the long-term (lifetime), certainly not a "pretty good" one, as it provides absolutely no real gain. Zilch, nodda, nothing ;) I suppose there may be people who think zero is an acceptable return.
Take any 100 year period - say 1890 to 1990 - and the real return is zero percent.That doesn't apply to cities that are changing/developing. You really think that we are ever going back to the values we had in the 60s? Of course not.I could buy 0% real from here over the next 40 years but certainly no reversion to 0% real for the 100 year period.
You really think that we are ever going back to the values we had in the 60s? In real terms, it's a given. The US isn't that far off. Homes can't beat inflation over the long-term. At best they're a hedge to inflation.Not sure I buy your density argument, as many cities were more densely populated a hundred years ago, than now.
My comments are about people that I know personally.Clearly we have a bit of selection bias here. Obviously the posters on this forum are unrepresentative of the general population, so I'd expect their social circles to be unrepresentative as well.The statistics show that there are a very large number of people whose net worth is almost entirely in their houses. And we know what would happen to that net worth if prices fall much more.Anyway I'm not arguing that buying in the 1980's is a bad idea, indeed I've said that buying in the 1980's was the best financial move I've ever made.
I wasn't referring to rental property, only personal.A given property has the same rental value whether owner-occupied or rented out.How can you claim that a house has zero return when someone who bought e.g. in 1985 or pre-1980 has been paying less than rent most of the time and now has a paid for house?
How can you claim that a house has zero returnIt's certainly not me who's claiming it. It's Robert Shiller, among other noted economists/PhDs, who have studied long-term home prices.
Dave - your argument is a few bricks shy of a full house.First of all, who owns for 100 years? You'd have to live to 125 and more likely to 135.Second, you have to pay for housing whether through rent or ownership costs. If you don't factor this into the analysis that is a big brick to miss.Third, you can contribute sweat equity or otherwise improve a place and improve value.Fourth, most people do not invest their money in other things if they are renters. Ie. if they save 300 a month by renting, it is not reflected in investments.Fifth, many people don't invest at all. The house and pension are it. Take away the house and they are not doing well at retirement.Sixth, Canada today is just not the same bear as it was 100 years ago. They were giving away land back then in many places.Seventh, if you want to make an argument, it better play out within my remaining lifetime for me to pay attention to it.
"Fifth, many people don't invest at all. The house and pension are it. Take away the house and they are not doing well at retirement."The housing market won't crash. We don't want to inconvenience these people. The people in the states that were dependant on their real estate as their savings vehicle just didn't not want the crash enough. Like, we REALLY don't want it.
What happens when you have too may pissed off unemployed youngens? http://www.cbc.ca/news/canada/british-columbia/story/2013/03/21/bc-save-on-meats-stolen-sign.html?cmp=rss
OK Patriotz. Now, you own a home that you bought in the 80's (Vancouver?). I presume you also have friends, family, acquaintances, work mates, etc. Now think, out of all those people, who do you guess will end up at retirement the most well off? Is it the people that own or owned a home most of their adult life or is the people that didn't? As I have always said and as Tortoro mentioned today....MOST people that rent tend not to invest the savings they would have made renting vs buying. They spend it. People that have purchased homes in the past (that I know of), tended to pay extra payments on their mortgage instead of buying that boat or a newer rec vehicle, invested their energy in "sweat" equity in their homes, tended to have friends/family over for dinner vs eating out etc. They tend to budget better overall.When you have something you are proud of, and you saved in order to get it.....you generally will look after it.Of course this is the norm I believe, but there are always exceptions.
In real terms, it's a given.Never going to happen. There isn't many things you can be sure about when talking about future values, but this is one of them. VREB says average SFH price in 1960 was $8796, or $68,835 in 2013 dollars. If you think prices are going back anywhere near there you've gone off the deep end.Comparison to a country is not valid. Neither is comparison to prices in a city core that is well established (like the Herengracht data)
It's certainly not me who's claiming it. It's Robert Shiller, among other noted economists/PhDs, who have studied long-term home prices.You have not understood what they have said.
The housing market crashes, the housing market recovers. Rinse and repeat and ride it out. Don't get off the roller coaster half way.
Now think, out of all those people, who do you guess will end up at retirement the most well off? Is it the people that own or owned a home most of their adult life or is the people that didn't? This is a false comparison. Why did they not own a home? In general because they couldn't afford it. So what you're saying is that the people who have money tend to be well off and the people that don't are not.Empty statement.
As I have always said and as Tortoro mentioned todayYou're certainly correct that both you and totoro repeatedly confuse financial literacy with home ownership.
Maybe, although looking at the definition:"Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources."I think I'm fair to middling ok and could even be doing a bit better than Leo... just sayin' - although I got zero graph-making skills - except with some pencil crayons maybe. If it is all about graphs and theoretical theories with no money on the line I might be out of the race.
Sorry, thought the name of this blog is House Hunt Victoria....I would only be too glad if more people talked financial investments. Because I am good at that too. I worked my rear end off in three jobs thanks and took huge risks for a number of years. No one ever gave me a penny. But I'll tell ya...I have been a very generous person towards others throughout my entire life.....and I wouldn't change a crumb of it.
VREB says average SFH price in 1960 was $8796, or $68,835 in 2013 dollars. If you think prices are going back anywhere near there you've gone off the deep end.I admit it sounds crazy to me too Leo, but then who would have thought US cities would fall back near the 1950s in real terms? Am I seeing things, or is that what this shows?I have no idea how it's going to revert. Who knows? Could be a dose of 20% annual inflation between 2018-2023 while nominal prices remain flat. That would do it.
@ patriotz How can you claim that a house has zero return when someone who bought e.g. in 1985 or pre-1980 has been paying less than rent most of the time and now has a paid for house?Very good point. I've always considered my house a rent avoidance strategy. After the mortgage is paid off, TIM (taxes, insurance, maintenance) works out to about $450/month - $1750 less than the $2200/month it would cost to rent the same house. As for a 1980's house purchase, my mother-in-law purchased a second house in 1983. The mortgage rate was high, but she got a really good deal... The owner who had designed and built the house could no longer keep up with the payments. Roll forward 30 years to 2013, it is the only significant asset she owns, and she has been talking (for many years) about selling it. There are a lot of elderly in the same situation as she is...
@Leo S VREB says average SFH price in 1960 was $8796, or $68,835 in 2013 dollars.One of the arguments I routinely make on this blog is that the CPI does not reflect the "true" inflation rate. I think that a much more accurate way to compare the cost of real estate over time is to compare the monthly payment for the average (or median) house as a percentage of average "family" after tax income. The monthly payment incorporates the prevailing interest rate, and thus the historical inverse effect between rates and prices.
One of the arguments I routinely make on this blog is that the CPI does not reflect the "true" inflation rate. I think that a much more accurate way to compare the cost of real estate over time is to compare the monthly payment for the average (or median) house as a percentage of average "family" after tax income.Unfortunately I haven't been able to find any data on incomes before 1976.
Agreed! Good data is hard to find....
Not wanting to correct grammar, but shouldn't this blog topic be: "A cyclical decline in Victoria RE appreciation rate" rather than "secular"?
I think that a much more accurate way to compare the cost of real estate over time is to compare the monthly payment for the average (or median) house as a percentage of average "family" after tax income.But you would have to look at the payment over the whole lifetime of the mortgage, not just at purchase time. That's what the owner is paying.For example, someone who bought in 1985 with the same initial monthly payment as someone who bought in 1995 ended up paying much much less.You are welcome to envision the corresponding scenario going forward.
"A large majority of Canadians in the so-called Y generation are worried that affordability will hamper their desire to own a home in their lifetime, according to an online survey conducted for real estate firm Royal LePage."Shut up young people. Stop complaining and dive in. I did, and look how much money I made. If we extrapolate how well housing in this country has done into the future then you too can make buck loads of money too.Don't listen to these "academics". Buy for your family. We all know that a requirement in this country for procreation is pride of ownership. Just buy, all your dreams can come true if you just sign the dotted line.http://www.vancouversun.com/business/real-estate/Young+Canadians+pessimistic+about+ever+owning+home/8127559/story.html#ixzz2O7ixSHxY
We are certainly in a cyclical decline. A secular decline would be if long term returns are slowing.
Re: VREB says average SFH price in 1960 was $8796, or $68,835 in 2013 dollars.One of the arguments I routinely make on this blog is that the CPI does not reflect the "true" inflation rate.Yes, VREB's claim is most unlikely and no doubt intended to promote RE as an investment. VREB's estimate of the 1960 SFH price implies a 1960's construction cost in 2013 dollars of less than $50.00 per square foot, which seems crazy, especially since, in the 60's, the construction industry was more highly unionized than now and lumber prices in real dollars were probably not much lower than now.
Friends received a 2.79% 5-yr fixed quote from CIBC yesterday. Seems to be a silent war among banks.A source in the industry has also told me that there are about 20 foreclosures a week in in Victoria right now. I am not sure what that means in terms of the long-term trend, but it does seem high.
@CS. I do wonder about the accuracy of that pricing data. Anyone have any personal stories about houses purchase around 1960 to get a feel for the prices bak then?
Koozdra - here's another Victoria specific comment from another source....I’ve calculated the SFH 3-month average and 3-month median price changes by area, comparing prices from about 10 months ago to current prices.Oak Bay:Average (-13.2%) since April 2012///// median (-6.8%) since April 2012.Victoria:Average (-14.7%) since July 2012///// median (-14.1%) since May 2012.Saanich East:Average (-11.8%) since July 2012//// median (-9.3%) since July 2012Saanich West:Average (-15.1%) since April 2012////median (-16.0%) since April 2012Central Saanich:Average (-11.1%) since March 2012///// median (-9.6) since March 2012Waterfront:Average (-21.9%) since May 2012///// median (-25.9%) since May 2012Esquimalt:Average (-12.9%) since October 2012///// median (-12.2%) since November 2012More sales would have been better for some areas, however, this information gives us a very good look at how much prices have declined so far. The correction for any one area might actually be more severe or less severe, however, the big picture is quite clear. Prices in all areas, including Oak Bay, are definitely on the way down.If you are thinking of buying in Victoria, now is not the time. Much lower prices are on the way. Victoria is still in a housing price bubble. Most of you are probably aware that the U.S. cities that experienced the biggest price gains were the cities that crashed the hardest.
"If you are thinking of buying in Victoria, now is not the time. Much lower prices are on the way. Victoria is still in a housing price bubble. Most of you are probably aware that the U.S. cities that experienced the biggest price gains were the cities that crashed the hardest."I could not agree with you more.
^^brought to you by info via Greater Fool.
Well then, entirely credible source.
@koozdra. That would be a good use of the data you are extracting. I'm setting up a site to keep all the data and charts in one place, so we can put it up there.
Re: House prices today versus the sixties.To make much sense of price comparisons over time, one needs to consider land and improvement costs separately, since the relative change in price, particularly of land, varies greatly with location.Considering Oak Bay, a 50 foot lot in 1965 cost around $5K. The typical house then was a 1200 square foot bungalow. Today, the minimum cost of construction would be around $150 a foot, or $180K for the house. If we assume that all nominal costs have changed in line with the cost of labor, and if we take the minimum wage (up ten-fold since 1965), as a guide to relative labor costs, then it appears that our 1200 square foot bungalow in 1965 should have cost about $23K. Today, while the construction cost is up ten-fold, the land cost is up 100-fold to $500,000K, for a total of $680,000. But the house will have depreciated somewhat, although how much depends on maintenance and updating. So the actual price today would be $600K, which is exactly what they are asking for the rather dated bungalow on Dunlevy at Estevan.So for North OB we have a 1965/2013 price ratio of 26, which if adjusted according to the minimum wage deflator, gives a real price increase of 2.6-fold.So in 2013 dollars, our house on Dunlevy would have been worth $230K in 1965, much more than VREB contends.But in Namu, BC, where land values have appreciated only slightly, if at all, the price increase would have slight or negative.
Well then, entirely credible source.The source is VREB.
"That would be a good use of the data you are extracting."I've been busy for a couple of days. I should have it done for this weekend.
@ Leo I was helping to clean out a friends parents garage a number of years ago and we found a classifieds section of the paper from the 60's. I distinctly remember a House in Oak bay was listed at $14.xk. I think a house in Esquimalt was $9.xk. I wonder if my buddy kept it?....Also note, I was a renter that invested his savings throughout the 90's ;-)
This is going to get interesting..."To keep credit flowing at the height of the crisis in the fall of 2008, Mr. Flaherty stoked the mortgage market by announcing that Ottawa would essentially buy tens of billions of dollars worth of insured mortgages from the banks. The moves he’s making now go in the opposite direction."http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/ottawa-to-limit-taxpayers-exposure-to-mortgage-market/article10083234/
@koozdra - did you create that data summary above? if so, I apologize for wrongly attributing it to info.
"@koozdra - did you create that data summary above? if so, I apologize for wrongly attributing it to info."No, that's not me. I'm still in the process...
Hard to imagine how much things have changed even since 1960!Starting in 1901, the CPR ran a ferry service that transported British Columbians between downtownVancouver and Victoria in about five hours. It wasn’t until 1960 that BC Ferries began operating, with only two ships and about 200employees.
There are only about 40 advertised "foreclosures" in Greater Victoria today. And that seems to have stayed constant over the last 6 months. Around 9 court ordered properties have sold in the last month. All have sold below assessed value. Some as low as 73% of assessed value.Condos seem to be getting hit hard in this market as well as properties in the outer areas of the Western Communites. However, mortgage defaulters are spread through out all of the income groups. They're just as likely to occur in Oak Bay as East Sooke. The difference is that properties in Oak Bay have a stronger demand and that means most mortgage defaulters have a chance to sell or get alternate financing before their home comes under a court order.
@CSConsidering Oak Bay, a 50 foot lot in 1965 cost around $5K. The typical house then was a 1200 square foot bungalow ... should have cost about $23K.So in 2013 dollars, our house on Dunlevy would have been worth $230K in 1965, much more than VREB contends.Very interesting analysis. You pricing matches the experience of my father who bought a 9-year old 1850 sq. ft. house on a on 20,000 sq. ft. lot on Ten Mile Point in 1968 for $32,500. At that time, it cost 2.6 times his annual gross income (he was the sole provider for a family of 5). With an average family income in East Saanich of ~$90K/year, $230K would still be about 2.6 times the family income.
Slightly off topic, but worth the read:Detroit and Cyprus offer debt lessons for budgetCheap money has fueled a 'buy now, pay later' bubble that governments have to deal with
VREB just used the BOC Inflation Calculator
VREB just used the BOC Inflation CalculatorVREB only publishes nominal values.
Looks like real estate was a bit of a dog up until the 60s. From the British colonist 1910:$3600 - Six room house on cook st.$2250 - Five room house near Jubilee Hospital$5000 - eight room house with water view$3950 - six room house on Southgate$6300 - ten room house on 60x120 lot on Michigan streetLots were cheap though. Looks like a regular city lot was around $300-$600.
"VREB just used the BOC Inflation CalculatorVREB only publishes nominal values."I was commenting on this statement of "VREB says average SFH price in 1960 was $8796, or $68,835 in 2013 dollars". It seemed that there was a lack of clarity on how they made this calculation.
@ DavidLRe: price to income ratio: 1960's versus today.So if price to income reverted to the 1968 value of 2.8, our Dunlevy bungalow would be priced at $152 K (based on current asking as fraction of the OB average price).In fact, in 2000 the price would have been around $258K (adjusted from the current asking according to this graph for OB here). Since the average family income in in OB for the Year 2000 was $62.7K, the price to income ratio for that house in 2000 would have been 4.11.Today the price, at $600K, is 6.3 times the OB average family income, and the average price of a more or less decaying OB pile is approximately 10 times average family income.So, if the price to income ratio in OB reverted to 2000, we'd see the average price fall by almost 60%. IF price to income ratio reverted to 1968, average prices would slump more than 70%.
But more instructive, probably, would be to look at price to disposable income. Better still, would be to look at price to disposable income of house buyers in the year of purchase -- although that statistic would likely be difficult to find.
@Leo S1910: Lots were cheap though. Looks like a regular city lot was around $300-$600.Prices didn't change much until after WWII ... About ten years ago, friends bought a house in the Burnside area from the original owner who build the house in 1935. Total land/construction cost was $3500.
I have talked to the son of the original owner/builder of my house and it cost $3,300 to build in 1933....
Here's the key factor switching us from the recent ~65 years of secular real increases, to now real secular declines (our line is similar to ^Australia). Even non-OECD countries, like China, are about to transition.I should note from yesterday's dialogue that history is fraught with long periods of real decline - whilst the price everyone talks about at dinner parties, continues rising. Your guess is as good as mine, the nominal path we take for the forthcoming real decline.
Signs that the Spring market is picking up? 2 houses sold for over asking in the last couple of days.Jamaica 320626Sold for $6k over askingOberlin 320244 Sold for $3.5k over asking
Jamaica was really good value. Not surprised.
Household incomes were alot less right up into the mid 70's compared to todays. It wasn't the norm for both people to be working at outside employment until the early 80's. How many kids does the average child bearing age couple have these days? One or one and one thirdÉ (question mark in French right now). Back in the 30s and 40s maybe 5, in the 50s and 60s maybe 3 or 4. So that one income fed alot more mouths.
Household incomes were alot less right up into the mid 70's compared to todays. ...Which is why I said it would be interesting to relate prices to disposable family income, which would give a better indication than total income to price of when the market is overbought.
But there's no doubt that debt has expanded exponentially relative to household disposable income over the last two decades. So a reversion in disposable income to price ratio is far from inconceivable, which would mean massive price declines.
@alexandrehere - press the control and shift keys down together once or twice and your question mark should return.
@AlexandrahereGood points about family size getting smaller and more earning potential with an increase in the proportion of working mothers through the 1970's. That said, there was a time when a "single" family income was often enough to buy a house, while "two" family incomes are now barely enough.(Side note: back in the 1960's when my mother-in-law was pregnant with her first child in Vancouver, she was laid off from her nursing position when 4 months pregnant. No job was "held open" for her as the expectation was that she would never return to work while raising a family.)@CS I think that many more families were living within their means during the 1970's as compared with today. I have neighbours with half the family income that my wife and I have, but they seems to have much nicer vacations, home entertainments systems, furniture, etc. Oh, hang on - I don't have a HELOC! Silly me ...
Anyone have any personal stories about houses purchase around 1960 to get a feel for the prices bak then?Don't know about Victoria, but $13K got you a new build in the Interior.
Back in the 30s and 40s maybe 5Actually during that period the birth rate was the lowest in Canadian history prior to the arrival of the Pill. Reasons should be obvious.Except for the late 40s of course.
Household incomes were alot less right up into the mid 70's compared to todays.Not really. BC Average Family income 1976: $66,4002010: $70,200
70's were the good ol' days. My dad said that in the 70's, in Alberta, you bough a house with cash...
BC Average Family income1976: $66,4002010: $70,200Which means median real family income was probably higher in 1976, since income inequality has increased a lot since then.
Interesting stats on family income in the 70's and now. These numbers are consistent with the fact that real incomes family income in the States has hardly risen since the late 60's.Above where I suggest price to disposable income would be a useful metric, I should have said price to discretionary income, i.e., income after taxes and essential living expenses. That family size is declining raises the question of whether the decline in fertility is a result of the increase in housing cost. We may be a dying breed, but at least we can boast the World's greatest housing debt.
US Household Income chart 1967-2011 (see bottom of page).
And one big difference between now and the 70's and 80's is that today, borrowers can expect to pay back in real coin most of what they've borrowed, whereas the boomers paid back mostly in greatly depreciated currency as inflation wiped away much of the real value of their debt.
That family size is declining raises the question of whether the decline in fertility is a result of the increase in housing cost.But real housing costs in Canada were pretty much constant, with some regional cycles, from the end of WWII up to the start of the current bubble. And in the US as well.Note also that the biggest decline in birth rate has been in Quebec which has among the cheapest housing.The reasons for the decline in birth rate are well documented and have nothing to do with housing costs.
Full time high school teachers were making around $5000K per year in the mid 60's. My friend teaches English in high school now and I believe she makes over $70K. She has her masters though....maybe they didn't in the 60's. Most of them probably just went to the Victoria Teachers College for a year or two.War time homes in the mid 60's in James Bay, Esquimalt. Mayfair and Scott Street areas of Victoria went for around $6000. They were your basic model, i.e. two bedrooms, one small bath, small eat in kitchen, a back porch and were heated with space heaters usually located in the living room.1912 era homes in Fairfield area in the mid 50's apparently went for around $10-$12K.People rarely went out "dining" in the 50's and 60's as there were very few high end restaurants and they were the only ones that served alcohol. There was the Oak Bay Marina, Oak Bay Beach, The Empress Hotel and I think my mom and dad mentioned a restaurant in the James Bay area called The Beach Comber. By the mid to late 70s, the dual income couples were probably eating out in a fancy place at least every two weeks.Back East in the 50s and 60s, especially in the provinces of Manitoba and Ontario, many people had summer cottages on the lakes. Here on the Island, people had 16 foot power boats and went fishing on the weekends instead.
I have lived in Vic my entire life and assumed this was the best place to live. I have recently had the privilege to explore other parts of the country and I now finally understand what a shit hole Victoria actually is. It has nothing going for it, infrastructure sucks, night life sucks, employment sucks. The entire island is going to cave sooner or later because there is no driving economic force. Nearly deads are dying, service work is drying up as a result. I have discovered the grass is greener in other areas of the country.I have children, they don't have much a future here.Victoria is not vibrant, far from it. I'm just glad I bought pre y2k so I can price to sell and get the hell out of here before it burns.
Which means median real family income was probably higher in 1976, since income inequality has increased a lot since then.Yes.1976 Median: $58,1002010 median: $52,800
Mr. Mike is very cranky today.
No, I just want to move to Edmonton but my wife says no.yeah guess i'm cranky.
Tried telling her everything I said here but she aint buying it.Edmonton is a very cool city, place rocks.Whatever...i'll keep trying.She has a pretty killer job here in Vic.
Trying a different tack this time..
Edmonton is a really great city... I just couldn't handle the six months of winter! Housing prices are more reasonable there... Victoria, a sh*t hole? I've traveled a bit around Canada, and every time I return, it reaffirms why I call Victoria home.
Leo S@DavidL, it's shit for 6 months here too!
The reasons for the decline in birth rate are well documented Really? Give us a clue. Maybe a link to the documents!
But real housing costs in Canada were pretty much constant, with some regional cycles, from the end of WWII up to the start of the current bubble.Do you have any actual evidence for that?In 1970, the cheapest house in Point Grey, on a 33' lot went for $16,000.00 or less than a year's income to a large proportion of Vancoverites of the time. By the "start of the current bubble" the same property, land value only, was around $1 million. Maybe a 62-fold increase in nominal price was not typical of the country as a whole, but there sure was massive escalation in prices in Toronto during the same time period, during which wages certainly did not increase in the same proportion.
@mrmikeYes Victoria is truly awful, but don't worry, it is only a matter of time till the megaquake and ensuing tsunamis put us out of our misery.
Patriotz and others that may be interested in these stats.Fertility rates in Canada1926-2006Number of Children per woman:1926 around 3.41936 around 2.61946 around 3.61961 around 3.81966 around 2.6 (the pill was in full force)1971 around 2.01986 - 2006 between 1.5 & 1.7
This topic reminds of something today. My friend is building a new house and I was helping him plan out the in-wall sound system. While I was asking the electrical contractor something one of his employees (late 60s) made a comment to one of the apprentices (early 20s) along the lines of "back in my day we use to wire an entire house in one day," implying the apprentice was being slow or similar.It got me thinking...yea, he probably was able to wire a house in a day but each room had one plug, one light and one switch. My friends house has 80 pot lights plus a ton of other electrical components. Obviously it is going to take longer. Things have changed in the last 50 years.
Gee Marko: If the guy is 65 now, 30 yrs ago he was 35....in his prime. 30 yrs ago was 1983. I had a wonderful newer house then in SE. 3 beds, 3 baths, LR, DR, Kit, Utility Room, Sun room, Famility Room. drive in garage and partial basement.The garage had at least three plugs as it also had a built in vac and automatic garage opener. There were outlets and lights in the basement. All rooms were baseboard heated. The laundry room had at least two plug outlets plus the 220 for the dryer. Kitchen had a stand alone fridge outlet, dishwaher and of course 220 for the stove. Corner windows in the kitchen had two lights. There was an overhead kitchen light and there was an eating bar with lights above. The three baths all had razor plug ins. Living room, dining room and all beds had at least 4 outlets plus with some rooms having over head lights. The foyer also had lights and plugs as did two lights in the back area, one in the front and two on either side of the garage.There were no pot lights however.
When I get a house my entire ceiling will be pot lights. It will be brighter than being outside.
Re: Number of Children per womanInteresting stats. The 23% decline in fertility between 1966 and 1970 may have had something to do with the The Criminal Law Amendment Act, 1968-69, prohibiting abortion except where necessary for the physical or mental well being of the mother, a condition that was largely ignored. The law was struck down in 1988, thereby removing all restriction, which may account for the further 15-25% decline in fertility after 1986.But economics probably also played a part. Many couples, though not all, delay having a family until they have a home of their own. Therefore, the continual increase in house price to income ratio since the 60's likely has delayed reproduction with inevitable negative consequences for total fertility.
They are really getting creative at trying to attract renters these days."2 nights ago, a tenant in the building fell and injured herself. She lives alone in the suite. The building caretaker and a tenant who works in the health care capacity went to help her. They got her an ambulance, and they got her looked after. When the tenant rented the suite 5 years ago, she was not told this is a feature that comes with the suite: someone who is there when needed. She rented the suite because she liked the suite, and she liked the care taker who also live in the building.Let's face it, most suites in the city are similar physically. Yes, this 2 bedroom CORNER suite is on desirable 3rd floor. And yes, this suite is bright and cheerful because of the natural light. And yes, this suite has a WALK IN CLOSET! There are others with similar attributes.But what makes this building a bit different from others is the hidden feature/benefit. A caretaker and other tenants who care about others (regardless of the location.) It is hidden because you can't photograph it or point to it. You have to experience it. (The tenants also like the fact they did not have to call 1 800 number and be put in the corporate process for an urgent plumbing trouble; or God forbid, a medical attention.)This is not a feature that is on the top of most renters' list. It should be. Maybe not the first, but should be top 5."http://victoria.en.craigslist.ca/apa/3682957736.html
apparently real estate is cheap in upstate New York if you can really get this for $1Mhttp://www.upstatecastle.com/index.htmhard to believe
@Alexandrahere My 1979 house is similar with baseboards in each room, four outlets in every bedroom, seven outlets in the kitchen, etc. Even the garage has four outlets! Quick math would be 46 x 120 volt outlets, 18 x light fixtures, and 5 x 240 volt outlets. More than a days work? I would think so...
@CSAnother factor in declining birth rates since the 1960's (with the introduction of the pill) has been that with each decade there has been an ever increasing number of women pursuing post-secondary education. Starting a family is often postponed (or reconsidered) when busy with university and/or establishing a career. In 1960, the age of the average mother to have her first child was about 20... now it is more than 30.
In 1970, the cheapest house in Point Grey, on a 33' lot went for $16,000.00 or less than a year's income to a large proportion of Vancoverites of the time.Oh come on off it. The median house in greater Vancouver (not Point Grey) was about 4x the median household income back then.As for birth rates being driven by house prices, there are plenty of cities in Canada (even good sized ones like Windsor) where houses have remained inexpensive. Have people in these places kept having larger families or has family size declined along with the rest of the country?The decline in birth rates has happened across all Western countries without any correlation with house prices. It has been driven, obviously, by the availability of contraception and increasing entry of women into the work force.
In 1960, the age of the average mother to have her first child was about 20... now it is more than 30. OECD says that the mean age at first birth in Canada was about 27.5 in 2009.But note this is mean. Obviously the median is lower due to the age skew (women cannot have children before puberty and very few before 16, but can have them up to menopause). I think the median would be under 25.HRSDC says that that average age of mothers at birth (all births, not first) was 29.4 in 2009.
apparently real estate is cheap in upstate New York if you can really get this for $1MEven better, today it's listed for $895,000!
Or you could get a 100 year-old house in South Oak Bay for $1M.Hmmm. Something is not right there.Undoubtedly, the castle would have astronomical upkeep expenses.New roof? Your are bankrupt!Bricks need re-pointing? Bankrupt!Heating? We can eat next month, dear.
I think there is a big difference in terms of electrical between a 1960s home and 1970s/1980s home.
I think there is a big difference in terms of electrical between a 1960s home and 1970s/1980s home.We're in a 60s place. 2 baths, no plug in either of them. A couple plugs still 2 prong, one light, one switch per room for the most part aside from the updated kitchen and bath.
The electricians I remember wiring the houses that my parents built worked so hard and so fast - I can remember that clearly - it was a blur of drilling and wire pulling. A lot of the electricians that I have seen wire lately, either in wiring a house I had built or for friends' houses, have lacked the same work ethic - they get the job done, but it takes a lot longer. I am sure there are exceptions. Undeniable that there are more plugs, lights and overall wiring per sq ft now than before...and houses are generally far larger for smaller families. And a lot more granite.
Add in hard-wired smoke detectors, sound systems, RJ45, home control systems, etc. and there is a lot more wiring now than before.
@PatriotzIn 1970, the cheapest house in Point Grey, on a 33' lot went for $16,000.00 or less than a year's income to a large proportion of Vancoverites of the time.Oh come on off it. The median house in greater Vancouver (not Point Grey) was about 4x the median household income back then.I should know. I was there, though I could be off on the date by a year. The house was on Eleventh at Sasamat. It wasn't much, with knob and tube wiring. Within a year, prices doubled, so then a 33' Point Grey lot cost around 32K. A decent four-bedroom house on 32nd Avenue was offered at around $60K. Which would have been about five times my then income, consistent with your house price = 4 times family income. We also looked at a half-acre property on 2nd Avenue West of Blanca, which was offered for $140K. For us it would have been a stretch but a good investment, since the current value must be many millions.
@PatriotzOECD says that the mean age at first birth in Canada was about 27.5 in 2009.But note this is mean. Obviously the median is lower due to the age skew (women cannot have children before puberty and very few before 16, but can have them up to menopause). I think the median would be under 25.Wrong again, according to the FP!"In 2012... the average first-time mother was well over 29 years old."And for children born in wedlock, the average age of mothers must be well over 30 since, according to the same source: "the average age of brides has steadily increased to 31.5 years."
@DavidLStarting a family is often postponed (or reconsidered) when busy with university and/or establishing a career. In 1960, the age of the average mother to have her first child was about 20...And the rising cost of housing factors into that. If a woman does not have a career what chance is there of buying a decent house, or any house? And if a woman has a career, how old will she be before her student loans are paid off and she can consider investing in a house?Our social and economic policies are highly dysgenic, causing the most intelligent women to have rather few children, while welfare agencies subsidize reproduction of the underclass. As a result there is a strong inverse relationship between IQ and fertility.
@CS ouch - my wife and I are dunces.
@a simple manCS ouch - my wife and I are dunces.Could be! But not necessarily from anything I have said.Maybe you're of the minority that gives hope that the human race can continue as a reasonably intelligent species despite the obstacles placed in their way by the political and financial elites.
Or to be more specific, correlations are usually messy, especially in the social sciences. So the possibility remains that intelligent people will have more than a couple of kids!
This conversation reminds of a documentary I watched recently call Idiocracy.
Yup, the first few minutes of Idiocracy are the best:https://www.youtube.com/watch?v=icmRCixQrx8
guess I'm a dunce too :(Here's a closer look at Stocks vs. RE over a hundred year period.If you assume dividends equate with the 'free rent' derived from owning (in reality dividends likely outpace), then from 1900-2000 stocks increased ~8 times in real value while RE increases zero (based on 1890s-1990s). It looks like precisely 1897-1997 both touch the 110 level.BUT, for a truly fair comparison (1900-2000) you can see the RE index^ goes from about ~103 to ~125. Or a ~21% real gain compared with ~700 % for stocks.
Why would you assume that dividends equal the cost of shelter on leveraged funds? Are you buying stocks with leveraged dollars? Probably not. This means you are only investing your savings after cost of living and discretionary spending. This means you have to be a saver - which many folks are not. The growth occurs only on the amount invested. With a home you are borrowing at low rates for a long term and the growth occurs on the entire purchase value while you pay down the principal.Have you accounted for taxation of investment income in the year earned? Again, you seem to have missed this factor. There is no taxation on primary residence equity or savings in rent equivalent.Who invests for 100 years btw? Try 40 - maybe.If you had some real numbers/ scenarios to work with and accounted for the costs/benefits completely you could have something to compare fairly. I do think there are many folks who would agree with you on investing in the stock market rather than paying down a mortgage - especially in a high market.
Academics aside most well off individuals with low to moderate incomes that I have met have done it via real estate. I have a client right now that bought a home in the late 70s as a rental property. Same tenant for the last 16 years and property has been long paid for and cash flow positive for years. He is retiring this year and selling it off. Some people possibly do just as well in the stock market but I just haven't met as many.
I do think there are many folks who would agree with you on investing in the stock market rather than paying down a mortgage - especially in a high market.I agree with those folks especially if you are sitting on a low 2s variable mortgage. I rather max out RSPS, throw $5,500 into the TSFA and invest the rest than pay off the mortgage. If I have to renew at a high rate just sell of the TSFA and lower the mortgage on renewal.
totoro,I can explain it in a different way to address your concerns, making it apples to apples:Pretend you just graduated highschool in 2013. Your great grandma passes and leaves you $50K cuz she knows you're a bright young lass.You want to invest it to set yourself up later in life. Option A is to open up two tax-free investment accounts (25K yours, 25K your fiancee) and leverage it to buy 300K worth of stocks OR, option B is use it towards a down payment on a 300K house or condo. Option A has you and your fiancee using your stock dividends to pay your rent (even if you need roommates to begin with, but I doubt it).Option A sees real gains of ~700% per century (~300% by your retirement) derived from human innovation - stocks. Note that it's tax-free the same as home ownership.Option B sees no real gains over the long-term (likely ~0% by retirement). Chances are, you reach retirement with no real returns.
The "tax-free investment accounts" I mentioned are the same as the "TFSA" thatMarko mentioned
But you cannot use leverage in a TFSA, can you?
Dave - TFSA are new - your example predated the last five years. The room would be $25 500 so lets throw in an extra $500 of her own cash.There are many issues with your real life example. For example, have placed $25 000 in your fiance's sole control and you just graduated high school. How exactly are are you going to leverage this $25 000 to buy $150 000 worth of stocks each? Hmmm...you are only allowed to buy twice the amount you put down if you buy on margin. There is also a fee for this - interest is charged on this loan. Okay, you each get to $50 000 - although as minors you are not eligible for this - but whatever.Lets hope you have a string of winners and no losers... cause if you lose and there is a margin call, you lose money that aint yours and you gotta pay it. I'm not even sure that you can borrow on margin out of a TFSA... most likely would result in taxable income, but I've never done it.So, realistically, we are looking at paying rent from any dividends made from $100,000 worth of stock less margin costs - which means you are not reinvesting through a DRIP. And don't forget you are screwed if you apply for bursaries or student loans for school. You now have investments that need to be used first. A primary residence is not counted for these purposes.As for your "no real returns by retirement" if you buy a house at 18... give me a break. If only I'd done that.
Not sure on the leverage CS. If not, then we'll change Option A to 50K worth of stocks to start and add the allowable 11K per year thru borrowing at the same rate as you would a mortgage. Still, no matter how you slice it, the stocks option is historically far superior to RE - as RE provides zero real return over the long haul. The only difference with the new Option A, you will definitely need roommates from age 18 to ~28 before your dividends will pay all the rent. I'm betting most of us had roommates during those ages anyway.
What allowable 11k per year through borrowing at the same rate as mortgage? Where and how are they accessing this?
It's not my research showing no real gains totoro. Imagine the poor people who bought a house at 18 yrs of age in the year 1894 and then sold at retirement, say age 66 in 1942. They experienced an almost -50% real loss! (graph below)http://www.mortgagelenderatlanta.com/wp-content/uploads/2012/05/History-of-Home-Values-Graph.png
You're allowed to add 11K per year to a TFSA.
http://canadiancouchpotato.com/2012/06/25/what-are-normal-stock-market-returns/Considering you are taking out all your gains to pay rent (assuming 8% return accounting for fees given that long-term average return is 8.5%), I'm not sure you are ever going to reach your goal. You will always retain the principal only on your plan of paying the rent. At the end of the day (lets say twenty-five years) you will have $50 000 and rent that has been climbing with inflation and not being paid by the gains if you averaged. If she had bought a home it would have been paid off. She would have the $300 000, zero rent, maybe rental income and the gains made through appreciation - tax exempt.
Dave - it is not 1894. Imagine the 18 year old that bought in Victoria in 1960 for $16,500. Poor fella, paid it off in 1980 at the age of 38. Lived without rent but invested the difference for the last 32 years. Has a million in investments now plus his pension. Held onto it the house and sold last year for $550 000 cause it was time to downsize.Of course housing markets can crash, but so do stock markets. I don't buy the zero real rate of return argument based on your aged data. I do buy the idea that it is good to buy lower and sell higher and that it is better to invest in real estate and other things as well to diversify a bit.
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