Saturday, October 11, 2014

What it cost to run our house.

In case anyone is wondering what it costs to run a pretty typical house, here is ours for last year:

Gordon head, 1970s build, ~2100sqft.   2 adults 1 child upstairs, 1 adult in suite downstairs.


Month Hydro Gas  Water/Sewer /Garbage Property Tax Insurance
January  $172.67  $86.25  $200.91
February  $164.64  $104.95
March  $164.64  $78.70
April  $96.83  $78.29
May  $96.83  $65.17
June  $57.49  $59.59  $222.13
July  $57.49  $45.90  $2,897.88  $957.00
August  $57.69  $79.23
September  $57.69  $70.33
October  $110.68  $50.91  $263.32
November  $110.68  $75.68
December  $172.67  $86.47
 Total Utilities   $2,888.00
 Total   $6,743.00

Heating is a heat pump with gas backup and baseboards downstairs.  Gas for hot water and 2 fireplaces (rarely used).   

So even without factoring the mortgage in, it costs about $560/month to keep the place operating.   Adding in mortgage interest, that goes to $1450/month.    Nothing big on maintenance, but the new gutters and some random Home Depot excursions probably added up to another $100/month.

63 comments:

Numbers Hack said...

That's not cheap. Wonder if a $30000 investment in getting off grid would be worth it.
How energy efficient is your home?

patriotz said...

But you'd be paying the same hydro and gas if you were renting, so it's not an ownership cost.

You'd probably want renter's insurance if you were renting, so really only the difference with owner's insurance is an ownership cost.

Is the water/garbage included on the tax bill in Saanich or is it billed separately?

On the other hand you didn't include maintenance.

patriotz said...

From previous:

If the efficient market hypothesis were 100% true then it would be equally impossible to consistently underperform the stock market through stupidity and laziness

But you can certainly underperform simply through bad luck.

However adding extra cost by investing in a mutual fund is not bad luck.

Also note a precondition of EMH is that the market be perfectly liquid in both the long and short directions, so that the market price is set by all information available to all parties.

Obviously does not apply to RE.

Leo S said...

You'd probably want renter's insurance if you were renting, so really only the difference with owner's insurance is an ownership cost.

Renters insurance is about 1/3 of the price.

Is the water/garbage included on the tax bill in Saanich or is it billed separately?

Separate.

On the other hand you didn't include maintenance.

I did. Gutters and random bits and bobs was about $1200-$1500 for the year.

Leo S said...

That's not cheap. Wonder if a $30000 investment in getting off grid would be worth it.
How energy efficient is your home?


Considered solar hot water or solar but while we have a south facing roof, it is significantly shaded from trees so wasn't worth it.

70s house, double pane windows, lots of insulation in the attic. Dunno how efficient it adds up to be.

totoro victoria said...

Much more affordable than renting.

Renters pay utilities too so knock that off and you have about $500 a month for costs of ownership including maintenance (assuming home is in fairly good shape) - which is about right imo.

So, if your mortgage interest is $890 plus $500 costs and $500 on lost opportunity costs on your down payment you are looking at $1890 a month less the FMV of the suite rental at $900 including utilities.

You are spending a total of $990 a month on accommodation you would otherwise rent for $2000-$2200.

Assuming you don't have to sell in a down market you are ahead about $13,000 a year after tax. That difference if invested in, for ex, a TFSA, gets to compound over the years creating an even greater difference.


If you wait for your home to appreciate to sell you are going to come out far ahead of renting.

And the numbers keep getting better as you pay off your mortgage.

Long-term $100/month has been more than what we have spent on maintenance. We have spent more than that on improvements though. In my view, much of that is recoverable on resale.

Leo S said...

So, if your mortgage interest is $890 plus $500 costs and $500 on lost opportunity costs on your down payment you are looking at $1890 a month less the FMV of the suite rental at $900 including utilities.

You are spending a total of $990 a month on accommodation you would otherwise rent for $2000-$2200.


Not entirely. If we rented the place we could have the benefit (some rent and partial offset of daycare costs) of the in-law suite as well so that can't be subtracted. Also opportunity cost is more like 750 but that's my fault for being a wimp and putting money into the mortgage.

So for us it's more like ownership costs of $2150 vs rental costs of about $2100-$2400.

totoro victoria said...

You couldn't rent the main and suite for $2000-2200 a month at FMV.

Each unit would be charged separately so you would actually be paying $2800-$3000 for the whole house.

Unless I missed something I believe the numbers I posted are correct except for the additional $250 a month in lost opportunity cost which was likely a mistake long-term if your mortgage rate is lower than your after tax investment returns.

Introvert said...

Maybe one day some Chinese investors will consider Vancouver real estate a bit too pricey a place to park their money and will begin to consider alternatives such as parts of Victoria. Gordon Head, after all, already has a disproportionately high Asian population.

Leo S said...

You couldn't rent the main and suite for $2000-2200 a month at FMV.

Pretty close. We saw a whole house with suite for 2200 when we were looking for rentals a couple years ago.

totoro victoria said...

Now you are talking unicorns unless you can show me a listing like this again.

First question would be was the house with suite directly comparable as far as location, amenities, room size and condition?

When a townhouse like this rents for 1895 a month: http://victoria.craigslist.ca/apa/4690809339.html in Gordon Head, a nice 2100 square foot house with suite for 2200 for both units has issues, and/or the owners want to be entirely hands off and are substituting rent reduction for property management.

info said...

. . . . . . . Price Increase/Decrease. . . . . . .
. . . . . . . . . .August 2008 - 14. . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+38%. . . . . . . . . . . . . . . . . . . . . . . . x. . .
+36%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+34%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+32%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+30%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+28%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+26%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+24%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+22%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+20%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+18%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+16%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+14%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+12%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+10%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+8%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+6%. . . . . . . . . . . .x *. . . . . . . . . . . . . . .
+4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..0%. . . . x *. . . . . . . . . . . . . . . . . . . . . . .
- 2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6%. . . . . . . . . . . . . . . . . . . . . . . . . * . . .
----------------------------------------------------------------
. . . . . . . Aug. . . . . May . . . . . . . . .Aug. . .
. . . . . . . 2008. . . . 2010 . . . . . . . . .2014. .

* = Victoria
x = Hamilton


From August 2008 to August 2014, house prices in Hamilton increased over 37% while prices in Victoria sank 5.6%. (Based on Brookfield’s index data)

Obviously there are many near-peak buyers with underwater mortgages in Victoria.

Since 2010, SFH sales have been well below Victoria's long-term average. The underwater mortgage crowd has contributed to this as many of them have been eliminated as potential move-up buyers.

With an underwater mortgage you can't sell your house without paying the bank the amount that you are down on your mortgage plus an additional (costly) penalty. The other option would be to claim bankruptcy.

Some of Victoria's underwater mortgage holders have probably had to turn down higher paying jobs in other cities because they are stuck in their houses, unable to sell without paying the bank a huge amount of money. Ask them if they still feel the same way now about their buying decision as they did in 2010, for example.

info said...

My chart clearly shows that it has been better to rent than buy (with a minimum down payment) in Victoria since 2008 (for those who bought near the peak in Victoria and sell at a lower price within the next 5 years, for example).

Basically, some degree of price appreciation is needed in order to break even after buying (and selling), even with rates at historically low levels. Housing bulls always leave out the following points when arguing that buying is better than renting:

* A fair estimate of maintenance costs for houses (surprise! that new roof will cost you $20 K) and special assessments for condos (these can cost you $100 K or more)

* Bulls assume that historically low mortgage rates are permanent. This is simply false. As rates rise (and they will), your monthly payment will increase.

* With compounding interest on a 25-year mortgage and a minimum down payment, you will end up paying for your house 2.5 to 3 times by the time it is paid off. Think of all the price appreciation that would be needed in order to offset that cost.

* You lose the ability to invest your down payment money and earn more money with it. That counts as lost income on potential investments.

* If your have an underwater mortgage and need to sell your property, you will have to pay the bank the amount that you are down on your mortgage as well as an additional (costly) penalty. The other option would be to claim bankruptcy. Turning down a higher paying job in another city because you are stuck in your home prevents you from earning more money.

It would be financially foolhardy to buy a house now, near the peak of Victoria's housing bubble. The smart money knows this. Unfortunately the herd doesn't.

totoro victoria said...

Super happy with the house I bought in 2012.

Who are these people who had to turn down higher paying jobs elsewhere because of their mortgages here? I personally know no-one.

Maybe they should post their details here and we can help them come up with a sensible solution for their terrible dilemma.

Like maybe renting out their house until their mortgage term is up and therefor avoiding any pre-payment penalty. And then listing with a low fee realtor or selling it themselves. Or maybe just rent and hold.

Might be better than, say, telling them their only option is bankruptcy.

Vancouver Island's rate of bankruptcy is only 2.1%. Moreover, bankrupt individuals tend to be unemployed, so have little to no income, and
are typically renters NOT homeowners.

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CD4QFjAA&url=http%3A%2F%2Fwww.bankofcanada.ca%2Fwp-content%2Fuploads%2F2012%2F02%2Fboc-review-winter11-12-allen.pdf&ei=E5k5VN-zOcayogSMi4G4DA&usg=AFQjCNEXlj1sS0GmwSbUJpMNo9IK7Te2wg&sig2=qOXk6TPfo2QsmIExWjAfxQ&bvm=bv.77161500,d.cGU

info said...

30-year mortgages were still available in Canada, for first-time buyers, as late as the summer of 2012. 40-year mortgages were available until October 2008.

Many near-peak buyers in Victoria, who bought from 2008-12, did so with 30, 35 and 40 year mortgages. Not much principal gets paid off in the first 2 to 6 years of a 30, 35 or 40 year mortgage.

Many of those first-time buyers who bought in Victoria in 2008 and 2009, for example, actually saw their properties increase in value until mid-2010. It would be difficult to argue that many of these buyers wouldn't have taken out HELOCs and spent that money. This, in effect, would have increased their mortgage debt. Now that prices in Victoria are lower than they were in 2008 and 2009, many of these (08-09) first-time buyers are in deep trouble.

At the peak of the US housing bubble, HELOCS amounted to only 5% of GDP. In Canada, that figure is 14% of GDP (2014) and increasing.

info said...

"Who are these people who had to turn down higher paying jobs elsewhere because of their mortgages here? I personally know no-one."

I know several people who have had to turn down higher paying jobs in other parts of Canada because they are stuck in their Victoria houses with underwater mortgages.

totoro victoria said...

Perhaps you could encourage them to post the details here if they would like some feedback on options.

info said...
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info said...

"Or maybe just rent and hold."

Victoria's housing bubble is comparable in size to the bubbliest markets US markets of the 2006 US housing bubble (Phoenix, Miami, Los Angeles, Las Vegas, Tampa, San Diego, etc.). Victoria's price decline will be deep and last for several more years. There are no guarantees that prices in Victoria will recover to 2010 levels in 10 or even 20 years.

Prices in every US market that the Case-Shiller index tracks (except Dallas) are still well below peak levels reached in 2006 (note that there was no housing bubble in Dallas).

The buy and hold strategy didn't work for peak buyers in the US, Ireland, Spain, Iceland and many other countries that had housing bubbles. It will not work in Canada either.

It can be argued that prices in LA have recovered more since hitting bottom than the vast majority of US cities. Yet, prices in LA have only recovered back to the level they were at in February 2005, which was almost 10 years ago.

Victoria cannot be compared to LA. LA is a huge world class city (not a small regional city), isn't located on an island accessible by ferry and plane only, has a world-class economy and has warm winter weather.

Interest rates in the US were slashed from near-normal levels to historically low levels about 2 years into the US price correction. This limited the price correction in the US and allowed prices to rebound after hitting bottom.

Interest rates in Canada are currently at historically low levels. Slashing interest rates dramatically in Canada (as they did in the US) as prices fall here will not be an option.

As prices fall across Canada, there will be no huge rate drop to stop prices from falling deeper than they did in the US. The absence of the stimulus from the dramatic (08-09) rate drop will also prevent Canada's price recovery from being anything like the US recovery.

The buy and hold strategy didn't work for peak buyers in the US, despite the fact that the huge rate drop card was played there. Canada won't be able to play that card and the buy and hold strategy won't work here in Canada either.

info said...
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info said...

"Perhaps you could encourage them to post the details here if they would like some feedback on options."

I doubt that they would be interested in something like that.

Most of them have researched housing bubbles (price-to-rent ratios, etc.) since buying and have realized that they bought based on emotion and not on a solid base of well researched facts. They admit that they had a limited view and understanding of Victoria's market and that they were an easy target for those who made money from the sales of the houses they purchased.

They realize that there is basically nothing they can do about it now. They know that they made the biggest financial mistake of their lives by buying near the peak and that they will be stuck in their Victoria homes for many years. They understand what happened in the US and many other countries with housing bubbles. They are encouraging others to stay out of Victoria's housing market until prices fall more.

totoro victoria said...

There are somewhere around 2000 SFH sales in Victoria per year.

Only 17 per cent of Canadian households have a HELOC according to 2012/2013 data from the Canadian Association of Accredited Mortgage Professionals.

It is doubtful that anyone buying in 2008 or 2009 who put 20% or less down has much, if any room for a HELOC. The rules have also changed to reduce the amount you can take out.

Even if some of these homeowners do have a HELOC, it seems you are making a calamity out of, at the high end, 340 households per year out of each of those two years.

Of these 340 buyers about 55% had CMHC insurance, or in other words, they did not have 20% down so my view is they would not likely qualify for a HELOC now (only 65%) if they purchased in 2008 or 2009 and have not made substantial additional payments.

Given that this is a total of approx 780 households purchasing SFHs in 2008 and 2009 you and only 45% would maybe qualify for a HELOC (also the group least likely to need a loan) you are actually calling chicken little about a subset of 351 households in a city with 64,100 single family households.

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil124g-eng.htm

This same group put 20% or more down on their house. Prices have not fallen 20%.

I don't see the crisis.

I don't follow the condo market but some of these folks might have a more significant drop in value since 2008/09 based on JJs posts.

totoro victoria said...

Seems like your acquaintances have embraced rather negative and self-limiting views.

Leo S said...

and/or the owners want to be entirely hands off and are substituting rent reduction for property management

Therefore making it comparable to owning

Leo S said...

Vancouver Island's rate of bankruptcy is only 2.1%. Moreover, bankrupt individuals tend to be unemployed, so have little to no income, and
are typically renters NOT homeowners.


Not surprising given most owners would have sold their home in an up market before having to declare bankruptcy

totoro victoria said...

If you sell in an up market then presumably your money problems are not related to mortgage debt which was the point of the post I was responding to.

totoro victoria said...

"and/or the owners want to be entirely hands off and are substituting rent reduction for property management

Therefore making it comparable to owning"

Maybe, show me the property and we will talk. My best is that it is substandard in some way ie. busy road and out of date and not comparable to your current home.

What was the place you looked at like?

Phil said...

Prices in every US market that the Case-Shiller index tracks (except Dallas) are still well below peak levels reached in 2006

I'm sure Denver is also higher than '06, and it had a huge run up to '06. West coast cities are near their previous peaks too.

Phil said...

Info, I'm not sure you can completely rule out something like this price trajectory for Victoria over the next few years. Nobody saw it coming down south either.

Tren said...

Another private open house today on cedar. Asking for 950 K. There are 3 unlegal suites....
Feel free to check it out.

Victoria said...

A snippet of real life.

I sold my home in 2010.

I did it because -

a) I had watched the americans slowly bleed wealth away by being too myopic to see what was clearly happening around them and

b) I had been horrified by our own 2008 price drops and felt the upswing the following that was a fortuitous, not to be missed again opportunity.

I now rent.

A waterfront home. In a magnificent area.

For less than the Gordon Head Box outlined in some previous comments.

Considerably less. And no pesky tenants to deal with. (as an aside I did have a suite in my previously owned home and I loved the income).

My investments have done well. I am pleased.

Info is correct.

You gotta know when to fold 'em.

Then take yer drink, yer cigar and yer money and yer smarts and move to the next slightly ahead of the curve game.

totoro victoria said...

Yep, more than one way to go.

Not sure if info is correct though. My bet is not.

I just received a thank-you note, a pumpkin pie and a box of tea from our tenants. The note reads, "thanks for renting us such a great home and for being such wonderful landlords".

I don't find them pesky at all, in fact they and the other equally wonderful tenants are going to be invited for Christmas dinner.

Leo S said...

If you sell in an up market then presumably your money problems are not related to mortgage debt which was the point of the post I was responding to.


The entire country has been in an up market aside from Victoria these last 5 years.
Hence not as many owners in the bankruptcy stats. The picture changes completely when it becomes hard to sell the house.

Leo S said...

Unless I missed something I believe the numbers I posted are correct except for the additional $250 a month in lost opportunity cost which was likely a mistake long-term if your mortgage rate is lower than your after tax investment returns.

One of those mistakes like taking a 10 year mortgage term. Trading profit for safety.

Leo S said...

What was the place you looked at like?

Dunno it was rented before we could go look at it. Was down in Oak Bay somewhere.

dasmo said...

don't we already know it's a wash renting vs buying and in favour of renting from a pure financial (short term) point of view? We have run the numbers.... You didn't buy because it was cheaper!

patriotz said...

West coast cities are near their previous peaks too.

Latest Los Angeles Case-Shiller is 225 compared to peak of 274. That's a drop of 18% which is not what I would call near. San Diego 202 versus 249.

Other West Coast metros are closer to a 10% drop.

Anyone in these markets who bought at the peak and sold today would be taking a huge loss considering all those years they've been paying higher than rental value.

Given that the present value of those losses compounds their propects of ever breaking even are not good.

SJ said...

Is it true you capitulated and bought a house Patriotz?

SJ said...

Interesting comment by Tim Ayres:
Looking forward, Ayres anticipates more people in larger markets – Vancouver, Calgary, Toronto, Ottawa and to some extent the prairie cities – selling their homes and moving west. “I think it’s only a matter of time before we see some of them (coming to the Island.)
http://www.vicnews.com/business/278600291.html

totoro victoria said...

Yep, mistake is the wrong word. Not optimal financially is better.

Like a ten-year mortgage - maybe - time will tell. I traded risk for certainty too. Happy with that.

I think in Victoria it could often be cheaper to rent than buy a SFH without a suite provided you are a diligent investor. It certainly is not a great market for rental properties.

My question is whether there ever will be a better time to buy if you want to have a home.

I don't know but now with low-rate financing seems as good as any time if it fits your inclinations and life situation.

totoro victoria said...

Patriotz bought a house?

Leo S said...

I wonder what happened to Roger..

totoro victoria said...

Probably bought a house :)

patriotz said...

Is it true you capitulated and bought a house Patriotz?

Yes I bought a house, but I wouldn't call it "capitulation".

If you thought stock ABC was too expensive so you bought stock XYZ which had half the P/E would you call that "capitulation"?

Leo S said...

So you bought in Sooke? What houses have half the p/e as Victoria?

Leo S said...

Also simple man and double agent. Let's have an old timer update thread.

Marko said...

Leo, any chance of getting an updated "Change in HPI Since January 2008"? The one from last year stopped at July 2013 but I think at this point Calgary and Edmonton have blown by Victoria.

Marko said...

Tuesday, October 14, 2014 8:20am

MTD October
2014 2013
Net Unconditional Sales: 230 512
New Listings: 393 979
Active Listings: 4,060 4,322

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

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