Buy vs rent: FTBer condos

Some discussion in the previous post inspired this one.

When calculating buy versus rent ratios, remember to calculate apples to apples and not apples to oranges. It may be difficult to find two granny smiths, but in some cases you can.

Take this example from Craigslist and Realtor.ca. These aren't the same unit, nor the same building. But they are two similar units in buildings that almost touch in a neighbourhood that would be considered "affordable" for FTBers. So think of it as comparing a granny smith to a golden delicious.

For the renter, it's going to cost them $1100/month, plus utilities.

For the owner, it's going to cost them somewhere in these ranges (assuming 4.5% interest):

1. Using a 5% down and 35 year mortgage: $939.00 + $196 (actual) strata + $75 (approx) property tax = $1210/month plus utilities
   
2. Using a 5% down 25 year mortgage: $1105 + $196 strata + $75 PT = $1376/month plus utilities.

Given these scenarios, I can understand, all things considered, why a FTB couple may be tempted to jump on the ownership bandwagon. Except all things haven't been considered yet.

Condos have lost 26% of their value market-wide in Victoria. Sales to listings ratios are under 10%. Active listings are very high. There is over a year and a half of supply on the market. And more new condo developments will be completing soon, adding even more inventory into the market. Check out the news on Reflections if you want to see what will likely happen, price-impact wise, to the entire condo market in Victoria over the next year or two.

If you rent that Quadra Village condo, your shelter cost will be fixed at $13,200 for the year. If you buy the condo, you will likely lose about 1% per month over the next 12 months or $25,200. You will also not be building any equity in your mortgage because almost the entire amount of your payment is interest, especially if you opted for the 35 year amortization.

My advice for FTBers considering this scenario, hang onto your money, save a bigger down payment, and wait for sales to listings ratios to get much closer. Currently there is 18 months of condo inventory. When there is 4-6 months of condo inventory (MOI) on the market, you will start to see a bottoming out of prices. The question no one can answer right now is: how long will that take? The clues will be found in the sales to active listings ratio, when it creeps up over 60% or so, you can expect to see the MOI number drop fairly quickly.

Even if you can see yourself living in this condo for the next five years, you will gain more by waiting a year, and renting from the guy leaving town, than you will by buying today.