| Sept 2014 | Sept 2013 | ||||
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Unconditional Sales | 105 |
232
| 362 | 511 |
487
|
| New Listings | 325 | 580 | 810 | 1034 |
1106
|
| Active Listings | 4293 | 4310 | 4280 | 4261 |
4547
|
| Sales to New Listings |
32%
| 40% | 45% | 49% |
44%
|
| Sales Projection | 462 | 510 | 530 | 562 | |
| Months of Inventory |
9.3
| ||||
Hey it's an update. By the way thanks Dasmo for posting the article about the true cost of commuting a few weeks ago. That lead me to discover Mr. Money Moustache and I've been devouring that blog from start to finish ever since. Next project: early retirement / financial independence.
Amazing how I didn't stumble across this blog before, given that I suspect there are quite a few commenters here that follow this philosophy. I'm particularly interested in how realistic the early retirement concept is in an expensive city like Victoria. Unlike Mr. Money Moustache, our house didn't cost $200,000, we're not retired before having kids (and thus childcare), and most everything is more money in Canada than in the US. However everyone can still use a good punch in the face as far as spending is concerned.
Bonus: an entirely new set of spreadsheets to create, and there's nothing like a good spreadsheet to get the adrenaline going.
203 comments:
1 – 200 of 203 Newer› Newest»That blog is great.
His retirement before 40 was certainly contributed to by low housing prices in a substantial way. In fact, if I could empty my bank account today and get a house for $200K and save for another 5 years on top of what I already have, I could probably retire modestly at 40ish too.
The math is really different there in Longmont Colorado though - wages in my field are on average higher than Victoria's and housing is about half. Obviously, there are other considerations though.
"Based on those factors, the expectation that housing will continue to provide real gains (in excess of inflation) is probably incorrect, effectively disqualifying housing as an investment."
If one purchases a rental property now it's still an investment. The question is whether it will be any good as an investment. If I purchase a mutual fund or ETF now in reasonable expectation of future gain it's still an investment even if the market falls and I end up with negative returns over the next 5 years. That said I am in agreement that housing (in Victoria) is unlikely to be a great investment.
You could, you just don't want too...
http://www.realtor.ca/propertyDetails.aspx?PropertyId=14191879
Did you even read the commuting article YOU posted?
Marko said...
"But the market isn't failing?"
Yet...
CBC Article
Hilliard MacBeth says 50% crash
Interest rates will someday gradually rise and everyone is already in a panic with their predictions for housing prices... "Gradual increases..." "The sky is falling..." "Stagnation for a decade..."
When the Americans sneeze, Canada gets a cold. So how will interest rate increases of 1% per year, for five straight years in the USA, affect Canadian real estate?
Yep, that's why I point out the choice...Don't we all want a house in Fairfield for 200k? If you really wanted to save now you could go for a trailer in a trailer park that was much closer....
“So how will interest rate increases of 1% per year, for five straight years…”
Mind you, interest rates could also be lower in 5 to 10 years from now just as they were in 2 out of the 3 previous interest rate cycles.
http://moneycentral.msn.com/content/data/images/Charts/bondcycle.GIF
I'm not sure why everyone believes rates will rush forth, when in previous cycles it often took decades for rates to rise 1 or 2 percent, if at all. As example they continue falling, the ECB recently introduced negative deposit rates.
I believe there are homeless people that would also be considered "retired". I believe one of the central points of MM is to shine light on the reality that it is possible to retire early by being an aggressive saver and investing responsibly while still living in (and owning in) a nice place.
You are right though one of the major sources of stability for him is the city he chose.
That being said, I don't debate that Victoria is a nice place. It is probably nicer than Longmont for most people. I just don't think it is nice enough to justify the current prices.
Without Government support & low interest rates, houses in Fernwood would probably be closer to $350K than the $500-$550 they are currently trading at. Carrying that $200k for 25 years can be the difference between retiring and not.
The trendline on our house, assessed at $560, indicates it should be in the high 300's. That's where I expect it to end up at some point. When that will be is the big question.
MacBeth said "a crash is necessary to bring debt levels into line" WTF is he talking about here? Peoples debts won't magically reduce along with their asset values...
Yep, MMM is a very interesting site. I've been hanging out there for years. Early FI is great fun to achieve and with your talent for spreadsheets I'm sure it will be hours of fun.
More people should live by its basic philosophy... Live one notch below your means. Most people do the opposite.
I've been hanging out there for years
Haha yeah you came immediately to mind when I discovered that site and the articles on his rentals.
It's funny, partially we've been doing many of the things he talks about for years (biking everywhere, never financing a car, no crazy entertainment budgets, etc) but in other ways that also lulled me into spending on other pretty useless things. Kind of that "well we're pretty thrifty people so I can buy this $300 router if I feel like it".
Yes, it is amazing how things add up. Also amazing how early some of the people on the site are retiring - 30 is not uncommon.
I knew you were a bike person Leo. After all your fancy graphs you deserve a 300 dollar router ;-)
One would be hard pressed to find someone who followed the doctrine super tight... I'm guilty of many bad habits. a coffee a day is one. Driving instead of biking is another. But I do live slightly below my means. I have always paid cash for cars...So they are always what I can afford.
I particularly like the site's diagrams of the impulse to solve problems gets translated into most people driving somewhere and buying shit. I was telling a friend who likes to buy stuff a lot that buying stocks fills that urge and it makes you money... Speaking of that, Anyone else buy GoPro? I did but wish I hadn't drank so much coffee so I could have bought more....
Yes, it is amazing how things add up. Also amazing how early some of the people on the site are retiring - 30 is not uncommon.
Wouldn't that be really boring?
They define retirement differently than you do I think ;-)
I guess it depends how you spend your time. The creator of the site spends his time blogging, organizing events for like-minded people, raising his kid, visiting family/friends, exercising, doing renovations on his house, and spending time with family and friends. He and his wife are setting up a charitable foundation with the blog proceeds. He is not bored at all. He is financially independent and never needs to work another day.
Another of the posters is almost set to retire - he and his wife are just about 30 and both are teachers. They invested in low cost real estate in Las Vegas during the down years. Their plan is slow travel and have a child. Seems okay to me.
Just a quick question. If you build a new home do you have to pay both the PST and GST on the total building costs?
Thanks!
Yes, it is amazing how things add up. Also amazing how early some of the people on the site are retiring - 30 is not uncommon.
Damn, 30 and not retired yet. Well I'll aim for 45.
Wouldn't that be really boring?
It's not that you stop working, it's that you stop being forced to work. Hence the freedom/financial independence. I thoroughly enjoy my job, but it can be stressful and I would definitely work differently/less if I didn't have to.
Wouldn't that be really boring?
Only if you lack imagination.
Just a quick question. If you build a new home do you have to pay both the PST and GST on the total building costs?
What do you mean on the total building cost? Wouldn't you just pay the bills as they come in? Professional services such as a home designer for example would only be GST applicable I believe.
good to know the blog.
thanks all
Wed Oct 1, 2014 8:05am:
Sep Sep
2014 2013
Net Unconditional Sales: 565 487
New Listings: 1,099 1,106
Active Listings: 4,253 4,547
Please Note
Left Column: stats for the entire month from this year
Right Column: stats for the entire month from last year
Hi again Marko,
If you hire a builder to build a house for you, do you have to pay both the GST and PST on the full contract price? Maybe it is included in their price, but I am wondering if it is both or just the GST?
You are hiring their services, but of course there are also materials involved.
Bank of Canada's Deputy Governor Carolyn Wilkins admits that the BOC does not know which direction the economy or interest rates are going...
Bank of Canada Press Release
Today in Oak Bay there are 97 detached homes and 24 other types such as stratas, leaseholds and co-operatives for sale.
29 detached homes sold (back dated by one week to allow for stragglers)
That's 3.3 months of inventory with a median days-on-market of 42.
Listings during this period were not keeping up with demand as only 1.45 houses were listed for every house that sold. You need slightly more listings than 1.45 to allow for those that overprice their homes and those that will cancel their listing.
Some notable re-sales were of a an Oak Bay character home on Cadboro Bay that originally sold in April 2006 at $497,000 and re-sold at $531,000.
A North Oak Bay home that sold, before the massive appreciation began, in December 1997 for $222,000 has now more than doubled in price to $569,000.
The same with a home in Harling Point in the Gonzales hood that sold in July 1995 at $225,000 and re-sold last month at $600,000
Or a side split design home in Henderson bought November 2004 at $408,000 and re-sold at $659,000
Some did go the other way. Like a South Oak Bay middle income house that was updated and sold in April 2011 for $805,000 and re-sold for $795,000. Likely because the original purchasers were buying the sizzle of a freshly updated home rather than the steak.
The market in Oak Bay is in favor of sellers but they still have to kiss you before they bend you over the couch.
Here you go nan...
http://hatterking.com/mylistings.html/details-41820599
Originally listed at 369 now 329. Offer 280 and settle at 299. It's ripe for it...
And how about Langford and Colwood. There you'll have 276 houses to chose from. That's 4.75 months of inventory with new stock being adding at the rate of 1.9 new listings to one sold. And 45 days on the market.
Again it's not a failing market here either.
As for condos, you can pick up a cheap 1-bedroom in Mt. Tolmie for as little as $119,600 on Inverness Road these days. Or pay $4,000,000 for the Penthouse in the Sovereign on Broughton Street. That $1,233 per square foot.
Makes you think twice where you're going to put that $3.99 Wallmart trash basket.
"And how about Langford and Colwood. There you'll have 276 houses to chose from. That's 4.75 months of inventory with new stock being adding at the rate of 1.9 new listings to one sold. And 45 days on the market.
Again it's not a failing market here either."
Interest rates are at historically low levels. SFH sales across Greater Victoria should be hitting record highs, but that isn't happening at all. I will post a chart soon that exposes the weakness of Victoria's housing market, based on sales compared to an average year in Victoria.
Prices across Greater Victoria should be setting new record highs each month, considering that rates are at historically (emergency) low levels. This is the case in many Canadian markets and is, arguable, what should be expected, considering the powerful stimulus that continues to be applied to the Canadian housing market.
Prices across Greater Victoria are lower than they were a year ago (Brookfield's data) and down significantly from peak levels of 2010. Victoria's price decline continues, despite the heavy stimulus in the form of historically low rates.
That prices are lower than they were a year ago is a complete failure, considering where rates are.
Many regulars of this blog choose to concentrate on the current supply/demand ratio and ignore the big picture - that SFH sales are well below Victoria's long term average (with historically low rates) and prices have corrected significantly from peak (with historically low rates).
Slow sales leads to falling prices, regardless of how many listings are currently on the market. Listings will increase. Sales would need to increase dramatically before they would be close to near-normal levels. If historically low rates can't push sales close to near-normal levels, what will?
WTF! For 4 million I want some tall ceilings!!!
^ Teranet has a Year to date increase of
5.57% for Victoria...
For detached houses in the core districts I have the year over year sales activity up by 2% and prices up by 3.5%.
For the Western communities year over sales activity for detached homes is up 41% but prices have remained unchanged. But before you go raising alarm bells that people are buying in hoards. The sales only increased from 59 to 83
It's the relationship of sales to listings as well as how inventory is increasing or decreasing and the change in the turn over rate of housing that leads to price increases or decreases. Watching these relationship allows you to predict how prices will change in the next 90 days.
Watching just sales activity alone doesn't tell you much about the market.
I think most of us want to know with some certainty what the next 90 days will bring. The farther you extrapolate from 90 days the less accurate would be your prediction.
I have no idea how CMHC can forecast with certainty how the market will increase or decrease in a year or two from now. I think has something to do with dry bones tossed into the air.
VREB condo demand/supply sure has turned. This september Sell/List ratio was 53%, last Sept was 33%. Houses meantime are 58, up from 53%.
Hi again Marko,
If you hire a builder to build a house for you, do you have to pay both the GST and PST on the full contract price? Maybe it is included in their price, but I am wondering if it is both or just the GST?
You are hiring their services, but of course there are also materials involved.
Usually when you hire a builder to build you are paying him or her a percentage of construction costs or a monthly management fee and you as the owner pay the invoices.
A lot of different variables....builder could own the lot and you enter into a contract for a spec home, or you buy lot from builder with an associated building contract. Or you buy your own lot and have a builder build it for you, etc.
Condos are a strange one. Should you include pre-construction sales or not?
My thought is no. They are not real estate they are options to purchase in the future. Then there is the GST is it included, rebated or not included?
And that's why I look at the re-sale market for previously fondled condos.
There are 503 previously loved freehold strata condos available in the core districts today. That's 5.5 months of inventory. And 1.6 new listings replacing everyone that sold. Days on market 43 and a median price of $294,000 for 981 square feet of sky. That's a well balanced market
What about the newer core condos that have yet to be loved or even see an erection. Well there are about 111 of them. With 18 of them sold last month. At a median price of $364,450 for 719 square feet, the developer is willing to wait to get his price.
565 properties sold in the region this September - an increase of 16% compared to the 487 properties sold in the same month last year. The quarter ending in September shows a 15% increase in the number of sales overall compared to the same quarter in 2013.
"Once again we see more houses sold this month than last September," Victoria Real Estate Board President Tim Ayres says. "We haven't seen sales like this in September since 2009. The balanced market conditions we've seen over the last seven months mean property prices are stable, so it might be more comfortable for buyers and sellers to make a move because they know that property values are predictable."
The Multiple Listing Service® Home Price Index benchmark value for a single family home in the Victoria Core this time last year was $550,900. This month the benchmark value increased to $556,200.
"There are some districts in the Victoria area that have seen an increase in their benchmark values, and others that are relatively flat compared to last year," adds President Ayres. "Since there is this difference within the local market, it's important to connect with your local REALTOR® to get an understanding of the market as it relates to your specific neighbourhood."
Brookfield seems to be the only index that shows a decline. They are a month behind in their data though... It's not a falling market, it's a flat market. Us Halibuts could see it from further away since we have both our eyes on one side of our face...
Villa Madrona is back on the market for twice its 2013 sale price. Funny.
http://www.timescolonist.com/business/north-saanich-estate-listed-for-twice-its-2013-sale-price-1.1411067
ignore supply and demand
"slow sales lead to falling prices"
Except that "slow" is best viewed in the context of the current supply.
IF listings increase and sales don't pick up proportionally then prices will probably fall. That is a lot of ifs.
"Listings will increase"
Any time frame on that prediction?
4 sales over a million in the last 7 days on Salt Spring....Salt Spring bouncing back?
According to VREB statistics there have been 16 straight months showing a year over year increase in monthly sales volume. Volumes are still well below the levels of 2006-2007 and 2009
Maybe tourists are buying again with our lower loonie?
August tourism for Victoria broke a 15 year record.
Seems like the rest of the world knows Canada is way overvalued, so could you all be getting giddy with success just like realtors did in the US prior to the bubble burst?
http://realtormag.realtor.org/daily-news/2013/12/16/most-overvalued-housing-in-world
For a Norwegian outsider, I agree Canada as a whole would seem overvalued. However, Canada is an incredibly large and diverse country with some of the highest immigration rates in the OECD -- double the US. For example, many outsiders would be shocked to learn that the $150,000 average house in St John, NB is much less affordable (more overvalued) than the $550,000 house in Calgary, AB.
Total Single Family Home Sales
. . . . . Greater Victoria. . . . . . .
. .(January through September).
. . . . .(Compared to 2007). . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
2007...*********************
2014...*******
2013...***
2012...***
2011...***
2010...******
2009...***************
2008...***********
2006...****************
--------------------------------------
. . . .-40%. . . . . . . . . . 0%
* 2014's January through September sales pace was 29% slower than 2007's pace (2007 was, at best, an average year for Greater Victoria after population adjustment)
* Even without population adjustment, 2013's SFH sales total was the second lowest on record for Victoria. Anyone who limits their comparisons to 2013's sales is obviously failing to see the big picture (and probably cherry-picking their stats).
2013's SFH sales total was 59.5% lower than 1989's total after population adjustment (and 48% lower without adjustment).
* SFH sales across Greater Victoria have been extremely slow since 2011, even without population adjustment:
2012 - lowest SFH sales total on record
2013 - second lowest SFH sales total
2011 - third lowest SFH sales total
* Extremely slow SFH sales totals over the last 4 years strongly suggests that there is pent-up supply in Victoria. The number of listings will increase as more people accept that prices will continue to fall. The same basic thing happened in the US and other countries with housing bubbles.
* The current supply/demand ratio in Victoria is only temporary. The key here is that sales are extremely slow, despite historically low interest rates. If rock-bottom rates can't push sales close to Victoria's long-term average, what will? Those who concentrate on the current supply/demand ratio have a shortsighted view of Victoria's housing market. Clearly slow SFH sales is the big picture. Again, what will push sales back to near-normal levels if historically low interest rates can't? Sales will likely remain low in Victoria until prices fall a lot more, allowing more people to qualify for mortgages.
* Sales will probably remain well below Victoria's long term average for some time. Add in the pent-up supply and there is only one likely outcome - more listings (along with continued slow sales) will push prices much lower.
. . . . . . . . Single Family Home Prices. . . . . . .
. . . . . . . . . . . . . . .Victoria. . . . . . . . . . . . . . .
. . . . . . . . (Percent Below 2010 Peak). . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0%. . . .* . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-1%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-3%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-4%. . . . . . . . . . . . . . . .*. . . . . . . . . . . . . . . .
-5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-6%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-7%. . . . . . . . . *. . . . . . . . . . . . . . . . . . . . . .
-8%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-9%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-11%. . . . . . . . . . . . . . . . . . . . . . *. . . . . . . .
-12%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-13%. . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . .
----------------------------------------------------------------------
. . . . .03/10. . .03/11. . .03/12. . .03/13. 12/13
* This chart was put together using SFH median price data for Victoria (averaged over 3 months to smooth out monthly price fluctuations). By the end of December 2013, SFH prices in Victoria had fallen 12.7% below March 2010’s peak level. Note that December 2013 was the last month that median price data was available for Greater Victoria.
* Since the end of 2013, prices across Greater Victoria have continued to fall (based on Brookfield's latest index data).
* Brookfield's August data also shows that we would have to go back to 2007 to see prices this low in Victoria.
* Previously, I posted a similar chart for Oak Bay, which indicated that prices had fallen 15.3% from 2010 to the end of 2013.
* SFH sales across Greater Victoria have been well below average since 2010, and Victoria has followed that trend.
* Prices generally fall when sales are slow. The relationship between slow sales and lower prices is well established and has been clearly evident in virtually every housing market downturn worldwide for decades. The data for Victoria supports this.
* There are many near-peak buyers in Greater Victoria with underwater mortgages who are stuck in their homes, unable to move up the property ladder. This helps explain slower sales. The same thing happened in the US as prices declined there.
. . . . . . . .Single Family Home Prices. . . . . . .
. . . . . . . . . . . . . .Langford. . . . . . . . . . . . . .
. . . . . . . .(Percent Below 2010 Peak). . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0%. . . .* . . . . . . . . . . . . . . . . . . . . . . . . . . .
-1%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-3%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-6%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-7%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-8%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-9%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10%. . . . . . . . *. . . . . . . . . . . . . . . . . . . . . .
-11%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-12%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-13%. . . . . . . . . . . . . . . * . . . . . . . . . . . . . .
-14%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-15%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-16%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-17%. . . . . . . . . . . . . . . . . . . . . .*. . . . . . . .
-18%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-19%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-20%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-21%. . . . . . . . . . . . . . . . . . . . . . . . . . . .*. . .
--------------------------------------------------------------------
. . . . .06/10. . .06/11. . .06/12. . .06/13. .12/13
* This chart was put together using SFH median price data for Langford (averaged over 3 months to smooth out monthly price fluctuations).
* By the end of December 2013, SFH prices in Langford had fallen 20.7% below June 2010’s peak level.
* Since the end of December 2013, prices across Greater Victoria have continued to fall (based on Brookfield's index).
* Note that December 2013 was the last month that median price data was available for Greater Victoria.
Canada’s housing bubble is significantly larger than the 2006 US housing bubble. The following comparisons make this clear:
* Overall increase in house prices (first chart):
Canada: +124% (2000 to present)
US: +53% (2000 to the peak in 2006)
* Increase in household debt-to-income ratio (third chart):
Canada: +53% (2000 to present)
US: +41% (2000 to peak)
* Increase in price-to-income ratio (first chart):
Canada: +56% (2000 to late 2011)
US: +24% (2000 to peak)
* Increase in price-to-rent ratio (second chart):
Canada: +73% (2000 to late 2011)
US: +35% (2000 to peak)
The bigger the housing bubble, the bigger the potential price correction.
Prices in most US cities are higher than they were in 2000 but some US markets don’t appear to be bubbly. In contrast, prices in bubbly Victoria are clearly detached from economic fundamentals (incomes and rents).
Price increase since September 2000:
Chicago: +22%
New York: +61%
Las Vegas: +30%
Dallas: + 34%
Phoenix: +40%
Detroit: -7%
(Victoria: + 129%)
House prices in Canada and the US should be approximately the same, considering that incomes in the two countries are comparable.
All housing bubbles go through major, multi-year price corrections. It isn't different in Canada.
There are several regulars of this blog who are fans of the local boards's house price index. There are several important things to keep in mind about this index:
* The local board offers an explanation of the methodology:
"At the heart of the MLS® HPI is the concept of the "benchmark" home, a notional home
that has the most common features of a typical home in a given area. The benchmark
home does not represent any actual house, condo or townhouse, but merely provides
an identical example to track changes in market value. There are separate benchmark
houses, condos and townhouses in each distinct area of Greater Victoria, enabling the
tracking of values on a variety of geographic levels."
To sum it up, a notional home is a home that exists only in theory as it "does not represent any actual house, condo or townhouse...". A notional home is basically an imaginary home.
The base of this index is cemented in the idea of notional (imaginary) houses, condos and townhouses. Is it a stretch to say that from imaginary houses, condos and townhouses come imaginary prices and imaginary year-over-year price gains/losses?
* This index is put together by the local board. It's no secret that realtors have a vested interest in keeping house prices high.
* It's also no secret that some Canadian R/E boards have recently been caught manipulating sales data to make it look stronger.
The Case-Shiller Home Price Index in the US is put together by a source that doesn't appear to have a vested interest in keeping house prices high. Canada could definitely use an equivalent home price index.
* That this index shows a significant price decline from peak for Victoria is significant, considering the above points.
Having said all of that, I don't completely disregard their findings. I'm also not dissing realtors in general. In fact, I always tell people to use a realtor when buying or selling a property.
http://www.huffingtonpost.ca/2014/10/04/treb-doug-ford-land-transfer-tax_n_5928826.html?utm_hp_ref=tw
Info, comparing 2014 sales to 2012/2013 is not any better than comparing them to 2007 (a year in which single family home prices rose 9%).
The three year stretch from 1998 to 2000 saw a completely flat market in terms of average SFH prices and sales during those years were
1998 - 5,303
1999 - 5,440
2000 - 5,255
As 2001 hit 6,845 sales prices rose 3.08% and as 2002 hit 7,725 price rose 8.13% and so on....
With the exception of 2009 (an extremely unique year) every year with 7,000 plus sales has seen an increase in prices, whether it be 1991 to 1993 or 2002 to 2007.
Therefore, the 6,500 to 6,700 sales we'll have this year is not going to put downward pressure on prices.
History has shown that the market can hold flat at even lower sales volumes and sales over 7,000 have correlated to an upswing in prices.
I think we'll have a hard time hitting 7,000 sales in the next two or three years but I also think we'll exceed 6,500 which will create for more of the same we've seen since 2008 - flat.
Holy crap. An info Bomb!
Anything above 800k+ will see dramatic crash due to the limited number of buyers
My take is that $800,000 plus is actually a very competitive market. There is not a lack of buyers as far as I can tell.
Well when you have $600,000 in mortgage debt, who cares if you have another $40,000 in consumer debt. That's basically a rounding error.
http://www.cbc.ca/news/canada/british-columbia/vancouver-ends-2013-with-highest-consumer-debt-in-canada-1.2552029
Keep in mind that, the consumer debt are at higher interested rate (~20%) comparing to mortgage debt (~3%). So, the 40k consumer debt would be equivalent to more than 240K mortgage debt. Is it a rounding error to 600k mortgage debt anymore?
Consumer debt would also include things like car loans. Which are only a few percent interest but still crazy how the average is $40,000.
It's because there is low motivation to pay it off. How much of that debt is is on HOELOCs at 3.5%. If you own a house you don't carry debt at at 20%...I used to not carry much debt where now I do because I would rather buy GoPro shares than pay off my credit cards.
If you own a house you don't carry debt at at 20%
If you own a house outright or with significant equity, true.
If low or no equity, not so true.
Haven't we had this conversation before?
Good debt vs. bad debt?
If you have a house with a big mortgage this can be very good debt if, overall, you are spending less than you would to rent.
Over the long-term owning is likely to be better for renting. Sometimes immediately if you have a suite. Owning has been a big driver of wealth accumulation in BC and historically due to appreciation.
If you own a house with little equity you still are not carrying debt at 20%. Rates are about 3% right now. We have 10 years at 3.69%. Where are you getting 20% again?
Buying a new car is usually a poor decision because cars depreciate rapidly in the first year. Cheap financing does not solve this.
A HELOC could be a good move if you are using the money to invest in appreciating assets which net more than the cost of borrowing.
Using a credit card to buy stock would rarely bring a net benefit.
Monday, October 6, 2014 8:00am
MTD October
2014 2013
Net Unconditional Sales: 83 512
New Listings: 178 979
Active Listings: 4,100 4,322
Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year
Consumer debt doesnt include mortgages. Of the $40,000 average I suspect the vast majority is For consumer goods and not borrowed to invest
Yes, we already had this conversation. I will try to find the PP on it. There is no need to guess as to what the HELOC is used for, there are stats.
Yes, we already had this conversation. I will try to find the PP on it. There is no need to guess as to what the HELOC is used for, there are stats.
There are stats on HELOCs but that is only a subset of consumer debt. Consumer debt is also credit card debt (hence the 20%), car loans, and I believe any non-mortgage, non-business debt.
Found it - January of this year posted here:
"Sixty-four percent of Canadians pay off their credit card balance in full each month, avoiding credit card debt and interest payments altogether.
According to the Bank of Canada, credit card debt only makes up five per cent of total household debt in Canada and there has been virtually no growth in unsecured debt in the past two years. Credit card default rates are half of U.S. levels.
Currently, only 17 per cent of Canadian households have a HELOC, according to 2012/2013 data from the Canadian Association of Accredited Mortgage Professionals.
HELOCs are used as follows:
16.6B debt repayment (presumably lowering other debt)
15.5B investment (so 1/4 used to invest)
12.3 home renos (with some recapture in valuation of the home)
9.7 purchases
5.3 other
So we have 27.8 in potentially "good debt" and 26.3 in potentially "bad debt" (best guesses but purchases could be good and renos could lose money). 5.3 unknown - which could include trips or education for the kids.
The detailed CAAMP study sets out the following breakdown for HELOCs:
12% used for debt consolidation or repayment.
45% used for renovation or home repair.
22% used for purchases (including spending for education).
14% is for investments.
6% is for “other” purposes.
Statscan: The proportion of debtors with an outstanding credit card balance was 48%; 41% had an outstanding line of credit; 32% had other loans (e.g., personal loans); 18% had student loans; 3% had other debts (e.g., unpaid bills); and less than 1% had payday loans.
Meanwhile 70% own a house. So even assuming minimum overlap, 20% of the population owns a house and still carries a credit card balance.
"Over the long-term owning is likely to be better than renting" (sic)
I built a pretty comprehensive model in excel to try and understand whether this was true or not with prices where they are in Victoria.
With carrying costs & prices at their current levels and a modest interest rate curve over the next 25 years (2.7%/4.5%/6%/8%/10% over the current and each of the next 4 5-year periods), with modest expectations for inflation (2.5%) Home price growth (3.5% per year, starting now), returns on equity (8.64% nominal return based on 80%/20% equity/bonds), 2.5% annual rental increase and a 10% down payment a renter will actually come out about $1.1MM ahead in real wealth accumulation by retirement (todays dollars), renting a similar property (I used $700,000 buy and $2800/ month starting rent in my model which I think is about right give or take based on the analysis I've done so far)
In summary, with things the way they are, owning & paying for a house at todays prices looks like it will be a major contributor to wealth CONSUMPTION over the next 25 years, as owning requires a much larger and longer term allocation of capital away from investing than it has in the past.
Oddly enough (but not surprising at all when you do the math) the only scenarios where the "owning" scenario comes out ahead of the "renting" scenario are those that last less than 10 years, which are buffered from interest rate increases and don't bear the brunt of the massive opportunity cost born by not investing in the stock market over the long term.
I think wealth accumulation through housing has worked so well over the last 100 years in BC that at these prices, future prospects are tapped out for the current generation of buyers.
That being said, it isn't hard for me to get the "owning" scenario to come out ahead of the "renters" scenario. Prices have to go down about 25% in today's dollars and all the other variables have to stay more or less the same.
Prices are simply too high in Victoria relative to rents to enable housing as the premier choice for accumulating wealth. over the long term for today's buyers.
* My analysis assumes complete indifference to all the intangible (and sometimes imaginary) benefits of owning.
In order to make sense of this it would help to know what the proportion of "debtors" in Canada is and what the definition includes.
In addition, where is the $40,000 figure coming from? The figure of $27,000 is the one I've seen quoted unless you are specifically referring to Vancouver and not Victoria or the rest of Canada?
ahttp://newsroom-en.transunion.ca/article/?id=1812220verage in Canada for 2013 was
The median balance on a credit card is $3000 or less for those who carry a balance and the group with the highest chance of having a balance are those 18-34 in Atlantic or Northern Canada. 1/4 of Canadians have no debt at all.
http://canada.creditcards.com/credit-card-news/canada-credit-card-debit-card-stats-international-1276.php
FWIW 69.0% of households in Canada own their dwelling. Household includes kids/parents and other family members who may or may not have an ownership interest.
Four in five (82.4%) couple-family households owned their dwelling, while less than half (48.5%) of non-family households owned their dwelling. Just over half (55.6%) of lone-parent households owned their dwelling.
I can understand that you wanted to build your own model - there are some great ones out there already - like Roger's.
We've had exhaustive graphing here, but it would be interesting to see your analysis.
I agree Victoria is expensive.
You'll have to be diligent with your investing to net 8.64 after tax and MERCs, this exceeds the 6% after fees I'd expect as a non-expert:
http://business.financialpost.com/2013/09/21/calculating-investment-returns-actuarially-speaking-6-is-a-good-rule-of-thumb/
Have you calculated in the tax exempt status of primary residence capital gains vs. the taxable status of most investment income (except done with TFSA)?
I think in Victoria you could come possibly come out ahead by renting given the lower rate of appreciate to expect going forward.
If you have a secondary suite or other rental income and own here my experience is that owning is going to be better than renting.
I don't regret buying two years ago. Prices certainly have not crashed in my neighbourhood and, being a multi-family property means we are quite far ahead from renting.
With a ten year low-rate mortgage term we will be okay on renewal - we'll pay off the debt if it makes sense only.
Your interest rate projections don't apply to a longer term low-rate mortgage, which is an option.
Should be lower rate of "appreciation" not "appreciate"
The assumptions in the model ignore tax. Not because they're unimportant but because my assumptions are that
1. The model assumes this is a principal residence, so sale = tax free
2. the model assumes that one would have enough room in their RRSP/ TFSA to take up any savings on rent over a house purchase. Obviously not the case if you are thinking about a buying a really expensive house or have tons of capital to invest and/or make no money and don't accumulate RRSP room but for the average Victorian, I think it is probably materially correct.
This is a good idea though - I could probably amend the model to catch taxable income expectations and RRSP/TFSA room that gets maxed (& compounded tax free) before any taxable investing happens.
On the investment side, I do an 80%/%20 equity/ bonds allocation in a buy and hold portfolio so this may be more aggressive than someone older. less risk tolerant than I am.
8.6% is quite doable if you invest in basically no-MER index funds that track the major indices (VTI, VCN, VXUS, etc).
Real returns on equities have always ben in the neighborhood of 6.4%. Add inflation to that to get your inflation adjusted return.
Obviously, if you're older or have less tolerance for risk, then you would need to adjust your expectations (& opportunity costs) accordingly.
One more thing - the simple fact that financial markets have never been as accessible, open or as transparent as they are today has allowed a common street investor like myself to access great returns without a ton of investing overhead.
This wasn't the case 30 years ago when our parents needed to pay 2-3% MER's or not invest.
This relatively higher investing cost increased the relative "wealth" put on the table by housing over the last 30 years when compared to the stock market.
With returns so accessible, I would think that this will change over the next 30 years. I mean a 2-3% MER can cut a 50 year portfolio value by 2/3!
Regular people can effectively get triple the after fee return over a long enough time frame with the same investing strategy today when compared to 30 years ago.
This makes investing that much more attractive to me (especially when compared to really expensive housing)
RRSPs are not tax exempt, they, and their gains, are tax deferred.
In some circumstances (like early retirement) you could avoid some of the taxation, or reduce it somewhat if your tax bracket is lower in retirement. And you do get the benefit of gains on pre-tax earnings along the way.
It sounds like you are following the right investment strategy for you and it is working. I'm not sure all renters are so diligent or informed. I wasn't :)
As far as SFH in Victoria in the $700,000 range, I agree that appreciation likely won't continue at past rates and this sways the outcome from what could be expected previously.
In addition, where is the $40,000 figure coming from? The figure of $27,000 is the one I've seen quoted unless you are specifically referring to Vancouver and not Victoria or the rest of Canada?
Vancouver is about $41,000 and BC is $38,000. I don't know of any stats for Victoria specifically. What is $27,000?
http://newsroom-en.transunion.ca/article/?id=1812220
27,000 is the Canadian average. Only Vancouver is showing an increase on this chart - not sure about Victoria.
I used $700,000 buy and $2800/ month starting rent in my model which I think is about right give or take based on the analysis I've done so far)
The consensus seems to be that for cheaper properties buying makes more sense (factoring out suite income) while for more expensive properties renting makes more sense. We did the calculation on our place which is right about at the Victoria median and the result was that it cost pretty much exactly the same as renting if prices and interest rates stayed flat.
@ Marko
"Info, comparing 2014 sales to 2012/2013 is not any better than comparing them to 2007 (a year in which single family home prices rose 9%)."
2007 was approx. an average year for Victoria in terms of SFH sales. Comparing to 2007 puts everything into perspective for Victoria. It would be impossible to argue that choosing 2007 as a base year for comparing SFH sales is unfair.
2013 had the second lowest SFH sales total in Victoria's history (2012 was the lowest). Comparing to these two years is a ridiculous example of cherry picking low comparison data to make 2014's numbers look stronger.
@ Marko
"Therefore, the 6,500 to 6,700 sales we'll have this year is not going to put downward pressure on prices."
Again, prices should be hitting new all-time records with interest rates at historically low (emergency levels). What's wrong with Victoria's market? Brookfield's latest index data shows a year-over-year price decline for Victoria and a price decline since the end of 2013. Prices are falling.
"History has shown that the market can hold flat at even lower sales volumes and sales over 7,000 have correlated to an upswing in prices."
If prices actually end up holding steady over 2014, it would be very difficult to argue that it was anything other than a weak performance for Victoria's housing market. Again I point to emergency level interest rates. Prices should be skyrocketing in Victoria right now, but they are declining instead (Brookfield's data).
"I think we'll have a hard time hitting 7,000 sales in the next two or three years but I also think we'll exceed 6,500 which will create for more of the same we've seen since 2008 - flat."
I've posted several charts that show that prices have declined significantly since 2010 and have not been flat since 2008.
Prices in Oak Bay were down 15.3% from peak to the end of 2013, Victoria was down 12.7% and Langford fell 20.7% (3-month median data).
Again, Brookfield's data shows that prices have continued to decline since the end of 2013.
From 2008 to 2010 prices in Victoria increased, then peaked and have fallen significantly since then. Prices have not been flat since 2008. That false claim is made often on this blog.
Current prices may be close to the level they were at in 2008, but that doesn't mean that Victoria's market has been flat since that time. Many regulars of this blog make that mistake on a regular basis.
Since 2008, housing markets across the rest of Canada have posted strong price gains, which is the expected outcome given all of the housing market stimulus that has been continuously applied to the Canadian housing market since then.
In contrast, Brookfield's August data shows that we would have to go back to 2007 to see prices this low in Victoria. Victoria's market has simply failed since 2008, considering that 5-year interest rates were as high as 5.74% in 2008, compared to just 2.99% in 2014.
Info, you're missing the key factor as to why Victoria didn't go up like other cities. The US sunbelt carved out a bottom from 2010 to 2013, when prices for instance in Palm Springs went below $200K. That sub-200K competition stole enough of Victoria's market to put downward pressure on our prices. Now that US prices have bounced 50-plus percent and our CAN dollar has fallen well below par, people are back to buying places like the Okanagan and Island.
http://www.zillow.com/palm-springs-ca/home-values/
BTW many homes in Palm Springs and other sunbelt cities are leasehold, not freehold like here, so it's not a fair comparison. Palm Springs for instance has 23,000 homes located on native lease land.
2007 was approx. an average year for Victoria in terms of SFH sales. Comparing to 2007 puts everything into perspective for Victoria. It would be impossible to argue that choosing 2007 as a base year for comparing SFH sales is unfair.
Okay, 2007 saw 4,464 SFH sales.
In the last 20 years the only year that saw more SFH sales was 2003 which saw 4,477.
2003 and 2007 both saw large year over year gains in terms of average and median SFH prices.
If prices actually end up holding steady over 2014, it would be very difficult to argue that it was anything other than a weak performance for Victoria's housing market. Again I point to emergency level interest rates.
Let's not ignore principal repayment with these emergency level interest rates you keep referring to.
A $500,000 variable mortgage that started in 2008 will be less than $350,000 by 2018.
Throw in wage increases I think the market will be able to absorb some of the interest rate increases when they actually happen...when is the key question.
7 years of flat has improved affordability significantly in my opinion which has moved the market away from a bubble in Victoria and the odds of a significant correction. If the market was going to tank it should have happened in 2008 or 2010. Can't see it happening in 2015 with better market metrics (more sales/less inventory).
'2007 was approx. an average year for Victoria in terms of SFH sales. Comparing to 2007 puts everything into perspective for Victoria. It would be impossible to argue that choosing 2007 as a base year for comparing SFH sales is unfair.'
Apparently, @info and @marko discussed based upon two different dataset. I would like invite both of you present your source of data....
renting a similar property (I used $700,000 buy and $2800/ month starting rent in my model which I think is about right give or take based on the analysis I've done so far)
Does your analysis include the fact that your landlord can give you legal 2 months' notice? It might not be that bad for some, but I know personally running a small business and consistently working 50-60 hours per week it would be a huge financial hit in terms of time having to find an alternative rental.
Owning goes beyond the numbers....I just had clients spend a $140,000 on a renovation and they told me, "I think we could probably get $100,000 of it back which we think is pretty good given how custom our renovation is." They went into the renovation knowing they would be spending more money than what the market could support but they wanted it renovated to their taste. Zero regrets.
VREB stats on my end. Don't know about Info.
7 years of flat has improved affordability significantly in my opinion
Not just in your opinion. This is a fact. Affordability has drastically improved at the cost of increased interest rate risk but that is slowly diminishing as prices remain flatish.
They went into the renovation knowing they would be spending more money than what the market could support but they wanted it renovated to their taste. Zero regrets.
Yep, People make all sorts of silly financial decisions with no regrets.
RRSPs are not tax exempt, they, and their gains, are tax deferred.
Very common misconception.
Suppose my marginal tax rate is 40%. I put $1000 in my RRSP and get $400 back. Out of pocket payout is $600.
Say that $1000 grows by 10% p.a for 10 years. It's then worth $1000*(1.1^10) = $2594.
Take it out of the RRSP and pay 40%. I now have $1556 in pocket. That is a net after tax return of 10% p.a. on my out of pocket $600.
If marginal tax rates differ results will differ. But people usually pay lower marginal rates at withdrawl time, since they have control over when they can deduct RRSP contributions and are most likely to withdraw when they have low incomes.
Yep, People make all sorts of silly financial decisions with no regrets.
Just saying over $700,000 buyers aren't running rent vs own calculations to a great extent. It makes no pure financial sense to buy a million dollar home, for example. In the City of Victoria taxes alone are $7,500/year on a million assessment. Add insurance, maintenance, etc. Renting is obviously cheaper but it's not an equal substitute in my opinion . There is a handful of SFH homes worth $700k-$1000k up for rent on craigslist where you have around 500 for sale, plus you can customize any of those 500 when you've purchased.
People make all sorts of silly financial decisions with no regrets.
Indeed why buy OR rent when there are a number of organizations devoted to providing free housing in convenient core locations :-)
"Just saying over $700,000 buyers aren't running rent vs own calculations to a great extent"
If you're old and have already accumulated the capital, you can make all kinds of decisions that make no sense - what is the point of having money if you can't do things you want to with it? This is my plan anyways. The trick is getting the money first.
My point is that for young people (with most of their working lives ahead of them) buying has never made less sense from a wealth accumulation perspective and given the magnitude of the potential accumulation under a renting scenario, buying now and doing silly things like spending $50k on a kitchen reno in their early 30s' can make the difference between a comfortable retirement and not.
Simple math, as I mentioned my analysis is quantitative, not qualitative.
If you need to own for your job or whatever, you should factor the opportunity cost of owning into your decision to work from home instead of from a leased office space. It could be significant.
8.6% return form 80/20 equities bonds:
Bonds aren't going to do much better than 3% from here on out (just look at the yields). So on the other 80% of the portfolio you require a nominal return of 10%.
Take dividend yield of the market - 2% in US, closer to 3% in Canada. Add guesstimated real GDP growth. Both the US and Canada have averaged close to 3.3%. Add 2% for inflation. Subtract 0.3% for MER, tracking error and trading expenses (very low). That leaves you with a projected nominal return of 7.5% for equities.
Stock prices can't grow faster than GDP in the long term unless valuations continuously increase or profit share of GDP continuously increases. Valuations are on the high end and profit share of GDP is on the high end of historical ranges.
My conclusion - earning 10% on your equity portfolio going forward is certainly achievable, but you will have to do significantly better than average. The market as a whole is unlikely to provide those returns.
"My conclusion - earning 10% on your equity portfolio going forward is certainly achievable, but you will have to do significantly better than average. The market as a whole is unlikely to provide those returns."
Yup - and RE could return nothing for 10 years or 10%/ year again.
I have no idea what the future will bring but my assumptions are based on what I feel is "the conservative side of most likely", which is the best I can do.
FYI, I use have 3.5% in for fixed income and 6.6% for equity (pre inflation).
Problem is most young people aren't sophisticated investors that can out-perform the market.
I just had a late 20s friend get into some crap mutual fund with a 2.5% management fee and a 5.5% deferred sales charge if sold within 2 years of purchase....I think he is the type that would be better off just buying a single family home with a suite and renting out the suite.
Those of my friends that understand TSFAs, RRSPs and run their own Waterhouse and Questrade accounts for the most part all own homes and can afford to own comfortably.
The expert investor young person renting because it is cheaper than buying and using the net savings from renting for further investment is a rare fish in the real world.
"Problem is most young people aren't sophisticated investors that can out-perform the market."
You don't have to beat the stock market to beat real estate...
"The expert investor young person renting because it is cheaper than buying and using the net savings from renting for further investment is a rare fish in the real world."
But this doesn't make housing the best allocation of capital, just the best one a young person on the street knows about. Which is unfortunate I suppose.
"Problem is most young people aren't sophisticated investors that can out-perform the market."
You don't have to beat the stock market to beat real estate...
"The expert investor young person renting because it is cheaper than buying and using the net savings from renting for further investment is a rare fish in the real world."
But this doesn't make housing the best allocation of capital, just the best one a young person on the street knows about. Which is unfortunate I suppose.
Nan love your posts, everything you say is very logical and so down to earth. And you Marko as usual...
The only way RRSP makes any sense is if that $400 tax return goes back in. Odds are it doesn't... The only reason I still have an RRSP is because I had an employer match contributions. Another reason to do it. It's a no brainer to max out a TFSA first and foremost. Only then consider the RRSP. And only if you can 100% for certain put the tax return back in. Otherwise the tax will be more and you will have restricted access to your own money. It might even still be a wash if you consider that you can't balance capital losses in an RRSP plus there will be "clawbacks" on other benefits when it's withdrawal time.
I'm sure Leo could do a spread sheet to illustrate this to you...
'Yep, People make all sorts of silly financial decisions with no regrets.'
I love this comments LeoS
Human beings are behaving irrationally lots of time.
Just saying over $700,000 buyers aren't running rent vs own calculations to a great extent
Perhaps they should be. $700,000 isn't that much above the average. Some people buying those properties are certainly so rich it doesn't matter at all, but I suspect the majority aren't, and are buying it because they got approved for the loan.
"Perhaps they should be"
Probably. But seriously Leo how many folks in your demographic (above median income family with kids I am supposing) even regard renting as a viable option for the long term?
In my demographic (double income with kids) very few of my peers seem to regard renting as a viable option. Instead folks will commute however long they need to to in order to afford buying. I am not promoting this worldview just reporting on it!
@ Phil
"Info, you're missing the key factor as to why Victoria didn't go up like other cities. The US sunbelt carved out a bottom from 2010 to 2013, when prices for instance in Palm Springs went below $200K. That sub-200K competition stole enough of Victoria's market to put downward pressure on our prices."
Simply incorrect.
There is no evidence that out of town buyers have had a positive effect (at any time) on house prices in Victoria.
"Now that US prices have bounced 50-plus percent and our CAN dollar has fallen well below par, people are back to buying places like the Okanagan and Island."
Not only is there no evidence that out-of-town buyers have had a positive effect on house prices in Victoria at any time, but (freehold) houses in many warm US states are available for a fraction of the cost of a house in Victoria, as I have pointed out many times on this blog.
"BTW many homes in Palm Springs and other sunbelt cities are leasehold, not freehold like here, so it's not a fair comparison. Palm Springs for instance has 23,000 homes located on native lease land."
Coming soon: more examples of freehold houses in several warm US cities that are available for a fraction of the cost of a similar house in Victoria.
2007 was approx. an average year for Victoria in terms of SFH sales. Comparing to 2007 puts everything into perspective for Victoria. It would be impossible to argue that choosing 2007 as a base year for comparing SFH sales is unfair.
"Okay, 2007 saw 4,464 SFH sales.
In the last 20 years the only year that saw more SFH sales was 2003 which saw 4,477."
Again, 2007 was, at best, an average year for Victoria in terms of SFH sales. This comes from the local board's stats.
"2003 and 2007 both saw large year over year gains in terms of average and median SFH prices."
You are ignoring the fact that lending standards were loosened dramatically starting in 2000, which allowed people with no money to bid up house prices in Victoria (and across the rest of Canada). This resulted in the inflation of Victoria's massive housing bubble.
It's typical of you, Marko, to ignore such important and relevant facts.
@ Marko
"Let's not ignore principal repayment with these emergency level interest rates you keep referring to.
A $500,000 variable mortgage that started in 2008 will be less than $350,000 by 2018."
Many of Victoria's near-peak buyers bought from 2009-11, for example, which was only 3 to 5 years ago.
"Throw in wage increases I think the market will be able to absorb some of the interest rate increases when they actually happen...when is the key question."
Rates hikes will happen. That is guaranteed.
Wages increases take a big hit as housing bubbles deflate. This was evident in the US and many other countries throughout the world.
"7 years of flat has improved affordability significantly in my opinion which has moved the market away from a bubble in Victoria and the odds of a significant correction. If the market was going to tank it should have happened in 2008 or 2010. Can't see it happening in 2015 with better market metrics (more sales/less inventory)."
Victoria's housing market is extremely overvalued, based on incomes and rents. That is factual information. You are a realtor, of course you argue that there is no housing bubble. If you told buyers that there was a housing bubble, you wouldn't make as many sales.
Inventory will increase, that's a given.
SFH sales have been in the tank since 2010. If emergency level interest rates can't bring SFH back close to near-normal levels for Victoria, what will?
SFH sales will probably continue to be slow for some time. Listings will increase. It is, therefore, only a matter of time before the rate of Victoria's price decline increases.
Victoria's housing bubble is massive as I have pointed out.
Prices in most US cities are higher than they were in 2000 but some US markets don’t appear to be bubbly. In contrast, prices in bubbly Victoria are clearly detached from economic fundamentals (incomes and rents).
Price increase since September 2000:
Chicago: +22%
New York: +61%
Las Vegas: +30%
Dallas: + 34%
Phoenix: +40%
Detroit: -7%
(Victoria: + 129%)
House prices in Canada and the US should be approximately the same, considering that incomes in the two countries are comparable.
Since 2000, incomes and rents in Victoria have not skyrocketed (as prices have) compared to the US cities I've listed above. Rents and incomes in these US cities have probably increase at a similar rate to that in Victoria. This makes it clear that Victoria's housing market is in a bubble.
All housing bubbles go through major, multi-year price corrections. It isn't different in Canada.
There is no evidence that out of town buyers have had a positive effect (at any time) on house prices in Victoria.
Wow, do you also believe out of town buyers have never had an effect on say Palm Spring prices?
Just saying over $700,000 buyers aren't running rent vs own calculations to a great extent. It makes no pure financial sense to buy a million dollar home, for example. In the City of Victoria taxes alone are $7,500/year on a million assessment. Add insurance, maintenance, etc. Renting is obviously cheaper but it's not an equal substitute in my opinion . There is a handful of SFH homes worth $700k-$1000k up for rent on craigslist where you have around 500 for sale, plus you can customize any of those 500 when you've purchased.
That was certainly our experience when looking for a relatively high-end house to rent. Makes me wonder whether that might be a good market to go after if one wanted to own rental property. And by good, I mean, likely less bad than other options in Victoria, given that rental property doesn't look terribly attractive at these prices. Still though, if a person had other reasons for not wanting to own - only expecting to be in town for a few years for example, and had the money for an executive place, I could certainly see ~$4000/month for a nicely outfitted house in the $800k-$900k range. That's 17.7x price/rent, which isn't terrible.
I think house prices in Victoria have gone up like 1000% since the 1800s. To me that means it's bound to drop anytime between then and now. This observation makes me a shrewd bear.
"The US sunbelt carved out a bottom from 2010 to 2013, when prices for instance in Palm Springs went below $200K. That sub-200K competition stole enough of Victoria's market to put downward pressure on our prices"
Is that what happened? People wanted to live in Victoria but had to settle for less expensive housing in Palm Springs?
Victoria is a nice town, and it's not too bad in the winter at least compared to the other parts of Canada. But seriously, it's a small city on a Canadian island in the Pacific Northwest.
There's nothing wrong with that, but it's not exactly the American Dream. And it's a real stretch to compare it to Palm Springs. Besides, like it has been pointed out countless times, Americans can still buy a way nicer house for less money in any number of cities that offer the same quality of life we enjoy here plus better weather.
n my demographic (double income with kids) very few of my peers seem to regard renting as a viable option. Instead folks will commute however long they need to to in order to afford buying. I am not promoting this worldview just reporting on it!
No argument here. Just saying that I don't believe the buyers of high priced houses are mostly so rich that the purchase is immaterial.
The only way RRSP makes any sense is if that $400 tax return goes back in. Odds are it doesn't...
So what if it doesn't? You've got $1000 in your RRSP for a net outlay of $600. What you do with the $400 doesn't matter.
If you buy a car for $30K, and the automaker gives you a $5K rebate, your net outlay is $25K, right? Does it matter what you do with the $5K?
Problem is most young people aren't sophisticated investors that can out-perform the market.
The majority of investors in anything can't out perform the market.
Hint: Investors are the market.
It's not like a rebate. You will need to pay that and more back later.
For your $1000 invested:
$2593.74 - 40% tax = $1556.25
$2593.74 - capital gains tax = $2074.99
Invest the $400 "rebate" and its like so:
$3631.24 - 40% tax = $2178.74
Remember, your employer paid that $400 to the gov out of your money so you need to compare $1000 invested for both with the variable investing the $400 return. After all, you need to be able to actually invest that $1000 at the time and wait the number of months for the refund.
I would love Leo to prove me wrong with a fancy spread sheet or something... It's not like your going to do them on housing data anymore are you Leo ;-)
Again, 2007 was, at best, an average year for Victoria in terms of SFH sales. This comes from the local board's stats.
What are you talking about? I posted VREB (the local board's stats) to prove that 2007 was the 2nd best on record in a 20 year span. This is supported by the fact that SFH prices jumped 9% in 2007.
You are ignoring the fact that lending standards were loosened dramatically starting in 2000, which allowed people with no money to bid up house prices in Victoria (and across the rest of Canada). This resulted in the inflation of Victoria's massive housing bubble.
You are ignoring the fact that many suites have been installed since 2000 and that wages have significantly increased. We could argue a ton of other facts and how they influence a market, but at the end of the day reality is prices have been flat for a while now.
Rates hikes will happen. That is guaranteed.
When is this guaranteed rate hike coming? In 2 months or after I pay off my mortgage?
Inventory will increase, that's a given.
But inventory has been falling?
Don't know enough about the subject, but based on what I've read RRSPs are still better unless your income is currently lower than you expect it to be in retirement.
http://www.efficientmarket.ca/article/RRSP_vs_NON_REGISTERED
I transferred all my RRSPs into the work pension plan (they're better at investing than I am) and don't plan to add more at the moment mostly because I anticipate having enough after retirement so no need to add more that will be locked in.
You don't have to beat the stock market to beat real estate...
The average person doesn't even beat the stock market as they are paying too much in management fees.
But this doesn't make housing the best allocation of capital, just the best one a young person on the street knows about. Which is unfortunate I suppose.
I expect my rental condos to be cash positive and to provide for a comparable return in relation to my Waterhouse TSFA and RRSP portfolios.
However, would I expect my primary residence home to be a perfect allocation of capital? Probably not. Am I ever going to get any kind of return on tiling my garage floor and installing belt drive garage door openers? No, it's like burning money as down the road when I have to sell very few, if any, buyers will care about my tiled garage floor. Certainly no one will pay replacement cost on a specific upgrade like that.
For me and my significant other the motivation behind building a home had nothing to do with rent versus own.
It came down to the right timing for us personally, the right reasons, and we saw enough value to pull the trigger and most importantly we can comfortably afford it.
That was certainly our experience when looking for a relatively high-end house to rent. Makes me wonder whether that might be a good market to go after if one wanted to own rental property.
I haven't done a close analysis on SFHs but I suspect it might be similar to condos.
I've seen the below pattern over and over again in new condo towers in Victoria.
Bayview Promontory
$200,000 junior one bedrooms (2nd floor, no view)
Gross Rent: $1,150/month
Strata: $150/month (13% gross rent)
Taxes: $125/month (11% gross rent)
Tenant Insurance: $14/month
$650,000-$700,000 two bedroom plus den (higher floors, spectacular inner harbor views)
Gross Rent: $2,200 to $2,500/month
Strata: $404/month (16 to 18% gross rent)
Taxes: $400/month (16 to 18% gross rent).
Tenant Insurance: Not 100% sure how much more for expensive condos.
My conclusion, at least on condos, has been that the big units with great views make the worst investment. You pay for the view in the purchase price but you don't recoup much of it on the rent.
Why would you want a tiled garage?
Marko, what type of tiles are you doing your garage with?
Marko
Need advice. If one wants to invest 250,000 into a rental property would you buy:
1) 1 bed 1 bath Post 1995
2) 1 bed 1 bath 1975 to 1985
3) 1 bed 1 bath Post 2000
With upgrades don't want to spend more than 250,000. Would it be reasonable to charge 1200 to 1300 per month?
Why would you want a tiled garage?
I like the look.
Marko, what type of tiles are you doing your garage with?
Porcelain (obviously of minimum hardness and skid resistance for a garage application). I'll probably go with same tone they have at BMW Victoria. Wheaton GM has a nice multi coloured patter but I don't think my old man and I have enough skill to install that on our own. Pictures of both floors here ->
http://www.islandfloors.com/project-gallery/
Marko
Need advice. If one wants to invest 250,000 into a rental property would you buy:
1) 1 bed 1 bath Post 1995
2) 1 bed 1 bath 1975 to 1985
3) 1 bed 1 bath Post 2000
With upgrades don't want to spend more than 250,000. Would it be reasonable to charge 1200 to 1300 per month?
This is a difficult question. First of all, for the average Joe I don't recommend condo investments.
This is the difference between the average Joe and myself; I buy pre-sale units with zero emotional attachment. My $200,000 Promontory unit rents for $1,150. 450 sq/ft, no view. Keep in mind there are a ton of other factors too people don't take into consideration. I only pay 2k PTT on a $200,000 purchase and I pay myself a $4,500 commission, etc. I also bought 2.5 years before the building was completed while the developer was running a special $7k incentive. My net purchase price factoring in my commission and the incentive is below 190k.
Average Joe investor goes into showroom closer to completion and buys a slightly bigger unit at 520 sq/ft and they get emotionally caught up in the "view" and they walk out of the show room with a $270,000 unit. Problem is that $270,000 unit only rents for $1,200 to $1,250 and the extra gross rent is eroded by the additional strata fees and taxes. And they also pay $3,400 in PTT versus my $2,000.
In terms of condo age it depends on a lot of different factors. I have zero time to deal with broken toilets or anything of that nature so I only buy pre-sale (brand new).
A lot of the 1975 to 1985 is rental restricted.
For a retired (from day job) investor an older condo might be an option, of course pending the numbers work.
^fyi....Wasn't imply you are an average Joe investor....just wouldn't recommend it for the average Joe.
Numbers Hack, here is the 750ft you buy for ~120K. If it's still around in a month, I may be swooping in, talons ready.
http://www.realtor.ca/propertyDetails.aspx?PropertyId=14801020&
Get your flooring guys in there, prime and paint the cabinets, slap up a new tub surround <10K . That's the type of location near hospital, college, shopping that you will see best cash flow and future return. I bought a flip in that area about a year ago that did well on so I know the area.
Looks like more than sub 10k to me.
@ Leo, That article is misleading (as all RRSP sales jobs are).
The article states:
RRSP: $1000 pre-tax to income = $1000 RRSP contribution.
Non-Registered: $1000 pre-tax income = $640 to invest
This is trickery at it's best. It's both 1000 to invest. It's just that it costs $360 up front to invest it outside the RRSP. (you need the $1000 up front in the case of the RRSP and the $360 was already taken out of your paycheque only to be returned to you much later). So you need to compare it thusly.
RRSP: $1000 Over 15 years it grows to 1.1^15 * $1000 = $4177.
Income tax on withdrawl is $4177 * 36% = $1503.81
You have $2673.44 to spend.
Non Registered: $1000 Over 15 years it grows to 1.1^15 * $1000 = $4177
Pay capital gains tax of ($4177-$1000)/2 * .36 = 571.86
subtract the $360 it cost you upfront
You have $3245.14 to spend.
This is the great RRSP swindle and is why it only makes sense if you reinvest any tax return that you get....
Phil. Looks like a ton of work. Lol. New kitchen and washroom. Could set it back some. What was % return on your flip?
dasmo -
Ignoring the $360 tax refund is wrong and biases against the RRSP.
Also it's not nothing that the RRSP shelters you from any tax along the way. Even the most tax efficient funds/etfs occasionally generate capital gains. Or if you invest in individual stocks you will occasionally want to sell and realize capital gains (of course the RRSP means that you also lose the chance to deduct losses).
That said I agree that the benefits of RRSPs have been greatly oversold by the industry that has a vested interest in doing so. Given the incredibly favourable tax treatment of dividends in BC a non registered portfolio of Canadian dividend payers is a very good way to provide income.
A dollar extra of dividend income in BC will cost you just over a nickel in combined fed/prov income tax if you are in the 45-75K tax bracket and a dime if you are in the 75-86K tax bracket. Much higher than that and dividends lose their tax advantage over capital gains. But even in the highest tax bracket dividends are much "better" than regular income.
I'm not ignoring it. This is why I say you must re-invest it for it to make sense. They do funny math with the numbers. Let me try again.
It's $1360 that's on the table. In the RRSP case you get your $360 back after investing $1000. In the outside RRSP case you don't. It didn't cost you an extra $360 to invest... The grand goes in with both case. Remember, that $360 was yours. Your employer just gave it to the CRA in advance on your behalf.
The way they describe actually more closely describes the scenario of having a grand on the table. Investing $640 and then investing the return of 360 in the RRSP (ignoring the small differences in the actual numbers). Thus they are describing the benefit of RRSPs if you invest the return...
"subtract the $360 it cost you upfront"
This doesn't work because you are comparing cash flows across time without discounting. 15 years is a long time...
The benefit from the RRSP comes from the stock market returns compounded on the higher initial pre tax balance and then (ideally) being taxed at a lower rate upon withdrawal. Assuming the same tax rate over time (which is conservative) and using pre tax income as the independent variable:
RRSP
Earn $1000
Invest $1000 for 15 years @ 10%/ year = $4,177
Pay tax @ 40% = 1670.90
Savings you can spend = 2506.35
Outside RRSP
Earn $1000
Less: Tax @ 40%
Invest $600 for 15 years @ 10%/ year = $2506
Less capital gains tax @ 50% * 40% =-$381
Savings you can spend = 2,125
Benefit of using the RRSP @ retirement = $381 extra savings
The point of the RRSP is that given an income level & tax rate, it allows you to start with a higher beginning investment balance than you would otherwise have if you were to invest after tax. Getting as much money into the market as early as possible is one of the primary contributors to a successful retirement.
The more aggressively you invest, the better it works - @ 5% return, the benefit is only $129, at 15% return, it is $856
If you don't invest properly and get sub par (or even zero) returns, then all you are doing is trading a tax liability now for one later, which could be good or bad but won't help your financial position much.
. . . . . . . Price Increase/Decrease. . . . . . . .
. . . . . . . . . August 2008 - 14. . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+36%. . . . . . . . . . . . . . . . . . . . . . . . x. . .
+34%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+32%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+30%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+28%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+26%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+24%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+22%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+20%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+18%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+16%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+14%. . . . . . . . . . .x. . . . . . . . . . . . . . . . .
+12%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+10%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+8%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+6%. . . . . . . . . . . .*. . . . . . . . . . . . . . . . .
+4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..0%. . . . x *. . . . . . . . . . . . . . . . . . . . . . .
- 2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6%. . . . . . . . . . . . . . . . . . . . . . . . . * . . .
----------------------------------------------------------------
. . . . . . .Aug. . . . . May . . . . . . . . . . Aug. . .
. . . . . . 2008. . . . .2010 . . . . . . . . . .2014. . .
* = Victoria
x = Winnipeg
We are back to 2007 prices in Victoria!
As of August 2014, house prices in Victoria were 5.6% lower than in August 2008. In contrast, house prices in Winnipeg increased 36.1% from August 2008 to August 2014. (Based on Brookfield’s index data)
August 2014’s index level was only slightly higher than August 2007’s index level. (link)
Comparisons to the US housing market:
* In the US, house prices in the top 9 bubbliest cities (San Francisco, San Diego, Los Angeles, Las Vegas, Phoenix, Tampa, Miami, Washington and New York) peaked and began to correct first (think Victoria). Note that Boston and Denver were not among the bubbliest US markets. (Third chart)
* Of the US markets that the Case-Shiller Index tracks, the top 7 warmest cities are included in the group that began to correct first. Again, think Victoria.
* This group of 7 warm US cities that began to correct first all ended up being among the elite group in terms of the biggest overall price declines as the 2006 US housing bubble deflated. Once again, think Victoria.
Phil. Looks like a ton of work. Lol. New kitchen and washroom.
Now where did I say new kitchen and washroom? Have you never painted cabinets? If not, hire someone for ten bucks an hour. You did say it's for a rental, right? As for the bathrm, the $100 tub surround and $5 tube of glue will take an hour to put up, after less than an hour of popping the old tiles - protect bathtub. Or buy 50 cent ft tiles and mortar and spend an afternoon getting your hands dirty. A couple new 40 dollar light fixtures will take you a whole 20 minutes to install. Two new taps for under a $100 - oh my, there's another hour. For not a dime over 5K with flooring installed and a couple weeks of 3hr workdays I could make that place brand new. Yawn, but I'd probably hire most out - still be much < 10K. Haven't figured out the return on last one, just sold.
. . . . . . . Price Increase/Decrease. . . . . . .
. . . . . . . . . August 2008 - 14. . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+48%. . . . . . . . . . . . . . . . . . . . . . . . x. . .
+46%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+44%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+42%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+40%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+38%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+36%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+34%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+32%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+30%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+28%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+26%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+24%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+22%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+20%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+18%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+16%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+14%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+12%. . . . . . . . . . .x . . . . . . . . . . . . . . . .
+10%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+8%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+6%. . . . . . . . . . . .*. . . . . . . . . . . . . . . . .
+4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..0%. . . . x *. . . . . . . . . . . . . . . . . . . . . . .
- 2%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6%. . . . . . . . . . . . . . . . . . . . . . . . . * . . .
-----------------------------------------------------------------
. . . . . . .Aug. . . . . May . . . . . . . . . .Aug. . .
. . . . . . 2008. . . . .2010 . . . . . . . . . 2014. . .
* = Victoria
x = Toronto
House prices in Toronto soared 47.7% from August 2008 to August 2014. In contrast, house prices in Victoria fell 5.6% over the same period of time. (Based on Brookfield’s index data)
As of August 2014, house prices in Victoria were 5.6% lower than in August 2008. In contrast, house prices in Winnipeg increased 36.1% from August 2008 to August 2014. (Based on Brookfield’s index data)
I think I would rather buy in a market that has been down 5.6% then one that has been up 36.1%. It's not like Victoria all of a sudden became an unattractive place to live or the main employer closed up shop.
@ Marko
"I think I would rather buy in a market that has been down 5.6% then one that has been up 36.1%. It's not like Victoria all of a sudden became an unattractive place to live or the main employer closed up shop."
It wouldn't be difficult to argue that Victoria's economy weakened in 2010 which led to many young people packing up and leaving for other parts of Canada in search of work.
If being an attractive place to live (as you claim) is such an advantage for Victoria, then why have prices declined since 2008 while soaring in other Canadian markets?
The US experience clearly shows what happens to those markets that begin to correct first. It doesn't look good for Victoria at all.
Again, you are comparing investing $1000 to investing $600. Of course investing $1000 has a better outcome...
"The point of the RRSP is that given an income level & tax rate, it allows you to start with a higher beginning investment balance than you would otherwise have if you were to invest after tax."
This statement only makes sense if you invest the tax return amount. In the case of the RRSP it costs you $1000 to invest $1000 and you take the tax hit later. In the outside the RRSP case it costs you $1360 to invest $1000 because you pay the tax up front... Do you see how they trick you yet?
House prices in Toronto soared 47.7% from August 2008 to August 2014. In contrast, house prices in Victoria fell 5.6% over the same period of time.
Imagine what happens now if only 1% (55,000 Torontonians) decide to sell those million dollar shacks to buy and retire in Victoria, pocketing half a million in the process.
OMG - not the old "if only 1%" platitude
The US experience clearly shows what happens to those markets that begin to correct first. It doesn't look good for Victoria at all.
San Fran was one of the first to correct in 2005, then it bounced into 2007, and then fell for 4 years very similarly to Victoria. Look at the Zillow graph where it’s at now.
http://www.zillow.com/san-francisco-ca/home-values/
Maybe Victoria's timeline is similar although 3 years behind San Fran. Our correction began 2008, then we bounced into 2010, fell 4 years, and are now taking off. Notice the Zillow graph how similar the corrections were. Who knows, maybe in 3 years we'll be 50% higher like San Fran. We are surrounded by ocean too, constraining our land supply.
Dasmo,
If you were to spend (rather than invest) the $360 now, wouldn't you get a lot more than spending the $360 20 years from now?
Dasmo,
If you were to spend (rather than invest) the $360 now, wouldn't you get a lot more than spending the $360 20 years from now?
It's actually $360 now vs $571.7 in 15 years. Always a quandary when investing...
@ Phil
Brookfield's index data show that prices in Victoria are lower than a year ago and lower than at the end of 2013.
Prices are not taking off in Victoria, instead they have continued to fall.
Brookfield's index is a month behind, Teranet has it up 3.2%, MLS HPI has it up 1.2%....
Zoom out and it's still flat. Any upward pressure is what's keeping it flat...
"Again, you are comparing investing $1000 to investing $600. Of course investing $1000 has a better outcome... "
Exactly. If you use an RRSP, the government lends you the tax you would otherwise pay to invest for free for the term of the RRSP in exchange for paying tax on the eventual withdrawal.
The math is pretty simple, there are no tricks here. RRSP's work really well if you use them correctly.
If your tax rate is higher in retirement (unlikely) or your RRSP performs poorly (up to you) or both, well you probably didn't use it right.
http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/rrsp-bashers-heres-how-the-math-really-works/article17034733/
I made it easier for everyone to see and I used info's favourite index. My question is “Could something ‘like’ what happened in San Francisco, happen here?" San Fran is the green line, Victoria Brookfield Index is bluish. Yes I know they are different cities and yes I'm doubtful too, BUT we do have SIMILAR geographies, land constraints and median family INCOMES. We even corrected similar amounts 10-15%, before take off. Rents are higher, but maybe Victoria's rents are about to play catch up.
I bet you would be locked up in San Francisco for saying it could happen there in early 2012.
@nan, that article is saying exactly what I am saying. It makes sense if you reinvest the refund. This is the foundation they start from: "He could take $2,000 of his own money, borrow $1,000 to make the $3,000 RRSP contribution, and then use the $1,000 tax refund to pay back the short-term loan (with negligible interest)"...
@ Phil - Interesting theory but I don't think the most recent run up has much to do with geography (as that hasn't changed over time). I think it has more to do with this:
http://www.infomine.com/investment/stock-markets/indexes/ndx/5-year/
SanFran is packed full of some of the smartest, hungriest, most vicious entrepreneurs in the world and they are gorging themselves at a trough of available capital to leverage good ideas into great companies.
Victoria has a pretty awesome tech sector but none of companies here are relevant on a global scale in the same way Bay Area companies are.
All that value being created on the Nasdaq is landing disproportionately in the hands of hard working folks in the Bay Area and eventually, in the hands of house sellers.
You don't think any of those gains are landing here?
"It's actually $360 now vs $571.7 in 15 years. Always a quandary when investing..."
That's my point, it doesn't really matter if you spend or invest.
If you make a more than inflation on your investments, it is to compensate you for risk.
@ nan - Thanks for humouring my theory. Your Nasdaq gains theory filtering into SF's housing market is interesting. By the same token, maybe the TSX Composite gains are helping our market. It's noteworthy how San Fran housing took off as the Nasdaq did, and it looks as though Victoria may be doing the same with our TSX.
It does... At the time of investing you have $1000 available. That is the bottom line. Choice is in an RRSP or not. In an RRSP Gov loans you back your tax so they can take even more later. Outside an RRSP you have already paid the tax so you are in a much better position. You can control your money...Like take it all out and pay off your house because rates spike...without taking the 35% off the top plus the added tax at a much higher tax rate. OR you are 69 have an income still, got the million in the RRSP and are forced to withdraw about 75k year one. oops now you are taxed even more and your OAP is clawed back. Outside the RRSP you could just take what you need controlling your tax hit.
If you are planning on having low income and not much in your investment account than an RRSP is for you. Me I'm planning on doing better than that. OR dying by then. Which is also a problem with RRSPs. They will be taxed at the time of transfer to the beneficiary at full value. Now that surely will be a higher tax bracket. It's going to be a great source of revenue for the Gov just when they need it...It should help pay for the added load on our health care system. Some clever people figured this out....
...Canadians can and do invest in the US market too...
I'm in the top tax bracket and I max out my RSP every year. If I want to retire at 55 or 60 I can then draw on my RSP's before CPP & OAS kick in, giving me a massive savings in tax. Also I fill in a form that reduces my tax at source so it truly $1000 before tax that goes in: tax form
Also the reason most people don't beat the market or come close is because they let there emotions determine when to buy or sell and end up selling at the worst time: Investors
"Also I fill in a form that reduces my tax at source so it truly $1000 before tax that goes in" which in essence is investing the return. It's investing the true pretax dollar value where it makes sense. If you invest after tax money and then spend the return on more plastic shit from china then you are worse off.
Still, If you have other income and are forced to withdraw you might regret the RRSP. Sounds like you have a life plan that facilitates that Mayfair. Probably have employer matching benefit too (which then makes it a full on no brainer) Me, I'm a cowboy so who knows! I only hope I'm making a good income in my 60's without having to work hard... So for me, an RRSP is a low priority and only contribute to my TFSA and cash account. I also don't trust giving my money to the GOV. and having to ask to have it back...
"Comparisons to the US housing market:"
If observers of the Canadian housing market have learned anything in the past 8 years it's that Canada is NOT the US.
If and when we crash it will be for our own reasons and according to our own schedule.
Also the reason most people don't beat the market or come close is because they let there emotions determine when to buy or sell and end up selling at the worst time
The vast majority that have a pet theory about how to beat the market will also fail to beat the market, no matter how unemotional that theory is.
We'll crash when it damn well pleases us thankyouverymuch!
Who cares about beating the market. You gotta simply play. You gotta log hours to get confidence. It's not unlike poker. You get good, you make money. I dunno, it just doesn't seem that hard to me. Although it's getting a little scary right now I must admit. So much gain, so ready for panic. This is why I'm going through and taking profits here and there. Sold half my Gopro and put it into Rogers sugar for instance. Gopro is up 150% and meeting resistance. Rogers is at at half it's high point and pays over 8% consistently for years. A little upside potential, very stable and a great dividend....
I've been having some interesting conversations with buyers and sellers these days.
A single middle aged woman who has been divorced for a couple of years. She invested the money from the divorce in mutual funds that have done diddley squat over the last three years. She's got a new man in her life and she's tired of living in limbo.
Moving on starts with buying a home for $400,000 plus with a 20 percent down payment. The basement suite will be rented out and the boyfriend moves in to pay half the bills. (he's not going on title -just paying the freight - good luck on this relationship)
Her life moves out of limbo and there are two less people on "Plenty of Fish in the Sea". She's buying a home in the hopes of being happy. Not because it makes financial sense. She tried mutual funds and they didn't increase her wealth - so she's defaulted back to real estate.
The reason why real estate hasn't crashed is because the other options like mutual funds are shitty. And a change is as good as a rest.
Give me back the good old days of dot com companies.
Seems like a tax-free win of about $18,000-$30,000ish a year on an $80,000 investment, provided prices don't drop.
And how about a seller that is utterly financially broke and refuses to "give" his property away for less than 1.4 million. This is a fella that goes through Thriftys sampling the bulk goods, hand fulls at a time, before he buys 5 bucks worth. He considered it an insult when several builders offered between 1.2 to 1.3 million for his property.
How can you insult someone who can't afford coffee with a 1.2 million dollar offer? With a signature - all of his problems disappear!
A word to the people of Victoria - stop drinking the water!
Who cares about beating the market. You gotta simply play. You gotta log hours to get confidence.
Everyone cares about beating the market. If you don't care then why are you wasting time picking stocks?
I'd rather not put in the hours and match the market, thereby matching what most stock pickers are getting without any work.
Who needs to beat the market? Nasdaq is up almost 4X its value from 2008. You could also just buy some index ETF's then but where is the fun in that? I've hit some jackpots which you can only do if you play. I am not talking about penny shares either....
I've hit some jackpots which you can only do if you play.
Sure. Avigilon was a great play when I bought it after the IPO and it went up several hundred percent. But then Cash store financial was less of a good move, On average you aren't ahead over the long term unless you make it your second job (and even then no guarantees).
Just not my idea of a good time so I replaced all my individual holdings with index funds.
Anyone who claims they can beat the market, or even match it's gains, is full of it. For every fluky jackpot there are many a spankfest. The incredibly sophisticated computers are designed to take your money, period.
http://online.wsj.com/news/articles/SB10001424127887324059704578471154109438438
Short-term trading has become so dominated by Wall Street’s computers that individuals — and professional managers — almost certainly will lose out to them over time. The obvious alternative, experts say, is to buy and hold diversified index funds with very low expenses.
Well, I can see that I haven't missed much in the last little while: info is still providing incomprehensible ASCII graphs, basic spelling continues to vex Just Jack (e.g., "skid-dish"), and Victoria's housing crash is, of course, as imminent as it has ever been--if not more so!
At any rate, I just wanted to let you all know that, with my mortgage renewal soon upon me, I've locked in at least a 2.99% five-year fixed term with my lender. I'm pleased because this rate is nearly a percent lower than my expiring five-year fixed rate, which already seemed pretty low to me. You gotta love "temporary, emergency" interest rates that last into second halves of decades.
Lastly, and switching topics, there's been some discussion of TFSAs on the blog, which leads me to ask, Why do most people find TFSAs to be so great? They're fine, but they don't do that much for you. Max them out from the beginning with regular type investments and Average Joe has saved at most a few hundred bucks in taxes--just incredible! Yes, how did we ever manage without them?
And, like income tax cuts, TFSAs cost the government lots of money. But no one ever talks about that.
I do OK. Just my TFSA is up 34% overall since I started it a couple years back.
Max them out from the beginning with regular type investments and Average Joe has saved at most a few hundred bucks in taxes--just incredible!
A strategy I used up until this year was maxing out my TSFA with clearlycontacts.ca (COA.TO) stock every year (I was kind of obsessed with the company since 2007, google; "Marko Juras Clearly Contacts"). Earlier this year they ended up being bought out and it was a lot more than a few hundred in tax savings. It ended up being a big reason why I decided to go ahead and build a house. I know if I need the TSFA cash I can pull it without tax implications, unlike my RRSPs and non-registered stuff (capital gains implications).
Within my RRSPs I hold the usual suspects, BMO, TRP (dropped 4% today!), RCI.B, etc.
So I guess my take on it is go with growth potential stocks in TSFA and dividend payers in RRSPs and non-registered accounts. If you hit the right stock within the TSFA the capital gains savings is great. Very little value to TSFA if no growth within it.
Why do most people find TFSAs to be so great? They're fine, but they don't do that much for you. Max them out from the beginning with regular type investments and Average Joe has saved at most a few hundred bucks in taxes--just incredible!
Because if you happened to buy funds like Guggenheim RPV or RZV for instance when the TFSA started in early '09, you would be up about 500%. That equates to a whole lot more than a few hundred bucks in taxes saved.
Nice Marko! See, investing in what you know to be good. Leo, do you cash your cheques at cash store? Kidding!!! but you get the point....
Nice Marko! See, investing in what you know to be good.
Honestly it was a lot of luck involved and a huge amount of risk. If the government had brought forward legislation banning contact and prescription eyeglass sales online stock would have gone to zero.
If I thought I could pull another move like clearly contacts I certainly wouldn't be buying rental condos.
Playing the stock market comes with risk like the time I bought RIM in the mid 40s and got out in the mid 20s. That one burned :)
Just my TFSA is up 34% overall since I started it a couple years back.
Dow is up exactly that amount as well :)
Leo, do you cash your cheques at cash store? Kidding!!! but you get the point....
Figured there's no shortage of people out there making bad decisions. Turned out that the people running the CSF were scumbags, who would have thought.
Max them out from the beginning with regular type investments and Average Joe has saved at most a few hundred bucks in taxes--just incredible!
Someone maxing out their TFSA from 20 to 65 (assuming the TFSA continues to exist) will earn just shy of $800,000 in interest income. So several hundred thousand in tax savings.
You know what I like about these conversations? They make you think about your opinions. All of a sudden ETFs seem more attractive to me after seeing that in fact I am not beating the market and perhaps I should care. (Excluding my apple shares)....
At any rate, I just wanted to let you all know that, with my mortgage renewal soon upon me, I've locked in at least a 2.99% five-year fixed term with my lender.
I had not given this much thought after the 2008 peak crowd re-financed at lower levels in 2013. The second 2010 peak crowd will likely be looking at lower rates as well. If they could afford it in 2010 they'll probably be able to afford it now (assuming no job loss or similar).
No one's retirement goal was ever to beat the market. That is our competitive self wanting to think we are smarter then the average man. It is very very difficult for a manager or person to beat the market on big blue chip stocks, because so many people are looking at them and evaluating information that is coming in.
On small chip and emerging markets, that is another story(I would never own a small cap ETF or emerging markets ETF). That is where active management is well worth the money. IMO
For me it was the horrible experience of financial advisors and mutual funds (pushed by advisors). I could compare directly since I had an account in my "group directed RRSP" started when I was an employee and my own self directed cash account. Over a decade My RRSP was flat. Where I saw large gains in my self directed account. I have apple in both and spent years having to fight off the advisor advising me to sell. The nail in the coffin was them starting to push for me to pay a guy $1000/year to manage my account. Shortly thereafter I transferred the RRSP to a self directed account and dumped all the mutual funds in favour of my own "index". I have done way better since... This experience has made me skeptical of "funds". However I have now put ETF's officially on my radar. The thing one might miss is the breakouts. For me it was apple up 4500% from when I bought it. Also Lucky I admit in that Steve came back with his alien connections....
@JJ
The reason why real estate hasn't crashed is because the other options like mutual funds are shitty.
What to do when returns are headed for a close approximation to zero, the end result of capitalism as predicted by Karl Marx?
The danger then is that people will simply hoard cash, as a less worrying alternative to non-yielding stocks and fixing leaky roofs on unproductive rental properties.
But that could crash all markets, so governments will continue to strive to create inflation. That way you'll have to invest not to gain, just not to lose.
Marko reveals the next thing to put upward pressure on RE. The Stock market starting to turn down, people cashing out and putting their new found $$$ into RE as a form of capital preservation. Expect this to peak in a few years pushing prices up around then...
@ Marko
I am not beating the market and perhaps I should care. (Excluding my apple shares)....
Yes picking stocks or following a pet theory of market action may make you more money than investing in the market index. Equally, or perhaps more than equally, it may make you less.
Some of the great fortunes were made through speculation, and often they were lost the same way. But for every so many who take a great gamble, there may be one or two for whom that gamble pays off.
The question is, do you want an average gain with no work via index funds or do you want to risk a great loss for the possibility of a great gain. Most people, I suspect, start out as speculators and after a while, if they have anything left, switch to index investing.
It may be said that by speculating you face a greater risk of loss than gain, but I don't see how that can be, for if it were true, then you could increase your chance of gain by deciding what was the worst possible bet and then, against your better (actually worse) judgment taking it (i.e., the perceived worst possible bet).
Because if you happened to buy funds like Guggenheim RPV or RZV for instance when the TFSA started in early '09, you would be up about 500%. That equates to a whole lot more than a few hundred bucks in taxes saved.
Certainly. But I said "Average Joe," who doesn't tend to see investment gains of 500%.
Someone maxing out their TFSA from 20 to 65 (assuming the TFSA continues to exist) will earn just shy of $800,000 in interest income. So several hundred thousand in tax savings.
I shudder to think how all that money, over all those years, could instead be used by government, with the advantages of economies of scale, to better our society.
The second 2010 peak crowd will likely be looking at lower rates as well. If they could afford it in 2010 they'll probably be able to afford it now (assuming no job loss or similar).
Rates today, I think, are among the lowest they've ever been. First-time buyers may not be able to take advantage of them due to government's screw-tightening, but for the majority who already have mortgages life is good.
My investment in apple at the time was not very speculative. I invested what I could afford to lose. They were at a perception driven low point. Sure their sales were in a small decline but they were the number one / two PC maker (hardware) and had plenty of assets. Just in cash stockpile alone they were in a good spot. They had an extremely loyal fan base, myself included. Now if I had borrowed the 10k to invest like I was spouting off to my buddies I was going to do that would have been speculating... I wish I had....
@ Marko
Comment by dasmo..
I am speculating on Tesla today I can't help myself :-)
I shudder to think how all that money, over all those years, could instead be used by government
Don't worry they will get their money. They'll just raise taxes somewhere else.
"It may be said that by speculating you face a greater risk of loss than gain,"
If the efficient market hypothesis were 100% true then it would be equally impossible to consistently underperform the stock market through stupidity and laziness or to consistently outperform the market through diligence and intelligence. All under or out performance would be due to luck.
Personally I am skeptical that ANY field of human endeavour exists where intelligence, hard work and superior knowledge confers NO advantage whatsoever.
I believe in my own "weak" form of the EMH, namely "It is really hard to beat the market over time"
I have a seminar with BC Assessment, dealing with property appeals, late this month. If any of you have questions, I'll present your question during the seminar.
I already have a question, asking what is meant by "improvements" and how that value is determined.
Good stuff to know with the new assessments coming out in a few months.
Here's one: What's the best way to get the assessment lowered? Can I find out when the assessor comes around and drag some old cars onto my front lawn and throw a rock through a window?
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