Back in 2002 my friend whom I've written about before bought his first house. In 2000, his sister had sold a house she had bought in 1995 for a $30K loss, or 18%. My friend was nervous about the market. He'd had to over-bid to get his house and paid just about the average sales price for an average property in an average neighbourhood. He'd been able to put down a significant down payment and take out a 14-year mortgage for the rest. If the market tanked on him then like it had for his sister, he was confident his financing arrangement would help him weather the storm. Couple that with a fairly nice place that he and his new wife could grow into, and stay for some length if necessary, and his nervousness was abated.
Back then we were talking a lot about the stock market crash in 2000. We figured that, like most cycles in economic history, the bull market in housing was a direct result of capital fleeing out of risky equities into stable real estate. We both saw signs of economic growth in equities and figured that the local RE market wouldn't have legs to sustain the growth it had experienced over the past 18 months. I was decidedly bearish. He owned a house and of course didn't want to see a correction.
At that time, I was earning great money in a job I didn't want to do anymore. My dad was urging me to buy a home. I decided that a mortgage would be a life sentence to a less-than-satisfying job and decided to go back to school and get a university degree to open new employment doors. I could play the what if scenario forever here, so I won't. I don't regret the decision I made. Hindsight being 20/20, I realize I could have done both.
Fast forward to today. We have a rarely witnessed situation: parallel bull markets in both local RE and world equity markets. One seems to have endless legs, the other, I'm not so convinced. RE prices in the western world are correcting: everywhere except Canada. East of Manitoba, the market didn't have the heat that the West did, and manufacturing is getting hammered, so I believe the RE market will soften there very soon. West I don't know. I want to believe that Alberta will continue it's downward trend to a negative year over year loss. But I doubt it will. Currently it's negative month over month; it will take a massive hit for it to go below the 30% or so it had gained already this year.
So what is the Bear's Dilemma? Roger asked an interesting question over the weekend: "how low does the VREB published median price have to go before they jump in?" And that question my friends outlines exactly what the Bear's Dilemma is: when is low enough?
I've maintained on this site for some time that being an owner of a property is better than being a renter. There are many reasons for this:
pride of ownership
building of financial equity
flexibility and security in living arrangements
asset appreciation
There are well-documented-around-here downfalls too. But I'll state unequivocally that if you find a house/condo that you can afford--i.e, it fits under the 30% gross income shelter costs recommended by financial planners everywhere--you don't have to amortize over 40 years to make this happen, and you will be happy there no matter what the market does then now is just as good a time to buy as any.
The trouble for us is we can't find those kinds of places; either we'll be unhappy in the unit/neighbourhood for any great length of time or we'd be stretching our budget to the point where we can't afford to save for our other financial goals, like eating and retiring. So we wait for our income to explode or this bubble to burst. I wonder which will come first?
When prices start falling, how will we judge when is the right time to buy? All around us we're inundated with media extolling the benefits of buying property right now by telling us how good it would have been if we bought a year or more ago. When the market goes down the opposite will be true: societal reinforcer's--media and our peers--will be saying the opposite: "don't buy now you'll be losing money."
To which I state the only answer I can come up with for the Bear's Dilemma: "If you are happy with your purchase, you don't blow your budget, you don't compromise on your retirement and other savings, and you can live in the place you buy for 7-8 years or more, you will have nothing to worry about."
To answer Roger's question: for us, I figure that a 30% correction on the median SFH price in Victoria will give us the legs to get into the market and stay there.
Current median: $520,000 30% correction is: $156,000 New median: $364,000
Is this realistic? We hope so. If it's not, who knows what we'll do.
but this one is just too good to let pass by without comment.
The vast majority of Canadians rank home ownership as a top priority, but are pessimistic about their chances of buying a house in the current market, a new Angus Reid Strategies poll has found
nearly four-in-five Canadians (77%) say that owning their own home is one of their primary goals in life
two-in-three (66%) say that homes in their neighbourhood are overpriced
half (50%) believe that housing prices in their neighbourhood are only going to get more expensive in the next six months
Canadians who own their own homes, nearly all (95%) feel lucky that they bought their homes when they did, and 71 per cent believe their homes are worth the price they originally paid for them
But 74 per cent of homeowners say they would not have the money to put a 20% down payment on their own homes as presently valued
most Canadians who are presently renting feel that buying a home is out of the question in the current market—65 per cent of this group say that they will be waiting for the market to become more favourable before looking to purchase
fewer renters than homeowners (58%) feel their residence is worth the monthly price they pay
Nearly nine-in-ten from Alberta (88%) think homes in their neighbourhood are overpriced, and a similar number of Alberta homeowners (89%) say they could not afford a down payment on their home as presently valued. Four-in-five Albertans who rent their homes (83%) also say they will wait for a more favourable market before buying a home
young Canadians are more likely to have a pessimistic view of their housing markets. Canadians between 18-34 are more likely to believe that housing is overpriced, and more likely to believe that prices will go up in the next half year. In addition, fewer homeowners in this age group believe their homes are worth the price they paid for it
To summarize:
we all want to own a house
but aren't feeling confident at all about owning one at today's prices
most of us think our houses are over-priced
half of us are confident the market will continue to rise
half of us believe the opposite or are unsure
owners feel lucky they bought in at the price they paid
most of those owners believe their homes are worth what their original purchase price was (wow)
most of those wouldn't be able to buy today
most renters won't buy because they can't today
most renters will wait for a correction
Albertan's are returning to some sense of sanity
us young 'uns believe this market is crazy and feel like we got ripped if we bought
You can read a more professional take on this poll, over at The Tyee. Need I point out that even they call it a Bubble?
Which may or may not infringe on the BC Government's trademarking of the Spirit Bear.
