The Rental Market

Just wanted to let you all know our recent experience in the rental market. We're moving in early summer. We just negotiated 7% off the asking rent and got the landlord to agree to NO lease. It's month-to-month for us on a 3-bed house near a recreation centre in the central CRD. We'll be within 15 minutes of downtown and 15 minutes of the highway out of town.

Yep, the market she's a changing.

Oh, and in case you're wondering how we got the discount with no lease: we asked for it, right after the landlord complained about their current noisy tenants wrecking their recent house buying experience, with a reminder that we're married professionals with decent income and quiet lifestyle.

The stars are lining up

If you're following the real estate and mortgage markets, you know what I mean. I feel like a kid in a candy shop with a pocket full of cash and no other customers. Soon, old man behind the counter, you will be begging me for my money, not the other way around. Heh.

Open post

My wife and I are super busy shopping for a house right now so I don't have much time to blog. We figure this is the perfect time to get in before interest rates and house prices jump higher in unison forever pricing us out. We plan to take out the maximum allowable too before the new lending rules kick in on the 19th. Wish us luck!

CREA president thinks you are too stupid to understand

Wow, Dale, just wow. The outgoing president of the CREA is having a bad time in the media lately. And today he made things worse.

Long story short, CREA opens MLS up to allow flat-fee listings by licensed realtors if the local member boards approve the changes locally. The Canadian Competition Bureau responds with "that's a step in the wrong direction" and argues it makes the marketplace less competitive not more (a position I agree with).

Picture this: Dale's having a press conference. The first question gets asked by a reporter about how the changes will affect the members of the CREA (individual agents and member boards like the VREB), Dale responds: “too complicated for anyone but a real estate agent to understand” and then storms out refusing to answer further questions. But not before getting in one last quip: "There's no point in me trying to explain, when in actual fact they make no difference in the way realtors operate their business and no difference to consumers."

And there it is in a nutshell: the CREA just doesn't get it. Consumers want change. The Competition Bureau is advocating for change. And even the outgoing president of the CREA says that the "changes" voted in today aren't really changes at all.

Tribunal here we come.

Yep, it's different here alright

Hat Tip to Rob Reynolds for links in comments of last post.

I'll just post the pictures. You should definitely read the full post here by Jonathan Tonge at AmericaCanada.blogspot.com






I'm still scratching my head at anyone who thinks this is A) sustainable and B) not a credit bubble. Buy houses people. Buy houses.

Advice

I write fairly frequently here and usually fairly generally. I bring the perspective of a first time waiting to buy in a buyers' market to any discussion of the housing market. Many readers here already have or currently do own(ed) homes. I'm turning to all of you today for this discussion.

Recently I've been receiving e-mails asking for advice on specific situations related to home buying and selling. I'm very reluctant to comment on these, I'm not a pro, have very little in the way of "real world" buying and selling experience, and I'm not a financial professional either. To put it bluntly, you should immediately dismiss anything with the appearance of advice on this blog as biased, unprofessional and unsolicited.

But it's fun to play with scenarios, no?

So let's do some of that now. Here's the situation:

Condo owner (family, 1 school-age child) with no mortgage and a current market value nearing $300K.

Pros: paid off, very convenient location to work and school

Cons: Getting small for family, want to be in a house, see the market falling soon

The question: should we sell our condo and rent our next home while waiting for the market to correct and then buy a house?

This is the classic sell high, buy low strategy question.

My initial thoughts were sure, why not? Put your money where your "mouth" is and act according to your beliefs/convictions about the market. But that is terrible advice. We need to crunch some numbers, right?

Now it gets really complicated. Where to rent, what to rent, how much to pay, for how long - these factors all eat into the sell high, buy low "profit."

The owners mentioned they'd be OK with renting a townhouse. I've made some assumptions here: namely that renting a 3 bedroom townhouse will cost about $1700/month, the owners would prefer to maintain their location or move to a neighbourhood where they maintain similar proximity to work/school and that if they are OK with renting a townhouse for a couple or three years, they will be OK with owning and living in it for 7 or 10.

There are a few townhouses for rent in Victoria right now. Not many, but I suspect the new demand isn't high for these kinds of rentals. There are also a few townhouses for sale in Victoria right now. Again not many, but enough to know that these folks won't likely get caught having to spend more than they'd want on one. I capped my search at $400K.

I'm assuming that the owned condo sells in the next 30 days and nets the family a minimum $250K after all fees etc are paid.

In the interest of brevity, let's say the family's options are:

1. Sell the condo and rent a townhouse ($1700/month) while waiting for a buyer's market (let's say 20% price correction in median SFH home price $561K - 20% = $448K)
   
2. Sell the condo and buy the townhouse (let's say $400K purchase price, $150K mortgage at 3.8% 5-year fixed 25 year amortization = $782 + $200 strata + $125 ppt = rounded up to $1200 to get an even number and include some maintenance $)
3. Stay in the condo, wait until they feel the market has dropped far enough then sell the condo and buy their house [25% condo price drop ($210K), 20% SFH price drop ($448K) new mortgage of $225K]
   

What would you do? We don't know if prices will drop to 20% or 40% or not at all. We don't know how long it will take prices to fall to these levels either. We don't know what the cost of borrowing money then will be. It gets very hard to calculate hard and opportunity costs in this scenario because of the unknown variables.

When we get specific, we see exactly why there isn't a flood of listings by sellers looking to cash out at the peak and waiting to buy in the next trough. Personally, I'd be thinking about cashing out and moving to a city with a median house price of $250K so that I could pay cash for my "forever home." But that's just me. What would you do in this situation?

Hey Mayor Dean, 2 words for you

Ed Stelmach

Background

Prediction: Victoria city council will not learn the hard way, not because the lesson won't be served, but because Victoria city councilors just refuse to listen and learn.