The real problem with Vancouver’s outrageous house prices

[agrant]

Originally Posted by Zassk

I see none of the complainers have been willing to touch Hourglass's core remark:

No, it wouldn't matter because people wouldn't notice.

[DKaz]

Why are average house prices in Yellowknife NWT the same $600,000 then??

[twoNeurons]

Originally Posted by agrant

Well, you do kinda throw away money when you rent. When you buy a place, the equity slowly changes, and over time you build up a big nest egg. How many people who rent actually put away as much money? If you can afford a place, why would you choose not to buy???

It really just take discipline. In a mortgage, that discipline is externally imposed... and you're charged for it.

You throw your money away when you buy as well.

The logic the renters are throwing away money only holds true when mortgage payments and rents are roughly in line with each other. When there is a large discrepancy between these two, it's different. Property tax, maintenance and renovations are all very non-free things. Not to mention the biggest money toss of all: Interest.

Condo: $550,000

A $500,000 30-year mortgage at 4.14% interest will cost you:

mortgage: $2417.37 / month.
property tax: ~$230 / month.
maintenance/upkeep/other: ~300 / month
(Condo fees)

Total's about $3000.

Assuming one has put down $50,000 from their savings.

After 5 years, you own almost ~$98,000 of your house (including down payment), so you've paid about $800 / month towards your "nest egg" and "thrown away" $2200/month.

Say you rent a place for $1400 now.

If you put that $50,000 in a 5-year GIC (conservatively @ %3) and add the difference (~$19,400) at the end of each year (let's say you can get a return on that at 3% too for simplicity's sake)

You end up (without any REAL thought about investing) ~$160,000.

If you were to sell your place, my "guess" is that you'd need to get minimum $620,000 just to break even after real estate fees etc. That will depend on house prices increasing 2.5% YOY for the next 5 years.

Will it? I don't know? Will it go down? Will it stabilize? Will it collapse? I don't have the answers to those questions. I know money isn't everything when it comes to buying. Owning a place is more than just an investment. It's about a lifestyle. It's about having control over your own place and a sense of ownership. That isn't free.

Note, these are conservative numbers, but it does illustrate that RIGHT NOW renting isn't necessarily throwing away your money. Given the disparity between the cost of buying and renting right now, paying rent is much less than the interest paid on a purchase. Remember, agrant, when you purchased, there wasn't a HUGE discrepancy between buying and renting, as you mentioned. Those situations are typical when what separated renters from buyers was the ability to have enough discipline to save up for a down payment. Different story, then.

[trofirhen]

Originally Posted by Pinion

The reason why Vancouver's market is so f-ed up is because China itself has laws preventing its own citizens from causing a (bigger) real estate bubble domestically. BC's right - no, obligation - to prevent a similar disaster has nothing to do with xenophobia or racism. If anything it's racist to allow a horde of nouveau riche to ransack the rest of the world as they please. Where's their respect for our quality of life and culture?

I think that is a question many people think to themselves, but are afraid to ask or state aloud for fear of being branded "racist, Nazi, etc" in this politically correct world of ours.

[agrant]

Originally Posted by twoNeurons

It really just take discipline. In a mortgage, that discipline is externally imposed... and you're charged for it.

You throw your money away when you buy as well.

The logic the renters are throwing away money only holds true when mortgage payments and rents are roughly in line with each other. When there is a large discrepancy between these two, it's different. Property tax, maintenance and renovations are all very non-free things. Not to mention the biggest money toss of all: Interest.

Condo: $550,000

A $500,000 30-year mortgage at 4.14% interest will cost you:

mortgage: $2417.37 / month.
property tax: ~$230 / month.
maintenance/upkeep/other: ~300 / month
(Condo fees)

Total's about $3000.

Assuming one has put down $50,000 from their savings.

After 5 years, you own almost ~$98,000 of your house (including down payment), so you've paid about $800 / month towards your "nest egg" and "thrown away" $2200/month.

Say you rent a place for $1400 now.

If you put that $50,000 in a 5-year GIC (conservatively @ %3) and add the difference (~$19,400) at the end of each year (let's say you can get a return on that at 3% too for simplicity's sake)

You end up (without any REAL thought about investing) ~$160,000.

If you were to sell your place, my "guess" is that you'd need to get minimum $620,000 just to break even after real estate fees etc. That will depend on house prices increasing 2.5% YOY for the next 5 years.

Will it? I don't know? Will it go down? Will it stabilize? Will it collapse? I don't have the answers to those questions. I know money isn't everything when it comes to buying. Owning a place is more than just an investment. It's about a lifestyle. It's about having control over your own place and a sense of ownership. That isn't free.

Note, these are conservative numbers, but it does illustrate that RIGHT NOW renting isn't necessarily throwing away your money. Given the disparity between the cost of buying and renting right now, paying rent is much less than the interest paid on a purchase. Remember, agrant, when you purchased, there wasn't a HUGE discrepancy between buying and renting, as you mentioned. Those situations are typical when what separated renters from buyers was the ability to have enough discipline to save up for a down payment. Different story, then.

Thank you for the explanation. I guess I just had good timing. Still, if you can pay off the mortgage quickly, you pay less in interest... and in the end you're in great shape long term. The payments to the mortgage can then be put towards other investments. Easier said than done, yes. And property taxes aren't a big deal, at least for me.

People who aren't sure, should go to a professional financial adviser. They'll be able to determine which route makes the most sense.

[DKaz]

I don't think barring non resident property ownership is a bad idea. I think many Canadians agree but we're too politically correct to say so.

[vanman]

This is the same tired article that has been regurgitated over and over again since I first started becoming interested in the real estate market over 10 years ago. People inside Vancouver barely grasp understanding of our market let alone reporters back east who can't fathom how desirable the west coast truly is.

The same arguments will continue to be made and in turn Vancouver will continue to defy all logic. Sure there will be corrections but Vancouver does not overbuild, we won't see a crash the likes of Miami or Las Vegas, as much as I wish we would.

[mezzanine]

Originally Posted by twoNeurons

It is of note that the majority of buyers are local. However, perpetuating things like "The Chinese are buying everything" does one thing really well. It scares people. It scares people into thinking that the current market is normal and sustained by foreign buyers. As a result, people are scared into thinking that if they don't buy now they'll be priced out forever.

Mainland China scares people. I'd hazard a guess that you can pin a lot of the inflated price, not on the actual foreign buyers, but on the perception that people have of them. The same rhetoric is printed in the paper over and over and over. Eventually, people believe it. You never EVER see cold hard numbers about how many buyers are foreign. YOU ONLY EVER SEE ANECDOTAL EVIDENCE or short pieces focused on one sector.

QFT. at other sites, the tone around these discussions are worsening, even for anonymous internet commenters.

[cornholio]

Its not foreign owners that is a problem its foreign money that is.

I am sure that for every $1 Canada invests in to finding and taxing/fining foreign income of Canadian residents and Citizens they get $5 back (minimum). The problem with this money is that it doesnt exist, its not taxed, it doesnt help Canada, all it does is put inflationary pressure on real estate prices.

To buy property you should have to be a citizen or resident, when you are a citizen or a resident you must pay the appropriate taxes on all income(anywhere in the world), the fines should be sever enough to be a deterrent to avoiding paying(which everyone does now because this country is a joke as far as tracking any foreign income). There should be enough invested(lots more then now) to make the success rate of catching people high enough to form a deterrent. Foreign corporations should not be able to buy residential units or other real estate just for holding.

[delboy]

Originally Posted by quobobo

It is beyond disturbing how many of you think that you have the right to prevent others from selling their own property to whoever they like - especially based on a person's citizenship (xenophobic much?).

xenphobia my arse. I own property, have done quite well actually, but I am open minded enough to realize that the market here is unhealthy. It is really quite obvious what foreign sales are doing to Vancovuer's market and the long term implications for the local economy. Xenphobia my arse....it's simply dollar and cents, I thought it should be very obvious.

[cornholio]

Originally Posted by Zassk

I see none of the complainers have been willing to touch Hourglass's core remark:

Not nearly as much as their money is generally earned and held in Canada. Through federal taxes and transfer payments the inflationary pressure caused by this is mostly stopped.


Like I said its not foreign owners its foreign money. China just happens to be growing at 10% per year and producing 100,000 of thousands of NEW millionaires every year and huge income inequalities. Lots of these people see here as a safe haven, they use the services here and buy up properties for their families to hold long term value.

[WarrenC12]

Originally Posted by agrant

From my own experience, I wasn't paying much more than if I were renting. Definitely helps to pay the mortgage off as soon as you can. And now I completely own the place - no mortgage.

Sure, maybe years ago. I bought in 1999 and own free and clear. But I'm a landlord there. I rent my residence since the math doesn't make any sense today.

[WarrenC12]

Originally Posted by delboy

xenphobia my arse. I own property, have done quite well actually, but I am open minded enough to realize that the market here is unhealthy. It is really quite obvious what foreign sales are doing to Vancovuer's market and the long term implications for the local economy. Xenphobia my arse....it's simply dollar and cents, I thought it should be very obvious.

I keep seeing this argument and I keep seeing data that refutes it. Like less than 5% of buyers are foreign.. really nothing.

I guess the question is if you believe in free markets or controlled economies.

Our HST-hating former Premier VanderZalm introduced the PTT in the 80s to attempt to tax foreign buyers, but of course this tax had been paid far more by locals.

[SpongeG]

i think a point of this article was to point out that its a problem for attracting talent to the city which i found interesting

my old assistant manager was from calgary and he used to "commute" - he had his main house and life in calgary and rented a small place here and flew back a couple times a month when he could and his wife would fly here when he wasn't going there - heck of a way to live but he just couldn't afford to move here and they didn't want to risk anything by having his wife give up her job back in calgary

I also know of other people who born and raised here and finish school and end up living at home for a little longer than still can't afford to buy a place so they end up moving to calgary or ontario and have to realize that they can probably never move back

[agrant]

So the people who are buying places here have no talent?

[SpongeG]

no but companies head hunters will recruit people from all over the place - my old assist manager was head hunted out of calgary

its great for talented locals but if a company can't fill the positions locally and no one wants to move here than the companies will have to pull up and move elsewhere where their employees can afford to live

there was an article yesterday in the news - i only saw a glimpse of it - about how companies are chasing older CEO's now because they have the experience companies want and there are just no young people to fill the roles

my old company manager was found in the states he had worked for coca cola in london and atlanta and all these big companies and was brought to vancouver and even he found it expensive here to live - but than he got transferred to toronto and wa slater let go when the company underwent a sale

my direct manager also came out of the states - seattle - he moved his family up here cause he wanted to raise his kid in canada and he rented a few years before buying and had a hard time finding an affordable condo

[Pinion]

Originally Posted by Hourglass

Umm, no. You'd better check your facts before making these sorts of claims. China has had a real estate bubble of its own that the government has been trying to let the air out of (the laws I suppose you are referencing). Shanghai property prices have shot up in recent years and in some instances now rival Hong Kong. In fact, there is talk now that the real estate bubble is about to -- or has already -- popped (http://blogs.forbes.com/kenrapoza/20...arting-to-pop/).

Ransacking the rest of the world? Lovely imagery. I suppose these nouveau riche "hordes" don't pay property taxes on the houses they own or HST? Or perhaps the goods and services they buy when they are in Canada are stolen or given free of charge?

The above post is a perfect example of the emotional backlash that sensationalist media headlines targeting a specific group creates.

Interesting how you say "umm no" then back up what I said.

My opinions are based on facts and personal experience. I have no problem with immigrants in general - I am one myself. If mainland Chinese people want to live here, great, but respect the existing culture (and as I say this, I repeat, I am NOT from Canada), and don't exploit it. Other cultures, including other asians, seem to have no problem doing this.

[quobobo]

Originally Posted by delboy

xenphobia my arse. I own property, have done quite well actually, but I am open minded enough to realize that the market here is unhealthy. It is really quite obvious what foreign sales are doing to Vancovuer's market and the long term implications for the local economy. Xenphobia my arse....it's simply dollar and cents, I thought it should be very obvious.

So what would your proposed remedy be if you thought rich Canadian buyers were responsible for high prices?

[quobobo]

Originally Posted by Pinion

If mainland Chinese people want to live here, great, but respect the existing culture (and as I say this, I repeat, I am NOT from Canada), and don't exploit it. Other cultures, including other asians, seem to have no problem doing this.

The 'existing culture'? Chinatown's been here a lot longer than you or I. Also, this thread is about buying property - why are you bringing culture into this?

[whatnext]

Originally Posted by Hourglass

So based on this principle, would it matter to you if the buyers were coming from another part of Canada, like what has been happening in the Interior with Albertan investors?

That's not an apt comparison . Albertans are Canadians, living and earning their wages under the same tax regime (lack of PST isn't a significant variable), as well as labour and environmental regulations.

Originally Posted by Hourglass

You've been beating this particular drum for a while now. Unfortunately, blaming the Mainland Chinese, British or other 'outsiders' is simply sensationalist (although the cynical part of me wonders how big this issue would be in the media if it WERE the British or Germans as opposed to PRC Chinese) and ignores reality: Vancouver is a desirable place to live; China's economic development means there are an increasing number of people with a lot of money; and many of them think Vancouver a safe haven to park their money and bring their families.

Sigh. Yeah, when it was anecdotal evidence from realtors the rebuttal was "that's just hearsay". Now we 've had articles in the Sun, the Globe & Mail, Business in Vancouver, Real Estate Weekly and the NY Times. Hardly the sensationalist press. I'm "beating the drum" because treating our real estate solely as an investment is bad for anyone trying to create a life here, whether they're born Canadians, immigrants from India, Korea, China or wherever. When you're talking about a mutiplier of 11.2 over wages to buy a house, you're deep into bubble territory. There is absolutely no reason why Vancouver real estate prices should have tripled in the last decade. Our economic fundamentals don't support it.

Originally Posted by Hourglass

Bitching about it and wringing one's hands about how [insert ethnic group / nationality here] are driving up property prices is pretty counterproductive unless you are trying to feed a xenophobic backlash -- particularly when it comes to visible minorities. My suggestion is to get over it.

By segregating Mainland Chinese investors off from criticism you're actually indulging in a strange reverse racism. Stop trying to make it a racial issue. No doubt you would have told people warning of a US housing bubble in 2006 to "just get over it".

Originally Posted by Hourglass

Instead, write to your elected officials to start bringing some pressure to bear on them to constructively deal with the issue. A little bit of political will to increase transaction taxes to curb speculation or place restrictions on where and what type of properties foreigners can own similar to what Switzerland does shouldn't be beyond the realm of possibility.

I have. Elected politicians in Canada should bear only one responsibility - to Canadians. Not to foreign real estate investors.