Garth: First, I want to thank you for your blogs. I am sort of excited, sending an email to you. You see, growing up in my family you, my dear Garth, have demagogueryÂ status! My accountant brother can’t get enough of you and my mother quotes you constantly.
Anyway,I have futily tried to keep things in line with your advice however, I ended up making a huge mistake and frankly, feel like a pretty great fool. We bought a home in Vancouverâ€™sÂ hideous inflated west side in 2005. We had aÂ 375,000 mortgage on a nice home we had reno’d. I thought the mortgage was huge ( in hindsight I see it wasn’t!) When the markets starting tanking in October 2008 we stupidly panicked, put the house up for sale and essentially gave it away for about 1,000,000 andÂ then rented a home for a hideous monthlyÂ fee and intended to buy again when values “stabililzed”. Well to our dismay, the average house price one year later in the same area is 1,400,000. Needless to say we have been unceremoniouslyÂ turfedÂ out of the Vancouver housing market due to our unfounded fear about a housing crash that never happened. I am not challenging you, I know in time this market cannot sustain itself but in the meantime we have to live somewhere in Vancouver and with a 70% increase in house value in 10 yearsÂ and an a steady stream ofÂ strong asian cashflows, it seems a correction will never come.Â I dont want to lose out on equity and our lease is up and what the heck do we do next?Â Â We are mid forties, our combined income is about $150,000 and we have about 600,000 to put down, luckily no debt otherwise. The thought of going to a cramped condo after living in aÂ nice home is depressing not to mention theÂ resentment over the mountain of equity we lost.
Any scrap ofÂ advice would be graciously appreciated..regardless,Â I will tell my mom we’ve “talked!”
Thanks so much and take care, Elaine.
Ah, the flattery is appreciated, and your family has impeccable taste in financial oracles. However, you are â€˜so damn Vancouverâ€™, I hardly know where to begin.
Yes, the property crash of autumn â€™08 looked like to would continue apace and result in a market correction with the potential to make you look like a genius. But as we know, when the feds crashed interest rates to zero the resulting borrowing orgy caused the Van disease to spread once again. Add in the unfathomable Olympic influence and the predilection of BC media to hire business commentators who are, by day, self-promoting and self-dealing real estate hucksters, and a mile-thick fog of delusion descended upon the land.
How long it lasts is anyoneâ€™s guess. Maybe well into 2010, maybe not. But until that damn flame goes out, interest rates rise and people wake up to the debt morass theyâ€™ve sunk into, this madness will bleat on. So, whaddya do about it?
First, exactly what you are doing, which staying out of the housing market until at least next summer. Letâ€™s allow this Olympic boosterism to disintegrate into a bad memory of civic indebtedness. Letâ€™s see what the inevitable Bank of Canada rate hikes do to a frothy housing market. And letâ€™s discover just what pinnacle of delirium your fellow real estate junkies can push prices to before little Vancouver becomes completely unaffordable to the people who live there. Then youâ€™ll feel so happy you didnâ€™t buy that youâ€™ll even forget about the money you could have made by not selling (which will probably be lost anyway).
Second, get out of town for a week and gain some perspective. Even you admit the marketâ€™s unsustainable, so seven days away from Global BC might be necessary shock therapy. Third, realize you’re simply nuts if you pump $600,000 in cash into the most expensive housing market in Canada at its priciest moment, when this means all your net worth will be in one asset, plus youâ€™ll have $800,000 in shiny new debt at rates which can only rise. Did you score a $150,000-per-year income being so stupid? I doubt it.
There is, after all, something between a â€˜cramped condoâ€™ and a million-dollar spread in West Van. I hear there are people out East, over the mountains, who actually live in townhouses and bungalows, on farms and in semis. Many, would you believe it, have no mortgage.
And some, Elaine baby, might be happy with six hundred large in cash and twice the annual income of their neighbours.
But, what do they know? Fools. Success is stuff.