Garth, I have always found you to be sympathetic to poor real estate unfortunates. This Silly Person© edition is unbecoming of you. These people contacted you in good faith. You have made them the butt of jokes. Honestly, I am very disillusioned. I thought you were a bigger person. – Blog comment.
Apparently not. In fact my email box bloated in the past few hours with notes from people who don’t mind being abused as long as it’s free. Like Jasmine, whose man should be arrested for making her do unseemly things. “My husband encouraged (forced) me to read your blogs,” she writes. “I have been doing it for the past three months and have calmed down in nagging my husband about wanting to own a place.”
See, I serve a purpose. Honestly.
“But since you are accepting applications, I thought I seek your opinion.”
Go for it, Jazz.
“We got married 1.5 years ago. My husband doesn’t believe in buying a place, so currently, we are renting in downtown Vancouver. We have combined saving of $150,000 plus some assets in gold. We have a combined household income of $115,000. Initially, our goal was to save one of our salaries but realistically it hasn’t happened yet. We plan to start a family soon and will need a bigger place. Our families have been pressuring us to buy a place as the prices are coming down. Since both of us work in downtown Vancouver, we don’t want to move to suburbs like Surrey where houses are cheaper but has longer commute. Do you think prices in North Vancouver will come down in the near future? “
Good question, actually. It comes just hours after the biggest real estate pumping company in Canada, Royal LePage, said housing will basically suck this year. Prices in Toronto will “flatline” while they will tumble 3% in Vancouver in a “cyclical correction” that will last about as long as a Boomer’s lovemaking. And while there will be a “significant dampening effect” on housing nationally because of these markets, LePage boss Phil Soper claims, “fears of a sharp or drawn-out collapse are unwarranted.”
‘Sno big deal, he intones, since real estate prices have outstripped wage gains “for the last three years” and the market requires time to adjust.” A BMO economist largely agreed this week, as the bank predicts a 5% drop in the Mouldy City.
If this is so, then Jasmine and her dominator hubs are flat out of luck. Once wages recover a little and prices in Van decline to 97% of today’s levels, Soper suggests, up she goes again. Is this possible?
Well, the guy is right about national house values outstripping incomes, as this pathetic blog has oft detailed. In the last dozen years real estate inflated by almost 130% while household revenues grew by just a third of that. It would take a galloping economy, a tumble in unemployment and four yards of pixie dust to have incomes swell enough to justify home prices. But what Soper completely ignores is that housing horniness (for which he’s partly responsible) nudged home ownership up to 70%, those same families took on 180% more debt. We owe more now than the piteous Americans did the weekend before their real estate market started blowing up. So even if everybody gets a raise in 2013 the money will be sucked off into loan payments, not shoved into a down payment.
Nope. This is no cyclical correction. Nor will it be short. The simple fact 500,000 people turn 60 this year – and every coming year for most of a decade – guarantees house-heavy Boomers will be net sellers of real estate, after punting it higher for the past thirty years. Meanwhile I can comfortably predict any wage gains three years from now will be chomped away by higher interest rates. Soper and BMO are just doing what salesguys do. It’s called damage control.
So, Jazz, Van houses will indeed cost less a year from now. They will cost even less two years off. Already we have tumbling sales, negative momentum and detached prices which have corrected by double-digits. That’s the good news. The bad news is you won’t buy much of a place in North Van with just $150,000 down, unless you’re nuts enough to walk into a $700,000 mortgage. Then you’d have a house, a kid, an unrepayable debt and no other assets. Is that what you married the brute for?
The big price drops in major urban centres like Toronto, Vancouver or Montreal will not come in the demand areas. Sure, North Van, High Park or Westmount values might be 5% less in the summer and 10% lower next winter. But prices in Surrey, Milton and Laval could indeed fall sharply – by as much as a third. If you want to vultch in 2014, that’s where the bodies will be.
So in the meantime, don’t save your money. Invest it. You and the deviant have $51,000 TFSA room between you, which is a good place to start. Get it into exchange-traded funds pacing the S&P, the TSX, the real estate trust index and preferred share index, for starters. Find a fee-based advisor to set it up and run it, along with a joint non-registered account and enough RSPs to fund the home buyer’s plan and fatten up the down with a tax refund.
Also seriously delay having a family. Reading this nightly is a great start.