Letter from Victoria

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Dear Mr. Turner,

I just want to thank you for what you are doing to tell the truth about real estate myths and delusions in Canada.

My husband is a financial advisor, and I am a self-employed. Eleven years ago we moved to Victoria from eastern Canada, as my husband switched from institutional sales to retail financial advising, primarily so we could come back to B.C. where my family is. We rented for three years, and bought the house we were renting in May 2000 for $305K. We incurred some debt in starting the new business, so, when we saw real estate prices rise dramatically after the tech crash, we considered selling our house. I did some calculations, and in 2003, I felt that higher prices in Victoria would be unsustainable considering average incomes. We decided to sell and pay off a great chunk of our debt. We sold in July 2003 for $392K. This was a modest four-bedroom two-bath bungalow in a good neighborhood of Victoria. That house today would list for about $750K, if not more.

Since then we have been renting. We are now in a financial position where it would be sensible for us to buy again–if the insanity of the past five years hadn’t occurred. For five years I have maintained that average and median house prices a multiple of six, seven, eight times average incomes are simply insane. People have, I know, thought that I was simply expressing a sour grapes mentality, because we “sold too soon,” but honestly, I felt some ethical pangs about selling when we did and getting the capital gain that we got. We had two offers to choose from, and we chose the buyers we did not based on their offer (the two were almost identical), but because we knew they were more financially stable, had more equity in their previous home, and had university-aged kids who would benefit from the house’s location.

Actually, I have said very little about real estate the past few years because people simply haven’t been rational. Two of my best friends, one here and one in Toronto, are real estate agents. They tolerate me with bemusement, and say, “But, we have no sub-prime mortgage problems here.”

As I say, as a mother of three sons,, I would love to buy a house for the stability of ownership. We adopted our youngest son, and are considering adopting again. Finding a decent rental for a family of this size in Victoria is no easy task! Currently, we rent a 3000-ft 1957 split level in prime Victoria real estate, for $2000 a month. We have been here since we sold our house in 2003. The property has just been sold to a developer, ($1 million for land only) who is going to put duplexes on it, but probably won’t get to it for a year or two, so is happy to have us stay to provide some cash flow. There would be no point trying to find new renters; the roof leaks and the house, while tolerable and comfortable for us, is ultimately a tear-down. So, we are waiting to see what happens.

Essentially, prices in Victoria would have to fall by at least 40 percent before I would consider buying again. Yes, we have a large income, but I would rather use that money for my kids, their education, travel, and for the possibility of adopting again, so that another child can have a home, even if my family can’t have a house. And, even though we could probably afford to buy, if prices come off a little, I feel strongly that housing should be affordable for all, not just for those with high incomes. I don’t want to participate in a cycle of greed that absolutely disgusts me, even if I can afford it.

Also, I simply don’t believe this madness is sustainable in the long run. As you say, how has it happened that so many people have been convinced that it is acceptable to pay too much for the biggest purchase of your life?

This has gone on much longer than I intended, but I feel that our personal experience bears out much of what you have said, and on a very deep level, again, I wish to thank you for telling the truth. I realize that my personal belief in what you are saying is based on my own education. My father was a real estate developer in Kansas City for more than 50 years, and I have been doing affordability calculations since I was 12. Also, my husband, as a financial planner, has been worried about this for years, and has been warning his clients accordingly. But to convince people, it often takes an “authority,” like you. You are doing a great service.

Sincerely,

Jean in Victoria

7 comments ↓

#1 rala2 on 03.13.08 at 5:37 pm

From Yahoo news today (March 13th):

“The median price in a six-county area of Southern California fell to $408,000…”

WHY is Victoria still so d**ned expensive, when the wealthy Albertans and all the others who are supposedly driving up prices here can buy in Calfornia, Arizona, Nevada or Florida for a fraction of what it costs to purchase a mediocre house in this land of eight months of rain?

#2 kyliep on 03.18.08 at 2:26 pm

let me understand this…jean and her husband sold their house for a profit of approximately $70-80K, have paid over $120,000 in rent ($2K x 12 x 5) since 2003 and can no longer afford to purchase a home large enough for their growing family. gee, i wonder why they find garth turner’s message so compelling?
i don’t mean to be unkind but it seems that most of the people i talk to and read about who are cheering on a real estate market correction are those who are presently not in the market for one reason or another.

i don’t expect the value of my house to keep rising at the rate it has been rising the past three years (i’m in toronto, in an area that has seen weekly over-asking multiple offers for the past 3 years). real estate is a bit of a gamble and one never knows exactly when the right time is to buy and sell.

housing should be affordable but that doesn’t mean that everybody gets the size of house in the location he/she desires all the time. if you can’t find a house in a hot market, doesn’t it make sense to move to an area where it is affordable? i’d love a completely remodelled 4 bedroom, 3000 sq. ft. detached house in rosedale but i don’t have $2million+ so i’ll content myself with the relatively small semi-detached 1100 sq. ft. fixer-upper that i’m slowly renovating/restoring.

not sure how prices increases that don’t seem reasonable automatically equate to madness. victoria is one of the most beautiful places in all of canada. it’s not very big, geographically speaking. there are a lot of canadians who are doing well financially on account of the resource markets. doesn’t it make sense that a highly desired area would see this type of growth?

#3 Erwin Schuster on 03.19.08 at 12:31 am

Thanks ‘”kyliep”!
You’ve said it pretty much as I would have.
I used to live and own in and around Toronto, moved to Kelowna BC and have seen my share of price adjustments as well as increases over the last 30 years. Hard work always preceded any gain.To benefit from the upswings in the housing market a long term approach has to be taken as there are also periods of no growth or even slight downturns. Sounds a bit like the advise my [{FINANCIAL PLANNER }]has been giving me over the last ten years except that my RRSP funds are still at the same level as they were five years ago. (Oh, by the way he has just sold HIS house to realize a significant gain). SOUR GRAPES WRAPPED IN A THIN COVER OF SOCIAL CONCIENCE STILL TASTE SOUR WHEN BITTEN INTO.

#4 baileyq on 03.19.08 at 3:05 pm

Kyliep and Erwin

1. It’s the disconnect between rents and prices. It now costs far more to own than to rent.

2. Affordability sucks. Not only have prices increased, but how much of one’s income it costs to own has increased dramatically. Had prices risen in concert with incomes, kyliep’s point would be accurate. However, it’s not just that there is more money to spend on housing — people are spending far more than the rises they are getting.

3. This comes at a time when rates are low, and incomes high. If either of those conditions deteriorates, look out!

Erwin — if you were not already in the market, would you be buying now?

Kyliep — has Victoria (or anywhere) changed that dramatically in the past few years? Seems to me the premium for being a nice place should remain more or less constant.

#5 awum on 03.19.08 at 7:47 pm

Kyliep & Erwin – Sure, it’s “bitterness” if you chose to stay out of the market and watched it run away from you. It’s something else when you have no way to explain to your 18 year old son why its OK that he will never be able to afford a home should things continue as they have.

Honestly, anyone who thinks its OK that a housing market has gone out of sync with income is (a) clearly invested in real estate and (b) blinded by their own self-interest.

It’s a glass house, you’re throwing stones, you get the picture.

#6 Wayne on 03.20.08 at 9:44 pm

I agree with Garth’s view of the market. There are always going to be those who disagree on such an important and contentious topic. I disagree with those who dismiss complaints and criticism of the present RE market as sour grapes.

If I own, or am buying, a home that consumes 30 or 40% of my net income I’m probably ok. It doesn’t matter to me if the value of my house falls, I need a place to live. Eventually the value will come back.
Those settled cozily into affordable homes, which may have increased in value enormously through no effort on their part should consider resisting the temptation to criticize.
The Canadian RE market is insane and the notion that we can continue like this makes no sense.
I’m happy to be a renter, I’m single and it suits my lifestyle.
I’m not opposed to owning but I wouldn’t buy in this Vancouver market. The reason is a basic one, I don’t like to be ripped off.

#7 Dave on 03.22.08 at 4:38 am

rala2 you are an idiot. Check your facts before you slag Victoria: less rain than Toronto (600-700mm) & more sunshine than most Canadian cities (>2200 hours). Oh…did I mention the flowers & cherry blossoms in Feb.