More angst on the sea

To read the Globe online chat transcript, go here.

For today’s angry realtor book review, go here.

FINALLY! Someone who has looked at the situation and realizes that average wage earners just cannot afford current housing prices. Thank you.

I have a question for you – I live in Victoria where the real estate market seems rather skewed. Are you predicting a downturn in the market here as well?

Incidentally; our combined income is about $100 thousand, but when you look at the amount of money it would cost to carry a mortgage for half a million dollars (the average price of a home here), then our only choice has been to rent – as much as it feels like we’re throwing money away. I have received all kinds of grief from friends and family about this – but I keep thinking that the prices are unsustainably high. Please tell me I’m right. — Andy, in Victoria BC

And you are. Victoria is a bizarre market with prices that reflect its unique population – older, wealthier and remarkably insulated. The current downtown condo craze is probably already overbuilt, and the tide of new buyers needed to sustain existing prices will sadly not be washing ashore in the next five years. Meanwhile the economy is too small to consider the place anything other than a glorified small town and government hang-out.

The bottom line for any family is to make the financial decisions which are correct for them. If you are renting, can afford to rent, live in a decent place and are happy, what’s the problem? Once you factor in the lost opportunity cost of a downpayment (what it could earn if invested in financial assets), plus mortgage payments, outlandish property taxes, maintenance, plus more utility charges, your cash flow would likely be destroyed with home ownership. The only reason to do so: future capital gains.

Is that a likely outcome for buyers in Victoria today? No guarantee. In fact, I’d argue that the market will likely flatline, at least, for a few years. After all, where are the greater fools going to come from? Snowy Toronto? But do they not have homes to sell themselves, in a declining market?

So, go ahead and get a $500,000 mortgage, if it makes your mom happy. — Garth


#1 rala2 on 03.18.08 at 7:02 pm

Victoria has been “older, wealthier and remarkably insulated” for decades, so why did house prices balloon upward only in the last four or five years, in lockstep with bubbles all over the world? The answer is artificially low interest rates, promiscuous lending and gold rush speculator psychology, JUST like all the other (currently correcting) bubble markets. Victoria won’t flatline; it will crash, like everywhere else, now that the easy money spigot is being shut off.

#2 Leah on 03.18.08 at 7:30 pm

I love your book Mr. Turner,

If the Victoria market flatlines it will still be unafforable for most people except the retirees. The average and above average salaries are not very high here.

#3 Joseph on 03.18.08 at 8:48 pm

I’m guessing if the following factors don’t materialize, the prices will drop:

1) More flexible lending options (e.g. lower interest rates, 50 year mortgates ;-) )
2) More people coming to Victoria with money to afford the outrageous prices.

After all, where are they going to get the buyers of those ridiculous priced houses from?

#4 patriotz on 03.19.08 at 9:05 am

“More flexible lending options (e.g. lower interest rates, 50 year mortgages”

How did that work out south of the border?

A 40 year amortization, which most new buyers appear to be using today, is for all practical purposes the same as interest-only (infinite amortization).

Nor are you going to be seeing lower rates with the fiasco going on in global credit markets.

#5 baileyq on 03.19.08 at 3:12 pm

Also you get less bang for your buck with longer amortizations. The $500 decrease in payment going from 25 to 30 years becomes a $100 decrease when going from 40 to 50. And you’ve added 10 years of payments. At a certain point, you’re only renting from the bank.

#6 Drachen on 03.19.08 at 3:29 pm

“more flexible lending options” as Joseph put it actually have a negative impact after their very short term positive role. Essentially it means that once the market does turn more mortgages will be negative equity.

#7 awum on 03.19.08 at 5:16 pm

Victorians are “wealthier?” Wealthier than who? Part of what makes the market SO bizarre here is that our average income, compared to other cities in Canada, is actually quite low. Check Statscan if you don’t believe me…

#8 Denyse on 03.21.08 at 11:23 am

Thanks to Garth, two years ago we read a Garth article where you describe a future glut of housing on the market in Canada by 2015 as the baby boomers retire and downsize and hope to cash in . We accepted this as a reality and sold our home in Victoria in 2006 and invested all our money. We see ourselves on the cusps of a trend yet to be realized by the majority . We are happy renting and watching our money compound. We really do have more cash now and CASH is KING at this time …

#9 Lawrence on 03.24.08 at 7:05 pm

Victoria has probably the highest poverty level of any Canadian city. When I first moved here, I couldn’t believe all the street people, syringes near parks (they are offered free by the government) and the filth. Also, the city is very polluted thanks to 90% of people who cannot afford newer cars and drive pollution spewing 30 year + rustbuckets. And also, the majority of owners hardly get by and must resort to wood burning as their primary source of heating.

There aren’t any high paying jobs here, not a single head office, just low paying jobs associated with the geriatrics and tourism industry. Unless, of course you have a relative working with the BC government, perhaps you can get a job there.

In addition, the city doesn’t have elaborate bike paths or park systems like Toronto, Ottawa, Montreal or Calgary. People are not friendly.. many are frustrated and scrowl faced.

I just don’t see the wealth here, that’s all BS, just like the notion that Albertans are buying here. They are buying in Phoenix and Palm Springs not in grey, cloudy, cold and rainy Victoria. After I complete my project, I am out of here.

#10 awum on 03.25.08 at 1:14 pm

According to StatsCan in 2005, Victoria family income ranked 12th of the 28 Census Metropolitan Areas in Canada. Just behind Thunder Bay, just ahead of Kingston. Mind you, Vancouver with the highest real estate prices in the Country, ranked 23rd.

In case you’re wondering, the real income earners according to StatsCan live in Ottawa (Ontario side of the border) and Oshawa.