The killer condo

News: Third of Canadians now expect house prices to fall

Hi Garth

Thanks for writing the Greater Fool.  It was excellent reading for a potential first time buyer like myself.  But I’m still left with a pressing question around my upcoming move to Vancouver BC.  While I appreciate that you are unable to provide individual advice to every reader, if you do have time, I would appreciate any insights you might have on my situation based on what has developed since you finished the book. Currently I am a renter in Seattle WA finishing up my studies before taking a job in Vancouver.

To rent or buy a condo? In favour of buying:

From talking to friends there, the rental market is still extremely tight (one was reduced to wearing a sandwich boarder while grocery shopping, adverstising her need for an apartment to rent). I want access to easy transit to UBC and the airport (so I can ride my bike or take the bus to work), hopefully maintaining value as outlined in your book (i.e. urban core, access to transit).

Some friends have suggested renting for a year but it seems like a hassel (time and money) to move twice (if I do indeed buy after a year). Prices are dropping into a range I can afford (pre-approval for $320,000-340,000 morgage) and I have enough for 10% downpayment. My initial appointment is for 5 years so I would plan to keep it for that long.  My financial planner was supportive as long as I viewed it a home versus an investment.

But on the flip side, I have enjoyed being a renter and your emphasis on the illiquidity of a house got my attention. Bascially I feel like I would finally like to have my own place but I’m not sure I fully understand the math on ownership. Any insight would be greatly appreciated.

Kerry

Dear Kerry:
Thanks for the kind words about the book. This is the cool part of doing a project like that – getting to meet people like you and helping a little, if I can. So, girl, what have you been smoking there in Seattle?

First, let’s do the math. I figure you can get a nice one bedroom-plus-den unit in downtown Van in an almost-new building for $1,800 a month. At least that’s what I hear, and a quick search turned up a few. With the way the market’s going, I’m sure there will be more each week for you to choose from.

Now, let’s say you bought the same unit and got a good deal (at least for now) at $400,000. With 10% down, or $40,000, you’d have a $360,000 mortgage. That home loan at the current five-year rate, with an am of 25 years, would cost you $2,566 a month. The lost earnings on the $40,000 at a 5% return would be $167 a month. Strata fees, another $200, and ditto for property tax, which is running about 0.06% of current condo market values in Vancouver. That comes out to $3,133 a month, or damn close to twice the rental rate. Oh yeah, and you’d need about $10,000 more in cash to close the deal, for BC’s transfer tax, legals etc. Of course, I have not added in any overhead for insurance or utilities.

So, to summarize: The cost of renting – $1,800 a month, $0 down and no equity. The cost of buying – $3,133 a month, $50,000 down and $10,000 equity.

But we’re not finished.

With renting you don’t have any debts. With buying, you have a mortgage of $360,000 which you have to pay back, cannot escape, and the interest rate on which can be reset higher upon renewal. With renting, you can move out when the lease is up. With owning, you can’t go anywhere until you list it, go through a few months of showings, finally accept an offer and then close the deal a month or two later. With renting, your living costs are subsidized by a landlord. With owning, you are your own landlord. With renting you can get your shower, toilet, fridge or dishwasher fixed for free. With owning, you pay everything. With renting you have liquidity, $50,000 in the bank, mobility and choice. With owning you are wedded to your condo, which took all your money to purchase and you can’t move back to Seattle without selling it – or renting it out for $1,800 and subsidizing someone else.

But that’s not all.

As a renter, you cannot participate in the endless year-over-year appreciation of the Van market, where the average house price is going straight from $700,000 to $1.5 million. This is because of immigrants, world-class people on Robson, mountains invading the core, the sure-thing 2010 bonanza Olympics thingy, and armies of rich Boomers in RVs making the trek from Mississauga over the Rockies. None of those fabulous capital gains will be yours. But as a renter you’ll also avoid what might be coming, which is a 40% decline in the value of Vancouver real estate making it possible, once again, for average people to avoid average homes. Especially condos. As an owner, you won’t.  So much for that equity.

Good luck with the choice, Kerry.

PS – Get a new financial planner

Garth

77 comments ↓

#1 $fromA$ia on 11.17.08 at 11:39 pm

Garth,

Your letter to Kerry was a major gift of insight, time and effort on your part. Basically, your educating the ignorant or maybe laxing the mentally constipated, all in all… you should be commended. Perhaps a few pieces of squiral jerky tossed your way or something…

#2 Bottoms_Up on 11.17.08 at 11:43 pm

Hi Kerry,

Take a gander from previous posts explaining the P/R ratio:

$400,000 to buy the place, divided by renting it for 12 months x $1800/mo is 18.5.

$300,000 to buy it, divided by the same is 13.9.

Historical norms show a P/R of 14, so don’t buy the condo that you can rent for $1800 until it is available for around $300,000!!

#3 CTA on 11.18.08 at 12:08 am

….Better wait till the Vancouver prices drop 75%. And forget about a condo… buy land so you can grow your own food supply and have the space to store food.

#4 CTA on 11.18.08 at 12:15 am

Condos are multi-family buildings..therefore you are subjected to rules and regulations, annual increases in maintenance fees and substantial mandatory assessments that can be in the thousands of dollars, property taxes, and dealing with an apartment lifestyle that includes: (dirty neighbours, foul smelling cooking odours, etc.)

#5 More Jets in El Toro! on 11.18.08 at 12:17 am

Nowadays a whole lot of people get sick of Vancouver pretty quick, too. It’s a pressure-cooker weird social environment (in the negative sense), with extremely high taxes and costs of living in general. Add in the 6 months of depressing drizzle and more fruit loops than you’ll find in a grocery store, and you’ll hate yourself for not being to cut and run after a few years. Don’t buy.

#6 Jon B on 11.18.08 at 12:22 am

Kerry: that’s some tough talk sans sugar coating courtesy of Garth. I’ve rented in downtown Vancouver in the past. I now own in the same area. I find it hard to believe the rental market is tight. Affordability in the area is a joke and surely must correct. Rent now and keep saving until prices correct – or should I say – until the average home in an average neighborhood is affordable to the average buyer with an average income.

#7 CTA on 11.18.08 at 12:37 am

Also forgot to mention… You will need to purchase a gun to keep away the hoards of unemployed starving Vancouverites and desperate recently relocated Ontarian ex-GM/Crysler assembly line workers from burglarizing your home looking to steal some food.

#8 betamax on 11.18.08 at 12:39 am

Aside from incipient depreciation, any condo built in Vancouver in the last 5 years is a disaster waiting to happen, and good luck getting the inevitable problems covered by the warranty when the developer is bankrupt.

Also, there are many specuvestor-owned properties for rent which don’t show up on official stats. Look at craigslist for Vancouver.

#9 Mike.SLob on 11.18.08 at 1:01 am

Guys!
Why you talking only about condos shits or one million dollar houses?
I can’t see any difference in price from last year in Oakville,Mississauga,Burlington.
I’m watching only semis up to $330K.
And prices are even Higher than 2007.
And even if I mention new builders prices Ouch!
Townhose in Eglinton/Kenedy just for $ 400K.
It’s garbage new project. Unfinished basement, cheap tiles and carpet !
Burlington prices are crazy expensive so what you think about RE CRASH?

#10 wealthy renter on 11.18.08 at 1:08 am

Wow, what a purdy picture of condos. Makes me dun wanna write a poem.

Condos:

What a shimmering glow they cast upon the urban sky.
See how they dot the blighted neighbourhoods,
lifting a society into a classless, unified, mom’s-apple-pie.
With a 40 year amortization, with ink set to dry,
with an upside down mortgage, wondering why,
the great boom of yesterday has passed me by.

Thank You

#11 islander on 11.18.08 at 1:09 am

Bottoms_Up, your ratio only works as a buy signal at $300K when you assume rents stay the same.
What if they go down?
Not saying they will. Only that they could.
Of course, they could also go up, in which case the buy signal kicks in at a price >$300K.

My point? Those ratios are cute in an academic way. Just like P/E in the stock market. Except, as I’m fond of telling my FP guy, what if there’s no “E”? And besides that, P/E can get down to low single digits, as it did in the ’30s.

Garth’s logic is solid. Stick with that.

What I hear from the correspondent is “fear of homelessness.” He even includes a ridiculous story about his friend practically begging for a place to live.

Let’s get serious, real estate addicts. You are not going to be homeless. My clients express that fear all the time. To make them feel better, I tell them that if we fail to find them another home before the sale of their current home closes, they can move in with me. So far, I have never had extra roommates.

The only time it was remotely justifiable to pay more to “own” than it was to rent the equivalent house was when prices (ie equity) was rapidly rising. Now that prices are falling and equity diminishing, it is economic suicide.

#12 Derrin on 11.18.08 at 1:14 am

Kelowna and Vancouver are going to be hit hard.
Vancouverites still think the Olympics are like Expo 86. After Expo 86 we had a big lift in the real estate market but this wasn’t because of Expo it was all the Hong Kong residents shoring up their escape plan for when Hong Kong was handed over to China(Beijing). The other fact that people forget was Expo brought a hell of a lot more people to Vancouver for a longer stretch of time. How long is the Olympics? 2 weeks?
After watching the Olympics in Beijing I wasn’t calling my real estate agent in China asking him about condos in downtown Beijing.
What a joke.
I hope people can find away through this storm.
Be aware a storm is brewing.
Price declines coupled with shoddy construction, a glut of condos that were bought with the notion of the flip.
Ask Realtor Bob Rennie why he buys art with the fortune he has created with is “Condo King” persona.

#13 Sold_it_N_renting! on 11.18.08 at 1:54 am

Kerry,

I sold my last property in April and have been a (VERY) happy tenant ever since. Found a $360,000 condo for rent in the middle of downtown for $1350/month (including garage) on Craigslist. There are literally hundreds of rentals posted EVERY DAY on Vancouver’s Craigslist.

For at least the next 5 years, a term deposit will be much more comforting than a mortgage. And 5 years from now, it will also be worth more….

#14 David on 11.18.08 at 2:08 am

Kerry, maybe you should read all the threads and links on this blog for your own edification.
The Kondo King Gods of Greed need willing and compliant human sacrifices to keep their parasitic Ponzi Scheme from collapsing.
One does not need to be a mathematical genius to understand the differentials between rent versus buy. Housing costs should not require more than 20% of a family after tax income. Period.
If you feel otherwise, feel free to toss your hard earned dollars at the real estate cowboys and racketeers.

http://www.amconmag.com/article/2008/nov/17/00022/

#15 Ess on 11.18.08 at 3:03 am

There is going to be a deluge of new rentals coming on the market soon. You have no idea how many people I’ve heard say “If I can’t get the price I want right now, I’ll just take it off the market and rent it out until the price goes back up”. They are treating houses as if they were stocks!

These idiots don’t understand 4 things:
1. The price you want is independent of what the property is actually worth
2. Real estate is not like a stock, you can’t just wait it out and hope it goes back up. A stock can go down 10% one day and up 10% the next. With real estate, you can wait 20 years for it to go back up.
3. A stock, unlike real estate, costs you nothing to hold on to – even for 20 or 30 years. A stock doesn’t physically deterriorate.
4. Selling $1M in stock will cost you maybe $50 in comissions. Selling $1M in real estate will cost you $50,000.

That’s right people, take your properties off the market and wait for things to get better. Just like the fools in California delisted their houses at $500K only to find them worth $200K one year later.

#16 Mark on 11.18.08 at 4:15 am

Just a heads up I’m seeing A LOT more FOR RENT signs in my trendy 14th and Oak area in Vancouver…..

#17 kitsrenter on 11.18.08 at 4:55 am

Kerry,

Some people say that the rental situation in Vancouver is tight, but I can’t make sense of that seeing how the number of listings on craigslist has exploded this year. Before, a Monday would see about 300 rental listings; this Monday, there were over 1150 listings! It’s possible, I suppose, that potential landlords may have shifted from advertising in Vancouver newspapers to advertising on craigslist this year. But it’s suggestive that this surge in rental listings on craigslist coincides exactly with the collapse of real estate sales in Vancouver. Small-time speculators, unable to unload their units, must be getting desperate to get some kind of income, however inadequate, from their unsalable holdings.

I’ve noticed that the people who keep telling me about the tight rental market either own themselves, or have family members who own multiple properties. Suggestive. We rent. We’re model tenants, have always had terrific landlords, and have always paid below-market rent.

You think it’d be a hassle to move twice, should you eventually decide to buy? What about the hassle of having to work a whole extra year or so to compensate for overpaying $100,000 or more on a condo in the $350,000 to $380,000 range you mentioned? If moving is such a hassle, just pay someone to pack for you – you’ll be able to afford it with the money you’ll have saved!

Before you make the fatal decision to buy in Vancouver, in addition to the fantastic resources Garth provides, make sure to check out some of the Vancouver-specific real estate “bear” blogs. A good place to start is http://vancouvercondo.info. Ignore the internecine wrangling on the site (ongoing battles with trolls) and go for the hard facts – that should be enough to take away your appetite for buying. “Bear” in mind also that some of the high-rise condo developments are now starting to leak, and that’s not something you’d want to cope with on top of being underwater on your mortgage.

#18 Stu on 11.18.08 at 8:17 am

As someone who left Vancouver recently and will be back soon, but who still keeps a close track of things there, anyone who buys into the biggest bubble market in the world (according to one economist I think) has to be the greatest fool of all. If I saw a long-term family home with a good amount of space in Vancouver now and could afford it I would buy now, but I wouldn’t buy a condo or apartment as there’s going to be a glut of them on the market after the Olympics.

I have a regular search on mls saved for properties between 150,000 and 300,000 (what I think the real price range should be in Vancouver for 1-bed apts) and the number (and quality) of listings has been steadily rising.

I do however think that Vancouver could take a while to finally crash big style as, even to me who took the decision not to buy EVER in Vancouver until prices normalized, I find myself tempted by 650-750 sq ft properties in half-decent areas that are now appearing for 299,000.

Because it’s been impossible to find anything like that over the last couple of years, I can understand how some people might think “Ooo that’s cheap” and buy now instead of waiting. When I can get a good-sized 1 or 2 bed for 200,000, I’m in.

#19 Stu on 11.18.08 at 8:20 am

Also, a word of advice to Kerry. The best way by far to find a good rental in vancouver is to get on your bike and spend a day or two going around the neighbourhoods you like. Many building managers are lazy and just put up a vacancy sign instead of advertising. I got two very good apts in Vancouver by doing that.

If you’re reasonably presentable and friendly and have references, work details and a cheque-book for the deposit with you, you’ll get it on the spot. As I say building managers are lazy.

#20 buy gold on 11.18.08 at 9:23 am

Garth,, what do you think of this idea for the world solution read below

There is no question that the debt deflation is running at a faster clip than central banks around the world are printing money. We are witnessing both inflation and deflation at the same time. The problem is deflation is winning out over inflation.

The solution to the problem is to reflate the world. They must revalue gold at say 10,000 dollars per oz.

In other words, we devalue all currencies around the world at say 10 to 1. Let there be 3 centers like the Amero for North and South America, Europe with the Euro and Asia with a 3rd currency.

We pay off all debts at the old rate and start again. This will be the painless way and will avoid costly riots on the street and stave off bloodshed. I can see no way out but this.

#21 Gord In Vancouver on 11.18.08 at 10:15 am

#17 kitsrenter

More rental units are now available within Vancouver but many of its citizens still complain loudly about the city’s lack of affordable housing or high rental rates. I hope this isn’t a case where RE investors here are so squeezed and fearful, they MUST recoup ALL of their mortgage from rental income.

Charging a tenant $900/month instead of $1200 (investor puts in $300/month) will almost certainly eliminate the need to advertise a rental property.

Vancouver real estate bulls have the “don’t worry about it, things should rebound in March/April 2009” mentality – they’d better. If the job market here softens noticeably after construction activity slows down, things will be very interesting.

#22 Mike.SLob on 11.18.08 at 10:30 am

Ouch!

Financial Crisis Tab Already In The 4.3 Trillions
Try $4.28 trillion dollars. That’s $4,284,500,000,000 and more than what was spent on WW II, if adjusted for inflation, based from a variety of estimates and sources*.
It’s clear “Defflation”. Food prices,new houses,property
taxes,education costs,transit fares are higher.
So is Defflation process?……

http://www.cnbc.com/id/27719011

#23 Just a Girl on 11.18.08 at 10:38 am

Just a question for everyone who hates condos, ie. high-density living. Not directed at anyone specifically. There is only so much land. Do we want to cover it all with SFD’s? How much do you value natural spaces, ecosystems and just wondering, where you would put all the people?

#24 dd on 11.18.08 at 10:45 am

Kerry,

Why do we always want to run out and buy? I love to rent. Rent houses, cars, and all other expensive toys is a great way to live.

#25 taleti on 11.18.08 at 10:52 am

Garth,

I have been a silent reader of your blog…..I love this blog site… I have been enlightened after reading …else I would have been ignorant like others who keep thinking RE will only go up…

I live in SQ1 condo, Mississauga……Last night (around 3 am)there was a power outage in the area….. and the rest of the night I could’nt stop thinking of seeds and squirrels

Or how to get downstairs… Thanks for reading, and for learning. — Garth

#26 Downsized and Delighted on 11.18.08 at 10:53 am

You can certainly understand Kerry’s question. She lives in the ONE area of the United States where real estate has maintained its value. Why is that? And why is Vancouver different? Same climate, same “artistic” demographic.? Anyone?

#27 snore. on 11.18.08 at 11:54 am

seriously now, it’s starting to become a bit of a joke. there will be no 40% drop in condos and anyone who believes that is seriously misinformed and garth, regardless of how you can read the obvious – you are not god. no one can predict the outcome of a global financial disaster like the one that we are currently faced with, however Darwinism will take it’s course as it always will. it should be noted that the common folk will suffer just as much as the rich but obviously in different ways. there are FAR worse threats facing the world other than the economy at the moment and we collectively need to get our heads out of our a$$es and wake up. the real crisis is in all of us, it’s our spending habits and our consumption. we’re doomed to repeat this vicious cycle over and over if we don’t all revert back to saving and being smart consumers.

#28 West End Girl on 11.18.08 at 12:08 pm

Hi Garth,

Thanks for the insightful post. I’m just reading your book now and my husband and I are trying to figure out if/when we should be buying. Doesn’t help that all of our friends/family that have bought keep saying the “it will only go up” “you can’t go wrong” mantras. It’s amazing to think how Vancouver got so unaffordable. We both have decent (ie above average) paying jobs and it just seems ridiculous to jump into a mortgage for a minimum of $300K! (especially now when it might be worth $200K within a year) Maybe we’ll rent for a while…

Thanks again for the great work

#29 previous on 11.18.08 at 12:20 pm

previous to my following post, i wanted to say garth i really do respect you and your work, it was directed towards those who are crying because they own two or three homes in forest hill with two land rovers crying themselves to sleep. it seems the frog in hot water theory is proved true with us. turn the heat up gradually, we don’t notice till its too late. submerge us in boiling water right away and we panic.

#30 Panic Profit on 11.18.08 at 12:27 pm

I wrongfully expected Vancouver real estate prices to come down 2-3 years ago because they were so overbought.

Kerry and people like her (the ones who apparently don’t know math) keep the market afloat.

I guess that’s good news when you’re looking for a Greater Fool to sell your property at top dollar, right?

#31 betamax on 11.18.08 at 12:34 pm

Downsized, your info is out of date: Seattle just took longer to begin to fall, but there’s no doubt that it has begun.

#32 Rich Grover in Van on 11.18.08 at 12:38 pm

Can’t wait! Vancouver Benchmark condo prices have come down 8% since May. Vancouver inventory is either at an all time high or very close and sales are down YTD by 1/3 (over 50% last month). It may sound selfish and unsympathetic, but I can’t wait to see how the flippers and other ‘Donalds’ in Vancouver spin this. They deserve what’s coming to them.

#33 Andrew toronto on 11.18.08 at 12:39 pm

Could GE Collapse

The future doesn’t look bright for GE. A perfect global storm will hit the firm in 2009 – and a GE collapse could bring about the mother of all bailouts. To think the Auto industry was wan’t bad enough , good article to read and see what GE got itself into as well..time will surely tell..

http://www.minyanville.com/articles/WMT-LOW-GE-Credit-recession-depression/index/a/20014/p/2

#34 Stu on 11.18.08 at 12:41 pm

#26 Downsized, etc – really? Seattle prices held? Do people in Seattle know this? Doesn’t appear so…

http://seattlebubble.com/blog/2008/11/17/puget-sound-counties-october-nwmls-update/

Prices falling to 2006 levels and still falling. And Seattle wasn’t even a considered a big bubble market, unlike Vancouver which is widely considered to be the biggest when you look at how fast and how massive the price increases were, coupled with the prices being completely out of whack with what people can afford.

#35 lgre on 11.18.08 at 12:49 pm

snore – you are contradicting yourself in your post, far worse threats will effect the economy far worse then you believe. Why is it hard to believe that a 40% drop can’t happen? I guess a 100% increase was far more believeable..lol

One aspect of darwiswm is the survival of the fittest..how many people do you know who are FIT enough to whether the storm like the one in the U.S? a small percentage I bet.

#36 supersocco on 11.18.08 at 12:55 pm

@ #26
found this
http://seattlebubble.com/blog/tag/graphs/

#37 kc on 11.18.08 at 12:56 pm

#28, west end girl

Listen to your gut, if it is telling you not to jump into the abyss then don’t. You will probaly get the last laugh for renting as the prices start to plummet like a falling stone cast from the top of the Sear’s tower. (Vancouver was the last place for the hype and is now just starting to slow)

Common sence is priceless, easy and cheap to maintian. If your common sence says that to be able to “comfortably afford” monthly mortgage payments of $3,200.00 vrs. 1,600 – 1,800 rental then jump in with both feet and pray to the condo gods that the price “always goes up”. Here is one other thing to keep in mind – above and beyond the purchasing prices and closing fees, make sure that in your bank in CASH you have enough money for 3 months of emergency money. Just in case you or your other wage earner loses a job. In the days that we are coming into, NO JOB is 100% safe. and also budget out that other looming varible – higher interest rates.

As I am sure others will agree on here, many “condo owners” in Vancouver are starting to get worried about that old adage – property values only go up!!

Give you a bit of insight to what is going on in the fraser valley on CL, usualy to rent out here there has not been many listings in the past, to day do the search and there are 2 pages for this half of the month in Nov. that is starting to say volumes of the worried “landlords by accident” properties in the Valley are still extremely “bubbled” and now reality is setting in for the ones holding and can’t sell.

You will probaly get the last laugh for not getting suckered into the tidal wave of sellers who can’t sell in “Vancondolandouver” in 2 years time you will have the “it’s a great time to buy, for they don’t make any more land” experience.

cheers

#38 anonymous on 11.18.08 at 1:11 pm

The number one reason why Kerry cannot buy a condo? It’s easy.

Prices are going down. You will overpay. That’s the greatest sin.

Kerry, you are forbidden from buying anything in BC for at least two years.

#39 brazer on 11.18.08 at 1:23 pm

The Star of a Real Estate Reality Show Takes a Housing Hit
http://news.yahoo.com/s/bw/20081117/bs_bw/0847b4109090693045

With a Hollywood clientele, Lewis is the glitziest member of the speculator class that swarmed the market during the boom, figuring it could make a fast buck on any property. The rapid-fire purchases of speculators helped spur housing to unsustainable heights, not unlike the way day traders pumped up dot-com stocks during the tech bubble. Now many players have fled. Last year speculators accounted for 40,000 transactions, down from 425,000 in 2005, according to the National Association of Realtors. “Flipping looked like a no-miss (situation),” says former real estate speculator Josh Hohman in San Francisco, who has reinvented himself as an online entrepreneur.

#40 brazer on 11.18.08 at 1:25 pm

Median home prices fall in 79 percent of US metropolitan areas in 3rd quarter
http://biz.yahoo.com/ap/081118/metro_home_prices.html

Among 152 metropolitan areas included in the trade group’s survey, 120 posted declines in median home sales prices compared with a year ago, the National Association of Realtors said Tuesday. Nationally, sales fell by almost 8 percent in the third quarter compared with the same period a year ago.

Sales of foreclosures and other distressed properties made up around 40 percent of transactions in the quarter, bringing down the median price by 9 percent from a year ago to $200,500.

#41 JO on 11.18.08 at 1:44 pm

The pension issue is a huge long term problem as we all know. The main reason is that these managers on the whole decided to follow the herd into RE and commodities over the last 3-4 years. Most major plans have done this and the intent was good – reduce public stock ownership in favour of private investments that offer an inflation protected return with reasonable risk. There is no doubt that as a whole, the major pension fund managers are a bright and excellent group of managers, but in markets, elevated intelligence and financial designations correlate more often with poor long term investment results for the group as a whole. As the majority of portfolio managers/mainstream analysts and other financial pros have never planned their portfolios and risk management for a deflationary period, the pain they are feeling and will likely to feel in the next 2-3 years will be horrific. This is the price for following the herd into what was hot. So it turns out many of these major funds have smart managers, but will do poorly in the next 2-3 years, with no gaurantee that long term returns will be better or even positive. This issue will be around for many years. Get ready for pension bailouts at taxpayer expense in the next 3 years or so. Some US cities, loaded with Cadillac pensions promised by politicans no longer around, are already desperate to get money to help pay inflated pensions of government employees. It is just a matter of time before it comes here. We need to fight against this when it happens as many private pensions will face the same problems and have to rely on the company (if it is around) to cover the shortfall, yet the huge quasi-gvernment and public service pension plans will attempt to get bailed out at the expense of the everyone else. So much for star-studded pension managers.
JO

#42 patriotz on 11.18.08 at 2:01 pm

She lives in the ONE area of the United States where real estate has maintained its value. Why is that? And why is Vancouver different? Same climate, same “artistic” demographic.? Anyone?

1. RE prices in Seattle are falling. Down over 10% from peak. See http://seattlebubble.com/blog/

2. Why is Vancouver different? How about RE prices about 70% higher than Seattle with fewer good jobs and higher taxes? Now which city do you think has farther to fall?

#43 Calgary Rip off on 11.18.08 at 2:21 pm

Calgary houses starting to look more reasonably priced. Sellers are panicking and dropping their prices to be more in line with what the homes are worth. For example, in Bridlewood in Calgary deep south is now priced at 300K. That’s a reasonable start, and pricing should get more in line with $180K for currently priced homes at $400k, as sellers began panicking and the market totally implodes in Calgary. There currently is absolutely no interest in single family detached home priced greater than $300K. Look for the implosion of the bubble with oil dropping to $10 per barrel as speculators start getting hit by hit men.

#44 Downsized and Delighted on 11.18.08 at 3:00 pm

I see everyone is linking “seattlebubble.com”. Do I even have to read it to know what’s in there? But Patriox (not to single you out) ” Seattle down over 10% from peak” In the worst real estate meltdown since the depression (many areas seeing decreases of 40% or more in value)? Some bubble.

My point was that all areas are not equal, even if they seem to be. Your point Patriox about Vancouver being overpriced compared to Seattle is exactly right. It’s also overpriced compared to much of Canada – certainly Toronto.

My limited knowledge of Vancouver told me that people were paying a HUGE premium for a NEW condo. Lots of people bought non leaky older condos (nice big 2 bedrooms) and did their own renovations – put in Ikea kitchens and knocked down walls. Now those people got something for their money, and they WON’T be seeing the price of their condos drop 40%. Like Ozzie (remember him) says, “you make the money the day you buy”, so buying a crappy overpriced, undersized condo in ANY market will never work out well for you.

Sites like this scare the bejeezus out of everyone for no reason. If we are entering into a deflationary period (and that is iffy) what you really don’t want is alot of debt. It’s not about the real estate – it’s about the debt!

Oh, and the rental vacancy rate in Vancouver is around 1%. That’s not good for renters. A healthy rate is 2.5%. And for low income rentals, the vacancy rate is much lower.

vacancy rates: http://www.cbc.ca/canada/british-columbia/story/2008/06/05/bc-rental-vacancy-rates.

#45 kc on 11.18.08 at 3:15 pm

OMG – I just did a CL search on Vancouver rentals, 100 listings per page and 6 pages for just yesterday alone… I do need to confess that I have personaly have not ventured into Downtown in about 2 years. I knew things were getting bad there, however, I never knew how bad.

Nope, no problems in lotus land.

#46 pjwlk on 11.18.08 at 3:55 pm

#27 snore. You said “There will be no 40% drop in condos and anyone who believes that is seriously misinformed” and “no one can predict the outcome of a global financial disaster like the one that we are currently faced with”

Yet you can predict that it won’t happen? How is that? What are you basing your opinion on?

There is a ton of freely available evidence to support the claims made here by most people and virtually none to support your position. Please explain.

#47 pjwlk on 11.18.08 at 4:11 pm

Kerry: First, when did you get your pre-approval for a $320,000-340,000 mortgage? You might find that the bank will no longer honour that pre-approval when it’s time to buy.

Second, it really seems that you know what the right thing to do is, but at the same time you’re trying to find a reason not to.

I sold my house in July 07, because I felt things were getting out of hand. That was before Garth published his book and created this web site. Hardly a day went by where someone, including members of my own family, didn’t make me feel like I was an idiot for selling and renting. Most of them are singing a different tune now and some have actually said they thought I did the right thing.

Listen to your gut Kerry and not the bone heads who don’t understand what’s happening to us right now. You won’t regret it.

BTW I’ve moved twice in the last 14 months. My wife was pissed with all of the work involved but it really wasn’t that bad. Our rent is only $900/month now for a 1-1/2 bedroom apartment. That’s cheaper than the monthly costs for my old house – ignoring the mortgage! Plus I’m now completely out of debt!

#48 Stu on 11.18.08 at 4:38 pm

#44 Downsize, etc – “My limited knowledge of Vancouver…”

You said it!

#49 Stu on 11.18.08 at 4:48 pm

Sorry Downsized, etc, I should have provided a more detailed reply. As someone who DOES have knowledge of the Vancouver market, I can confirm you are wrong in almost everything you said in your post. Three points stand out:

1. “It’s not about the real estate – it’s about the debt!” Same difference.

2. “crappy overpriced, undersized condo” – make that plural and that statement pretty much sums up the Vancouver market.

3. That rental rate you quote is changing by the day. The world is a different place from those July 2008 figures.

#50 Condos? No thanks. on 11.18.08 at 5:43 pm

People, condo concept in Canada is a theft. It is a scheme for the property managers and their contractor buddies to rip off the people. The mangement fee goes up so fast that one has to find another sucker to sell it to.

#51 dd on 11.18.08 at 7:00 pm

#43 Calgary Rip off,

You must be slipping or you are having a good day.
“Calgary houses starting to look more reasonably priced.”

Your tune is changing. Prices have come down but there are not even reasonable yet.

#52 Vancouver renter on 11.18.08 at 7:00 pm

Hi Kerry,

The rental market in Vancouver is not that bad. In September we rented a fantastic 1 bdrm apartment 1/2 block from Kits Beach with a huge balcony and a view of the ocean, mountains, and city skyline. We pay $1,450 and can’t imagine how much more we’d pay for a mortgage on a comparable unit in our area.

#53 dd on 11.18.08 at 7:03 pm

#43 Calgary Rip off,

The problem with $10 barrel oil is that it will be very very expense in the years to come. Capital projects are being canelled and the pain will be all ours in the future.

A supply crunch is coming. It will be worst than this summer.

#54 brazer on 11.18.08 at 7:14 pm

Bank of America sees record credit card losses
http://biz.yahoo.com/rb/081118/business_us_bankofamerica_losses.html

“We, as an industry, may end up with possibly the highest credit card losses the industry has ever experienced,” Lewis said…

Speaking to reporters, Lewis also said the largest U.S. bank will have “fairly significant” job eliminations resulting from its takeover of Merrill Lynch & Co Inc in September.

=====

let the good times roll.

#55 Nibbly on 11.18.08 at 7:48 pm

You have to check out this article regarding T.O. house prices. Who is this Mercer character? What a buffoon!

http://www.yourhome.ca/homes/article/535935

#56 Bottoms_Up on 11.18.08 at 8:58 pm

RE: Just a Girl “Just a question for everyone who hates condos, ie. high-density living. Not directed at anyone specifically. There is only so much land. Do we want to cover it all with SFD’s? How much do you value natural spaces, ecosystems and just wondering, where you would put all the people?”
——————————————
Have you ever driven from southern to northern Ontario and then to Winnipeg (I have, multiple times)?? Leave the city once in a while and you will no longer buy the “they’re not making any more of it routine”. We have a crap load of land in this country, and it likely will never get developed, I’d actually like to see what the ratio of developed land to undeveloped is, probably on the order of 0.001-0.01%. There is ROOM TO GROW, I’m not sure we have to worry about how we grow (not for tens of thousands of years at least–look at the population of China verus land size).

#57 Calgary rip off on 11.18.08 at 9:22 pm

DD:

I would be quite happy paying $250,000-$270,000 for a house. And homes are quickly approaching that point. That mortgage is less than my rent. My thinking is that prices are unlikely to go below that range back to where they should be($150,000 for a house in Calgary), many sellers will remove their homes from the market making it a sellers market(and another stupid godforsaken boom). I have accepted that Calgary’s housing market is f*cked sideways beyond belief and that things will not improve with regards to mortgages becoming less, therefore the change in tone.

It is a reality that oil supplies are finite not infinite. Therefore, pain with regards to those sectors are more of a when, not if. In the meantime, it will be fun to watch Alberta collapse when the oil value goes to the shits. All of this extravagance that wasnt earned, just speculative(speculators are f*cker$). As soon as electric cars that are fully reliable and maintain able are available in the mass market, I will get one. I am eager to give the finger to the oil producers. The only problem is that almost everything is made of plastic which is composed of oil. It is difficult to engineer items from units composed of plastic made from plant materials, the material breaks down. That is both an advantage because less landfill, and a disadvantage because items are less reliable.

This is an interesting time and many entertaining events will occur with problems that are not insurmountable. If oil reaches $2.50 a barrel(entirely possible given the market) that’s even better-let the Saudis go back to being nomads.

Stay tuned for realtors and sellers in Calgary needing imodium stat as their bowels reach permanent incontinence.

#58 timbo on 11.18.08 at 9:48 pm

http://bakersfieldbubble.blogspot.com/

look into what can happen here.

check out 1/4 the way down the page

Bakersfield’s median price for existing homes fell 35 percent in October compared to the previous year, according to the Preliminary Crabtree Report released Monday.

October’s median price was $165,000. A year earlier, the number stood at $254,500.
Last month’s number was also a $10,000 drop from September’s price.

did not know it could fall that fast.

#59 dd on 11.18.08 at 9:52 pm

#57 Calgary rip off,

If oil is $2.50 even you won’t have a job in Calgary. Therefore the $150,000 will be out of your price range.
I hear the cash cost of oil is about $US28.00 a barrel. Once price go to this level supply will be shut down.

With current salaries housing priced in the $250 – $270 are reasonable but not a great deals.

#60 $fromA$ia on 11.18.08 at 9:59 pm

Ooo! Calgary rip off.. So Bitter!

Remember, fortune favours the bold!

Don’t hate speculators, you can earn from them as well!

#61 POL-CAN on 11.18.08 at 10:15 pm

We had a brief chat here about pension plans. Here is some bad news:

Florida pension fund plummets

http://www.tampabay.com/news/business/article905919.ece

I wonder how many of these we will see over the next few weeks?

#62 kc on 11.18.08 at 10:25 pm

#55 nibbly,

LOL “High employment levels, rising incomes and low mortgage rates have continued to provide a solid foundation for healthy housing markets this year,” Dugan said in a statement.

I love how this guy closes off the article…. this guy must have been reading from the same script we here on the west coast also….. I think that this guy forgot to update his calendar…. this may have been true back in 06 however, i feel that in the 11th month of 08 he is drinking the kool-aid …..

#63 Just a Girl on 11.18.08 at 10:27 pm

#56 Bottoms Up wrote: “Leave the city once in a while and you will no longer buy the “they’re not making any more of it routine”. We have a crap load of land in this country, and it likely will never get developed …”

Hi B-U …. I do like a healthy conversation … my next question would be, it we buy into urban sprawl, then how much duplication of infrastructure and services shall we have? And where will we grow our food? Just because we ‘see’ land doesn’t mean it should be developed for SFD’s as far as the eye can see. I’d like to understand your point of view (representative of others) … but I see huge energy costs and implications in trading in land for personal space.

#64 Cassandra on 11.18.08 at 10:29 pm

Garth:

I don’t know if this has already been noted, but Calculated Risk is a worthwhile blog on things financial…it has taken note of the Vancouver Condominium situation, in this post tonight:

http://calculatedrisk.blogspot.com/2008/11/condo-projects-postponed-in-vancouver.html

Calculated Risk normally worries about bank failure and economic troubles…they do cover real estate, but Tantas focus is elsewhere. Still, it i snoteworthy they thought this worthy of interest.

Cassandra

#65 wealthy renter on 11.18.08 at 10:30 pm

RE: Just a Girl “Just a question for everyone who hates condos, ie. high-density living. Not directed at anyone specifically. There is only so much land. Do we want to cover it all with SFD’s? How much do you value natural spaces, ecosystems and just wondering, where you would put all the people?”
——————————————

I get the gist of your argument, which I take to mean, “Why sacrifice quality farmland or quality natural spacers for SFHs.” Condos are therefore environmentally friendly.

The problem with that argument is that you present a false dichotomy. There are other quality living arrangements between a shoebox in the sky and an ugly, sprawling McMansion on a ½ acre. For instance, Toronto has a few builders that make really high quality, luxury townhomes that sit on very little land. These developments can pack 100 families into relatively tight spaces. They have sprouted up all over the city. They are not everybody’s cup of tea, but they do give the benefits of a single home with a much smaller footprint than a SFH.

#66 canadianoil on 11.18.08 at 10:47 pm

What socioeconomic group participates in this blog?
Buying multiple condominiums has never been a good idea.

You cannot go wrong with the purchase of landed property in the coming months.

I do not reccomend in buying multiple properties, who can finance that?

Buy one house. Something you can afford. Live there.
Raise your family there and reap the benefits of long term ownership.

Housing prices will rise over time.
It is time to start thinking about getting back in to the landed housing property market.
Q3 2009 looks good to me.

Thanks, Forrest. — Garth

#67 aloha e on 11.18.08 at 11:14 pm

Vancouver Ritz goes poof!? My guess is Toronto Ritz is next.

http://www.canada.com/theprovince/news/story.html?id=44dbbe6b-583c-4a80-9247-95b2c8f7ce36

#68 $fromA$ia on 11.18.08 at 11:22 pm

Q3 2009 looks good if the un employment rate doesn’t climb.

#69 Calgary rip off on 11.19.08 at 12:08 am

DD:

There ALWAYS will be health care. Im in health care. The only way health care will exist if we live in an post nuclear holocaust with nothing. I may not get paid as much, but I’ll have a job.

#70 POL-CAN on 11.19.08 at 12:35 am

Some one put in some time to put this 6 minute clip together. It is worth watching…

http://www.youtube.com/watch?v=By03WbJxwUg

#71 Michael on 11.19.08 at 12:37 am

$1800/month for a Condo in downtown? That’s if you don’t really negotiate. There are already enough Condos that don’t move as rentals AND the really cute thing is: Lots more building are coming online in the next few months before the Olympics.

When people talk about a tight rental market in Vancouver they usually “ignore” a few things:

– Vancouver itself is “small”, there is West Van, Burnaby etc. From the East it looks all the same, in reality is isn’t. If you live in North Vancouver you are in all likelyhood only a Seabus ride away from downtown but the rental prices drop quite a bit.

Also, “no affordable renting properties” in Vancouver for most people mean $800/month for a one bedroom, obviously cost since the early 90s have gone up, but two years ago a 600sqft apartment with fireplace (one bedroom) was available for $800 in a well maintained building.

I pay a bit more, but I do have a look over English Bay, can see the fireworks from my living room and the sun set every night.

Vancouver is not such a bad place to rent, especially if you look at what becoming the owner of a Mortgage costs, but Garth pointed that one out quite nicely :)

#72 dd on 11.19.08 at 1:03 am

#67 aloha e,

Wow … there are going to be a couple unfilled holes in the ground all over Canada.

#73 Merridith on 11.19.08 at 3:31 am

I live in the downtown area of Vancouver. I often go to the apartment open houses. I have owned in the past, and hope to again in the future – but don’t for precisely the reason that you outline in your article.

You need to boost your condo fees though. Usually, they are at least between $300 – $500 @ month. They are extra expensive because there is a premium land tax that you have to pay (for your common property) for living here.

Also you should add in a fee for parking ($50 -100 @ month) – although some places give you one slot with your apartment purchase. To buy a slot – the going rate is $20,000.

#74 Just a Girl on 11.19.08 at 11:51 am

#65 Wealthy Renter wrote: “There are other quality living arrangements between a shoebox in the sky and an ugly, sprawling McMansion on a ½ acre. ”

======
Personally, I agree the concept of European townhouse style living with community spaces has considerable merits. I haven’t actually stated my personal opinion, in my previous posts :) I’m just asking questions to see why things always seem to fall in two camps. For example, renting versus buying, or condo versus house, etc.

We have a very complex society that involves value choices in social, economic and environmental considerations. In any choice, we have a value position at some point on the spectrum. I think for people to make informed decisions (ie. be informed voters, citizens, participants in development) they need to spend some time asking questions, and being critical thinkers.

I’ve been reading this blog lately because there is a lot of passionate expression of opinion, but also, good information shared about economics, in the debate between renting versus buying. I am learning a lot about world financial markets, in this sharing. In general I think society needs more healthy debate, and the internet seems to have created the opportunity for an open and accessible forum. I may have an opinion or a value position, but it can be changed when I am exposed to new sources of information, or thoughtful analysis and synthesis of related information pieces.

I don’t know why, but I find the conversation coming out of this recent real estate bubble fascinating.

#75 Bottoms_Up on 11.19.08 at 12:24 pm

Hi JaG,
My only point is that we are a tiny populace with an over-abundance of land/water/resources. I don’t think we need to worry about ‘urban sprawl’. I agree that food issues are important, and good farm land should be preserved, but why should I have to live squeezed into a crappy little condo? Can’t I provide some open space for my kids to enjoy and grow up in? Toronto is Canada’s biggest city, yet pales in comparison to the size and sprawl of dozens of US cities, and for that matter others around the world. I think sprawl is the least of our concerns…

#76 $fromA$ia on 11.19.08 at 12:39 pm

Merrideth, if you bu today in Vancouver, you can change your name to Megadeath!

#77 HJD on 11.24.08 at 11:59 am

OK. Managed to sell my BC rental condo (15% below asking price) and now have $257,000 in cash. Have no debt and not in the stock market. Where should I park this money?