Vancouver Sun Story on Real Estate

[sdw]

http://www.canada.com/vancouversun/news/story.html?id=223666a5-e418-4b7c-bfcf-31dd3e8a01be

There was a thread on this some time ago. I thought people might be interested in this study.

 

[Jodie]

Interesting article, but should definitely be taken with a grain of salt and a heaping dose of due dilligence. The two investment advisers, as well as the analyst they sent their information to, are drawing conclusions based on historical price trends alone, ignoring the economic fundamentals that tend to influence the market. They are basically saying that we are due for a downturn based on cyclical price data. It's a sort of "Farmer's Almanac" type prediction, which doesn't hold much water in my opinion.

Now before everyone jumps all over me, I am not suggesting that our market couldn't see a decline in the next few years; just that I would not use the Hewett/Dekker/Gartman data as the basis of any major real estate decisions.

One important tidbit that can be gleaned from the price data chart, however, is that much like the stock market, there are always gains to be had in the long run. That is to say that for a person looking to purchase a principal residence, as long as you don't overextend yourself with huge monthly payments and a variable interest rate, you will come out ahead over the long haul.

Vancouver Jodie
Chief PERB Economist

 

[expedition]

That is to say that for a person looking to purchase a principal residence, as long as you don't overextend yourself with huge monthly payments and a variable interest rate, you will come out ahead over the long haul.

The problem is that a home is not an investment, you can only realize those supposed gains by selling the place where you live. Leaving you to have to either move someplace you don't want to be, or having to buy in a market that has also gained.

Looking at a home as simply a financial investment is what has resulted in so many people caught in the vice like squeeze of market value tax assesment and relatively flat income growth.

 

[canuckscientist]

Owning a home is actually a forced savings program. You combine those forced savings, a healthy amount of leverage seeing how the banks only need 5% down, and a rising market (even a slow rising market) means a lot of people have and will continue to create a lot of wealth by owning real estate. Plus the carrying cost of all that leverage is relatively fixed unless one ties themselves to a variable-rate or short term mortgage, meaning that if the actual value declines over a two or three year time period, the owner can still ride it out. I agree with Jodie.

 

[sdw]

Interesting article, but should definitely be taken with a grain of salt and a heaping dose of due dilligence. The two investment advisers, as well as the analyst they sent their information to, are drawing conclusions based on historical price trends alone, ignoring the economic fundamentals that tend to influence the market. They are basically saying that we are due for a downturn based on cyclical price data. It's a sort of "Farmer's Almanac" type prediction, which doesn't hold much water in my opinion.

Now before everyone jumps all over me, I am not suggesting that our market couldn't see a decline in the next few years; just that I would not use the Hewett/Dekker/Gartman data as the basis of any major real estate decisions.

One important tidbit that can be gleaned from the price data chart, however, is that much like the stock market, there are always gains to be had in the long run. That is to say that for a person looking to purchase a principal residence, as long as you don't overextend yourself with huge monthly payments and a variable interest rate, you will come out ahead over the long haul.

Vancouver Jodie
Chief PERB Economist

You are quite correct that the long term home buyer will eventually be able to sell for more than they paid.

However, I was thinking more of the people that buy to renovate and flip and the people who buy as an investment to rent out.

I did a table for the previous thread that illustrated the effect of interest rates on how viable it is to rent in this market.

I think that we are definately not looking at growth in property values in this market over the next few years and we may be looking at a correction. I don't think it will be a major correction ala 1982, but it could be a minor correction ala 1993.

I also think that we are most likely looking at an adjustment in the ease of borrowing money and a raise in interest rates.

 

[expedition]

Owning a home is actually a forced savings program. You combine those forced savings, a healthy amount of leverage seeing how the banks only need 5% down, and a rising market (even a slow rising market) means a lot of people have and will continue to create a lot of wealth by owning real estate. Plus the carrying cost of all that leverage is relatively fixed unless one ties themselves to a variable-rate or short term mortgage, meaning that if the actual value declines over a two or three year time period, the owner can still ride it out. I agree with Jodie.

But you can only access those savings by becoming "homeless." I fully agree that long term real estate near any major urban centre is a wise investment. I just feel that there is a difference between your home, and any other property. People need a place to live.

And I know too many people with paid for houses, but flat incomes that are having difficulties managing inflationary taxes and utility costs. Sure, they could sell ... but to do what? Anyplace in the ares is just as expensive. Move out to the boonies or across the country? I suppose, but after 30+ years why should someone have to leave not just their home, but their city and family just because their home is thought of as a financial investment rather than the place they base their lives?

 

[sdw]

But you can only access those savings by becoming "homeless." I fully agree that long term real estate near any major urban centre is a wise investment. I just feel that there is a difference between your home, and any other property. People need a place to live.

And I know too many people with paid for houses, but flat incomes that are having difficulties managing inflationary taxes and utility costs. Sure, they could sell ... but to do what? Anyplace in the ares is just as expensive. Move out to the boonies or across the country? I suppose, but after 30+ years why should someone have to leave not just their home, but their city and family just because their home is thought of as a financial investment rather than the place they base their lives?

I think it's the stage of your life that determines where you live. I went from a West End Condo in my 20s to a Burnaby House to a Langley House on 28 acres now that I'm retired. The Langley house even with all the land cost less than what the Burnaby house sold for. I know people that have retired to the Interior and actually have 2 houses. 1 in the Interior and 1 in the Sun Belt. The sale of their Burnaby house paid for both houses. For me, paying 8,000 a year on Burnaby taxes wasn't all that attractive once I retired. Because of the horses, I only pay 1800 per year for the Langley property.

 

[imagination]

Real Estate is a long term investment. Being in this industry a long time and I can recall when no one ever thought East Van home would ever hit above $400k, or a new downtown condo would ever be priced over $350/sq.ft. As long as the market is not stagnant, you can make money in real estate. Just have a balance portfolio with some short term investments.