Taking the Plunge and Putting an End to Home Envy

I have been dropping subtle (okay maybe not so subtle) hints in past posts and on twitter that I have been itchin' to buy a place here in Vancouver.  I recently had an email from a reader asking me what the hell I was thinking why I am deciding to buy a place in Vancouver with the current real estate prices.  Being the frugal lady that I am, he's probably wondering if I'm on crack- considering home prices are ridiculous quite high.

So other than purely putting an end to home envy, I have a few other reasons why I am deciding to buy a place in the near future.  I wanted to take advantage of the recent mortgage rules changes that came down in April (thanks to good ol' Jim) in an effort to cool the housing market.  With the recent mortgage changes, I anticipate that more people will not be approved for as much of a mortgage as before (unless you have more than 20% down), so the real estate properties I am interested in should decrease in price.  Right now in Vancouver, it's definitely a buyer's market.  Things are cooling down, houses aren't being snapped up left-right-and-centre anymore.  I actually see signs on lawns sticking around for more than a few weeks (which was almost unheard of a few months to a year back).

3D House Pictures, Images and Photos

I am wanting to take advantage of the low interest rates with a variable mortgage (we were pre-approved for Prime – 0.6%), and plan to pay off the home as if it were fixed.  Remember, the first few years of your mortgage is predominantly interest.  Any extra payment on top of the mortgage payment goes straight to the principal- so hopefully we can tame that beast in under 15 years.

What we (we meaning me and my boyfriend- hoooollld your horses- we're planning to do everything 50/50 and planning to get hitched soon, so none of this asset-confusion will ensue in the event we break up) are planning to do is buy a home with a mortgage helper.  We plan to use the mortgage helper to pay it off even quicker, and take advantage of the tax deductions you can have when you use your principal residence as a  business.  I can't wait to be a land lady! (My dad is quite the landlord- so he can give me a hand).

With the recession still in full-swing (did ya see the market plummet last week??) and the financial crisis going on in Europe, I don't anticipate the interest rates rising anytime soon (and if they do, bring'er..! I'm ready!).  I also anticipate that people will continue to look into real estate for shelter from the market storm.  Considering the different market we have here in Vancouver (lots of investors from abroad- e.g. China- who don't even need “subject to financing clauses”), we did not have the real estate meltdown/ foreclosures that the rest of Canada and a large portion of the United States experienced.  So I don't see the prices for homes going much lower anytime soon.

Besides, I heart Vancouver… I can't see myself leaving, really.  Where else can you snowboard and hang out on the beach on the very same day?  The secret's out- our city rocks.

With the above being said, we haven't had any luck finding a place we like so far.  A lot of homes we like have been out of our price range, or not in a good area that would generate good rental income.  We have also been outbid on a few offers.  But I believe (go ahead, laugh at me for being sentimental haha) that things happen for a reason, and we will find our home soon.  Wish us luck!

Whaddya think, readers?  Do you think I am off my rocker?  Would you buy at this time or would you not?

63 Comments

  1. Dividend Lover on July 7, 2010 at 11:33 am

    Hey Young And Thrifty,

    I have rental properties in Toronto, but I haven’t bought anything new since 2005 because the cap rates haven’t made sence since then.

    yes the market has cooled down here too from a few months ago. and the long term yield curve has flattened so long term rates are lower.

    is it a good time now or not? I can’t answer that because that would be speculation.

    but what I can tell you is if you can get at least 7% cap then go for it.

    Any less than that there is no point.



  2. Invest It Wisely on July 7, 2010 at 12:31 pm

    I recently bought a place, and I was thinking some of the same things. The market here’s not as expensive as in Vancouver, but I still find it quite high!

    If I may ask, were you able to lock in prime – 0.6%, and if so, where did you go? That would make a rate of 1.65%, correct?



  3. Heffer on July 7, 2010 at 5:42 pm

    I think we are in a very uncertain real estate climate. Just because sales are down 30% from this time last year doesn’t mean owners are willing to fold under the pressure and sell at a discount. Some landlords are just stubborn, they would rather feed their family kraft dinner everyday than sell their home at a loss. If you’re currently living with family then I would wait a bit longer to see which direction this bubble is going, and accumulate some more money in the mean time. But if you’re currently renting then don’t wait to buy. Buy first, then wait. Prime – 0.6 is a great bargain. I assume it’s a closed mortgage. Can you share which lender pre-approved you guys? If you want to pay less interest on your term don’t forget to consider the accelerated bi-weekly payment option. But you already knew that.



  4. Jenn @ Paying Myself on July 8, 2010 at 12:16 am

    I can’t really say either way if I would buy a home or not at this point. I just don’t know enough about all the things you mentioned! However, I do want to say that you should ignore anyone who just says “no! debt is bad!” You have clearly given this a lot of thought and personal finance is personal. It’s not about never taking on debt or never spending money. It’s about making wise financial choices that are right for you.



  5. The Passive Income Earner on July 8, 2010 at 12:17 am

    Some areas have had prices coming down a bit. Vancouver is interesting geographically because there is no room to build north or west. South and East can be built but it’s quite far past bridges which can be frustrating for commuting.

    I have been looking for investment property and it’s too high for me when it comes to condos. I started looking at multi-units.

    That said, Vancouver has had the most population growth last year (along with another city in the maritime I believe) and it will probably continue with more Asian immigration. Demand should stay within normal levels.

    I bought our current place 4 years ago and it was crazy back then . The market has had crazy growth over the past 7 years, just when I bought our first place. From what I see, prices have possibly scaled back to last year now but I can’t imagine going back to 7 years ago in term of prices. Lots of home owners would look at moving in closer to the city creating a rush.

    Richmond near the airport and water just sold some condos a couple of weeks ago and it sold like hot cakes. 1 million$ suites were being sold. I am not sure Asia sees the market the same way we do …



  6. Financial Samurai on July 8, 2010 at 12:18 am

    I’m amazed that the Canadian real estate market is en fuego, and the US is so flatline.

    If you can afford the property and find the most fabulous place then go for it. There is an indescribable feeling of joy once you’ve found that place!

    Just take your time, it’s all good!



  7. Krystal on July 8, 2010 at 12:23 am

    If BF and I were in a position to buy (which we



  8. Potato on July 8, 2010 at 12:33 am

    Sometimes it’s better to be lucky than good! Congrats on not finding a place! Now you can settle down, find a nice rental, have a warm cup of tea, and come to your senses.

    Vancouver is seriously over-priced: even the media’s picking up on it, it keeps making the top most expensive cities to live in lists, etc. You’d be far better off being the ones living in someone else’s “mortgage helper” than getting one of your own. Or, rent a highrise condo and enjoy the small things in life while you’re young, and pick up a yard after the crash.

    Do the rent vs buy math; if you need help, let me know. I’ve got spreadsheets.

    Oh, and it’s not a buyer’s market, not yet. It just stopped being a seller’s market. It’ll take another year or two before it becomes a buyer’s market, and another year or two after that before things become affordable again. Be patient.

    And in 2015, you’ll be thankful for my painfully-honest-and-only-slightly-snarky comment, and will likely offer to buy me a pizza.

    Mmmm…. pizza.



  9. young on July 8, 2010 at 12:36 am

    @Krystal- He’ll be out of school soon, though, right? 2011-2012 sounds good! Good to know we are all on board in buying in Vancouver =) My bf has been looking out in Burnaby, but I still think it’s a bit far. I’m Vancouverified and spoiled, haha!



  10. young on July 8, 2010 at 12:44 am

    @Jenn- thanks for your wise words =) There is NOOO way anyone can buy a place here and not take on debt (except for foreign money, of course). I trust that we will make the right decision, and if we ride the wave for 5-10 years, I am confident that the market will continue to appreciate. =)

    @The Passive Income Earner- Yes- I am interested in multi- units too! My dad quasi-offered to go in with me to buy a multi-unit and I will own 2-3 units, but I was thinking it might get too complicated. Now you need 20% down for an investment property, from what I recall. Yes- I am banking on Vancouver- no more room to build=increased housing, increased people wanting to rent. Burnaby and the suburbs are really expanding, growing, there’s still so much room there. I heard that Richmond just sold its most expensive condo the other day- >$3 million!! I wish I bought 5 years ago- housing prices have doubled since then (in the West side at least), but 4 years ago it would have been quite good too! Richmond is getting $$$ too. Le sigh. But I wouldn’t want to live in Richmond, since we’re expecting the “big one” any day now and liquefaction would ammeliorate Richmond. =) (sorry I am morbid sometimes lol)

    @Sam- Yeah, I don’t really know why either! They changed the mortgage rules to stop the bubble from growing, but it seems to have just shrunk slightly. I thought I found that place(s) but then the offer didn’t go through. House hunting is so stressful! =)



  11. young on July 8, 2010 at 12:49 am

    @Dividend Lover- Thanks for the advice! Toronto seems to be a good place for rental properties. Rent is high, condos are cheap! (minus the monthly strata fees- some of them are quite high I noticed! but you do get a lot of bang for your buck- like a pool, basketball court, gym etc. etc.!)

    @Invest it Wisely- prime recently increased (at the end of June) to 2.5%! =( So Prime-0.6%= 1.90%. I used RBC, they have a great HELOC plan where you can get an automatic loan once you build your home equity. However, if you go through a mortgage broker (and if you don’t mind not going through a big bank), you can get better deals- like 1.75% for example (the left column of this blog has a tracker on the best mortgage rates in Canada right now).

    @Heffer- Yup- it’s a closed mortgage =) The lender was RBC, and yup, I am planning to do the biweekly payment. I guess I’m just so attracted to the low interest rates. The more we pay down the first year, they more principle we’ll be hacking away. Yeah, I’m surprised the prices are dropping yet, the market is so stale right now!



  12. young on July 8, 2010 at 12:53 am

    @Potato- lol, thanks =) I’ll keep you posted on what we end up doing. Though to be honest, I don’t think I can wait until 2015- home envy is taking over meeeeee!!! =( I’m even willing to stop my crazy traveling for a home. Maybe I need to go into home-envy rehab or something. I have “owning a home addiction”.



  13. jesse on July 8, 2010 at 7:30 am

    Congratulations on your purchase! As long as you can afford the payments, are buying it for the utility, and understand prices may drop by the time you want to sell, it sounds like the right decision for you.



  14. Wreckonomics on July 8, 2010 at 8:20 am

    Actually, I think potato is wrong, Vancouver doesn’t keep getting on “most expensive city” lists, it keeps getting on “most overpriced” lists when they compare local incomes and rents. So it’s not that Vancouver is super expensive- rent levels tell you what people are willing to spend to live here- it’s that real estate prices are overpriced, like the US bubble markets in Arizona, California and Florida.



  15. A# Accountant on July 8, 2010 at 8:45 am

    I believe it is a bad financial move to buy. The simple fact is that if you compare purchase costs(rent) to ownership costs (capital, tax, strata, mait etc), at the current time, owning the property usually costs roughly 30% more than buying in the LML at this time. (when looking at rent/buy the exact same unit)

    Does this mean you are off your rocker to buy? In a word…NO! People spend their money on things that make them happy every day. It is a bad financial move to go on a vacation too. People do it all the time.

    You are only making a bad decision if you are baking a lot of future home appreciation into your decision to buy. Real estate will not be able to double every ten years from here on in. If you want to look for some clues as to how it has doubled for the last 30 years, look at interest rates…they have roughly halved every ten years.

    I agree that rates should remain low, but even at these rates, there is room for a significant correction in RE prices (over a period of 2-3 years)

    Disclosure: —I’ve owned 3 properties in my life, and chose to sell and rent recently. I have not noticed any real difference in Quality of Life, other than the fact that I have a lot more money to throw around on trips etc.

    Good luck with whatever you decide

    -A#



  16. Potato on July 8, 2010 at 10:03 am

    Is the home envy because you want a nicer home, or because you must possess the precious?

    We went through a similar thing (living in a student apartment, wanted something nicer). Started looking at houses, then ran the numbers, and found we could rent a house for the same cost as buying one, without being locked in for years and years or having to pay for repairs (the market since went higher on us, so now it’s even cheaper to rent).

    So we found a nice, clean, quiet house with a large kitchen and rented… saving the difference all the while.

    That said, people spend their money on all kinds of things; if you really want a house no one’s going to tie you down and stop you. As long as you know what you’re giving up to get it at these prices (e.g., crazy travelling).

    Upthread there was talk of getting multiple units: note that buildings up to quadplexes are insured by CMHC and the pricing is just as distorted as for SFH/condos. You’ll have to look at 5-plexes or bigger to start finding deals, and that requires a large downpayment.



  17. Potato on July 8, 2010 at 10:05 am

    A very important correction!



  18. Devore on July 8, 2010 at 10:56 am

    Although Young has hit all the usual points for justifying stratospheric RE prices (chinese investors, different here, prices never go down, etc), you hammered the nail in: they’re not making new land. And yet, we keep managing to find more and more land all the time as new projects are announced all the time. I guess it really is different here.

    Just waiting for someone to throw in “world class”.

    Numbers don’t lie. Market is slowing. Inventory is rising. Listings are up. So are price reductions. Buy now at your own risk, but please, leave any economic/investment benefits out of it, they don’t add up.



  19. young on July 8, 2010 at 11:02 am

    @Potato- Renting a house is quite expensive here in Vancouver though too- you’re looking at the same prices as a mortgage payments, unless you live in a basement suite. Basement suites in Vancouver go anywhere between 1500-2000 a month. If my BF and I buy, because of our down payments, we will probably be paying around $2000-$2500 a month (including the property taxes). You’re right, I shouldn’t look at it as an investment per se, but more as something for myself.

    @Devore- I don’t see more land for detached housing in Vancouver, but I do see more developments for condos. I’m not in the market for a condo, but a detached house. Thanks for visiting!



  20. VanCity Guy on July 8, 2010 at 12:11 pm

    It’s pretty obvious that Young and “thrifty” is not looking for everyone’s opinion, but rather for confirmation that she is doing the right thing.

    She gets arguments from both sides, but only comments on the ones she disagrees with to tell them why her situation is different… or why she is still going to buy. She has made up her mind and she wants to buy.

    I say, good for her! It takes a lot of guts to make such a large purchase. Buying a home is a life altering experience, for good or for bad. It especially take courage to toss money into a failing market that almost everyone is willing to admit is overpriced. but if she wants to sacrifice a comfortable lifestyle and traveling for the ability to choose the colour of paint on her walls, then why not.

    Young – what is the cheapest house price you can find in the area you are looking? take that price and see what it can buy you in Miami then tell me you think that it’s a wise move. Also, if you’re paying between 1500 and 2000 for a basement, you’re being ripped off.



  21. young on July 8, 2010 at 12:23 pm

    @VanCity Guy- haha thanks for commenting- I didn’t really mean for this post to be such a hot debate! Yes, you have confirmed my thoughts- I am going to buy and am willing to toss money into a failing market- but again, plan to have someone rent from me so they are paying off my mortgage too (that is key, I think). Do you live in Vancouver? I don’t understand why you are comparing Miami and Vancouver- they are very different- one is in Canada the other is in the US. I think I would compare Vancouver to San Francisco more off. I don’t think people are being ripped off for paying 1500 for a basement suite- most people in Vancouver on the west side are paying that, if not more.



  22. Raz on July 8, 2010 at 12:31 pm

    Congratulations on your decision to plunge in. I would go for it! The only caution is that you need to be realistic about your financial ability, and make sure that you can pay for your mortgage even if it goes up 2% or more in the longer term, and also money get set aside in the event of lost income for whatever reason. Don’t get emotion take over your purchase decision – The last thing you want is to give up your new home because you cannot afford it.



  23. Invest It Wisely on July 8, 2010 at 12:35 pm

    Haha, you’re right, I confused myself a little there. That’s a great rate, though. I didn’t get such a good rate since options were limited with a far-off finalization date, but I will start looking again as we get closer to the closing date. Thanks for the recommendations!



  24. fatjay on July 8, 2010 at 12:57 pm

    Sure, compare Vancouver to San Fransisco, but that doesn’t mean prices won’t drop. Here’s a Forbes article from last year:

    www.forbes.com/2009/…using.html

    “Over the past year, Phoenix prices slid the farthest, down 35.2% since last February. Las Vegas is second, down 31.7%, and San Francisco is third, falling 31%, just a fraction of a point ahead of Miami. Since the bubble’s peak, Phoenix again is down the most at 50.8%. Six other metropolitan areas–Detroit, Las Vegas, Los Angeles, Miami, San Francisco and San Diego–are down over 40%. Dallas was down the least at 11.1%.”

    Vancouver could easily see a similar correction. A return to 2005 prices doesn’t seem unreasonable.

    As someone else stated, it sounds like you’ve already made up your mind, but if you do buy, be prepared to accept the fact that your home/investment may be underwater in the very near future.

    It isn’t a decision that any frugal or thrifty person would make unless they’re ignoring the facts.



  25. fatjay on July 8, 2010 at 1:11 pm

    Another note: it sounds like you’ve picked up on some of the indicators that Vancouver is in a real estate bubble, but there are plenty more out there. It is your home, but it’s also probably your biggest investment so it’s worth the time to educate yourself before making up your mind. Don’t rush in just because you have “owning a home addiction.”

    Once you’ve read about all the basic indicators and their norms (price/income ratios, inventory, etc.) you might have a different take on things.

    If you understand all of that info and still want to buy right now, I have a great analogy for you. I don’t know where I read it, but it went like this:

    Buying a home right now is like watching the shopkeeper walk to the window with the “Sale” sign, and then rushing to the till to make your purchase before he can reduce the price.

    If you wait, at least until the winter, I think you won’t regret it.



  26. oneangryslav on July 8, 2010 at 1:13 pm

    Interesting post, but I must take issue with your characterization of the recent price fluctuations in the Vancouver residential real estate market. Over the course of nine months during 2008 prices DEcreased about 15%, which is 20% annualized.

    Now even more greater fools have been sucked in since that bottom in late 2008, meaning that when this market plunges 15%, it won’t stop there.

    I second the comment by someone above about rental prices for basement suites in Vancouver. Here’s a nice 2BR basement suite off of Granville St for $875/month.

    vancouver.en.craigslist.ca/van/a…41916.html



  27. VanCity Guy on July 8, 2010 at 1:15 pm

    Young,

    Yes, I do live in Vancouver and was born here too. I was once like yourself with house envy… I bought into the hype of the downtown condo lifestyle and I wanted in! Luckily for me I realized that it was not a good time to buy (this was back in 2005) and have rented ever since. I am actually very happy with my choice as I can afford to travel as much as I want, and go out for drinks and have fun. Basically, I haven’t sold out my life to buy a home.

    Will I buy? Yes, if prices become reasonable… but at their current level, it just doesn’t make any sense as to why anyone would buy unless they expect prices to continue up at a rate that might price them out of the market forever.

    Yes, I am aware that Miami is in a different country…. did you know that San Fran is ALSO in a different country?? Comparisons between cities is always difficult, if not impossible; each has a different economy, resource base, and industries in general. I chose Miami because it’s on the ocean, with no land to expand into, and people back 3 years ago were rushing in to buy with the idea that prices could never go down. Didn’t work out too well for a lot of people.

    San Fran is very similar to Van, yes, but the average salary there is almost twice what it is here AND their housing is actually getting cheaper than here too.

    No one can make your mind for you, or convince you to do otherwise… but I think you really should do some research before you get neck deep in debt. Look at other cities and what you can get for the same price you want to spend (Miami, San Fran, Seattle, Montreal etc.) Figure out what would happen to your mortgage payments if your mortgage rate went from 2% to 6%. Look into what happened to housing prices in Vancouver in 1982. Knowledge is power.



  28. John on July 8, 2010 at 1:38 pm

    I think you need to stop being so careless with your life. You have a finite number of days on this planet, of them only so many you will spend earning income. You are about to throw away a good portion of your productive life time. Get real, you are talking about somewhere between 10 and 50% of your lifetime after tax earnings wiped.

    I used to live in West End (Comox couple blocks from Denman) for 7 years and when they announced Olympics I could not take it any more and left for Abbotsford. I am still here and none of my friends from Vancouver comprehend how can I possibly live here. I am disgusted every time I have to go to Vancouver. It is an increasingly overpopulated place that sucks the pleasure out of your life. The problem is that it does it slowly so while you are in it you don’t notice so much. And yes, rental is overpriced and real estate is dramatically overpriced relatively to already overpriced rental.

    Also, how stable is your income. Can you really predict what your income will for each of the next 15 years?



  29. young on July 8, 2010 at 1:45 pm

    @oneangryslav- Thanks for your comment and your clarification. Thank you for the rental price of a basement suite in Vancouver- but the suite you have pointed out is a bit on the small side.. I should have clarified that I was thinking about larger sq footage and a newer home. Here’s a craigslist ad for a basement suite on Granville st as well, in the same area for the price I was mentioning.
    vancouver.en.craigslist.ca/van/a…97254.html



  30. young on July 8, 2010 at 1:48 pm

    @VanCityGuy- lol yes, I know that San Fran is in a different country. Yes, I agree, comparisons between cities is difficult. But not to worry everyone, I am not looking to plunge into the market like, tomorrow. I am just saying I have been looking, but not that hard.



  31. young on July 8, 2010 at 1:52 pm

    @John- so did you get a job outside of vancouver then? I wouldn’t mind living away from the city, if I didn’t work in the city. =) You are right, it is getting increasingly overpopulated. I would say that my income is stable, and I am aware of the fluctuations of income over the years, but again, I am planning to rent out a portion of the home… I’m not looking to get neck height in debt, really, because I am anticipating that there will be rental income from the home. Thanks for your input.



  32. young on July 8, 2010 at 1:54 pm

    @fatjay- thanks for your comment. As I have told VanCityGuy, I have a preapproved but am not rushing to buy tomorrow, I have already extended my preapproval for another three months, and am prepared to do so again into the winter. I agree that buying in the winter and waiting for things to cool down is a good idea. I am aware that this is the biggest investment, and really trust me, I am not rushing to buy because I have a home addiction- I was just trying to be cheeky.

    PS great analogy =)



  33. John on July 8, 2010 at 2:01 pm

    My job is flexible enough so I could move without changing jobs. But if I had to I would have. In addition to saving lots of time I am also saving $1600 in after tax income every month because this is how much my rent decreased by. And I have more room now. And about 25 fewer people peeing under my window whenever there are fireworks.

    Your “rent out” idea does not belong to your plans of getting a home. The fact that you are planning to rent out a suite means from the very beginning you are thinking of an investment property. And I can’t come up with a worse investment idea today than Vancouver real estate. What’s worse you are thinking of making a leveraged investment- as in you don’t have your own money to invest. Very sad.

    Also, have you actually seen Miami bay?



  34. fatjay on July 8, 2010 at 2:17 pm

    Harsh words John.

    Disgusted every time you go?

    Probably not an opinion shared by the majority of people who live in or visit Vancouver. I no longer live in Vancouver either, but still love the city, especially around the Kits area.

    Is real estate overpriced? Yes.

    Does it suck the pleasure out of your life? I don’t know how it could, but if it does it’s only because you let it.

    There are still plenty of great reasons to live there, and there are even a few good reasons to buy there … just not good financial reasons 😉



  35. young on July 8, 2010 at 2:21 pm

    @John- That’s good John, I am glad you don’t have to live in the West End anymore, and you are happy in Abbotsford. Yes, I have seen Miami Bay and I remember it being absolutely beautiful, though not recently- but I do not consider moving to the US to live, but thanks for your suggestion. I don’t appreciate you calling me “sad”, those are indeed harsh words. Everyone has an opinion, and I stand by mine. =)



  36. Invest It Wisely on July 8, 2010 at 2:26 pm

    “I am planning to rent out a portion of the home”

    This is a great thing to do to help pay off the mortgage and reduce your debt. I was interested in doing it myself, but the duplexes around here are all in crappy condition. Maybe for later.

    When it comes to purchasing the property, here are my cost recommendations:

    * Does it cost less than 33% of my net income?
    * If rates go up 4%, is it still less than 33% of my net income?
    * If prices drop by 20%, do I care? How does it affect my plans for the future?

    These are only guidelines, but I believe that following them will greatly help to buffer you against both uncertainty and buyer’s remorse!



  37. John on July 8, 2010 at 2:26 pm

    fatjay, when i takes me 5 minutes to cross burrard because only one car moves per stop light I get frustrated. When I have to pay for parking and then not find any parking available I get frustrated. When I have to pay more for parking per hour than what many people earn I get frustrated. When I have to wait in line at a restaurant because there are too many people trying to have lunch I get frustrated. Being scared of killing cyclists who keep driving carelessly all around my car also gets me frustrated. The list goes on. I don’t have to deal with any of that on daily basis anymore so when I see it again yes I get disgusted. And it did not use to be that way 10 years ago (well except that downtown parking was always a treat).



  38. Invest It Wisely on July 8, 2010 at 2:27 pm

    Just to clarify, I am referring to the monthly costs of the mortgage, taxes, maintenance, and whatever else you need to pay!



  39. John on July 8, 2010 at 2:41 pm

    “I don



  40. young on July 8, 2010 at 3:05 pm

    @John- Thanks for the clarification, but I am facing the fact of what I can afford and can’t. I assure you, you will not need to bail me out with your tax dollars- I will make sure of that, you can rest easy. It’s not like I am putting 5% down or even 20% down or choosing a 35 year amortization period. Don’t worry.

    @Invest It Wisely- thanks for that list =) and I have asked those questions myself and am making sure that everything is well under the 32% of gross income recommended for shelter related expenses.



  41. John on July 8, 2010 at 3:05 pm

    Invest It Wisely, those are cool numbers you are suggesting. Can you translate it into an actual dollar example please? What kind of income does one need to have to afford an average detached house in Vancouver after 4% interest rate increase and still be under 33% of net income? What percentage of Vancouver population do you think have the kinds of incomes that your guidelines would require?



  42. Financial Cents on July 8, 2010 at 5:24 pm

    Holy posts Y&T!!!!

    What, I miss this site for a few hours and miss 40+ responses to date???

    Jeepers.

    I guess you hit a nerve.

    I don’t think you’re nuts, but like any investment decision, I think you and Mr. Y&T need to be very comfortable with the decision you make. Sure, house prices might climb a little bit, but I definitely see them levelling-off in the years to come. We’re probably about 3 years out from the start of that. Few people can afford 5-6% interest rates right now, I would argue, but should, because that is the norm. We’re going to go back to it eventually. While it will take IMO at least 3 years for any levelling to begin and felt (I’m not advocating you wait that long with your envy, you’ll be far too green with it…) house prices and values will taper. Simply put, they just aren’t sustainable at the levels they are now. I don’t know about you, but my salary doesn’t jump 5-10% per year every year!

    Get a good house to make a home 🙂 Cheers!



  43. Invest It Wisely on July 8, 2010 at 6:09 pm

    Hi John,

    As the prices in Vancouver are about double where I live, I could throw out a wild guess that average carry costs would be about $2600 a month. That would mean about $90,000 after tax per year.

    It appears that with such high prices, renting out part of the house should be feasible, which will help bring down the costs. I would recommend that costs stay under 33% for a 2% rate hike, but I’d give some leeway for a 4% hike. 4% would place variable rates at around 6%, which is rather on the high end.

    I don’t live in Vancouver, and from what I understand it has traditionally been much more expensive than other markets. This may be a caveat to keep in mind. What do you think?



  44. Invest It Wisely on July 8, 2010 at 6:14 pm

    To follow up on my comment, for my own calculations, I would be at 35% if the mortgage rates went up by 4%. At current rates I’m at 28% of income. 35% is over 33% but not by much.

    It’s when you hit 50% and over that you start to cross into dangerous territory. That means that if one person stops working for whatever reason, then you will be under water once UI runs out. Sure, taxes will be less so net income for one person will be higher, but it’s still dangerous. That is one important thing to keep in mind if the property requires two incomes to pay down the costs.



  45. Potato on July 8, 2010 at 9:03 pm

    @Y&T: “you



  46. Randall on July 8, 2010 at 9:19 pm

    Somehow I navigated to this site and read the following upthread:
    “Vancouver is interesting geographically because there is no room to build north or west.”

    Having been to Hong Kong where they have had housing crashes and booms I can tell you that the above statement is more applicable to there than Metro Vancouver which includes all areas including Maple Ridge and Langley but not further east where there is twice the land as in Metro.

    So lets look at this comment which is very common around town and repeated by realtors and others often yet is totally untrue in every sense of reality as it precludes rezoning old homes to build high rises. We will NEVER run out of land when this is taken into consideration.

    Let’s compare:

    HK has a total population of 7,000,000 and absolutely no room to expand in any way N,S, E or W including upward in its 1095 sq km footprint.

    On the other hand Metro Vancouver has a population of 2,000,000 within 2,878 sq kms and can expand easily past Chilliwack and forever upwards toward the sky.

    Folks lets get real once and for all instead of echoing industry propaganda with no basis in truth.

    Be careful with your money because the psychology is turning and that is really the main thing propping up this market.

    HK is a total world class city with a real economy. Vancouver is a world class postcard setting but its only economy is real estate and pot.



  47. young on July 8, 2010 at 11:14 pm

    @Financial Cents- Yes, I think I did hit a nerve, or even the spinal cord, it seems! =) Or I might have even severed it. Anyway, thanks for commenting- I’ll keep y’all posted on what happens. I definitely think that people should get mortgages that are at the 5-6% interest rate, even if they get a variable with a much lower interest rate. I do 100% agree that the housing prices are just not sustainable right now. =)



  48. young on July 8, 2010 at 11:15 pm

    @Invest It Wisely- I think if you hit over 33%, it is dangerous territory. Lenders are willing to approve you up to 44% of your pretax income if you don’t have any other debts (like car loans etc). =)



  49. young on July 8, 2010 at 11:18 pm

    @Potato- Thanks potato for your constructive criticism with concrete suggestions and data =) I will take your advice into consideration!



  50. John on July 8, 2010 at 11:50 pm

    Invest It Wisely, 90k a year is a joke. You are way off on your own numbers. In Vancouver to buy a detached house you might even consider living in for the next 25 years you need at least $1mil mortgage with an average down payment that first time buyers put down these days. You said current rate plus 4%? That brings the mortgage cost to $7.6k a month for 25 years. That’s more per year after tax than your 90k pre-tax estimate.

    Now think of my next question- what percentage of Vancouver population has those kind of salaries to afford $7.6k mortgages?



  51. Invest It Wisely on July 9, 2010 at 6:57 am

    Hi John,

    Since we do not know young&thrifty’s financial situation, we cannot judge if she is getting over her head or not. From all indications, she appears to have evaluated the costs and has indicated she will be staying “well under the 32% of gross income”.

    It is not our business to judge whether she this is the best use of her money. That’s an individual choice to make; it’s up to her to evaluate the tradeoffs.

    The question that concerns us, and should concern her, is what those tradeoffs are; i.e. what happens should the markets fall significantly. Is she relying on capital appreciation? Has she done a rent vs buy comparison? Those are valid concerns, and I agree with you that a housing market where most people cannot even get in cannot be expected to continue going up over time.

    Therefore there are a few scenarios to consider:

    * Prices go up with inflation (optimistic)
    * Prices stay flat
    * Prices decline 10%
    * Prices decline 40% (pessimistic)

    What do the finances look after each situation? Naturally, prices declining 40% anywhere hurts, but there’s a difference between 40% of 300,000 and 40% of 1,000,000. Given the vastly higher prices of Vancouver, this is more of a risk.

    Predicting the economy is like trying to predict the weather; you can have indications of a storm coming but still have no idea where or how it will hit! All you can do is prepare for contingencies.



  52. Invest It Wisely on July 9, 2010 at 7:05 am

    I’m not sure if this calculator was already mentioned, but here’s a quick rent vs. buy calculator:

    www.ic.gc.ca/eic/s…01821.html

    For comparison periods of less than 25 years, I would reduce the after-tax portfolio return to take volatility into account (for example, market returns over the past 10 years have been nowhere near 7%).

    You probably also want to put 0% in “Expected (after-tax)return on real estate:”

    Once you have the numbers, then you need to think of the non-monetary considerations (quality of life, space, etc…) and then evaluate it. If rent & buy are close together, the choice should be clearer.



  53. Elli Davis on July 9, 2010 at 8:13 am

    I think that the Prime – 0.6% is a very good deal. It is true that the situation of real estate market is unstable and unpredictable right now, but on the other hand nobody can be absolutely sure that the house prices wont climb up in the near future. Many sectors of our economy report resurrection and the real estate market usually follows this trends.



  54. fatjay on July 9, 2010 at 9:50 am

    Here’s another great calculator.

    excelexperts.com/Buy-O…Calculator

    It allows you to enter year by year scenarios for expected house and rent changes so you can try out some possible scenarios.

    See what would happen if prices stagnate for 5-10 years or return to the historical norm (currently that would mean about a 50% decrease).

    It doesn’t allow for consideration of paying down your mortgage quicker, but it’s in spreadsheet form so you can tweak it, or you could set your after-tax investment returns equal to your mortgage rate to get a close approximation.



  55. John on July 9, 2010 at 10:42 am

    Invest It Wisely, I don’t believe in the this statement: “she appears to have evaluated the costs and has indicated she will be staying



  56. Money Obedience on July 9, 2010 at 7:11 pm

    I bought my house 7 years ago in the middle of the housing frenzy, when I thought that houses were already overpriced. This did not matter to me since I bought a home rather than a house, which I could afford. I did not consider my purchase a real estate investment but rather an investment in family life. My entire family loves living in our house and we hope to stay there for a very long time. It sounds like you embark on the same route. I wish you all the best.



  57. young on July 9, 2010 at 7:22 pm

    @John- I don’t understand why you think I am cheating my calculations by bringing in rent income?? I don’t mention that anywhere in my net worth calculations. By the way, the “net worth” is available to me- except for the pension. I am not saying I am going to buy a million dollar home, John. And why would you assume that I would be enduring capital losses? I am not planning to sell at least for 5-10 years (or even if ever).



  58. young on July 9, 2010 at 7:23 pm

    @Money Obedience- Thanks for your comment. I am not buying a home for investment purposes, but am getting a home for the very same purpose as you. =)



  59. young on July 9, 2010 at 7:24 pm

    @fatjay- Thanks! That’s helpful. =)



  60. young on July 9, 2010 at 7:26 pm

    @John- I don’t think any first time home buyer would get a million dollar mortgage. If they do, then you are right, they are over their head.



  61. Vancouver Mortgage Brokers on July 22, 2010 at 1:25 am

    I understand your point. If I have the money, I will also take advantage in buying a property in Vancouver because you will rip the benefits in the future.



  62. Kellen on July 29, 2011 at 6:11 am

    You can snowboard and go to the beach in the same day?? How did I never know these things about Vancouver!

    To anyone who says you shouldn’t have bought: I’m still not sure whether I ever consider real estate an “investment.” Especially when you are buying a home for yourself, it is more of a consumer good. But if you buy a home that you love in a city you love, for a price that you can afford, I don’t see how you could go wrong. Even if the fair value of your property drops 50% – you’ll still be living in a place you love, and have payments you can afford (assuming you have all kinds of plans in place for job loss, etc.)



  63. Hamilton Realtor on July 23, 2012 at 3:20 pm

    Interestingly enough here we are a few years later and the same conditions still persist.

    We’re still worried about the economy, the debt crisis is still in full swing etc.. But our houses all cost more to buy. Not that I’m complaining being a realtor and all but reading this gave me a sense of deja vu.



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