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VanBullBear
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Topic Author
Posts: 68
Joined: Tue Dec 22, 2015 2:21 pm

New to Real Estate (Vancouver) - Need Strategic Advice

Wed Dec 23, 2015 8:25 am

This is my first post and it's a a long one, so please bear with me. I'm in need of advice from you experts because I'm new to the real estate market.
We currently have a household income of 180k/year trending up as my wife and I are both electrical engineers. I was planning on purchasing a house and was browsing at the beginning of 2015 but the prices went insane this year as you all know with the 20% + increase in detached prices over a year.

I was looking at Van East, Richmond and Burnaby - neighborhood and schools is the number one priority as I have children. I eventually came to the realization that I will not be able to purchase unless I'm willing to go over a million for a house (which I am not). I had the feeling by late july that these prices are not sustainable. If house on the east side is out of reach of two full time professionals then there is something wrong. How does the rest of the people living here survive? 180k/year should be around top 5% if not higher (by cencus canada 2013 standards it is top 3%). I get that you don't need a house, but these out of reach prices ripples all the way down to condos, townhomes and eventually rent.

I decided to look at townhomes at richmond because I figured that I would have to be insane to buy a house at these prices with my income (even though i'm in the top 5 percentile). For a good townhome at a good family area, we were looking at 600k+ for a 1400sqft (I don't want to go any smaller because I want the kids to have some play space). I remember early february this year there was a detached HOUSE on the west side of richmond that was selling for 600k with 5500 sqft - and I thought to myself ... wow this really is a bad time to buy even the townhouse market is crazy. A 600 to 700k home is easily affordable, but there is no land, the place is small - It just seems too little for that much money and this is not even putting into account the strata fees which is at least 250/month.

My wife was eager to buy because she feels that we will be prices are going to keep going up (we grew up in vancouver so there is that belief that prices will go up indefinately because thats what we have seen in our two decades here) BUT I felt that it is a bad decision to buy because the prices just went up 20% over a year and that is not normal. Needless to say, we were both under immense pressure to buy and get in the market.

With that said I realize that the prices arent going to go down anytime soon because the fundamentals are not changing. Vancouver is kind of a special case. The variables that are contributing to these insane prices I believe are the following and NONE of these conditions are going to CHANGE in the near future, therefore prices will continue to stay high in the near future.

1. CAD Dollar is at an all time low, to someone outside of canada (mainly chinese) these prices are a bargain! The standard currency is USD, a chinese looking at a million dollar house in east van, sees it as 600k to 700k because of the exchange rate - that's a great deal! compound this to china's current economic downturn with plenty of chinese trying to get money out of their country before it loses value over time. It's not just the chinese either, we are CHEAP from the point of view of the rest of the world.

2. Foreign ownership is here to stay. At this point in time, due to oil and gas crashing, the only thing that's preventing canada from economic crisis is the housing market. If the governement regulates that (which they won't at this time), it could possibly trigger a crash in our economy. Real Estate is Canadas last leg - for the time being. The government's excuse is they don't have data which is fair enough - but i haven't seen them gathering data on foreign investment. I do believe this is the biggest contributing factor and is closely related with my point #1 above.

3. Low interest rates. This ties with foreign ownership, if not more. These low interest rates are not going anytime soon. They thought canada would increase interest rates to follow the US feds, but it's not happening because Canada's economy is not strong enough even though nobody wants to admit that we are in bad shape. At the earliest they would increase on the second half of 2016 but I will not hold my breath.

4. Population growth. With immigration in place this will not change, and to top that people are moving out of Alberta and Calgary and all the other oil dependent cities to live elsewhere, vancouver being one of them.

5. Limited building space - you know the old surrounded by mountains and water etc

6. Accumilated wealth from parents giving their children money. I don't know if this will continue to affect the market over time and I haven't really though about it enough to comment.

Eventually we decided to rent in richmond. I did not want to purchase out of fear of being priced out - i thought to myself that at this point in time nobody knows at this point which way vancouver real estate is going to go in the next two years. But I do know that I'm not paying 700k for a small townhouse. For now I will rent (it's a 6 month lease) and keep saving up for a downpayment. I will save the difference between mortgage payment (and strata) and the rental cost. My long term goal is still to own a house and that will not change even if it means buying into the condo/townhome before upgrading.

Now for your expert advice, please give your input in the following.

1. Did I do the right thing by renting and waiting for the next two (possibly 3 years) before purchasing? - keep in mind I am saving the difference

2. Would you agree that it's not a good time to buy? (this is tied to the first question). I think the effects of these current house prices will take time for people to feel it's true impact on vancouver. Something has to give in my opinion. I feel priced out of the market and I'm top 5% of canadas income earners.

3. How long should I wait before purchasing?

Thanks in advance for your input.
 
tdma800
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Posts: 2884
Joined: Wed Jan 23, 2008 9:12 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Thu Dec 24, 2015 11:57 am

Its easy. rent, and hope you're right when most people you aren't rushing to sell their property. there's nothing wrong with a 20% gain
 
jimtan
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Posts: 5306
Joined: Tue Jul 31, 2007 10:59 pm

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Thu Dec 24, 2015 12:27 pm

But, there's a limit to craziness.

"Manhattan Luxury-Home Prices in a Slide, Defying Broader Market"

http://www.bloomberg.com/news/articles/ ... der-market
 
tdma800
Real Estate Talker
Posts: 2884
Joined: Wed Jan 23, 2008 9:12 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Thu Dec 24, 2015 12:30 pm

There are many differences in the US, including new york

- property taxes much higher
- the primary residence exemption has a limit on it

among other things
 
westar99
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Posts: 121
Joined: Mon Sep 19, 2005 7:44 pm

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 11:18 am

This is an excellent thread and your initial post is all too familiar. I'll get into that in a moment.

I may be wrong but my thinking is that the Metro Vancouver market will go 6-8% higher in the next year (all types of housing - condos, townhomes & SFH). The year after maybe 5% again? With a down payment of 20% that's a 20% return a year.

This will be due to any combination of the factors that you correctly identify in your post. I think the Canadian dollar will go lower to 60-65 cents and stay there for a while. I don't see energy recovering for at least two years. If we look at other commodities that have fallen like gold - they fell and have flat lined for a good 2-3 years. We are still early in the energy crash which will keep the dollar and interest rates low. This makes our real estate still affordable for offshore money.

Living conditions in China are terrible compared to Vancouver. Any mid to large Chinese city is polluted, crowded with good schools very competitive to get into. That's why every wealthy Chinese family wants to come over to Canada. However, most of Canada except southern BC is just too cold. And Vancouver is the closest large international airport to China. We are on the front line of this global wealth migration. Per capita, China is a much poorer country than Canada but if we do the math, the number of multi-millionaire (in US dollar terms) households in China is greater than the entire Canadian population. And we are not even considering the wealthy and numerous families in populous places like India, Iran etc. who would love to move to and/or buy property in Metro Vancouver.

In terms of your personal situation, I feel for you. We talk about "making the 1% pay" in this country. Yet, the high income earners in our city actually are a disadvantaged lot relative to the huge, new money that is flowing in here. I have many doctor friends making $200,000 per year+ who are having a real rough time finding decent accommodation for their families. It's ironic that these so-called rich locals are paying the most in taxes and yet get the most abuse from organizations like the Occupy Movement and well-intentioned but naive politicians. This income pales compared to the in flowing money from China, India and other places. Of course, the inflowing wealth tends to report low incomes as the breadwinners work and pay taxes offshore while the "student" and "housewife" parts of the family settle here and pay next to nothing in income taxes to support the services they use. Something will have to be done but I don't see any level of government doing anything as you say for fear of upsetting the real estate market.

You've correctly analyzed the forces that affect local real estate in excellent detail but it's ironic you are still waiting. This is typical of most of my high income, well educated, professional friends. These bright, high income doctors, dentists, lawyers and engineers are wonderful at analyzing every angle of a decision but when it comes to time to make the plunge, they either are too busy or have over analyzed everything to death to the point they are paralyzed with fear. This perhaps explain in part why most of the high income professionals I know are definitely not the wealthiest people I know. They do take nice vacations and often have timeshares they brag about! Meanwhile, those small building contractors and taxi drivers use their overseas family money to parlay their modest savings into fortunes riding this real estate wave upwards (yes, I'm bitter, too).

Townhomes, by the way, are a small, partial help to the housing crisis in Vancouver Metro. They are one of the few solutions to house families in decent accommodation in this horrribly expensive reale state market. We shouldn't look down on this accommodation. In countries like the UK, rowhouses are often premium, extremely desirable housing and perfectly acceptable as a residence for a high income family. Some of the newest town homes developments here are quite good surprisingly. I looked at a few in Marpole and they look very good - well designed, not cheap looking, fairly large with good finishings close to transit. They are not cheap, though, priced in the low seven figure range. Rowhouses may be an OK solution for your needs.
 
rofina
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Posts: 1529
Joined: Fri Feb 06, 2009 6:39 pm

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 5:17 pm

Great posts.

Similar situation for us, fortunately the major difference is larger housing is a want for us, not a need - no little ones to worry about.

That being said, I'm not going to pretend the market is going to crash next year or year after, but I wouldn't be surprised if 2016 was a little softer.

4 digit inventory levels, and 25%+ YoY gains won't continue. A little softer market will at least allow you to have greater choice.

We decided to sit out after house hunting in North Burnaby earlier in the year. Will decide again next year what to do.

Though, if the year opens with no listings, and no listing momentum, it will make for an interesting year.
 
tdma800
Real Estate Talker
Posts: 2884
Joined: Wed Jan 23, 2008 9:12 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 5:22 pm

don't see a reason where the extra houses will come from as not so many are being built and more are lost every year
 
rofina
Real Estate Talker
Posts: 1529
Joined: Fri Feb 06, 2009 6:39 pm

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 5:25 pm

westar99 wrote:
This is an excellent thread and your initial post is all too familiar. I'll get into that in a moment.

I may be wrong but my thinking is that the Metro Vancouver market will go 6-8% higher in the next year (all types of housing - condos, townhomes & SFH). The year after maybe 5% again? With a down payment of 20% that's a 20% return a year.

This will be due to any combination of the factors that you correctly identify in your post. I think the Canadian dollar will go lower to 60-65 cents and stay there for a while. I don't see energy recovering for at least two years. If we look at other commodities that have fallen like gold - they fell and have flat lined for a good 2-3 years. We are still early in the energy crash which will keep the dollar and interest rates low. This makes our real estate still affordable for offshore money.

Living conditions in China are terrible compared to Vancouver. Any mid to large Chinese city is polluted, crowded with good schools very competitive to get into. That's why every wealthy Chinese family wants to come over to Canada. However, most of Canada except southern BC is just too cold. And Vancouver is the closest large international airport to China. We are on the front line of this global wealth migration. Per capita, China is a much poorer country than Canada but if we do the math, the number of multi-millionaire (in US dollar terms) households in China is greater than the entire Canadian population. And we are not even considering the wealthy and numerous families in populous places like India, Iran etc. who would love to move to and/or buy property in Metro Vancouver.

In terms of your personal situation, I feel for you. We talk about "making the 1% pay" in this country. Yet, the high income earners in our city actually are a disadvantaged lot relative to the huge, new money that is flowing in here. I have many doctor friends making $200,000 per year+ who are having a real rough time finding decent accommodation for their families. It's ironic that these so-called rich locals are paying the most in taxes and yet get the most abuse from organizations like the Occupy Movement and well-intentioned but naive politicians. This income pales compared to the in flowing money from China, India and other places. Of course, the inflowing wealth tends to report low incomes as the breadwinners work and pay taxes offshore while the "student" and "housewife" parts of the family settle here and pay next to nothing in income taxes to support the services they use. Something will have to be done but I don't see any level of government doing anything as you say for fear of upsetting the real estate market.

You've correctly analyzed the forces that affect local real estate in excellent detail but it's ironic you are still waiting. This is typical of most of my high income, well educated, professional friends. These bright, high income doctors, dentists, lawyers and engineers are wonderful at analyzing every angle of a decision but when it comes to time to make the plunge, they either are too busy or have over analyzed everything to death to the point they are paralyzed with fear. This perhaps explain in part why most of the high income professionals I know are definitely not the wealthiest people I know. They do take nice vacations and often have timeshares they brag about! Meanwhile, those small building contractors and taxi drivers use their overseas family money to parlay their modest savings into fortunes riding this real estate wave upwards (yes, I'm bitter, too).

Townhomes, by the way, are a small, partial help to the housing crisis in Vancouver Metro. They are one of the few solutions to house families in decent accommodation in this horrribly expensive reale state market. We shouldn't look down on this accommodation. In countries like the UK, rowhouses are often premium, extremely desirable housing and perfectly acceptable as a residence for a high income family. Some of the newest town homes developments here are quite good surprisingly. I looked at a few in Marpole and they look very good - well designed, not cheap looking, fairly large with good finishings close to transit. They are not cheap, though, priced in the low seven figure range. Rowhouses may be an OK solution for your needs.



WhipMaster always took it upon himself to razz me for "superior risk assessment." But my point stands.

Local, educated, high income earners, who have analyzed the risk/reward remain cautious in the housing market.

This is a runaway market, its no different from gambling - use money you can afford to loose. Unfortunately for most of us local high income earners its not a gamble worth taking.

Not to say the market doesn't make all of us look like idiots, but thats the same as saying the guy that bet Red 10 times in a row and won is a fortune telling genius.
 
tdma800
Real Estate Talker
Posts: 2884
Joined: Wed Jan 23, 2008 9:12 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 5:29 pm

westar99 wrote:
This is an excellent thread and your initial post is all too familiar. I'll get into that in a moment.

I may be wrong but my thinking is that the Metro Vancouver market will go 6-8% higher in the next year (all types of housing - condos, townhomes & SFH). The year after maybe 5% again? With a down payment of 20% that's a 20% return a year.

This will be due to any combination of the factors that you correctly identify in your post. I think the Canadian dollar will go lower to 60-65 cents and stay there for a while. I don't see energy recovering for at least two years. If we look at other commodities that have fallen like gold - they fell and have flat lined for a good 2-3 years. We are still early in the energy crash which will keep the dollar and interest rates low. This makes our real estate still affordable for offshore money.


lower dollar makes for an investment party from people paying with USD! to the moon ladies and gentlemen
 
jimtan
Real Estate Talker
Posts: 5306
Joined: Tue Jul 31, 2007 10:59 pm

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 7:17 pm

tdma800 wrote:
lower dollar makes for an investment party from people paying with USD! to the moon ladies and gentlemen


Sigh. If only more people were gullible like you! :!:
 
tdma800
Real Estate Talker
Posts: 2884
Joined: Wed Jan 23, 2008 9:12 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 8:59 pm

jimtan wrote:
tdma800 wrote:
lower dollar makes for an investment party from people paying with USD! to the moon ladies and gentlemen


Sigh. If only more people were (rude words)like you! :!:

Dropping Canadian dollar makes Canadian housing cheaper for people from outside of Canada
 
whattodo
Real Estate Talker
Posts: 60
Joined: Tue Oct 27, 2015 10:04 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 11:07 pm

I am in a similar situation as the original poster.

The only things that will drop real estate prices are:
1) banning foreign ownership. (won't happen - our government wants prices to go up. AND there are more owners than renters. Unless Canadian voters get pissed off enough and demand a ban on foreign ownership or (like the USA) double or triple property tax for foreign owners.
2) interest rates go up. Doubtful in the short term. In the long term who knows what will happen.
3) banks tighten up lending standards. Only will happen if/when its too late (as in if prices already start to drop)
4) recession. This is the biggest chance for prices to drop. Think about what happened in 2008. Today, our economy is OK at best. It's not great. Several things could cause a recession starting with energy/oil.

I rented for a long time and then I finally bought a townhouse. I eventually want a house but I won't pay today's price for it. I think today's prices are insanely high but they keep going higher. If that means I am stuck in my townhouse that's OK with me.

When I see the "teardown houses" my friends live in I just don't like them. Old, small, bad layout, and they are so house poor they can't afford to fix them up.

You should be saving/investing alot of money every month based on your income. I save over $5,000 a month after all my living expenses and I don't live cheaply either. It's crazy when I hear all my house owning friends complaining about the bills and being broke. I am the opposite ... I have to find out what to do with my extra cash flow. This is true I am not lying as some bulls may think. The bulls will say I am an idiot not to buy based on my cash flow. Oh well maybe I will retire in somewhere else in the world later on in life with my fortune. :lol:

Yes, if I bought a house before I would have have a higher net worth than I do now. They key is what will future house prices be higher? lower? by how much? and when? Maybe prices will go higher but i just don't see value at today's prices.
 
tdma800
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Posts: 2884
Joined: Wed Jan 23, 2008 9:12 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 11:16 pm

It's a waste saving that much and getting a town house instead of a house . You'll be paying so much taxes
 
eyesthebye2
Real Estate Talker
Posts: 1087
Joined: Sun Jul 27, 2014 6:41 am

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Fri Dec 25, 2015 11:30 pm

Not to say the market doesn't make all of us look like idiots, but thats the same as saying the guy that bet Red 10 times in a row and won is a fortune telling genius.


Easy to hit red 10 straight times when that's the only colour on the board. Question is, who the heck is betting on black?
 
jimtan
Real Estate Talker
Posts: 5306
Joined: Tue Jul 31, 2007 10:59 pm

Re: New to Real Estate (Vancouver) - Need Strategic Advice

Sat Dec 26, 2015 1:52 am

So much wisdom here. Easy to forget that there are economic cycles. How much did house prices drop in the last recession? :!:

Just added:

Here's a reason why USA RE suddenly became more attractive.

"U.S. Eases 35-Year-Old Real Estate Tax on Foreign Investors"

http://www.bloomberg.com/news/articles/ ... foreigners

BTW, I was at Best Buy on Cambie at 0615. What a bust!
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