The power of not over leveraging

This post has neither graphs nor stats not any other useful information on the Victoria market.  It’s purely my own musings based on some recent life changes.  If you’re here for the real estate information, head down to the comments where the real action happens.

We live in a society where leverage is king and debt is a way of life.   If you buy a car with cash the salesman looks at you funny.  A car is not something you acquire or ever finish paying for, it’s a monthly payment that you periodically trade in for a different monthly payment.   A $900,000 house at 2.5% and 10% down (thanks mom and dad!) is only $3500/month which is no problem for any respectable DINK.  Never mind that you’re going to have to earn a cool million just to pay off the roof over your head.  This is good debt, and the more of a good thing you have, the gooder it is.   As any interior decorator will tell you, the more you leverage the more you can profit from the appreciation in the Victoria market.

And you know what?  They’re right.  People who have borrowed their brains out to acquire real estate have done well for themselves in Victoria.  In Vancouver every home owner just won the lottery.   You could argue it makes no sense to buy a car with cash when the interest rate is 0%, or pay off the mortgage when you can make double in the markets.  And again, you would almost certainly be correct.

So this post is here to argue for the irrational.  A counterpoint to the norm of chasing maximum return.  An exploration of the power of not over leveraging.

A couple weeks ago I quit my job.  I had nothing else lined up, we have two young children, a mortgage, and my wife is on maternity leave with reduced salary.   I was paid reasonably well and while stressful at times, I enjoyed my work overall.  However various frustrations had built up, and after almost a decade at the company it was time for a change.  I crunched some numbers and to my surprise saw that my income was more or less superfluous.   So I quit.

This didn’t happen by accident.  For a while now I’ve been following Mr. Money Moustache, and while we are far away from financial independence, we do live quite frugally.  Both my wife and I commute to work by bike, our vacations tend to be of the camping variety, and we’ve put only 30,000 km on the car in the 5 years we’ve owned it.   Most importantly, when we rented, we rented cheap 60’s apartments, and when we bought, we bought a house for significantly less than we could have.   Then – aside from funding various four letter government supported savings vehicles – we paid down the mortgage.

When I called up the bank to ask about what the minimum payment would be, the answer turned out to be $1300/month (thanks 30 year amortization!).  That combined with our low expenses made me realize I didn’t need to wait for some giant number in a savings account; I could make a radical change now.  It would have been so easy to trade in the Hyundai for a Hummer, and bike camping at Island View for mojitos on the Big Island.  Even easier would have been to buy a bigger or nicer house.  But those things would have come at the cost of my freedom.

I realize a lot of this freedom is due to a structural privilege.  We have two decent incomes and we were able to buy before the market turned insane.   Lots of people will not have this kind of luck, and the point of this post is not to boast about our good fortune.   If we were buying in the current market insanity, I would try to compromise on the quality of the house or the location to stick to a budget that didn’t require huge leverage.  I would look to the less loved, to the houses that need work, to the funky lots, to the less prestigious neighbourhoods.  I would consider how much space we really need (is a 5 bike garage really necessary?).

Maximum leverage will amplify the market’s gains and risk takers will be justly rewarded.  Just don’t forget what those future gains might cost you in the meantime.   What’s next?  Stay tuned, it might be related to the topic at hand…

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147 thoughts on “The power of not over leveraging

  1. Market snapshot for the second week of April (8th to the 14th) for houses in the core districts.

    95 sales ranging from a low of $390,000 to a high of $2,610,000.

    “$100,000 Club” are agents that have been able to sell a home for $100,000 over asking price. As tacky and unprofessional as that sounds the club has been getting more members in the last week.

    56% of the homes sales in the second week sold for more than asking price.
    23% sold for more than 10 percent
    4% sold for more than 20 percent over the asking price.

    The median price was $770,000. The Average $874,500

    The median home sold at 124% of its assessed value. Last month the ratio was 121%. A year ago the median sales to assessment ratio was 109%. Which is a similar increase to what the mode has improved from last year.

    Despite the over asking prices and higher median sales to assessment ratio, in my opinion, there were some good deals for buyers in the last week. Surprisingly some of them were in Oak Bay and Ten Mile Point. Properties that sold in the $1,000,000 to 1.7 million range where I thought the buyer got good value for their money.

    In contrast and not surprisingly Fernwood, Oaklands, Cedar Hill and Broadmead had the lowest value for the money relative to their sales to assessment ratios

    71 percent of the buyers still say they are from Victoria and only 9 out of the 95 stated Vancouver as their home town. Vancouverites bought homes ranging between $495,000 to 1.8 million with only two sales over a million compared to 14 Victorians that purchased homes over a million.

    The core isn’t replenishing the sales fast enough to keep up with demand with only 89 new listings to the 95 sales. And the median exposure remains low at 8 days on the market.

    There are some surprising changes in the price ranges of homes that are selling in the last two months compared to last year. With a drop in the number of purchases under $800,000 and an increase in the number of purchases over $900,000.

    Things that make you go Hmmmmmm.

  2. “Maximum Leverage” and “Buy now or forever be priced out” are two phrases that should worry all of us.

    I’ve spoken to BMO and CIBC recently with simple questions about the pre approval process. I posed the question that if I didn’t have enough to cover the required down payment what were my options. I quote “This is not a problem. I will put you in touch with a brokerage that handles these sorts of things.”

    I explained that I didn’t think that was possible. I was then told “Look, it’s very competitive out there. Typical ratios are .34 to .35 Service but I’ve seen it pushed up to .42!”

    I said that is not the issue, it’s the down payment. He replied “Then we’re talking off the books. We’ll sort it out, no problem, we deal with this every day”

    I said how can you be so sure, he hasn’t seen my financial picture? “Because we’ve never let one go yet!”

    There is an entire grey area of shadow loans, and a subset of the Loan market that exists to provide flexibility to those that can’t afford.

    Robert Schiller is probably one of the smartest guys I read. His blog is excellent. And he’s rarely proven wrong. He’s made mention over the years of the state of our RE.

    165% is a scary number.

  3. Shaping up to be another historic month.

    Mon Apr 18, 2016 8:20am:

    Apr Apr
    2016 2015
    Net Unconditional Sales: 678 840
    New Listings: 887 1,413
    Active Listings: 2,601 3,945

    Please Note
    Left Column: stats so far this month
    Right Column: stats for the entire month from last year

  4. Anyone who’s been doing this through a few major cycles knows that a house is a home, not an investment. At least that’s what were sold.

    It seems that a primary residence does meet the financial definition of “investment” for most people. I’d also suggest that a lot of Canadians have been changing their views on this and HGTV probably has had an impact there.

    Most people do not buy high and sell low in the RE market – the stats simply don’t support this statement. That is unusual and to be avoided RE. As for the housing crash in Victoria and Vancouver in the 1980s, those who were able to hold through it eventually made everything back and more. Those that had to sell lost. This event doesn’t change the overall trend of RE over the past 50 years nor the fact that most of the wealth of the average Canadian is in their home equity even in markets that haven’t appreciated as much. It does point out the risks which I agree are important to take seriously.

    Although a home provides shelter and many other benefits, the majority of Canadians also rely on it for future security in retirement if the equity is needed even though some people will never sell: it is their heirs that benefit. All of this doesn’t mean prices won’t decline or interest rates rise. If you look at RE as a long term investment this helps mitigate risk. Short term, as with anything, you could have losses.

  5. “Anyone who’s been doing this through a few major cycles knows that a house is a home, not an investment. At least that’s what were sold.
    Those that don’t remember past mistakes are bound to repeat them.”

    Well said Triple A. I sense most here haven’t been through several cycles, let alone one, and everything that goes against economic sense is always “the norm” as if it’s here forever.

    The home inspector guy on the Vancouver news was saying this feels like 1981 as he sees instances of 4 home inspectors being forced to inspect all at same time, which makes for a totally sub-par inspection report.

  6. And I disagree with the context of the OP and maximum leverage. There is a time for such financial tools but not now. Many instances in the course of time people have lost their life savings. Stock Market, Real Estate, it’s all the same when it comes to Leverage. Most people buy high and sell low. Human nature.
    Just remember Leverage goes both ways.

    Anyone who’s been doing this through a few major cycles knows that a house is a home, not an investment. At least that’s what were sold.
    Those that don’t remember past mistakes are bound to repeat them.

    April will probably break the record, but records were meant to be broken (Steph Curry).

  7. Question for any landlords out there! Are landlords using fixed term leases in Victoria? I’m guessing that they are, because the rental market is so tight. I know in Vancouver all the property management companies insist on fixed term leases.

    As a past landlord and BC landlord association member, I know that probably all long-term rental landlords would go for fixed term, and more, they would likely to choose the option of ending the lease at the end of the term, instead going month by month. Of course if the landlord likes the tenant, he/she can offer the tenant a new lease afterwards, but it is totally under the landlord control this way. Unless you want to sell the house in near future, otherwise, fixed rental term is the way to go.

  8. @SweetHome, agree the >1M offers seem to be related to houses listed for >800k in some neighbourhoods (doesn’t have to be close to the ocean). But the sale prices are very unpredictable, and there still seem to be good finds in Cedar Hill, Mt Tolmie, etc.

  9. @ Chin – I don’t know your background, but your statement appears to be incorrect. At least it might only be true for a few very specific neighbourhoods, like Estevan in Oak Bay.

    I am getting updates from my real estate agent weekly for houses listed in the $600-850K range, and I have been following prices for years, so I know what was happening in 2014. I would say it’s more like a $200-250K price jump in Gordon Head. I haven’t seen updates for this past week, so maybe things went up sharply, but previously I did not see that million mark crossed unless some serious updating had been done to the house or it had a distinguishing location.

    I will be curious to see what 2030 Ferndale sells for because its second neighbour sold for $722K in November 2014 and is one I regret not looking at. This current listing has a smaller house but a nicer backyard with ocean views, so it might go for over a million (I’m guessing $950K), but it is not a typical house.

    Okay, just saw Vicbot agrees with Chin, but I do wonder about how widespread the areas affected by this insanity are.

  10. Similar anecdote: I talked to a realtor today who said they’re seeing $1M cash offers without any conditions, and there’s a mix of demand from locals, Vancouver, offshore, & also US. (due to Cdn$, Cdns are cashing out holdings in the US, and more Americans are buying).

    “Tear downs” may be popular. But a millionaire’s or developer’s “tear down” could be a local family’s treasure, if they had the opportunity to buy it.

    Strange times we’re living in. There’s outside pressure driving up prices, but your average Canadian’s debt loads are unprecedented & unsustainable (houses, cars, credit cards, renos, etc).

    a) When will locals just reach their limit and refuse to add more debt? Will it happen before too many millennials have to move out of the core? Hong Kong started this downward cycle in debt loads in 2014
    b) How much more money is going to flee out of China, affecting real estate worldwide
    c) What % of mortgages are high-risk, % local and % offshore

    Interesting article:
    http://www.forbes.com/sites/stevekeen/2016/03/27/the-seven-countries-most-vulnerable-to-a-debt-crisis/#28d96e644edc

    “When the growth of credit falls—as it eventually must, as growing debt servicing exhausts the funds available to finance it, new borrowers baulk at entry costs to house purchases, and numerous euphoric and Ponzi-based debt-financed schemes fail—then the change in credit falls, and can go negative, thus reducing demand rather than adding to it.

    “Timing precisely when these countries will have their recessions is not possible, because it depends on when the private sector’s willingness to borrow from the banks—and the banking sector’s willingness to lend—stops. This can be delayed by government policy—as it was in Australia in 2008, via a strong government stimulus, the restarting of the housing bubble by a government grant to first home buyers, and the boom in investment and exports set off by China’s own stimulus program. But the day when credit growth stops can’t be put off indefinitely. When it arrives, these countries—many of which appeared to avoid the worst of the crisis in 2008—will join the world’s long list of walking wounded economies.”

  11. Prices are still skyrocketing. Wait till you see the numbers for this month. Will beat all records by 35% or more.

    Am seeing a lot of houses that would have sold at the low price point in 2014 at 640-680 selling over 1 million.

    It seems the new thing is put offer of 1,050.00 etc. Anything over a million is the winning bid.

  12. Does anyone have any recent asking / sold prices for Saanich West / Glanford area? We bought privately a couple weeks ago and I’m wondering what others have gone for?

  13. Another red flag to add to the growing list. Crap quality and “financial concerns” showing up is always a sign the end is near.

    Tarion concerns threaten to halt projects for Toronto condo developer

    “One of Toronto’s major condo developers warned investors it could be forced to sell some of its projects if it fails to stop Ontario’s new-home warranty organization from revoking its registration.

    Last month, Tarion, which administers warranties on new homes on behalf of builders, threatened to revoke Urbancorp’s registration on 17 projects because of issues with the company’s customer service, high number of warranty claims and concerns about the company’s financial position.”

    http://www.theglobeandmail.com/real-estate/toronto/tarion-concerns-threaten-to-halt-projects-for-toronto-condo-developer/article29655955/

  14. I think we’re agreeing on the numbers of annual increases. There’s many factors so let’s not get hung up there.

    Instead, I have some good general questions:
    1. $1M purchase price requires 20%. No CMHC above
    2. Percentage in city over this? Closing in..
    3. Out of town buyers? Fair point but how long do these nearly retired will own for?
    4. Mortgage Brokers have been warning their clients regarding no subject to finance. This to my earlier point in a previous post.
    5. Any foreign capital restrictions? Unknown consequences
    6. Liberal spending policy: If that debt ever lowers rating interest rates will immediately increase as defense.

    Feel free to add, comment, discuss.

  15. I’d agree YOY increase of 16% is not going to continue forever. We’ve had seven years of no increases preceding this though.

    I’m not sure where you are getting your figures from but the inflation adjusted figure for RE for Victoria is 3.74% per year since 1960: https://househuntvictoria.ca/2016/03/17/a-brief-history-of-prices/

    The thing is you get 3.74% tax free on the entire purchase price including the borrowed amount. This is really good ROI if you can sell when prices are up even if you have to wait ten years.

    I’m not sure how rental income will be jeopardized in future? Vacancy rates are low and have been low for decades. Rental rates are not tied to RE costs very closely here.

    As for the “twilight of easy credit” – do you have information on changes to lending criteria other than CMHC rule changes that have already occurred?

    Given the run up in TO and Vancouver and the continued availablity of mortgages I’m not sure how banks in Victoria (?) are handling this differently? I would agree that the no condition offer poses a potential risk if the bank doesn’t agree with the valuation.

  16. Another interesting article on why US home ownership is in decline.

    Homeownership No Longer Has Tax Savings

    “We believe we have found one of the primary reasons why entry-level home buying has not recovered—and why homeownership has been plunging.

    For decades, homeowners benefitted from both the financial and psychological benefits of paying less taxes. Homeownership came with income tax savings because mortgage interest plus property taxes easily exceeded the standard deduction allowed by the IRS. For most American homeowners that has not been true since 2008 because:

    Falling interest rates and home prices have reduced mortgage interest.
    The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers.”

    http://realestateconsulting.com/homeownership-no-longer-tax-savings/

  17. Victoria since 1978 has increased annually at 6.9%
    Canadian Real Estate since 1920 has increased at 5.4%.
    US Real Estate since 1888 has grown at 3.2%. Consider this number as a good benchmark all time.

    We are in the twilight years of easy credit, an unbelievable expansion through baby boomers.
    This past March a sales record was reached all time.
    Year over Year increase of 16%. This is not sustainable.

    Victoria’s median family income pre-tax is $77,469 (2014) meaning that rental income will be seriously jeopardized should any financial global headwinds appear. Victoria is a nice city but it doesn’t do anything productive on a large scale basis. The largest employer right now is arguably construction, then Government, then Tourism. These are all medium income jobs.

    In the last 3 months Banks are getting very uneasy about the value of the home that’s being put on their books. The breaking point will come when a subject free offer is rejected by the banks because the purchase price is out of line with their risk over assessed value.
    In that case, the buyer loses his deposit.

  18. Are landlords using fixed term leases in Victoria?

    I am. Tenants prefer them too in my experience. If a tenant wants to leave early they still can. Landlords have an obligation to try to re-rent and with the low vacancy rates there is little risk that the place would not be re-rented.

  19. It really depends what your income is, what your down payment is, what your other debt load is, how large you want the home to be and whether your income will likely rise or not in future.

    You don’t have to save all the additional funds, you have to qualify for a loan at a higher amount and be able to pay for it if interest rates rise.

    If you have a 100k down payment and make 90k a year total with no other debts you may be able to qualify for a up to a 560k mortgage.

    I’d probably try to buy something upscale and dividable with another family, see if I could afford something with a suite, or go with a less expensive townhouse. I would also consider less desirable very small homes that could be fixed up over time.

    https://www.realtor.ca/Residential/Single-Family/16766351/1-444-Michigan-St-Victoria-British-Columbia-V8V1R5

    https://www.realtor.ca/Residential/Single-Family/16715401/104-1510-Hillside-Ave-Victoria-British-Columbia-V8T2C2

    FWIW we purchased in 2012. At the time lots of people were predicting that prices would fall and no-one thought it was a bargain – including us. We went with a 10 year fixed rate mortgage as I was concerned about rates rising – which in retrospect resulted in us paying a large price for the security – oh well. My thought is that you cannot time the market. There is only the best deal of the day. Bidding war conditions make things tougher but there are options.

  20. Question for any landlords out there! Are landlords using fixed term leases in Victoria?

    I’m guessing that they are, because the rental market is so tight. I know in Vancouver all the property management companies insist on fixed term leases.

  21. @yeahright – If you bought your house in 2012 and have a family income under $100K a year, you’re the person I want to hear from. What if you had not bought in 2012 and would now be trying to get into the market? Would you be able to?

    My point was that it takes years of living frugally to save the $100K to $300K that house prices went up in the past year. Some may never be able to close that gap.

    A longer commute for lower prices also adds transportation costs and adversely affects health, so the argument that there are plenty of cheap houses in Sooke is not really reasonable if one works in the core and is not in perfect health.

  22. @LeoM, I was wondering the same thing, because I did see a few jumps in the last 10 days – houses that may have sold for $100k above asking in some areas 1 month ago were selling for $150k-$200k above asking, and sometimes 54% above assessed.
    But sold prices are all over the map so you never know.

    1075 Roslyn, ask 725k, sold 929k, ast 692k, 54% above assessed, 2 bedr undeveloped bmt
    1262 Roslyn ask 895k, sold 1060k, ast 798k, 52% above assessed
    1205 Hewlett, ask 675k, sold 900k, ast 696k
    3349 Cook, ask 669k, sold 753k, ast 485k
    2739 Avebury, ask 760k, sold 903k, ast 564k
    1955 Townley, ask 650k, sold 800k, ast 544k
    1277 Persimmon, ask 690k, sold 752k, ast 530k
    3440 Doncaster, ask 700k, sold 750k, ast 468k
    2607 Musgrave, ask 750k, sold 886k, ast 674k
    2214 McNeill, ask 685k, sold 805k, ast 642k

  23. Gotta agree with Chris here. What the hell is the point of life if you don’t procreate and live like a bum in your own home while working a job you hate. People like that die young. As the famous philosopher Axl Rose said “you’ll be lucky to get out of life alive”.

  24. Introvert,

    The buyers insane bidding wars has far exceeded the market top action from 30 years ago and there was no HAM. It’s closer to the end then the beginning. Rates aren’t going down anymore in Canada, mortgage rates will be up twice this year via US Fed.

    I would be worried mostly about new foreign investment rules coming out of the blue, as well as new serious money laundering laws like the US has implemented which is now melting down the Miami market.

  25. Seems to me that selling prices for SFH in popular neighbourhoods are not increasing further in selling prices. Prices appeared to instantly jump 20% over assessed value (30% if renovated) about 8 weeks ago, but I haven’t noticed a gradual sustained increase in prices since then. I’m basing this on PCS accounts I have and friends have. We talk about the sudden increase, but we all noticed the appearance of a sudden jump to a new plateau and since then frantic insanity of people trying to buy, but the upper limit seems to be holding.

    I don’t have any personal experience in the current market, just my observations as an outsider. Am I wrong? Are prices gradually increasing further as the weeks pass?

  26. Meanwhile bulls like you Introvert preach the cult talk that it’s never going to end…

    It can’t simply be reduced to “cult talk”: as Marko mentioned recently, Victoria has not seen a major correction in the last 30 years. Combine that knowledge with the fact that Vancouver’s prices have outpaced ours by several factors and it has yet to experience a correction of its own and, well, it’s difficult to see that Victoria’s situation is dire.

  27. A lot of the time they aren’t ordered until there is an accepted offer but realtors are catching on to the unconditional offers and I’ve seen realtors wait the week or so to get all the documents before listing the property to facilitate the unconditional offers.

    I’ve seen some insane condo sales lately….this morning I even saw a house in the Westhills go over asking price, what da!

  28. How is a person able to buy a strata without conditions when they need to read the strata documents? I can understand a SFH selling without conditions – maybe risky, but at least more transparent than a strata.

    Possibly the buyer is familiar with the building through friends or similar? Condos are starting to sell unconditionally, not in great number but I’ve see a few in the last few weeks go no conditions attached.

  29. How is a person able to buy a strata without conditions when they need to read the strata documents? I can understand a SFH selling without conditions – maybe risky, but at least more transparent than a strata.

  30. Chris – agreed that the ideal situation is to be engaged in your job, and have a good balance of work and home life. Unfortunately some careers are excellent for engagement, but not good for work/life balance, eg., in my family’s case, we had careers that involved very long hours & business travel, and many of our colleagues felt the same, so retiring from that and following our other interests was our best choice.

  31. The comments about ER & FI are interesting from the point of view that you guys seem to take the approach work is some chore you must do to achieve your goal of not having to work. As you spend the majority of your time at work (even if it’s working towards the goals above) I believe it’s critical to actually enjoy and be engaged in. With this approach you can usually end up in a lucrative position which provides you with financial security and the ability to live beyond a paupers existence. The idea of spending 20 years in poverty while working at a job you dislike sounds like a complete waste of a life to me (each their own of course).

  32. Fyi – for those interested, Greater Victoria Home Expo is on this weekend at Juan de Fuca rec ctr.

  33. Seems many pumpers on here tout the groupthink that Tectoria is “Silicon Valley North” so therefore there is a correlation.

    The point of the article (if you actually read it Introvert), was that low inventory is now not making a difference and the trend is changing down there and in many other large world class cities as well. Buyers are starting to say “screw it”.

    Meanwhile bulls like you Introvert preach the cult talk that it’s never going to end and you will be a millionaire in the next few months, from a half a millionaire with a large mortgage.

    “This suggests that the price drop is not about inventory, it’s about buyers fed up with high Bay Area prices and crazy competition,” she said.

  34. t will eventually run it’s course like it’s showing in San Fran and other major cities of the world. Victoria is always late to the game in worldly trends.

    When someone mentions Victoria in the same breath as San Francisco or Seattle in terms of high real estate prices, someone else on the blog inevitably goes bananas and dismisses the comparison out of hand. But, strangely, when we’re discussing possible downturns it’s just fine for Victoria to mingle with San Francisco.

  35. “There have been many insane overbids in the last 24 hours but no one is posting as the overbids are the new norm. The shock factor of seeing a home go 200k over ask is gone.”

    I guess when you work inside the bubble it is the new norm. To those in the real world it’s still an insane amount of cash equivalent of over two years of average family income.

    It will eventually run it’s course like it’s showing in San Fran and other major cities of the world. Victoria is always late to the game in worldly trends.

  36. @dasmoalderon, I guess you didn’t read my previous post. Take a scroll down and you’ll see that we don’t do those things. So it’s not a wash.

  37. I haven’t seen any regular updates on the massive over bids for several days now. Is it cooling off here now too ? Used to be a few times a day event on here.

    There have been many insane overbids in the last 24 hours but no one is posting as the overbids are the new norm. The shock factor of seeing a home go 200k over ask is gone.

    There have been 82 sales in the last 24 hours which must be some sort of new record for a 24 hour period.

  38. “I just helped a grad student and his wife with their tax return, they will get close to $30k/year for their 6 children starting this July.”

    I’m going to guess he’s an “older” grad student. 6 kids, yikes. They should be offering optional snip jobs with every mortgage these days. 😉

  39. The big key factor that I forgot to mention about being frugal is that we don’t have children.

    Think again. With the new child benefit, one can receive up to $6400 for each child under 6 and $5400 for each child between 6 and 17. I just helped a grad student and his wife with their tax return, they will get close to $30k/year for their 6 children starting this July.

  40. AG,
    I believe that rents will eventually drop if sales and prices continue down. There has been several articles the last couple of months about tech workers leaving Silicon Valley due to high rents and cost of living, commuting etc.

    Tech Starting To Feel Silicon Valley’s Housing Crunch As Residents Leave Region

    “SAN FRANCISCO — Silicon Valley’s housing problem, growing cost of living and unbearable commute times are finally starting to push techies away from the region. A recent report found Silicon Valley lost more residents to other parts of the U.S. in 2014 than it gained — the first time that has happened since 2011.”

    http://www.ibtimes.com/tech-starting-feel-silicon-valleys-housing-crunch-residents-leave-region-2330875

  41. Children don’t prohibit frugal living or ER in my experience – we have four. We also have a dog. We definitely spend more having kids and pets than if we did not. Spending money on things that matter to you and fit your values is a bargain imo. In some ways people with kids may land up ahead. They may have purchased larger homes that appreciate more and may have the motivation and stability to earn more, save and invest to meet the greater needs of their family.

  42. “the Bay Area’s rapid property-value and rental-cost appreciation could suffer a repeat of the dot-com bust of 2000”

    If rents are going up in tandem with property prices, that sounds like a pretty sustainable market to me. Its when property prices soar and rents are stagnant (like Vancouver) when you need to worry.

  43. I haven’t seen any regular updates on the massive over bids for several days now. Is it cooling off here now too ? Used to be a few times a day event on here.

  44. London, New York, Miami, and now San Fran starting to slow down. Vancity and Tectoria next ?

    Could the San Francisco real estate market finally be slowing down?

    Properties are still selling, but the frenzy is cooling

    “That sound you hear may be some air finally escaping from the inflated San Francisco real estate market.

    “Home prices in the San Francisco Bay Area fell by 1.8% year-over-year in March, the first such drop in four years, according to Redfin , a Seattle-based real estate brokerage. “For years, San Francisco has been one of — if not the most — competitive markets in the country,” said Redfin chief economist Nela Richardson. “Now we are seeing this white-hot market start to cool and contract,” she said. Richardson noted that the share of Redfin properties facing multiple offers by buyers dropped to 77% in March from 94% compared to a year ago, Richardson added. “This suggests that the price drop is not about inventory, it’s about buyers fed up with high Bay Area prices and crazy competition,” she said.”

    “Redfin isn’t the only company predicting a slowdown in San Francisco’s real estate market. Just two months ago, John Burns Real Estate Consulting of Irvine, Calif., and Pacific Union, a San Francisco real-estate brokerage, said that the Bay Area’s rapid property-value and rental-cost appreciation could suffer a repeat of the dot-com bust of 2000.”

    http://www.marketwatch.com/story/could-the-san-francisco-real-estate-market-finally-be-slowing-down-2016-04-15?siteid=nwtpm

  45. The big key factor that I forgot to mention about being frugal is that we don’t have children.

    So,

    Find a partner.
    Don’t have kids.
    Live within your means.
    And don’t sweat the small stuff.

    @SweetHome,
    100k family income? I wish. And we are average 39+ couple.

  46. I take it you see it is a very real possibility then? Any further thoughts achieving early retirement in Vic?

    Definitely possible. However my new thinking on this is that I am striving more to create a lifestyle that makes the end goal less important. I was thinking before to keep working the full time job and amass enough by 45 to be FI. Now the plan is to create the lifestyle I wanted to live in “retirement” immediately rather than waiting. I figure it will take 2-3 years of intensive effort to make that happen and then I can dial it back to a long term sustainable level. Reality is I wouldn’t be happy playing golf anyway so some kind of work is always going to be part of the picture.

  47. I think by market timers they mean those that try to sell high and then buy back low later. Kinda like what Hawk is trying to do with RE. I agree very few beat the market. I think it’s easy to beat it if you don’t time it but simply buy when people are selling. Buy quality. Mix stable with risky, buy where you know and have interest in because you will enjoy reading about it and staying on top of things. I usually sell half when a stock doubles and then stick it long unless there is good reason to sell. Usually because of rebalancing or really feeling it’s time to get out. I’m faithful though. I’ve held on to stuff through big dips so I can take it. Not for the faint of heart…. Let’s say I hope Delta buys those planes….

  48. As Warren Buffett says, invest in what you understand.

    “Risk comes from not knowing what you’re doing.” “Diversification is a protection against ignorance.”

    There isn’t a one-size-fits-all strategy. Some people will choose to eliminate debt and pay off the mortgage if they can (which is becoming harder, but it depends on situation), some people will invest in stocks or fixed income before paying off their debts.

    Over 20 years, we knew people who delayed cashing out their stock market returns (or mutual or index funds) until a particular year or decade, only to find that it was a bad time to sell. Guess who made the most money? The people that regularly cashed out & re-invested in other ways, eg., fixed income, RE, etc. That’s why it’s so important to be disciplined & diversified, don’t wait for a particular year to convert your gains, and don’t depend on 1 vehicle.

    As everyone has said here, important things are to educate yourself on all the options, invest in what you understand (read the fine print), be disciplined about whatever you choose, have a plan, and then you will be successful.

    Remember to celebrate all your small successes along the way.

  49. Thanks for the thoughts on investing vs. mortgage pay-off!

    I’m going to straddle the fence by aiming to pay mortgage off in 15 years (but stash the cash in investments for the meantime.) I think aiming to pay off early encourages reduced spending (& I can recently attest to Marko’s theory on how I could see how home owners might start spending more because they “feel” more secure.)

    It also makes sense that people might relax a bit once they meet one financial goal & then it’s good to re-instate a new goal (of any type) to keep things on track.

    @SweetHome, I refer to this early-retirement chart at the bottom of this post: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

    Obviously also not the holy grail (but many have jobs where later on they could work a few days per week to cover expenses, if needed).

    We save 40% currently -hoping to get to 50%. I do think buying a condo did help considerably with this (put 30% down). Realize houses appreciate more but I’m fine with living in the condo forever & seeing $ grow in investments makes me feel more secure.

    I often choose “retiring & downsizing” versions of HGTV shows to see if anyone ever actually downsizes. (Seems like people want to, but have a hard time pulling the plug.)

  50. totoro has a point… some of those houses that went up 300K were reno’d.. there are plenty of opportunities to look at 500K and apply some sweat equity..
    .
    Instead of having to mortgage the extra 300K for a turnkey place, you can upgrade one yourself when the opportunities arise…

    (this is often the case shown in the Property Brothers where they take couples to a finished house and tell them how expensive it is, and then they show them how to get it done for less)

  51. This means the opportunity those of you who have retired or scaled-back on work at an early age have had is no longer available to the majority of those after you.

    There are lots of was to retire early if that is a goal. Even if house prices went up 300k, which is not true as you can buy houses for 500k still now – our friends just did – there is always a way to succeed.

    You first need to set a goal and then develop a plan of how to reach it. Learn about RE, taxation, investments and how others have achieved ER. There are many websites out there including gocurrycracker, rootofgood, frugalwoods, milliondollarjourney, mrmoneymustache, Free at 45… And don’t listen to the people that tell you that it won’t work – do the math yourself and find a way to make the numbers work.

    FWIW I have no intention of paying off my house before retiring.

  52. A lot of this comes down to financial discipline. When interest rates are low it 100% makes sense to invest in the stock market rather than paying down your mortgage. Then, when rates tick up or you retire, you can sell your stocks and pay off the mortgage. You are highly likely to come out ahead this way.

    However, most people are terrible investors. How many people stayed invested through the crash in 2008? If you had, you would be well ahead now. But most people sold, reduced holdings, or underinvested. It is very difficult to avoid some form of market timing when markets are volatile. Market timing usually mean underperforming the market.

    That’s why, for the financially indisciplined, paying off a low-rate mortgage might still be the best option.

  53. @yeahright. While we’re (somewhat) on the topic of frugal, and you mentioned butchering you’re own meat, I’m curious where in the Vic area one should go to get local, good quality meat, either butchered or not. Oak Bay Butcher is great but hits the wallet hard!

  54. Leo, I recall a couple years ago you posed the question of FI and whether people thought it is possible in a city like Vic that’s so expensive. I take it you see it is a very real possibility then? Any further thoughts achieving early retirement in Vic?

  55. Interesting conversation about paying off mortgage vs. investing. I believe traditionally the plan has been to have enough income to allow for paying off the house by retirement and investing enough to have an income for 10 or 20 years post-retirement. Which of those one should prioritize at a certain point is up for debate, but having both the house paid off and some savings to draw upon at retirement has generally been considered a necessity.

    The concern that I expressed in an earlier post is that increasing house prices and an older buying age mean that plan is going out the window. I think people are only considering whether or not they can make the mortgage payment because otherwise it means facing a very ugly likely reality that houses aren’t for “average” people in Victoria anymore. Add to this the disappearance of defined-benefit pensions.

    I am curious if anyone on this site has worked out (or seen somewhere else) a real-life scenario of an “average” 35-year-old couple making $100K family income (gross, with raises keeping pace with inflation). Let’s assume they have 20% down, they need to have the mortgage paid off by retirement, they have no work pension plan and want a nest egg paying $50K a year in today’s dollars at retirement. How much can they afford for a housing purchase price? My guess is it is nowhere near $600K.

    This means the opportunity those of you who have retired or scaled-back on work at an early age have had is no longer available to the majority of those after you. There is no way that simply living frugally will allow someone to catch up to house prices surging up $300K.

  56. Agreed Hawk, there’s better areas than Quadra village. But I think nearly anywhere walking distance to downtown you’re going to have some issues.

  57. There is very little overlap between intellectualism and pointing out grammatical errors in blog comments.

  58. I know I’ll probably get heat for this but do consider reading; The Wealthy Barber Returns: David Chilton

    Interesting use of the semicolon. And by interesting I mean incorrect.

    Reminds me of people who use a semicolon after the salutation in a business letter.

  59. As for stalking Introvert already does that for me.

    I love how you make it sound like I’m doing you a service!

    Fairly certain we once crossed paths on that walkway between your place and Township Coffee.

  60. @Dasmo: Cool, thanks. Of course everyone would love to buy low & sell high in r/e + stocks. However, if you stay in cash, that is market timing. Most market timers underperform the market over the long run. Having said that, if there was a big crash tomorrow, I would buy heavily, even using large amounts of borrowed $$. Do you think you are a market timer Dasmo? Or did you get lucky & had buncha cash available post crash?

  61. I liked the Wealthy Barber. Made my kids read it. Your Money or Your Life is also good.

    I’m just not fascinated by stock picking. I think if you get into it like this blog is into RE you can beat the odds. Do you read up on stocks each day Dasmo?

  62. Someone has to offer the contrarian view on paying down your mortgage, so here it is.

    Pay it off as fast as possible, with extra payments, yearly percentage payments, inheritances, overtime wages, annual bonuses; whatever it takes, pay it off ASAP.

    After your home is paid off, then start investing the equivalent of your monthly mortgage payment in dividend generating blue chip companies.

    Follow this simple strategy and you’ll retire at 50 and live a carefree, debt free life.

    Remember, a $500,000 mortgage at about 2% means you pay $10,000 per year in interest and $16,000 off the principle. But, at 10% you will be paying $50,000 per year in interest and $5,000 off the principle.

    Interest rates will go back up someday, so pay down that mortgage now while you have the opportunity.

  63. I liked the wealthy barber! I don’t have crazy stock picks Vic. As far as risk goes I like to buy low. 2009 I was buying a lot. Bought a bunch the beginning of this year. I’m also a long player. I can put together a list of what I own right now.

  64. “Ash that condo looks interesting – 408-2560 wark street”

    Dicey part of town, high crime area.

  65. @AG: it should rent for around 1350 per month. I think this would cover all costs, a good portion of which is principal payments on mortgage

  66. I know I’ll probably get heat for this but do consider reading; The Wealthy Barber Returns: David Chilton

  67. @Dasmo: Congratulations on your stock returns. You’ve had some good luck. While I like to believe consistent returns above market-average are possible for the retail investor, I highly doubt this is so. There are numerous academic studies showing that retail investors, hedge funds, mutual funds, etc do NOT beat the market. If you did beat the market, it was likely due to luck & risk. Hopefully your luck continues, but market-timing & stock-picking are not evidence-based & should not be attempted by most people. What method of stock picking & market timing are you using Dasmo? Perhaps you can recommend some readings to me. Thanks.

    My opinion is based on these review books:
    -The Incredible Shrinking Alpha: And What You Can Do to Escape Its Clutches by Larry Swedroe
    -Stocks for the Long Run by Jeremy Siegel
    -5 Mistakes Every Investor Makes by Peter Mallouk
    -A Rndom Walk Down Wall Street by Burton Malkiel

  68. Since Jan 2013 my cash investment account has increased 99.14% my RRSP 74.45% and my TFSA 90.83% and I’m no pro. I have no funds at all (sorry Leo I sold em). I’m not a mustachian because of that. They would reject my renegade stock picking…. I don’t have a pension though so I have to look out for my family on my own and stuffing the mattress won’t do.
    Shoot instead of giving the bank your money invest it in them. Most are paying over 4% in dividends plus capital appreciation. That beats a 2.3% mortgage pay down including Tax.

  69. Ash that condo looks interesting – 408-2560 wark street

    What kind of rent do you think that would bring in?

  70. Better to invest than to accelerate paying down the mortgage when rates are this low. Make your same plan but instead of giving the bank your money give it to yourself. Then come renewal you have more power. The more liquid assets you have outside your mortgage the more control you have. I’m not sure I get your after tax distinction db. My TFSA is after tax contributions as well. Capital gains is also a lower tax as is dividends. I get that your mortgage is a guaranteed negative amount so worthy of attention. I liked having no mortgage for a good five years without doubt. But putting everything you got into paying it down is simply easier but not better IMO.

  71. Question:

    Should I save up to put a down payment on my next investment? or

    Tap into my equity to get money quicker and get into that market and start my next house investment venture? (and if equity how much should I use? all/half/just enough)

    I’m not keen on being a landlord, but if it means a better investment over CIGs or mutual funds, I’ll bite the bullet.

  72. “I’m not a fan of the way CCPotato does its numbers – they play with math (as all funds do). For example, CCPotato was claiming “2015 numbers” were 17% on VXC and -8% on VCN. When someone challenged them that their documents show -8% and -19%, the response was “well you have to look at 15 year horizons””

    Agreed Vicbot, I was noticing some of their claims were not up to date either by a year after several months into this year. Still had 2014 numbers. Would have expected a current year over year as well and couldn’t find it easily, if it did exist.

    “and the transaction costs are high as is risk. ”

    Starts at $9.99 flat per trade at TD using online service, or and up to $35 , plus up to 6 cents per share using an investment rep over the phone. Much cheaper than full service broker at $100 plus per pop. I don’t see where the risk is at all.

  73. You don’t happen to wear white Birkenstocks do you

    Nope. Although I am German and have no sense of style so it could have been.

    As for stalking Introvert already does that for me.

  74. I’m a weird mix of conservative and willing to take risk. I pay down the mortgage, but my investments are 100% equities. I research every purchase to the extreme but as soon as the money is in the market I lose all interest in it and don’t care to check how much it’s up or down.

  75. Just Jack commented recently that it might be a good time to buy a condo, or at least it was a few months ago (I’m paraphrasing).

    Looking at affordability, I tend to agree. 408-2560 wark street is an example. Older condos aren’t for everyone, but 2 beds walking distance to downtown for 239k at current rates still looks super affordable to me.

    That kind of pricing just doesn’t look sustainable in the context of skyrocketing house prices, zero vacancy and higher rents

  76. @LeoS You don’t happen to wear white Birkenstocks do you? If so I think my kid was playing with yours at the park the other day! If not, don’t worry I’m not stalking you 🙂

  77. I was providing a guide.. not stating the holy grail

    Thank you for clarifying that. Sometimes things read differently than intended.

    As for the teacher in the 80s, well the 80s lacked the internet. People were a lot more dependent on “experts” for their information or were more easily persuaded they’d be lucky based on what happened with their neighbour with single stock investments.

    The stats show that very few people can successfully pick individual stocks over time (dasmo may be part of the exception:)) and the transaction costs are high as is risk. Even worse when someone is making a commission and pushing high commission choices. Worse still is putting all your eggs in one basket.

    Today you can self manage and you can review the returns of a diversified low cost index fund portfolio and invest by yourself through TD e-series or Tangerine with minimal transaction fees. And you can learn that, just like RE, long term investing helps mitigate risk.

    Again, why pay interest on extra money you put on your mortgage when you can invest in a low cost diversified portfolio online? Maybe if you are near retirement or FI or really benefit from the sense of security it provides.

  78. @yeahright, you should win an award for everything you’re doing, sounds great!

    I still don’t see an issue with db was saying – I agree with db’s idea that you’re home is your foundation, and other investments are riskier simply because they’re more out of your control. With your home, you control if you have rentals, how long you can stay (you won’t be evicted), and if you can use it in the future to borrow for something else that’s necessary, eg., home health care.

    I’m not a fan of the way CCPotato does its numbers – they play with math (as all funds do). For example, CCPotato was claiming “2015 numbers” were 17% on VXC and -8% on VCN. When someone challenged them that their documents show -8% and -19%, the response was “well you have to look at 15 year horizons”

    It’s not right to do some creative, theoretical accounting to justify riskier investments, because it’s not a real return if it’s not there when someone needs it.

    No matter how diversified you are, there are years where all funds are down. And the fact is, a fund’s 15-year horizon is a moving target, and your 15-year horizon may actually be fixed. eg., your 15 years may be up to 2030, because you really do need the money to pay for expenses in your retirement years. You might think, “Well people should realize that.” But a lot of people aren’t warned about that all.

    Just my 2 cents.

  79. It’s getting annoying having to sift through the comment section to find conversation that is at all helpful and informative.

    This blog would be pretty stale if all its comments were “helpful and informative.” Anecdotes, arguments, disagreements, debates, and the calling out of BS also contribute to the blog’s overall interest and popularity.

  80. I still recall the teacher who came in to me with the Smith Manoeuver : ie borrow heavily against home to invest (or not pay down home and instead invest because the returns are GUARANTEED to exceed)…He wanted to buy Templeton Funds because the long tern track record was 17% and he was RIGHT….. I refused…that was in May 1987… anyone who knows what happened knows how he would have fared come October 1987…
    Nope,, never going to happen again…(1994, 1998, 2001, 2008…) always once in a hundred years they claim…
    Pick your poison…I was providing a guide.. not stating the holy grail

  81. 1st time home buyers. Dipped into RRSPs and Tax Free.

    Paying off quick as we don’t want the bank to have the power to own our house. Miss the last payment and loose a job and can’t pay the bank, all the years paying gone and now the bank takes possession.

    My wife and I bought in 2012 and got possession about mid April. We are on track to paying off the house in just over 3 years (Low Low 2 year rate right now, bi-weekly double payments, and extra/found money lumps sums at the end of the year ~we are aggressive). We are paying ourselves back on those RRSPs and Tax Free and we are still saving.

    We live a very frugal life.

    Power-bar for all electronics at once (things like tv’s and dvd players or not turned off, they are on standby and still juiced), no power vampire as we turn of all the power at once on the power bar.

    We got a used car near the end of 2004 and only use it, on average, weekends (so less in insurance). We still own it today with regular checkups and little maintenance, it’s prob. got another 10 years in her. So we bike or walk as much as we can.

    Cook our food mostly from scratch as much as possible (huge money saver!). Eat out very little and buy in bulk where we can (avoid canned, boxed or bottled foods as much as possible). I also process/grind/butcher my own meats so as to not only be frugal, but to also know how it was processed (healthier conditions and knowing where it was done. None of the blood splattering of old meat to make it look new again B.S. etc.). We do splurge on better indigence as we figure if we went out to a restaurant to get this it would cost us way way more.

    I do brew my own beer and wine, but will spend on a good bottle or case from time to time.

    We do some gardening mostly of the food variety. It’s more of a hobby but does help with the food bill and you know how it was produced and processed. And I do barrel my rain water off my downspout from my gutters. I also use a push/reel mower to do my lawn, but not only to be frugal, but it is also for a noise and pollution reduction.

    We only leave lights on only in the room/s we are residing in. As we have electric baseboard heaters, we keep the house at 16 degrees always, and turn the heat up a bit in the room we happen to be in and turn it down when we leave. We just add extra layers for clothing or blankets on the couch. We tried having it off during the day while we are not at home and schedule it to turn on by the time we get home. But it actually take way too long to heat up and actually causes more energy, thus more money.

    We always try to buy used before new. Why get new when used can be perfectly fine or sometimes better.

    Well that’s my frugal rant. Hope you enjoyed it.

  82. @totoro @db Good discussion but I’m with totoro on this one. Sure, the “return” on paying down mortgage interest is risk-free it doesn’t make much sense in today’s low rate environment. Better to invest elsewhere while leaving the option to pay down the mortgage faster when the math works out more favourably.

  83. I would agree that if your experience with the commission-based model of selling products the ROI would likely be lower than CCC.

    Investment burn!
    Anyway in general totoro is correct. Paying off the mortgage has a lower expected value than investing the money.

  84. Everyone needs to read the fine print on any fund portfolio document, because the performance claims aren’t accurate, and are often exaggerated.

    eg., the fine print in the CCC portfolio document reads:

    “Some of these ETFs have relatively short track records. However, they often track indexes with a longer history, so whenever fund returns were not available we used index returns and subtracted the current management expense ratio of the ETF. This is an imperfect but reasonable proxy for how the funds would have performed.”

    Translated into English: “Some of the funds haven’t been around long enough to track 5, 10, 15, or 20 year performance. So we’ve chosen other data (eg., stock indexes) to make the fund performance look as good as possible, but not accurate. We call this ‘imperfect’ to make us sound technical.”

    I translated legalese and gobbledygook for a living so I’m worried that other people might not do the same.

    We also found that paying off the house as a first priority, with a written plan & milestones tracked (while making some RRSP contributions & investments over time) worked well, because it’s one the safest purchases you’ll make, and it’ll give you ownership security.

    Best to look at your home as a home, instead of an investment, although it’ll translate into $ later. As long as you have things written down, you can accomplish your goals. I think that’s the main point of what db was saying.

    Also don’t waste money on crap you don’t need 🙂

  85. You have no idea what I do for a living, nor am I going to post it here as my view is the proof is in the validity of the opinion rather than a designation of some sort. Citing your past IA status does nothing if it is not supported by factual information that stands up to critical thought.

    I would agree that if your experience with the commission-based model of selling products the ROI would likely be lower than CCC.

  86. If one was looking for a Black Swan event, the US banks look like there’s some potential.

    The Fed Sends A Frightening Letter To JPMorgan, Corporate Media Yawns

    “At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?

    It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”

    http://www.zerohedge.com/news/2016-04-15/fed-sends-frightening-letter-jpmorgan-corporate-media-yawns

  87. I don’t think the math is correct although your strategy is much better than not investing and very good for non-savers. You might want to check the historical returns here and the returns from last year via the site: http://canadiancouchpotato.com/wp-content/uploads/2014/01/CCP_Model_Portfolio_Performance_1994-2013.pdf

    It is not about maximizing returns for you, it is for me in balance with the risk. As I’ve stated, the same strategy will not be right for everyone.

    The thing about investing is you can research it first. You don’t have to learn by buying a house and paying it off and then investing through a HELOC. Google is very helpful this way.

    It is not clear to me why you would choose to pay interest costs on HELOC loans for gains not realized through appreciation or mandatory principal payments even if the interest is tax deductible. You are effectively paying to borrow money that you put into the house in excess of what was required after paying income tax on it first which decreases your ROI.

    If you are paying for a sense of security that can be worth it. I would suggest that a balanced analysis of risk would not substantiate the assertion:

    You won’t find any pre-tax return that is as safe as a principle residence where you have control over the outcome.

    I would agree that a principal residence is usually a low risk high return investment for many reasons but the extra payments reduce ROI, not increase it, if you would otherwise invest these amounts in something with greater returns than the interest savings instead of spending them.

  88. Thanks But I am correct…

    A mortgage interest of 2.49% is equivalent to a pre-tax yield of 5% (in a 50% tax bracket – 3.735% in a 25% tax bracket)
    You won’t find any pre-tax return that is as safe as a principle residence where you have control over the outcome …(and the capital appreciation is tax-free, while worst case you live in it)
    You don’t have fees nor commissions to deal with as you would with paper investments…

    It isn’t about maximizing return anyways,..it is about laying the groundwork for a proper FOUNDATION…once the mortgage is paid off, you can the use leverage to buy into a bigger house and start again…or for tax breaks -buy rental property or what else using the tax deductible interest of a Home Equity Line of Credit …

    But before you run, you need to learn to walk…

  89. Losing a job and paying the mortgage off with the settlement was the best thing ever happened to me. I chose freedom instead of buying a bunch of stuff.
    You can tell the boss to stuff it, take students if you need some cashflow, heat and taxes can be covered pretty easily.
    Rent the house and go travelling.
    Learn to do a few things yourself to avoid expensive help. Stop feeding the consumer machine, avoid buying crap you don’t need.
    Buy your jeans at Wal-Mart for $18 instead of $40+ elsewhere.
    Take a job you actually like even if it pays less.
    If you want you can always cash out and go live where its sunnier and cheaper.

  90. you are saving more than any bank account or investment vehicle, because the interest expense is after all AFTER TAX…thus higher than any return you will find most elsewhere…

    Not to downplay the accomplishment or the strategy at all, but the math is off here.

    In order to have an accurate picture you need to know the comparative rate of return on the investments factoring in gains and taxes. If you are talking psychological benefits – I’d agree lots of people appreciate a paid off house more than potential greater returns and some people are not savers and this strategy works for them.

    However, some factors not applied correctly imo in this statement include:

    you could use TFSA returns to pay interest expenses;
    contributions to RRSPs are in pre-tax dollars;
    equity gains vs. initial investment – the more you pay down your home generally the lower ROI – unless the market crashes but buy and hold works for both RE and the market imo;
    the market is returning more than interest rates (even if you pay tax on the gains) right now and has done so for many years; and,
    if you have a suite you want rental income deductions, including mortgage interest – your bottom line will generally be increased if you invest your $ elsewhere.

    Lots of variables before you get to an absolute answer here.

  91. Aristo-crat,
    Hewlett is desirable. A tucked away cul-de-sac just steps from OB Village, trees and no traffic.

  92. curlyfry2 On how to pay off a mortgage early…(by someone who did it twice)

    Step one…download a mortgage calculator program from the net that allows you to change the amortization calculations and factors in prepayment…
    Step 2 … Get a big Jar (like the ones you save pennies in) and fill it with Monopoly Money to the tune of your mortgage (this will be visible incentive.. like a dreamboard)
    Step 3… make a habit of taking any bonuses, found money, gift money, lottery wins, 2nd job excess, income tax rebates (RRSP contribution refunds), etc,.,,you get the point ,,, AND take this amount down to the bank/mortgage company (even if only $100) and apply it against your mortgage as a bonus payment (usually allowed up to 10% of outstanding balance a year)…and withdraw the equivalent monopoly money from your jar…
    Step 4 ..make an adjustment to your mortgage calculator to see how mush sooner you will have the mortgage paid off (further incentive)
    Step 5 consider making your mortgage a bi-weekly payment plan if possible and within your budget/cash flow as this will reduce the amortization further
    Step 6…DO NOT let the mortgage company try to extend or increase your mortgage when the 5 year renewal comes around.. stay on track…(don’t go buying a new car on your increased home equity just because the bank says you can)

    And before you know it.. you will have the pride of paying off your mortgage further realizing that you are saving more than any bank account or investment vehicle, because the interest expense is after all AFTER TAX…thus higher than any return you will find most elsewhere…

  93. Nothing says charm like overhanging wires. Oak bay needs to up its game and dig up the streets to get rid off them. Add another 500k to house values. 🙂

  94. Aristo that is lot value. Looks like a nice street. Maybe a new house goes there. 700k gets u a good 2500 sq home these days. 1.6 to 1.7 not bad to say u live in a brand new home in Oakbay to all your co workers.

  95. “I would like to hear other’s opinion on this sentence and what it might mean:
    As for the future of real estate in Vancouver, he said the plight of the Canadian dollar, the end of the immigrant investor program, and currency restrictions are all likely to be factors”

    StepbyStep,

    I think it’s inevitable that the Feds have to put a halt on the immigrant investor program until they get these numbers figured out as well the shady realtor issues. I don’t see Justin just sitting back and do nothing, he’s a do’er and at an extremely fast pace unlike Harper and his BS.

    It’s funny how the fact Canadian banks are not only facilitating the breaking of another country’s currency restriction laws, they are also handing out mortgages like candy with zero income verification.

    If you or I went into the bank under the same circumstances I can bet you would get turned down without verification of income. This only leads to potential money laundering yet the government nor the banks never wants to discuss this issue. What would happen if you shut down those mortgages ? I imagine it would have a major impact as well.

  96. Wow. Vancouver insanity reached. 1205 Hewlett place, listed for 679, sells for 900. Unbelievable. Gawdy old house that needs at least $50k in renos to be somewhat nice. Thats what $900K gets you?

  97. Yes. Stress should be up there on the cost index. It should be quantified like money imo. Some will be prepared to take on greater stress/risk for the potential upside and because they have greater tolerance for risk, just like with leverage.

    I also heavily weight free time, not with a dollar value particularly, but I do put it on the positive side of the equation when considering any income-producing investment of my time that I wouldn’t otherwise do for the love of it. Passive investments like CCC rank higher than active business on this factor but RE is up there because I enjoy it. Lowest ranking on my scale when it comes to free time is a traditional 9-5 (or more) job. For others the stress of not having a stable job would result in a different outcome and different choices.

    If I was trying to enter the market now I would likely consider buying the biggest and best home I could afford in a walkable neighbourhood that could be divided into two living spaces and buy it with likeminded people in a similar situation.

    As for the future of real estate in Vancouver, he said the plight of the Canadian dollar, the end of the immigrant investor program, and currency restrictions are all likely to be factors.

    The low dollar favours foreign investment – the other factors others will stop some investors. It appears that there are ways to get around the currency restrictions.

    I think it was just a comment on applicable factors, but as long as you don’t need to be an immigrant to invest in Canadian real estate and you can get a mortgage I don’t think the moderating effects will be enough to stop foreign investors from impacting the market.

  98. sale price guess on Fernwood Rd house
    fireecology1 630k
    Gwac 725k
    Animal Spirit 637.50
    Michael 688.8
    Hawk 490k
    CuriousCat 525k
    ash 580k
    Leo s 648k
    step 565K
    JC748,888

    Aug 14th bids expected

  99. Van’s Teranet has reached new levels of insanity @ 17.32% y/y.
    Time for a breather soon?

    Yesterday’s Van #s
    New
    206
    Sold
    391
    TI:8242 !!!

    For comparison, TI last April was ~20,000.

  100. Hawk, thanks for that link on the fernwood house with water problems due to the new build next door. Funny enough it’s actually way up the top of hill on bedrock.

    BTW that new house looks ridiculously large for that quaint street (2700 block of Roseberry). I heard they got a variance for size and still exceeded whatever the variance would have allowed.

  101. Congrats Leo! You’ve entered financial badassity and I am supremely jealous. I hope you update us periodically on how it goes.
    Your situation reminds me of findings from that U.S. study that found most millionaires live in regular houses driving boring cars. (Millionaire next door)

  102. A glitch in the matrix
    “Though prices were up on the month in six of the 11 metropolitan markets surveyed, the gain of the composite index came mostly from a 2.8% jump in the Vancouver market, where the Real Estate Board reported the highest-selling March on record, and was the case for February. Elsewhere, prices were up 0.9% in Edmonton and Montreal, 0.6% in Hamilton, 0.3% in Toronto and 0.1% in Winnipeg. Prices were down 0.7% in Victoria, 3.1% in Halifax, 1.7% in Quebec City, 0.3% in Calgary and 0.1% in Ottawa-Gatineau”

  103. Panel debate last night in Vancouver on housing. Some interesting information in the article. For example:
    The average price of a home purchased by a Chinese national in the U.S. was three times the price of homes bought by their American counterparts.

    Ley also pointed out that 73 per cent of homes bought by Chinese buyers in the U.S. were paid in cash.

    He began by explaining that real estate often takes a much larger portion of Chinese investment portfolios than in Western countries — 50 per cent as opposed to five to 10 per cent.

    I would like to hear other’s opinion on this sentence and what it might mean:
    As for the future of real estate in Vancouver, he said the plight of the Canadian dollar, the end of the immigrant investor program, and currency restrictions are all likely to be factors.

    http://www.cbc.ca/news/canada/british-columbia/global-real-estate-forum-vancouver-1.3536769

  104. Congratulations Leo!

    Living at least a bit below your means is definitely the way to go. That said I have to put my foot down and state that the 5 bike garage is a non-negotiable part of the Victoria way of life.

  105. Speaking of working from home…

    Any good recommendations for a kick ass smart accountant/bookkeeper in town?

  106. I watch this blog but don’t comment often. Introvert, there are a lot of other places on the internet to pick a fight. I respect JJ’s perspective, as well as yours (when they aren’t trollish and smug). It’s getting annoying having to sift through the comment section to find conversation that is at all helpful and informative. It’s funny how the comments have heated up parallel to the market; lets not get too emotional, irrational and stupid.
    My two cents for the quarter.
    Thanks for the blog Leo

  107. Yes congrats Leo! We quit our jobs last year after a long time of working hard, and will enjoy our freedom more after we finish toiling at our renos 🙂

    This blog is interesting for the wide range of views on type of house that people want. I used to like old Craftsmans, but what became much more important to us were open layouts, lots of light, solid construction and single-level living, which would carry us into old age. That’s why we like 3 bedroom 50s style homes over anything else (and many of our friends say the same thing). Lots you can do to update them, either traditional or modern styles, especially improving the windows and entrance, updating bathrooms and other architectural details. The renos have been a roller coaster, painful and slow as molasses, but rewarding 🙂

    We also hope that the mistakes that various authorities made with the housing market in Vancouver aren’t repeated in Victoria.

  108. Amy, I chuckled – thanks! 🙂

    Nice post Leo.

    I also admire the Mustachian Life as well (thanks totoro for the recommendation.)

    Just awaiting my first mortgage payment this month & I’m already trying to stop the urge to plan how pay fast I could pay it off. (Though it is an interesting game to ponder!)

    We have a 2.49% 5-year fixed so I realize paying down early at this point makes no sense.

    Was going to try to wean off this blog (& switch stock shopping instead?) but real estate is definitely more interesting!

  109. Congratulations Leo.

    I think MMM has changed how a lot of people look at consumer behaviour and allowed many people to reach FI or partial FI much earlier than imagined. At least to have more options than ft work until 65.

    I quit a fancy job nine years ago to spend time with family. Went into business pt working from home. I’m scheduled to “retire” this September due to investments and frugal living. Leverage has helped as it has with RE and business growth. I don’t view a home with a suite that can be rented out to reduce the cost of housing below a rental as extremely risky myself. Or ill advised. If I could go back in time I would have leveraged higher at some points, although I’m not recommending this to anyone else.

    I look forward to hearing about what is next for you.

    I have family members who are extremely wealthy on paper due to leverage in the Vancouver market. You could even argue they engaged in reckless borrowing, but they were rewarded for the risks. But those same family members live a life of poverty. They’re prisoners of $$ & never enjoy life.

    With lots of equity they have lots of options. Hopefully they learn to think about things a bit differently.

  110. @amyH – great find. I thought it was a spoof but here it is on e-value. Those cans look like toxic waste in front of the house. Appreciated $1,100 from 2014 to 2015.

    Total Value $164,900
    Assessed as of July 1st, 2015
    Land $149,000
    Buildings $15,900
    Previous Year Value $163,800
    Land $149,000
    Buildings $14,800

  111. @BrianAdams – “My rule is 20% down for a house in very good shape/quality, with mortgage easily managed by one person, and a further 20% equivalent in savings/investments that can be used as a buffer if needed.”

    Does this rule depend on how old the purchasers are? What if someone is buying their first home at 40? Shouldn’t the goal of having the house paid off by age 55 be a factor, especially for people without a defined-benefit pension?

    I am concerned that as prices increase, more people view their houses as their entire retirement plan and will never pay them off or set other money aside. When they retire they will have to sell, and what if house prices have dropped?

  112. @BrianAdams – It’s nice to know that although you’re busy starting your new album tour in the U.S. you still have time to see what your B.C. homies (or is that “homeies”?) are up to. You might have changed the spelling of your name, but I know it’s you. 😉

  113. @Introvert

    If you are able to make it work financially, why not become a stay-at-home dad?

    It did occur to me.. But I’ve got some ideas first I want to pursue and it’s tough to write code with those rugrats around all day 🙂

    @Cascadia

    The sad thing is we’re already looking at the quirky lots, outlying areas and “needs love” homes and they’re also now being snapped up for over-asking, no condition offers or they’re priced ridiculous to begin with for the renos ahead.

    The market conditions out there are terrible. I really worry about what is going to happen to Victoria if this continues for too long. What’s the point in educating people about the market if the prices are out of reach? Good luck to you. So hard to tell what the right course of action is now.

  114. @Cascadia, please please think twice before buying a SFH with only 5% down and no extra funds for dealing with expensive house issues. The older cheap houses are most likely in need of urgent fixes, and lots of the fixes now a days are seriously expensive.

    If I was looking for a first time home and only had 5% down, I would be buying a new 2+ bed condo downtown or near walking distance to town and keep saving up. Condos are still a bit lagged to SFH, and with a new build you won’t have any scary expensive reno surprises.

    My rule is 20% down for a house in very good shape/quality, with mortgage easily managed by one person, and a further 20% equivalent in savings/investments that can be used as a buffer if needed.

  115. Bravo Leo. Hopefully you will soon find something more rewarding and be happier with what you do for living. My net name came from the same thing, i.e. we quit our jobs (for me = fired my controlling boss) in 2008. Kid was in grad school, own house with no mortgage to pay, and were tired of the rat race. The key is what you said, live with what you need, not what you want. And more, if what one wants can match with what one needs, he/she will be happier with life. Best wishes.

  116. Great post Leo. We finally got our 5 % down saved up after paying off most of our student loans and thought we’d be buying our first home this year but are now watching friends jump off the leveraged deep end and we don’t want to join them. Weighing the fear of buying now and the market correcting (we would then be underwater) vs. waiting and missing our only chance to get into an ever rising market is frustrating to say the least. The sad thing is we’re already looking at the quirky lots, outlying areas and “needs love” homes and they’re also now being snapped up for over-asking, no condition offers or they’re priced ridiculous to begin with for the renos ahead. I hope luck turns around soon.

  117. First, great post, Leo. Your disclaimer was unnecessary; anecdotes (yours and everyone’s) contribute immensely to this blog.

    Let me guess, Leo. You’re going into business with Marko somehow.

    May I make a suggestion? If you are able to make it work financially, why not become a stay-at-home dad?

    Introvert you crack me up, thanks for doing the work of lots of us lurkers that have read JJs blathering “predictions” for like 7-8 years, it gets tiring.

    You’re welcome.

    No need for a witch hunt.

    If witches keep revising history — or pretending that it doesn’t exist — there will be a hunt.

    Your post was 4 years old Introvert. How do you know he didn’t buy a condo and is up $50K ?

    Mainly because he’s so bitter. Also, he’s never mentioned owning.

  118. How mustachian of you! Quit my job fifteen years ago. Always good to have some financial headroom and thus freedom. I don’t want to be a slave to debt…. However I am stepping up my debt level now….but it’s for a better standard of living and think of all the money we will save on Vacations!

  119. Your post was 4 years old Introvert. How do you know he didn’t buy a condo and is up $50K ? Not everyone needs their egos constantly stroked like you and a few of the other perma-bulls on here.

  120. Why pay 20% over when you can bide your time til the government has no choice but to clamp down bigtime on the shady money laundering and shadow flipping as they are now doing in the US. The results look glorious.

    Coming to a town near you in the not too distant future …..The Melt Down. @HawkTM 😉

    Miami real estate is melting down

    “The Miami real estate slowdown is becoming a meltdown — with the most expensive areas getting hit hardest.
    The number of sales and prices in posh Miami Beach — home to many of the city’s most expensive and highest-profile properties — fell during the first quarter, according to a new report. Meanwhile, inventory soared by roughly a third compared with the prior-year quarter.

    The report, released Thursday by Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants, found the average sale price in Miami Beach and the nearby Barrier Islands fell 7.5 percent year over year to $905,252. The median sale price fell 6.6 percent year over year to $408,750.”

    http://www.cnbc.com/2016/04/14/miami-real-estate-is-melting-down.html

  121. Lots and lots of really big expensive SUVs cruising around Victoria these days. This market is just getting warmers ups y’all.

    Cray cray prices for boxes on Landsdowne Slope this week yo, craaaay craaaaay.

    Introvert you crack me up, thanks for doing the work of lots of us lurkers that have read JJs blathering “predictions” for like 7-8 years, it gets tiring. Any bets on when he gives up posting here and starts working double time to get into the market?

  122. I find it funny but mainly sad that when Just Jack asks for evidence of his having predicted a crash or his being a renter it can so easily be found.

    Totoro said it very well: “Revising the past when the archived posts are there is not a great plan.”

    I get it, JJ. In all probability, you’ve been priced out of the market for the last decade, give or take, during which time you’ve subtly and not-so-subtly predicted a market crash that has never come. Today, prices are reaching all-time highs. It must be very disheartening.

  123. Interesting post. The BC housing market has seriously biased us in favour of leverage. As I’ve mentioned before, I have family members who are extremely wealthy on paper due to leverage in the Vancouver market. You could even argue they engaged in reckless borrowing, but they were rewarded for the risks. But those same family members live a life of poverty. They’re prisoners of $$ & never enjoy life.

  124. Great job. Luck had something to do with it, but not much. You exercised financial discipline and took advantage of what came your way.

    Lots of people will spend their financial windfalls on toys, renos or holidays. Many of them never the enormous pleasure of waking up on a Monday morning and thinking, “What shall I do today?”

    I quit my job 4 years ago and now run a business from home – best thing I ever did.

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