The Wealth Effect
We’ve talked a little bit about the wealth effect on this blog over the years. The theory is: when people’s investments increase in value they feel wealthier and tend to increase their consumer spending. The same thing happens in reverse when investments decrease in value. In a study of 37 years of housing market data in the US, Case, Quigley and Shiller (of the Case-Shiller house price index) found that increases in housing wealth stimulated consumer spending and decreases in housing markets reduced consumer spending by what they called “statistically significant and rather large” amounts.
While not everyone agrees that the wealth effect is significant and I don’t know of any studies that have reproduced these findings for the Canadian market, it does make intuitive sense. When your house appreciated by a few tens of thousands of dollars last year, why not loosen the purse strings a bit? After all your house is doing the saving for you. With the expansion of HELOCs you don’t even have to be constrained to spending more of your income, you can directly tap into that new-found wealth which many Canadians have done with no great regard for paying it back.
With real estate driving most of the net-worth growth for British Columbians, there has been no shortage of fire for the wealth effect on the way up. Although other parts of the economy are doing well, I don’t think it’s a coincidence that we’ve had one of the strongest economies in Canada for quite a number of years.
Almost all net worth gains since 2005 have come from appreciating real estate
However in the last couple of years we’ve seen the housing juggernaut start to wobble, with the most weakness being evident in the highest priced markets in Metro Vancouver and here in Victoria. The mortgage stress test introduced in 2018 accelerated a decline that at that point was already a year old but had gone mostly unnoticed because the market was gradually retreating from record activity levels. Suddenly home owners in Vancouver were finding that their homes were no longer appreciating, and those that had joined the party too late were finding it increasingly difficult to bail out. In Victoria the market is not nearly as weak but in January we also saw a year over year decline in house prices for the first time in several years.
Despite strong wage growth and a high job vacancy rate that indicate the economy is still strong, we immediately started seeing some cracks on the consumer spending side. New vehicles – a favourite source of debt for Canadians – rapidly turned 8 years of growing sales volumes around and started declining.
That weakness was not constrained to four wheeled consumer goods. Retail trade growth as a whole dropped off a cliff in 2018 and recently dipped into negative territory. It seems the wealth effect is alive and well in BC.
What will be very interesting is how long this slide continues. The eternal optimists at the Toronto Real Estate Board are convinced their slump is over and are forecasting price growth of 4% this year. However they don’t seem entirely confident since they continue to lobby the federal government to scrap the stress test (why would they if Toronto will return to growth so quickly?). The industry is trying to characterize the fact that the regulatory changes prevented some people from buying as an “unintended consequence” when of course that was the primary goal. So far it seems that the regulators are having none of it but I wouldn’t be surprised if there was a bone tossed to first time buyers this year as a token election promise.
I don’t like to predict house price movements outside our annual predictions thread, but I expect continued market cooling for a while yet. Affordability has not improved significantly and while sentiment on the market is starting to sour, I’ve seen it much quieter and think we are more likely to go further in that direction before any kind of improvement.
Monday (unofficial numbers) https://househuntvictoria.ca/2019/02/11/feb-11-market-update/
While I share your short term pessimism, long term I’d have a to say I’m a bit more optimistic. We’ve been here before, the only difference is the amount of consumer debt in the system.
I think your concern in part, reflects the imbalance we’re seeing in the economy right now. You can’t have an economy that’s excessively based on flipping parcels of dirt back to one another at higher and higher prices. This has been going on for so long, it’s almost hard to imagine something else (like remember when kids used to play with each other outside?). In the past we’ve had corrections, some of them downright nasty and prolonged. But we’ve always come through, until we do it again. Just hopefully next time we won’t pig out on debt so much.
https://www.facebook.com/groups/312703430332/
I have to agree that Canada is not ready for an economic correction, but what do we have to keep the economy going beside selling out our homes? As we have people who protests everything, that include infrastructure development to accommodate population growth, no to natural resource development such as mining, oil, gas, dam, logging, fishing, and no to industrial developments, as well as no to commercial developments.
The government are taxing the life out of our economy, while having more an more people living off the government dole and excuse my French and that include government workers.
We have shortage of physicians in Canada, and in the meanwhile we have Canadian trained doctors as well as qualified foreign trained physicians who can’t find a residency/job. And, there are also Canadian trained engineers as well as other well respected professionals who can’t find work after graduated from Canadian universities or over seas universities. Canada also churning out more university graduates than anyone on the world with out a plan of putting the educated populous to work beside taxing everyone to death (hence it must rely on debt and tax to function), and creating bureaucracies, mazes, and mountain of paper works to justify their paper pushing existence.
https://nationalpost.com/health/untrained-and-unemployed-medical-schools-churning-out-doctors-who-cant-find-residencies-and-full-time-positions
https://www.cbc.ca/ontariotoday/2015/03/03/why-cant-engineers-find-a-job-in-their-field/
https://www.cnbc.com/2018/02/07/the-10-most-educated-countries-in-the-world.htm
This is how Canada’s housing correction begins
Canadians are finally getting a taste of what a world with rising interest rates will look like, and one thing is painfully clear: we’re not ready for what happens next
The willingness of consumers to borrow and spend—on houses, cars, furniture, restaurants, you name it—has been Canada’s primary economic engine for more than a decade. After Canada emerged from the Great Recession relatively unscathed, we were the envy of the world. Thank households for that. When turmoil and uncertainty held back business investment and crushed exports, Canada’s economy continued to grow while unemployment fell. Thank households for that, too.
It was plain to see what fuelled this consumption: cheap debt. Interest rates spent most of the past two decades going down and were at or near four-alarm emergency lows since the Great Recession. Canadians took their cue and gorged on debt. We now owe $2.16 trillion in mortgage, credit card and other consumer debt—an 80 per cent jump from 2008, and an amount that now exceeds the value of the entire Canadian economy. Even Americans didn’t go that overboard during their housing bubble.
https://www.macleans.ca/economy/realestateeconomy/this-is-how-canadas-housing-correction-begins/
Local Fool. Great shot with the colour.
Where did you come across it?
“It seems as if the NDP rushed out the speculation tax grab due to the whining millennium children, while protecting their buddies by exempt Whistler, Sunshine Coast, Bowen Island, etc
Most of the NDP MLAs who own investment or secondary properties are located in Victoria and Vancouver and they are subject to the speculation tax if these properties are not rented out including John Horgan. What is up with this weird conspiracy theory I hear about Whistler from opponents of the tax. All ski resorts are exempt from the spec tax in BC
https://www.vancourier.com/real-estate/b-c-ski-resorts-get-free-pass-from-speculation-tax-1.23341633
Sure why not?
The spec tax is nothing more than a knee jerk reaction, because it is not solving anything beyond giving the few jealous people the satisfaction of punishing the “rich”.
IMHO, the spec tax should be scrap, and the government should take the property transfer tax (original spec tax) out of government coffer.
If the government truly honest about combating speculation then it would make more sense to put 100% of the collected money from property transfer tax toward social welfare and housing. And, while at it increase it to perhaps 100% of the total amount gained over purchased price if the property is sold within the first 12 months from the purchased date, and minus 20% very year afterward till it is zero percent after 5 years.
@ QT
I agree that bear mountain should be exempt because it is used as a vacation home but why white rock or chiliwack ..majority of people dont go to those places as vacation hot spots …
by that logic … burnaby , surrey takes around a hour on rush hour to downtown … should they be exempted? chiliwack, mission, pot alberni takes around a hour or more .. should they be exempted?
Stu name isn’t anywhere on my Christmas card list, but I have to agree that he and many have the right to be pissed.
It seems as if the NDP rushed out the speculation tax grab due to the whining millennium children, while protecting their buddies by exempt Whistler, Sunshine Coast, Bowen Island, etc…, while places like Nanaimo, Kelowna, and the CRD are on the tax grab list. IMHO, the tax is unfair, but at the very least they should have made it unfair to every area and everyone.
Speculation tax exempt area, and travel time to downtown Vancouver:
Whistler – 2h
Sunshine Coast (Gibons) – 1h 40min
Bowen Island – 1h
Non exempt area, and travel time to downtown Vancouver:
White Rock – 1h (1h 30min or longer during daytime traffic)
Chilliwack – 1h 40min (more than 2h during daytime traffic)
@ Barrister
Care to enlighten us on his explanation?
Went to two open houses today and maybe it was the weather but the real estate agents reminded me of the proverbial Maytag repairman. Likely it was timing but we were the only people there.
I found one agent fascinating in his long explanation of how there is no inventory of houses available in Victoria. I am not sure that he understood that when a lawyer says how interesting he is usually stating that you are either lying or an idiot,
I’m not a fan of name calling or personal attacks, but he’s got a point.
In lieu of Yeah Right’s failure to give me a RE comic today, I thought I’d throw this picture up as an alternative. 😛 I’ve posted it before in black and white, but here it is again, colorized.
It was taken about 1895, from the vantage point of Government and Belleville Street, looking north. The James Bay Bridge and the water to the right of it, was where Government Street and the Empress Hotel are today. Now you know why the basement of the hotel is widely known as a swamp that fills and drains with the tide.
Barrister:
Sounds like a great new tent city locale. Or is it not that kind of transient?
Thanks very much for the link. It is certainly getting harder to ignore. Maybe they won’t screw up the next big prosecution.
@ Introvert
I troll you with the truth to put you in your place. I guess it’s working since I haven’t seen a single sentence from you or Patrick trying to taunt the bears.
Next you want to brag about net worth or personal wealth, try not to admit that you needed a 35 year mortgage, dual income and basement tenants to afford a make believe $550k house.
It’s certainly a nanny state for the RE industry. I mean, what other industry gets government guaranteed financing for its product at such a scale and at such high leverage, and an array of tax breaks for its customers.
For anyone who missed the W5 episode of money laundering in BC casinos last night. Those suitcases full of cash were no exaggeration.
https://www.youtube.com/watch?v=ddsGyJ-7Zw0
“Rumor has it that Stu Young is considering rezoning all of Bear Mountain to transient zoning which would take it out of the spec tax. Apparently he is a bit pissed.”
He rezoned Bear Mountain as a resort community recently to try and have it exempt from the tax but the province already told him they’re not going to play this game with him. I’m guessing Stu will come up with another silly story on how the province threatened him over the spec tax like he did a few months ago. You can really feel the amount of influence developers have over this guy
https://www.vicnews.com/news/bear-mountain-rezoned-for-spec-tax-exemption-province-says-no/
I dont believe the government is as worried about individuals going bankrupt as they are worried about the integrity of the chartered banks.
Besides individuals can borrow to their hearts content from private lenders. If either the borrowers or the private lender go broke then it is their problem.
In my mind it is a simple matter of forcing the banks to play on a level prudent playing field. If this is a bubble and if it bursts big time you really dont want the banks holding the bag. To be more accurate I dont want the taxpayer holding the bag.
Sorry LeoM, this time we dont see eye to eye.
I’ve issued a personal moratorium on Victoria flower pics until this unpleasant episode of snow and cold is behind us!
There is a Summerfield, PEI, believe it or not. But I think you mean Summerside, PEI, which is currently at -7 with a windchill of -15. But not to worry, all its savviest denizens are in Barbados right now.
Ah, kamikaze trolling. What every blog needs.
Ah, an unregulated financial industry doesn’t have a great track record, unless your memory doesn’t extend further than 5 years back in time.
The alternative to preventing stupidity is picking up the pieces after the fact (or imposing misplaced taxes late in the game, as we are doing now).
If your only plan for making money involves huge housing loans, you are pretty short sighted.
Spoken like someone who hasn’t done an ounce of research into what unchecked capitalism does. The stress test is saving a ton of people a ton of grief down the road and we’re all better for it.
You’re advocating for a Nanny State where the government decides who get loans and who doesn’t. By extension, who gets car loans, who gets student loans, who gets reverse mortgages, who gets home renovation loans, etc. In other words, the rich get richer and everyone else is suppressed by more government interference in the personal finances of the people. In-your-face socialism has never worked and never will. If someone goes bankrupt due to their own decisions and their overspending and their habit of ignoring real estate cycles, then it’s certainly not the responsibility of the government to babysit them and it’s definitely not taxpayers responsibility to bail out those people.
Patriotz, I have checked and you are right about the classification. The important lesson is about how the rumor mill functions.
Once and future, I agree with you that the stress test was actually a very cleaver solution to targeting real estate without impacting commercial loans. It accomplishes a number of things including recognizing that interest rates are likely on the way up.
Understanding property classes
“Municipal zoning does not determine property class, though it may be a factor in some cases.”
https://info.bcassessment.ca/Services-products/property-classes-and-exemptions/understanding-property-classes-and-exemptions
Note: The exemptions mentioned in that article are for regular property tax, not spectax.
For those that like to read legislation instead of summaries:
http://www.bclaws.ca/civix/document/id/complete/statreg/438_81
Patriotz, I might be mistaken but I believe that transient is a separate assessment classification but I have not checked that yet.
I think the point of cracking down on HELOC qualifications is to prevent the situation where the banks yank loans from thousands of people. That is like saying we don’t need a stress test because eventually the bubble will pop and thousands of people will lose their homes and any stupid banks will fail – problem solved.
I think keeping the system from overheating is way smarter than bandaids after the fact.
As someone pointed out to me (thanks), the spec class applies to Assessment Class 1 (residential) regardless of zoning. I suppose Langford could rezone the area to commercial and then owners could get their assessment class changed. But – that means they have to pay local and provincial property taxes at commercial rates. There is no easy way out.
At least the sun is out so enjoy the day.
Rumor has it that Stu Young is considering rezoning all of Bear Mountain to transient zoning which would take it out of the spec tax. Apparently he is a bit pissed.
Maybe they should have spun this as a job creation initiative
Interesting you brought up the two together. Information from the spec tax form gets forwarded to CRA. So that ups the game for scammers. If you don’t also falsify your income tax return to match the spec tax declaration the discrepancy can be detected. If you do falsify both of them them that’s two offenses you can be prosecuted for.
Also it looks to me like a contrived below market “tenant” would be treated as non-arm’s length and likely be investigated.
I think what the RE industry is really upset about is that the spec tax info will to used to link properties to the owner’s SIN and thus enable CRA to go after tax evaders. They know that BC’s high RE prices are built on a foundation of fraud and tax evasion.
We don’t need the government to crack down on HELOC debt because the banks will be doing this at mortgage renewal time when equity is at, or below, mortgages value. This is likely the year banks begin close scrutiny at mortgage renewal meetings. This will be frontpage news in Vancouver, starting this year, and in Victoria in 2020.
Marko can you comment on your sense of Pre-Sale market in Victoria right now? Friends across the Salish have told me investors are starting to back out; Bottom feeders are moving in.
Just like a lot of people don’t pay income tax on their suite income there will be plenty of scamming with the spec tax as well. Is the government really going to have the resources to investigate whether the tenant on a tenancy agreement lived there?
Lots of business opportunities…..how about professional tenant/caretakers for 6 months of the year? Agree to a reduced rent and caretaker only lives in a small portion of the normally vacant mansion. Spec tax avoided unless there is some verbiage re market value rent I haven’t seen.
What if if is rented under a month to month and not a written tenancy agreement. Did anybody actually vet this legislation or was it just bashed out in a hurry.
Right on! Great post.
Patriotz,
I agree with your reply, but don’t you find it confusing that the only two examples the govt gives specifically list the tenant living in the home 6 months? Maybe the govt has a different interpretation of “makes it the tenants home” and are telling us that in their examples, to say if you’re not living there you’re not making it your home.
Ultimately I can’t see the govt getting away with charging innocent landlords spec tax but they should at least give better examples that clarify it. Like an example of some tenant who just stays there sporadically for 5 months.
Well, in your crusade to fix a problem that is in the process of fixing itself, I hope you enjoy your heaping plate of unintended consequences, including the resentment of a lot of people who had no hand in creating the bubble.
It seems ironic to me to hammer individuals with long-term family 2nd-properties when it was govt policy that primarily caused this bubble in the first place (low interest and lax debt rules). Now we can watch as the federal parties fall over themselves to boost homeowner debt under the guise of “making housing more affordable.”
If they really wanted to make house prices come back to earth they would keep the stress test and crack down on HELOC qualifications. I am not sure cranking up interest rates works so well for the larger economy, but reigning in the debt binge is the only real way to solve the issue long-term.
You want to stop people from buying second properties? Don’t lend them money to do so.
The law does not specify that a tenant needs to actually live in the dwelling for more than 6 months. Here is what the law says:
“2) For the purposes of this Division, other than section 37 [tenancy exemption for widely held owners], a residence that is part of a residential property is occupied by an arm’s length tenant for each month in a calendar year that
(a) the tenant is entitled, under a tenancy agreement, to occupy the residence, and
(b) the residence is a place the tenant makes the tenant’s home.”
Note “a place” not “the place”. I think the law is written that way to exclude situations where the tenant is using the property for non-residential purposes. The examples are correct according to the law, but they do not specify the only situations where the property is exempt from the tax.
Barrister.
Those are good points. Common sense would indicate that a landlord shouldn’t be responsible if the tenant doesn’t actually live there 6 months.
But look at the two examples that the govt gives (see below). Both of them add the phrase about the tenant actually living there more than 6 months. Why would they add that if it’s not relevant?
https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/exemptions-speculation-and-vacancy-tax/individuals/tenancy-requirements
“Arm’s-length Tenants
If the tenant is an arm’s-length tenant, all owners may be eligible for a rental exemption, if:
* The tenant has no advantage of any personal or family relationship to an owner
* A written tenancy agreement is in place under the Residential Tenancy Act, and
* The tenant makes the residence their home
Example:
A Canadian owner of a Vancouver condo rents the property to a tenant who signs a tenancy agreement *****and lives in the condo for more than six months of the year. ***** The tenant is not related to the owner.
Result:
The owner of the condo is exempt from the speculation and vacancy tax.
Example:
A foreign owner of 50% of a Kelowna house and a B.C. resident owner of the other 50% of the house rent the house, under a residential tenancy agreement, to an Alberta resident *****who lives in B.C. for six months of the year. ****
Result:
Both owners of the house are exempt from the speculation and vacancy tax.”
If a person rents a second home and only uses it sporadically I guess the poor guy who rented it to him pays the spec tax.
If the government really want to free up housing in Vancouver and particularly Victoria they would move government kobs out of those two cities. I can just hear the screams from the bureaucrats about being in Duncan or Sooke.
Actually the govt seems to have extra rules for your kids living in your second owned home. You pay spec tax if you are a “foreigner” (USA) but no spec tax if you’re a Canadian. IMO, None of these anti USA rules are predicted to survive the already-filed NAFTA challenge and the govt will likely be refunding lots of USA paid spec tax with interest.
Put it in the kid’s name. Not only do you save on the spec tax, but on the capital gains tax. Take back a large mortgage if you’re afraid the kid will sell the place and take off with the money.
Anyway, when I was going to university the idea of parents – even rich ones – buying their kids accommodation would have been considered absurd and I still think it is.
Another group that will be caught up is parents who pay for their kid’s apt near a university.
Or
Is this another of my hypothetical examples that would never happen in the real world? Does the application of spec tax to one but not the other make sense to anyone? In both cases, someone is living there year around. Why pay spec tax in either case, as no home is vacant?
Could you clarify what part of it you don’t consider to be common enough to be a real world problem.
Are you saying that renting a second home in another city wouldn’t be that common? ( I know two people that do that for different reasons)
You’re right but it’s not a real world problem. People generally buy a second home for occasional use largely because they bet that house prices will appreciate so that not only is it convenient, they expect it to be a decent investment too. Speculating if you will on house price appreciation in order to have their mostly empty home not cost as much.
My point is that, for people who have a second home, if they own that second home they pay spec tax. If they rent that second home, noone pays spec tax. In both cases they take up a second home, so are part of the housing crisis problem. It would seem if the target of this tax was people occupying two homes, they wouldn’t make “rent vs own” the criteria of whether you pay it or not.
Btw, I dislike the spec tax for lots of other reasons, and like the majority of MLAs (Greens and Libs), I think it should be abolished. I was just pointing out an inconsistency/loophole of exempting second-home renters entirely from the spec tax if the goal is freeing up properties.
It seems clear from your answers, that you’re fine with exempting people from spec tax who rent a second home, so let’s “agree to disagree” on that.
My response to Patrick is that scenario is much less common than the out of towner who owns a place here to visit for a few weeks a year and then keeps it empty for the remainder – you know the people the tax is meant to impact. I literally have never come across the scenario you made up there though i don’t doubt there is the rare case out there. And again whats your point? No one claimed this was a perfect tax. No tax is perfect. Are you suggesting people shouldn’t pay income tax because some people will lie on their taxes and find ways to prevent them from paying what they legally should? Of course not – your argument that something should not be implemented because it’s not perfect just isn’t realistic.
Taxing some boomer’s A frame out at Christina Lake will do nothing for affordability.
The idea here is that someone’s second property might be a property that they rent year around (not one that they own). Like a parent in Vancouver with kids in Victoria that he likes to have a second home when he has custody and visits them. And he doesn’t want the kids to visit him at a hotel. Am I understanding you correctly in that you believe that this an absurd hypothetical that wouldn’t occur very often? I’m not planning to argue the point, but just wanted you to clarify that’s what you believe, because your reply talked about someone having 3 extra properties which I agree would be rare, but wasn’t what I was talking about. I’m talking about having one extra property in another city, not from a grand plan. but because life is complicated for many people.
Defacto answer for most of Patrick’s hypotheticals.
“If keeping a home vacant mattered, why would the gov allow a tenant to rent and occupy as many homes as they want?”
Governments don’t usually make laws to solve problems that have never existed, and never will never exist.
“The next rich foreigner who wants a vacation place in Sidney will just rent a place instead of buying it- leaving it legally vacant much of the year, with no spec tax payable.”
I think the rich foreigner would be more likely to say “fuck Sidney, it’s not that great anyway. See ya later hosers” and go buy a vacation home in a jurisdiction that isn’t putting the squeeze on rich foreigners.
Re:spec tax
“An owner may rent only one residence in a building for the whole building to be exempt.”
https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/exemptions-speculation-and-vacancy-tax/individuals/tenancy-requirements
Does this exemption mean that bonafide renting of a tiny suite in a huge house that is otherwise vacant makes it exempt?
So if someone with a vacant mansion in Shaughnessy leases out a tiny suite to an arms length caretaker of the house, the owner can keep the rest of the house vacant without paying spec tax?
So here’s a potential recipe for people wanting to own or speculate on a second property in Victoria. Buy a home with a suite. Rent out the suite to arms length tenant. Enjoy your second home with no requirement to live there- free of spec tax.
Anyone selling a house with a suite should add the tag “entire house may be spec-tax exempt when suite rented” to the listing. That should appeal to buyers from Alberta and ROC.
Patrick I am not convicted of the effectiveness of the spec tax by itself nor am I with the foreign buyers tax, or increased interest rates or even more affordable housing will do anything significant on their own. I am, however, hopeful and believe that in combination they can.
As for your argument about tenants renting as many places as they want do you suspect that is a common theme? Certainly no one i know would go out of there way to rent 3 places and only live in one. That wouldn’t make sense. And the scenario about a foreigner renting a place for a year here instead of buying all due the spec tax seems unlikely. Whats a place in sidney cost to rent a year? 1300 a month * 12 is like 15K a year – thats the same on a spec tax on a 750K condo. Even if it ended up costing them a couple grand more do you think these “rich foreigners” are going to care?
I agree its not going to have some people look for a work around but just because it’s not 100% effective doesn’t mean it’s not worth doing. Time will tell and if in a year or two they have decided its not opening up rentals or having any impact on the communities it’s in then i would be all for abolishing it.
Earlier in the week I was planning on going to open houses. Now that it’s Saturday and bleh out – yeah not so much. It’ll be interesting to hear how open houses wen this weekend.
Interesting and good to know. There are a few pieces of property I walk by from time to time that I’ve wondered about. Now that at least one of them, which has a ramshackle, totally uninhabitable house on it, will be subject to the tax, I wonder if something will be done with the property. Every time I walk by, I see opportunity lost for adding much needed housing in the area. It’s also a blight on the neighborhood and I’m sure the neighbors wouldn’t mind something happening there.
That’s interesting. I agree with that objective stated above, I just disagree with a spec tax as an effective or meaningful way to achieve it.
If keeping a home vacant mattered, why would the gov allow a tenant to rent and occupy as many homes as they want? The next rich foreigner who wants a vacation place in Sidney will just rent a place instead of buying it- leaving it legally vacant much of the year, with no spec tax payable. How does that help the housing crisis?
Barrister maybe a good “start” wasn’t the correct wording as oppose to a good part of the 30 point housing plan. The long term point would be to either “A” put more homes on the rental market and push down rents, and or “b” add more stock to the housing market and push down prices; (in conjunction with the other things the gov is doing) either way making it so people living in the place they work and pay taxes can afford to do so without having to move 90 min out of town or live with 6 other guys in a 4 bdrm place.
Sure there’s a way – she can apply to consolidate the 3 lots into one. But then she wouldn’t be able to sell off one or both of the unused properties for a quick buck, right? Section 800.4:
http://www.belcarra.ca/bylaws/vob-bylaw-510_zoning-bylaw.pdf
Yes it does. “Residential property” in the legislation includes land without improvements. However there is no tax if the property is in the process of being developed.
http://www.bclaws.ca/civix/document/id/complete/statreg/18046#section43
Rush4Life: Serious question, when you this is a good start exactly a good start to what. Not saying you are wrong but what is the long term objective?What is it that you are hoping to end up with?
Being too lazy to read the whole legislation, does the spec tax couver vacant lots?
One of the folks in that story owns three waterfront lots, lives on one, one is vacant, one has an “unrentable” cabin. If the spec tax provides someone like that a bit of incentive to sell I think that’s a good thing. Those other lots could be homes. That would build the community not devastate it. If it is real important to keep all three lots I suspect she can find a way
In regards to the spec tax, i agree there are some legitimate sob stories out there but when you cast a wide net your bound to catch things that aren’t intended. That’s just the way it is. The government can’t go out and choose specific houses, or base it on someones specific predicament. Unfortunately there will always be collateral damage. That being said the point of the spec tax still makes sense: You own a second home somewhere vacancies are low, your uninhabited house is playing a part to drive up rent/housing costs for people who are actually working and paying tax in the city and now can’t afford to live there – something had to be done. A house should not be an investment tool – if you can afford a second home and to not rent it out then you should be able to pay the tax. Again, this is just in general. Do i think a home with no running water worth 1.4 Million dollars is a realistic rental option for someone who can’t afford to live in their city – of course not. But taxation isn’t perfect. I still believe this is a good start.
If you own a second property in metro Vancouver or Victoria and let it sit empty – or rent it out short term, which is what I think many such owners are actually doing – you are very much part of the problem.
If you can afford to do this you can afford an extra 0.5% on the property tax. Be part of the solution.
Belcarra short term rentals
fairness is only a relative word … next generation of people …. the generation after us will say the same thing .. is it fair for them to take on the burden of unrestricted growth in the past and they will be paying for it ?
like marko once said, i hope my kids or their kids does not have to shack up with a shady person in order to pay for anything
Well, I think headline writers are generally idiots and I didn’t use the word devastation. However, these stories are real for people. The world changes around you and then you get called the bad guy. OK, it happens sometimes, but remember these are not the people who have caused the housing crisis.
Regardless of what they “could” sell the cabin for, it is still just the same A-frame their dad built in the 60’s. If they don’t sell it, it isn’t worth any more than that. Is it fair to treat these people like they caused the speculative bubble in condo-land?
@ CE
Lol how original. I am using a phone to post at the moment btw, bored at a bday event downtown. My mom did get me this phone for xmas though 😉
Fine.
Your paltry net worth and IQ is like a gnat to my elephantine fortune and intellect.
Now give it a rest, your mom wants the computer back.
-16 at mount Washington and sadly less new snow than Victoria
@ plumwine,
I did get new material, did u miss this one in my previous post:
“introvert hasnt bragged about his/her net worth for awhile (kinda hard to do when he/she essentially admits that to support a supposed $550k home he/she has to have 35 year mortgage, dual income and basement tenants)”
And again, I not a bear as defined in this forum and I have nothing against owning or renting. I just like putting people in their place with facts when they step out of line.
Come on, come at me with something better!
ffs, at least get some new material to troll them. He may misuse the calculator, it doesn’t mean his posts hold no merit. Leo had noob understanding on mortgages, but his charts and numbers are priceless since day1. If you “gona keep doing it “, give us some good quality troll.
If housing is all about a place to sleep and store your junk, Renters are definitely smarter than most home owners.
Dasmo nope, ur making stuff up again. You are a loser if you live in you parents basement but yet refer to renters as someone who is beneath you.
Ha. Fair enough. We can all agree you are a loser if you live in your parents basement!
@ Dasmo
Actually I would compare what I am doing as such:
A skinny fat person calling a husky person unhealthy. Then someone with an actual athletic build putting the skinny fat person in their place.
Hence I call them parental basement dwellers, not renters (come on, I expect a little more due diligence out of you ;))
It’s not people though. It’s trolling the trolls.
@ local fool
When I troll on those posters I do it on purpose and I am fully aware how childish it is, but I still do it if for nothing more but my own entertainment. I also do it as an attempt to put them in their place. I am not sure how effective it is but introvert hasnt bragged about his/her net worth for awhile (kinda hard to do when he/she essentially admits that to support a supposed $550k home he/she has to have 35 year mortgage, dual income and basement tenants), hasn’t made fun of renters for awhile except accusing me of being one because he/she has no other intelligent rebuttal. Lol and Patrick is too busy paying the 70/30 interest on his make believe 25 year, 3.5% mortgage he was preaching.
When I choose to have an intelligent debate I do so as such. And I am sure most people can distinguish the difference between the two.
Thank you for ur compliment on the latter point though 🙂
Ya, what’s childish isn’t the trolling it’s that you say that you are trolling a certain few homeowners here that like to call people renters as an insult. But your troll is calling them renters. That’s like calling a skinny person fat because they call all the fat people fat and you think it’s rude. It would be far more mature to troll them on something that might actually sting and wasn’t actually insulting all the renters out there.
Girls from Pepperdine won’t be at the beach in bikinis, that’s for sure.
Actually 70F at the beach is quite chilly, albeit a lot warmer than Clover Point right about now.
That’ll never happen. Doesn’t mean you should keep trying. Not sure a lot of readers enjoy your unrelenting attacks on people, even if they seem to make a living doing it to others. It’s curious you were indicating that certain forms of dialogue were pointless discussion, which lately seems to be what you set out to do. When you actually debate, I think you do a good job.
The weather in Lugano is 12C under sunny skies. Just so you dont think I am picking and choosing.
Just talked to the boy and the weather is 70F under a bright sunny ski in Malibu and the girls from Peperdine are down on the beach. Beautiful ocean and sand views and all the lad seems to notice is the girls.
The moral with the spec tax is that you should buy your second house down in the US and spend your money down there. It will free up housing and if it costs a few jobs here do we really care.
If we define “devastation” as a handful of people having to sell second homes assessed in the millions, then yes, the spec tax is causing devastation.
Those dummies! Should have listened to Patrick. It was only a small downtick with no financial consequences for anyone!
Here is another example:
https://vancouversun.com/news/local-news/b-c-s-property-speculation-tax-devastating-for-village-of-belcarra
Some outside buyers have driven up prices in the area. Now the government is finishing the job driving out long-term owners by taxing them to death. No running water sounds like a great rental.
The main question with any punitive tax, who are you really punishing? When it becomes easy to punish the innocent because we lump them together with a perceived “bad guy”, then something has gone awry.
Amazingly, a lot of people who own a second home in Vancouver, Victoria, or Kelowna intended on owning very long-term and maybe giving it to their kids. Hard to imagine that there are uses for houses that don’t involve rent or short-term selling? Perhaps using it on a regular basis like this couple?
https://globalnews.ca/news/4899941/ubc-professor-frustrated-after-being-told-he-must-pay-speculation-tax-for-second-home/
There are non-economic arguments for having a second property. I know that it is much easier to label all such people as evil, but I prefer my world to be more nuanced.
Dasmo, my argument was simply that it is very hard to enjoy a house when that house is down 30,40 or 50% in value. That is all, never said it will lead to a ruined life.
@ plumwine,
Lol looks like ur the one getting angry. As to me GTFO or STFU with the trolling, I think I’ll do neither. It’s funny how fake home owners Introvert and Patrick throws around the word “renter” as some type of a degrading term, essentially labels renters as being poor and stupid etc.. but as soon as I give them some of their own medince it’s childish blah blah blah. Well I am gona keep doing it till I get banned 😉
Oh wait are you agreeing that the market is crashing but just at the speed that it is crashing? Lmao, careful your giving the bears some ammunition now!
And just a reminder I am not a bear as defined in this forum. Also, as a finance guy, I actually really appreciate the charts and analysis Leo S does, keep up the good work Leo S!
My point wasn’t that having an underwater mortgage was no big deal. It was more that it wasn’t the end of the world if you can afford the house.
I also have a friend who lost everything during the financial crisis. They were a builder and had just finished their own house and had three projects on the go. Bank pulled his line of credit and with no cash flow he couldn’t keep building and so couldn’t make money. Bank sold his house for 50% what it cost to build. (There’s a 50% for ya). Banks screwed themselves in general and ended up being saddled with a lot of properties. This is why they stopped foreclosures. This is why they won’t have the same approach again. The bank wants the money flowing, not properties to manage….
Are the bears here getting angry because the market doesn’t crash fast enough for them?
Bears waited years already, just keep waiting for the fair price, you guys are very good at it.
@Ks112. Leo S didn’t know how variable mortgage work a year ago. (https://househuntvictoria.ca/2018/03/12/march-12-market-update/#comment-40361)
He draws these charts with crayon and glitter. GTFO or STFU. Your trolling are repetitive and boring.
Every Snow day highlighted why Victoria isn’t Vancouver (or major cities) , we get cut off from the world with only couple inches of snow. Air, water, and land transport are just not up to par.
Victorians cannot see snow they cannot hear or feel EA18G’s. A little sensory impairment to go along with the mental impairment dsiplayed in choosing an NDP government.
I just came back from a walk a few minutes ago. Nearly slipped several times and the wind was so awful I came back after 10 minutes. Frozen face.
Nice scenery in JDP earlier today though.
Introvert, where is today’s winter in Victoria pic? How does it compare to Summerfield PEI currently?
Most everyone buying a property expects at some time that their property will rise in value. That doesn’t make them a speculator. Being a speculator is more about buying with plans to be selling it within a short time frame.
https://www.investopedia.com/terms/s/speculator.asp
“What is a Speculator
A speculator utilizes strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors.”
Are you seriously suggesting they don’t expect to sell their 2nd properties for more than they paid? Even owners who rent out their 2nd properties expect that, not the least because that’s the only way you can justify the lousy rental yield.
Follow your own ideas. Good luck with whatever you do.
That is totally backwards. The cheaper housing is, the better an investment it is. Is the same house a better investment at $800K or $500K?
Just filled out my SpecTax declaration. The wording on the form seems deceitful. The main justification says:
I think it is pretty certain that the majority of people paying the tax will be BC residents who are not speculators. There has to be a better way of doing this.
Well, they will now be below-market rather than market rent (whatever that means these days). Also, it increases the likelihood that those developers will want to build again, if the capital has been freed up. Hard to know the actual effect though, if BCHousing is undercutting the rent in the area for privately-owned rental buildings.
I still think it is a good thing.
https://www.bnnbloomberg.ca/home-ownership-dream-elusive-for-young-canadians-who-fear-going-broke-1.1211448#_gus&_gucid=&_gup=twitter&_gsc=uNRKOiU
“Categorically, it is never a good idea to put yourself in a financially-risky position just for the purpose of home ownership.”
No savings on the $375000 purchase, you bought it for $375000 + 25 years of interest.
US Median rent was $800 a month in 2007 shooter.
Or do you suppose people here are getting houses for $375,000 last year?
You’re also forgetting to include higher closing costs, insurance costs, property taxes, 5.5 years of wear and tear on the house, and the lost income from a down payment that did nothing for 5 and a half years.
Home owning, never a downside.
You’ll just add more bullshit to this argument anyway.
My original point was you are dumb. It still stands.
I like this in that it speaks to how housing could be viewed. If housing is a roof over one’s head and viewed just as one of those necessities such as municipal water, sewer, electricity then housing would be affordable (no profit motive). If housing is to be viewed as an investment just like stocks and bonds then it can never be affordable (profit motive).
Yes, I agree. We all remember “fast ferries” when our govt built boats. Seems much less chance for the govt to screw it up when they’re buying existing buildings. Hopefully the process of govt buying will be transparent, and no opportunities for “special treatment.”
Many missed the leading indicators we follow and got it right. It is cold out there but the temperature is not the only thing that is falling.
Morneau is in town:
https://www.bnnbloomberg.ca/morneau-says-feds-focused-on-money-laundering-fight-in-b-c-globally-1.1211648
Interesting gamble for the private developers though. Build some rentals and hope you get bought out by BC Housing? Seems like it makes more sense if BC housing wants units built for them to get a developer to build some. Now they will claim they added X number of new units but all they really did was buy up some existing ones.
I dunno, maybe I’m thinking about this wrong
Lol Introvert I feel for u. In order to buy that supposed $550k home in Gordon head, you had to penny pinch for a downpayment, have dual income, extend the mortgage out to 35 years and have tenants in the basement. Lol and then you come on here boosting about how you have a “good” net worth for your age??
Lol don’t forget to vacume the living room upstairs before you head back down to your basement suite.
Reply to JustRenter
“No homeowner wants to be underwater. But Dasmo is telling us it is not a big deal. Actually it’s a big problem if you want to sell your home for whatever reason. It can also be difficult if you want to remortgage or switch to a new mortgage deal, or… no more a job.”
I actual was underwater for two or three years of my life and I have been above water for 25 or so years. I cant say I felt good being underwater, but I have a spouse and kids and they needed somewhere to live. I paid my mortgage on the 1st of the month as always. Just like I paid rent on the 1st of the month when I rented for the one year of my life that I was a renter. I would say for me I was more upset paying my landlords mortgage off for that one year, then any other time of my life.
I mainly remember being upset for those 2 or 3 years when I got my notice of assessment in the mail, but the rest of the time life went on.
I always knew owning in Vancouver based on history, that eventually prices would go up, and they did.
Other people may prefer renting, and that’s fine, but, I can say its not for me!
No, it was actually Patrick who initiated that someone will still enjoy their home even if they bought in the states at the 2007 peak and carried it through the downturn. Dasmo said he knew someone who did that in Seattle and it didn’t appear to him that they were too bothered.
Then of course the parental basement dweller Introvert had nothing intelligent to contribute so he accuses me of being a renter like it’s some how supposed to be degrading . Lol I pay a mortgage (via tenants) where it makes sense and I pay rent where it makes sense. Right now having both makes sense :).
Nope.
That’s a $163k saving on a $375,000 purchase (not $300k) which was what the “dumb guy” paid at the top. And you forgot about the 5 1/2 years of rent that the you pay while you wait. At 1500 per month for 5 1/2 years that’s 66*1500= $99k rent. Which the “dumb buyer who bought at the top” didn’t have to pay.
Bringing your savings down to $163-$99k=$64k on a $375k purchase. Which is 64/375=17%. Whoopee.
And that 17% is the “pot of gold” reward comparing someone buying at the top of the USA bubble to the genius buying at the bottom (2012). We are told here that buyers at the top will be begging for “mercy on their souls” and will have their “hubris wiped clean”, not that they would turn out to merely pay 17% more than a rare genius who buys at the bottom of a crash. And the “dumb buyer” got to buy their house and start living in it when they wanted to.
If a 17% savings seems reasonable for someone who senses the peak of a crash the size of the US 2007-2012 crash and times the trough perfectly to buy and patiently waits 5.5 years renting, then go for it. Good luck picking the trough.
In any event, if this plan appeals to you, welcome to the start of your 5.5 year wait. I hope you enjoy the ride!
( Btw, this discussion is based on the 2007-2012 crash in the USA house market, with average house data from https://fred.stlouisfed.org/series/USSTHPI as described in message 55962 )
No homeowner wants to be underwater. But Dasmo is telling us it is not a big deal. Actually it’s a big problem if you want to sell your home for whatever reason. It can also be difficult if you want to remortgage or switch to a new mortgage deal, or… no more a job.
Children, play nice. It is getting a bit too heated. Maybe we need to organize a snowball fight.
Savings of $163,000 on a $300,000 purchase.
You’re an idiot.
I have 35-year amortization. I’ve never had a 3.5% interest rate. I don’t know off the top of my head what the interest/principal ratio was in the early days of my mortgage, but I remember the ratio was horrible.
Whatever makes u feel better introvert. I know living in your parents basement while paying 70/30 interest/principal on a make believe 3.5% 25 year mortgage is taxing on you :(.
Phew good thing you also have those make believe tenants helping you with those payments 🙂
You have split personality disorder.
Yup, renter and owner. How’s that 70/30 interest/principal going introvert? How again did u manage those with a 25 year term @ 3.5%?
OK one more, not real estate related but totally appropriate for the day.
I’m off early today, drive home safe y’all.
Renter. Has to be.
Oh there is the basement dwellers introvert. I wasn’t the one that posed the 50% crash scenario. It was actually your fellow parental basement dwellers Patrick whom stated: “Or you could have bought in the USA at the absolute worst time 2007q1, and lived and enjoyed the house for the last 12 years”.
I was simply educating you supposed home owners that, if u actually did own a home, u will not enjoy it knowing it’s worth half as much as what u paid for it.
Hopefully u don’t have to shovel your parents driveway later so u can have time and post some more Victoria winter pics.
https://torontolife.com/real-estate/32-year-old-managed-accumulate-10-homes-toronto/
Interesting story. Risk and a lot of luck. Kid didn’t wait for a crash
dasmo wrote:
50% crash hypotheticals: the dead giveaway of a renter 🙂
Hi. Introvert here. Still paying down my mortgage and not enjoying the snow. Bears aren’t stupid for renting. If they are stupid, it’s because they never buy.
Ks112, if I had to put money on it, I would say you’re a renter.
1759 Mortimer St. Vendor Take Back financing possibly available! 2 units (3 bed and a 2 bed) in a SFH. Asking $770k. Smells like an investor JV….
Houses are a good investment when they generate an appropriate Cap Rate compared to other assets, this typically means being cashflow neutral or positive. Buying a home as an investment with the sole idea of returns coming from appreciation is a risky proposition. Obviously one can still get lucky with the timing and make from appreciation alone.
NAM: I would suggest that houses are only a good investment when they are affordable, that is when you want to buy; you cash out when the cycle hits unaffordable.
Personally, I have found that buy low and sell high seems to work better for me than the other way around. But investing in real estate was never my thing and I am sure others more experienced here can give better advice.
@ Patrick
My god, I am starting to think you live in your parent’s basement not because of financial issues but because u need help in day to day life.
Read James’s post again, he clearly mentioned that the person who bought at the trough will start paying the mortgage 5.25 years later and also pay it off 2 years earlier. So the decrease in the total duration of the mortgage for the person who bought at the trough is 7.25 years (5.25+2=7.25) compared to someone who bought at the peak. So while a person who bought at the peak will make mortgage payment for 25 years, a person whom bought at the trough will pay off their mortgage in 17.75 years assuming the same payment amounts because they paid a discounted amount on their home.
*I haven’t checked James’ math so I am just using his numbers at face value.
@ dasmo,
In case you haven’t noticed, I am trolling those alleged home owners on purpose. Just like how they make comments taunting those bears. I do so by pointing out the obvious flaws in their comments. If u can poke my “hide” using logical and rational arguments by all means do so. Or you can make comments such as: “What we do know is you will enjoy the thought that they can’t enjoy their house because they overpaid for it.” Don’t bother me either way.
Now where is Introvert with those wonderful Victoria winter pictures?
If the market isn’t out of control, it doesn’t need to be engineered, IMO.
A natural RE cycle that doesn’t have mania will have a “soft landing”, meaning prices drift down as they drifted up, without serious economic harm.
But when there’s mania, it’s different. Most politicians, mainstream economists and financial analysts will always tout the soft landing no matter how insane the market was, but the only example I am currently aware of of a true soft landing post mania is Japan.
I’m not sure there’s good arguments to say Victoria’s market was not out of control at least for a brief period – the only thing you could truly say is it wasn’t nearly as bad as Vancouver. But if we compare it on its own to a “natural” cyclical high, Victoria’s market was very overheated and as it stands, is now very overvalued.
The other issue is, I don’t see many ways for Vancouver to avoid a hard landing with prices so utterly disconnected from the economy. In fact that contention is almost becoming moot, as a growing area there is already reporting metrics that are both demand and price crashes. With a housing bubble that size and with our market so interwoven with theirs – could this market softly deflate if Vancouver continues to suffer a meltdown?
Buy up the mortgages, bundle and sell on a secondary market so that lenders have a guarantee of liquidity in order to continue lending. Creating a strong secondary market in effect increases the number of lenders. This is how Fannie Mae / Freddie Mac work in the U.S. which are government sponsored entities.
https://en.wikipedia.org/wiki/Fannie_Mae
Here’s something I read today that I really liked:
“Housing can either be affordable or a good investment, not both.”
Thoughts?
..saving 2 years of mortgage payments….
Yes, but this doesn’t sound like that big a saving to me, given the uncertainty of waiting for a crash and picking the perfect bottom. Keep in mind we are comparing someone who bought in the USA at the absolute worst time (peak of the market in 2007q1) to a genius who waited 5.25 years and bought at the absolute trough (2012q2). And you are telling me that the genius ends up paying his mortgage off 2 years earlier than the dumb guy who bought at the top.
Keep in mind, this assumes that by “waiting”, you are going to be a genius and there will be a crash and you predict the perfect bottom to buy in, and if you do..wow! You’re going to pay your mortgage off 2 years earlier than the dumb guy (with a 25y mortgage) who bought at the top in 2007. That’s it?
On the other hand, if the market doesn’t fall or crash, how would you even know when to buy in, or if it does crash, who is going to tell you when the bottom is?
Btw, this discussion is based on the 2007-2012 crash in the USA house market, with average house data from https://fred.stlouisfed.org/series/USSTHPI as described in message 55962
The Banks would looooove 100 year mortgages! In some ways we are already heading there. How many homes are being refinanced to pay off other debts? How many will pass on houses to children with mortgages?
This is mind numbing.
You’d be paying way less a month and could end your mortgage sooner if you bought 5 years later. Overall you’d pay way less interest to the bank. For example:
$300,000 loan(at 3.5%), over 25 years you pay 1500 a month, and pay $150,000 in interest
So total cost of your house is $450,000
$375,000 loan (at 3.5%) over 25 years you pay 1875 a month, and pay $188,000 in interest
So total cost of your house is $563,000
If you paid the same 1875 a month, it would only take you 18 years to pay off. So even though you’d start 5.25 years later, you’d finish paying off your mortgage 2 years earlier than if you’d bought earlier. You’d also only pay $100,000 of interest that way. So you could have saved yourself $163,000 in interest and 2 years of your life in mortgage payments.
Leo, I’d love to hear your opinion on really long term mortgages, Like the 100 year + they offer in Switzerland and Japan. Is there a really compelling reason why we shouldn’t offer them here?
In Victoria (core) we have a scarcity of SFH- only a finite number will ever exist- in this way I think we are in a similar situation to many European cities, and it may be reasonable to expect SFH prices in the core to continue rising to match European urban prices.
However, in the rest of Canada the government seems hell-bent on artificially restricting the housing supply from encroaching on bare crown land. For the life of me I cannot understand why in a country of 10,000,000 km^2 it costs hundreds of thousands of dollars for an acreage in the boonies. Why aren’t we releasing crown land for private ownership all across the country? I mean, it’s only a matter of time before Indigenous land claims scoop it all up anyway… but that’s a topic for another discussion.
J-Dad, you seem to be making two contradictory arguments:
Gov/Navy/Uni jobs are abundant and assure our economic stability, so house prices will be within reach of gov salaries.
It’s one or the other, isn’t it? How can prices simultaneously not matter because we’re a destination for the elite, but also we’re a hotbed of average government incomes (and these people need to live somewhere)?
@Ks112 I don’t find your arguments super logical. One the one side you keep calling some posters who are obviously home owners basement dwellers and taunting them to do their parents dishes etc. Super childish. And then go on the “be logical” attack when anyone pokes your hide. Meanwhile you through around “50% crash” in your hypothetical scenarios. So to be “logical”, of course every home owner will sh*t their pants if they get an assessment letter in the mail telling them their house is worth 50% less than last year. The day that happens I’ll eat their pants….
I think they can almost start generating these family finance stories by algorithm instead of interviewing people.
The formula for every story in BC is:
1. Family X has ludicrous investments in real estate that have no sensible return on investment except for continued appreciation
2. Advice is to sell some real estate and get back into a sane investment allocation.
I bet no one takes that advice.
https://business.financialpost.com/personal-finance/family-finance/young-b-c-couple-who-are-landlords-while-renting-themselves-risk-wrecking-their-retirement
Here’s the comic pick for today:
Victoria South Island is a Bargain !!!!!!!!!!!!!!!!!!!!! (for those that can afford it )
As a Victoria Home owner , I do not think you can beat the long term value of Vicotria (not Langford and Up Island, wich is still valuable …West Van vs Abbostsford).
The reason behind this is :
There are a lot of very wealthy people in the world and Canada and Vicotria only has so much land to sell. We are run by socities and councils that restrcit density. I feel that we are the new rising of San Fransico. Tech is our numbe one industry in Victoria (yes Tech) and when youn put the the other factors into Victoria , we are a elite society thay will just simply cator to the wealthy or those lucky/smart enough to purchase a house prior to the madness.
Vicotira has 2 major Hospitals within 10km of each other (very sellable fior retired folk)
Navy and Gov are never leaving (pernament jobs)
Universiites will always be here and there will most likely always be parents willing to support (or student loans ) and pay for the housing costs of school
Tourism would be our only volatile insdustry but beeing one of the most beautiful ciite sin the world , the secret is getting out.
All these things, combined with lack of land available , lack of rain, and with the amount of weakthy pepole in Canada (and the rest of the World ) make the property a bargain right now (a bargain for the wealthy elite)
No one really comes to Vicotria looking for work, they are
Gov, Navy , Students ,Retiree , Tech , Hospital or Care related work, professioanla services (law, Accountant etc), Hospitality (students etc) tourits or you move.
We are basically a self sustainning economy.
There are so many more points I can make but this is my two sense.
I am well educated but have terrible grammar and spelling , so my apologies for the gramatical errors.
J-Dad
This is really interesting. I wonder if there is something that the feds could do to encourage fixed rate offerings for the duration of the amortization from the banks. Then you could conceivably offer the usual 5 year rates stress tested, or a 25 year rate qualifying at the market rate.
@ Barrister
Thank you for posting a comment that actually reflects reality. I still can’t believe there was actually a debate about whether one would be able to fully enjoy their house if it went down in value by 50%…..
With regards to government worrying about pricking the housing bubble (B20). My opinion is that they did their modeling and feel that mostly it’s only those in the bubble cities who bought between 2016 and now that will be impacted. So perhaps they are willing to live with that outcome?
Potentially good news for those bears hoping for a rate increase though. And vice versa for those on a variable rate mortgage
Good news indeed. Recession is bad for everyone.
Stoked about the snow. Kids are freaking out about the dusting so far. The one thing we don’t get enough of here
Great economic news with the jobs report. https://business.financialpost.com/news/economy/canadas-job-market-surges-on-record-private-sector-hiring
“The labour force increased by 103,700, the biggest one-month increase since 2009. The increase was led by a 60,500 increase in the number of youth joining the jobs market. Youth — people aged 15 to 24 — also led the employment gains, with a 52,800 increase.” “The biggest boost came from the number of private-sector employee positions, which climbed by 111,500 in January for the category’s biggest month-to-month increase since the agency started collecting the data point in 1976.”
The jobs numbers are volatile so can’t read too much into it. But we are up 330k Jobs in the last 12 months. And it’s nice to see the numbers for youth entering the work force and labour participation rate rise.
None of this is expected to move markets.
Victoria unemployment rate unchanged 3.6% (3 month, seasonally adjusted) https://www.ctvnews.ca/business/canada-adds-66-800-net-new-jobs-in-january-but-unemployment-rate-ticks-higher-1.4288357
Having one’s house crash more than fifty percent is going to annoy people regardless of when they bought it. The flip side of making housing more “affordable” is that everbody’s equity becomes less. Getting blamed for pricking a housing bubble is one of the risks taken by the government. The fact that the government did not create the bubble and that their policies probably had little to do with the bubble bursting is not politically relevant. A major drop in the housing market would likely produce a recession and a spike in unemployment.
A fifty percent drop in house prices would go past just not enjoying your home but for most fist time home buyers it would mean that they are effectively bankrupt with years of savings wiped out. That only triggers if they have to sell their house but regardless it would not produce a warm fuzzy feeling. If your job is vulnerable to a recession then you really are not sleeping well at night.
Lets hope that is not the scenario that unravels.
@ once an future
Well if it doesn’t bother you one bit that something u paid $600k for is worth $300k a year later (or whatever the relative notional values are) then good on you. Your a bigger man then I am. But I know most people will be bothered, hence the term “buyers remorse” (overpaying for something is one of the main causes for buyer’s remorse). So given that a home is most likely the biggest purchase a person will make in his/her lifetime then yes I would have to assume that person(s) will have buyer’s remorse and will not be able to enjoy that home like they could have if they didn’t overpay.
And I dont take this blog seriously, I just happen to appreciate rational, logical, well thought out and intelligent discussions.
P.s. even Dasmo agreed in principal when he/she said “the underwater mortgage may have bugged them” So really there is no more debate.
A lot of people don’t obsess over their house. For me, a baseline definition for “enjoying the discussion” includes everyone not taking themselves so seriously.
@ Dasmo
Yes, that is my assumption for most people whom paid twice as much for the exact same house compared to their neighbor (they won’t enjoy their house compared to if they didn’t. I say this because we need a baseline definition on “enjoying the house”). You are more than welcome to correct my assumption with empirical evidence.
What we do know is you will enjoy the thought that they can’t enjoy their house because they overpaid for it.
@ Dasmo,
I think we are talking semantics now. My original statement was that it will be very hard for someone to enjoy their house when they know they could have bought if for half the price a year later and don’t break even for 9 years. I wasnt implying this would ruin their lives.
Yes, that makes sense to me, too. I am curious to see how many of these they buy.
Silly Seattle…. dont you realize you’re on the west coast. Price drops dont happen here.
https://www.seattletimes.com/business/real-estate/seattle-area-home-prices-drop-to-lowest-point-in-two-years-down-116000-since-last-spring/?amp=1&__twitter_impression=true
Looks like BCHousing is getting serious about affordable rentals:
I like this idea, let someone else build it and then use tax funds to buy the finished product. Way better than the government acting as a developer/GC imo.
Looks like BCHousing is getting serious about affordable rentals:
https://victoria.citified.ca/news/millstream-ridge-more-affordable-rentals-on-the-westshore-bc-housing-acquires-two-newly-built-langford-apartment-complexes/
Dasmo: So what you are saying is that the two children from hell and the monstrous dog ruined their lives and not the mortgage?
Well, they continued skiing, working, had two kids and a new dog during that time so their momentary “underwater mortgage” might have bugged them but it didn’t ruin their lives….
You have HHV and then you have most of my buyers. Shortly after they buy I get an email
“xxxxxxxxxxxx has unsubscribed from automated listing search service.”
What did 1052 colville rd sell for?
Sold sign up? Still not reported in the system. These sold for 500k brand new.
Well, they continued skiing, working, had two kids and a new dog during that time so their momentary “underwater mortgage” might have bugged them but it didn’t ruin their lives….
What did 1052 colville rd sell for?
Thanks
@guest_55926
i know .. i just have bad way of expressing words 🙁
@ Jamal
I wasn’t trying to argue with you about your math. I was just making sure you have all your basis covered before Introvert and Patrick tries to poke holes. Because then I have to remind them AGAIN that they are not actual home owners but parental basement dwellers.
Haven’t you noticed lately that they been pretty quiet on boasting how they are paying down equity with bags of cash or how stupid bears are for renting amongst other uneducated nonsense.
A mistake by the realtor or trying to get noticed? Looks like Timber Ln. dropped to asking $849k this morning and now I see that asking has “changed up” to $869k where it was yesterday. Kinda funny to see that green arrow after having seen the red arrow.
@ Dasmo
They didn’t let you know it bothered them, that doesn’t mean it didn’t bother them. Most people don’t admit how they are on the wrong end of deal and how they feel about that to others.
Do an anonymous survey for people whom bought SFH in Vancouver the last 2 years and see what results are. I am curious.
If you’d followed the Royal Page optimistic advice and bought in 1990, 26 years later would be 2016 and you’d likely be mortgage-free and own a Toronto SFH outright. Seems like a good place to be. They go for about $1m now. The perfect Toronto nest egg to cash in to move and retire care-free in Victoria 🙂
I never knew Royal LePage’s eternal optimism was so…eternal. Have a look at the bust from 1990 in Toronto, where real prices would not recover until 26 years later.
And look at that – blaming the slowdown in part, on the new GST. And now, it’s B20. Go figure, the more things change, the more they remain the same.
I have a friend that bought in Seattle during the last peak. They didn’t really fret about it and life went on. Then it turned out OK since everything recovered and then their area got even more expensive than others. Not everyone is so obsessed as are the people who dwell here. Not everyone posts on Facebook how much cheddar they are making in RE. Thank god….
“Or you could have bought in the USA at the absolute worst time 2007q1, and lived and enjoyed the house for the last 12 years,”
Patrick this is exactly the type of comment I would expect from a fake home owner (you).
I do not know a single homeowner who would actually enjoy a home when they know they over paid for it over a period of 9 years (with the largest paper loss during that time being close to 50% depending on where they bought). I have a friend who bought a townhouse in Vancouver last March, he’s probably only down ~5% on paper and he’s having buyer’s remorse everyday. God, imagine being down 50%.
Only some one that pays 70/30 interest/principal on a 3.5% 25 year mortgage would enjoy waking up everyday and say hi to their new neighbor whom paid half of what they did for the exact same house next door.
P.S. before you come up with some stuff about why I quoted 9 years instead of 12 years blah blah blah. I said 9 years because they would have likely broken-even around 2016 if they bought in 2007 (given they didn’t just walk away from the house and the mortgage).
if you like to do that – remember to factor in some legal fees – marko or leo can walk you through those
if you really want do that now or the next 2 years ?– well … good luck 🙂
thanks for the heads up – i didnt want to make math to complicated – a 700k valued home probably has a basement that needs reno and rental income is probably around 1300 due to typical 700k property sizing – now lets say you get rental income for 5 years @ 1300$= 78k- and reno cost is nothing more than a cheap paint job and some electrical and patching – 20k
so now 140k +20k -78k – i am still looking at a lost of 82k + inflation …200k loss for the freedom to mow my own lawn does not feel good
Or you could have bought in the USA at the absolute worst time 2007q1, and lived and enjoyed the house for the last 12 years, and you’d (average house in USA) be now up 14%. Or wait, where you could be up 40% if you bought exactly at the trough 5.25 years later (2012q2), and you’ll have 5.25 more years of mortgage payments before you’re done, because you waited. Your choice.
https://fred.stlouisfed.org/series/USSTHPI
2013 $700K => 2018 $761,043.19
Inflation, gotta hate it at times.
https://www.bankofcanada.ca/rates/related/inflation-calculator/
@ Jamal
Given the calculations you provided regarding the $140k loss, in order to break even on selling a house bought for $700k house after 5 years, the home needs to appreciate at a rate of roughly 3.75% per year. Probably a little more because now your paying commission on a $840k house.
Now the biggest driver is interest which correlates directly to how long the home is held for. If flipped right away then only the land transfer and realtor commission needs to be covered (~$30K in your example).
Just FYI, I am sure those alleged “home owners” Patrick and Introvert will tell you not to forget the contributions their basement suite tenants made over the 5 years.
Well that would suck.
It’s probably best to use local historical metrics if you’re going to extrapolate, though I’m wondering if this downturn could have differences.
Unlike previous run ups, interest rates to the floor coupled with some unusual and fleeting global events, came together to drive prices to levels that don’t make much sense. And because of the low rates, the magnitude of the debt involved, I would presume could make it more precarious.
If we look to the United States a decade ago which most people refer to as a housing bubble, the prices didn’t just achieve cyclical highs, they achieved mania highs.
When it rolled over, in almost all cities about 70 to 80% of the decline was within 12 to 18 months. There were of course exceptions, but the 12-18 observation tended to hold up in cities that had the greatest, most aggressive climbs.
Look at our market by comparison. How long would you say it took for prices to go from expensive, to positively insane? I’d estimate, about 18 months. Just a curiously, it really proves nothing.
Anyone looking to buy a principle residence, I would say don’t bother trying to find the very bottom. Luck is the only way you’ll get there. Do wait for the froth to disappear though, and that doesn’t appear to be now.
@ Barrister
Yes, if you un-cache that result it will say $5mill.
I was just showing that since it’s been placed, the price has changed from $2,650,000 (Added to Zolo: Jan 10, 2019) to $5,000,000 (Added to Zolo: Feb 6, 2019).
That is a chilling number. If a downturn like that has started, one would need to wait up to six years from now before buying to avoid losses.
land transfer tax is 1% for the first 200k and 2% from 200k to 2 mil, 3% for 2mil+
assuming 700k property, interest 3.9%, commission 2.5%, 5 year hold – house price does not change
my estimate is 140k loss on 700k property if i bought primary now and force to sell in 5 years @ same price – factoring maintenance and other fees and cost – that is equivalent to renting at 2400$ a month in fees alone – – this exclude the 700$ that you will have to pay into your principle
Yeah Right : The MLS has it at 5 mil. I am wondering if the 5 Mil was originally including a house to be built by the developer and there was a change of heart and they are trying to just dump the lot? Or a simple typo.
Land transfer and commission is a big factor, but the cost of interest is considerably higher.. if you have 500k mortgage on 700k property, you will lose around 100k+ on carrying cost and fees over 5 years.. assuming if selling price is the same
@ CS
Odd, the cached result I see says it was closer to assessed.
$2,650,000
https://webcache.googleusercontent.com/search?q=cache:njXXYlc740MJ:https://www.zolo.ca/victoria-real-estate/3000-valdez-place+&cd=4&hl=en&ct=clnk&gl=ca&client=firefox-b-d
LeoM: I think you just put a chill down the spine of a lot of people.
HOPE STIRS ETERNAL/TLC DEPT.
3000 Valdez Place, 0.56 acres of shady North slope, no view except via your camera-equipped drone:
Assessed: $2.12 million
Offered: $5 million.
Oh, and they throw in some house plans.
My guess is the correction will be several percent per year, probably 5% to 6% per year. Using LeoS’s affordability graph as reference, the average downturn lasts about six years. So roughly that translates to 30% to 36% which will include both inflation and actual price declines. I realize I’m calculating each percentage from the starting value, but that’s intentional to factor in the accelerating decline in the first half of the decline, as is currently happening in Vancouver.
In other words, people who bought from spring 2017 onwards could lose their entire 25% downpayment if they sell before 2024.
Vancouver mortgage renewals will be in the news in 2019 when banks refuse to renew underwater mortgages of people who bought from 2017 onwards with small downpayments.
GWAC: 1150 Timber. Even at close to asking there is a good sized loss when you factor in transaction costs. My rough rule of thumb is that transaction costs are around 5%; does anybody have a better metric?
KS112: It is the norm in the US that if you have a good credit score to be able to seriously negotiate down from the posted rate. Often .50 BPS or more. Even less of a spread on the 15 year rates. Ends up being a small price for security of costs and considering where rates are at now. the odds of rates going up is a lot higher than staying the same.
My point is that this would be a great advantage to first time buyers in particular and our standard mortgages would still remain available.
https://www.zerohedge.com/news/2019-02-06/why-are-increasing-number-high-income-americans-shoosing-rent
I had thought the upper ceiling would be $850k. Now mind you, that’s not what I think the actual value of the property is. Very few sales around here and given the house location (corner of Timber Ln & Cordova Bay Rd), condition (little bit of lipstick there) and slow market, I’m now thinking they might get $810k. 4878 Cordova Bay Rd as a comp is a significantly better value with a ready to go, above ground suite and it is pending at $855k. So yeah… I’ll go with $810k (for now)
With the flattening of yield curves, the differential between variable & fixed has gotten much smaller. When I bought my house in 1993 in the U.S., 30 year fixed were still around 8%. We picked up a 10-1 (fixed for 10 years and then variable with annual change and a 30 year term) with the teaser rate of like 5.25% (going from memory here). The plan was to pay down at year 10.
Maybe. Maybe not. All depends on the mortgage terms. Some you could pay off early and some have prepayment penalty clauses. That 10/1 I listed above, I could not prepay in the first 10 years without penalty but thereafter could prepay without penalty. Now that’s not to say I couldn’t refinance but generally that comes with the same lender. Some lenders require upfront points (percentage of mortgage) in order to gain those favorable clauses such as ability to prepay the mortgage. You have to weigh those upfront costs when considering which mortgage product is right for you. Again – all depends on what’s in the contract.
Oh one other thing to note that if the person missed a mortgage payment or was late (again look at contract) at any point in time they may lose the right to prepay that mortgage. If they can get out of their contract, they may find that they can’t find a broker/conventional lender who will touch them.
You always have to qualify for whatever rate you’re looking at. The 30 year fixed gives a lot of mental “comfort” to those who need or want that. You always know what your mortgage payment will be. It does come at the expense of a higher rate as expected. I was appalled when I talked to a mortgage lender here and they told me what my upper limit was for a mortgage. The multiples here are crazy! 8x earnings is an unheard of number for conventional lending in the U.S. at least when I lived there. I just checked a U.S. lending site and it would appear that normal numbers are more like 4 or max 5 times income and that’s on a 30 year term fixed rate mortgage.
So for those who think it’s all rainbows and unicorns in the U.S. mortgage market, do know that everything comes with an asterisk. It just depends on what’s in the contract.
forgot for a second why i stopped responding to you.
@ Patrick
There is a phrase: “Bulls make money, Bears make money, Pigs get slaughtered”. Care to guess which on you are? oink oink
https://www.bcassessment.ca/Property/Info/QTAwMDBIUTFTMA==
Sold in 2018 so it looks like a loss is going to happen
1150 timber
Yes, all the net worth data presented is bad news for the renter-“investor”-bears here who advocate the idea that you can make the same or more investing in stocks. Sounds like a good idea, just doesn’t seem that the results have been so good, despite a long term world stock bull market (up >100% last 5 years https://finance.yahoo.com/quote/XWD.TO/ )
@ Renter In Paradise
Looks like, this place has dropped their price again, want to guess how much it sells for?
https://www.realtor.ca/real-estate/20236556/4-bedroom-single-family-house-1150-timber-lane-victoria-cordova-bay?
@ Patrick
Just give it a break, go upstairs and vacuum your parent’s living room. After that you can learn how to use a mortgage calculator so next time you don’t go preach on an internet forum about how given that you’re a “home owner” you know that a $500k, 3.5%, 25 year amortizer mortgage is 70/30 Interest/principal at the start.
Different data sets, but that would mean that net worth outside of real estate decreased to $440,000 in the last 2 years.
@ Barrister
No I have not looked at the mortgage rates in the U.S when i made my previous post. However, even with those low rates and the ability to lock in for 30 years the U.S home sales are still sliding downwards. I just had a look now and this is what I found:
https://www.bankofamerica.com/mortgage/mortgage-rates/
Looks like there is a 75bps delta between the 5 year and the 30 year. Or for comparison purposes it could thought of the 30 year mortgage has a rate that is 21% higher compared to the 5 year rate in relative terms. So yes this difference is less than that of our stress test, however the difference still exists.
Patrick,
You try a little too hard buds.
Great point. Having a fixed payment for the entire term of the mortgage simplifies it dramatically.
One question I have. My limited understanding of US mortgages is that it is also possible possible for US mortgage holders to refinance if rates drop. Amazing! What a country! So if you sign up for 5% for 30 years, and rates drop, you might refinance at 4% (your choice, not forced upon you by the banks!) . In Canada you’d pay big penalties for that (so you wouldn’t save any money), but from what my friends tell me, there aren’t those big penalties in the US. How is this possible in the US- some lender on the other side is losing out on that (the bank or whoever holds the note)
Great post LeoS. Thanks!
The net worth data presented was from 2016. There is 2018 data from Environics (Wealthscapes) on the same topic.
Wealthscapes Environics reports(* ) higher numbers in their 2018 report (2018- $1.1m average for BC, vs 2016 890k).
https://www.environicsanalytics.com/en-ca/resources/news/2018/09/17/canadians-are-starting-to-feel-the-sting-of-rising-interest-rates
Of course comparing two data sets like this can be apples to oranges. But the wealthscapes data is newer (2018) and they do have the newsworthy headline that average BC household net worth exceeds $1m, and no other province can make that $1m claim! Obviously a big % of all this net worth is RE, 60% in the Wealthscapes data, and even higher % of the growth in net worth.
This is something all BCers can raise a glass to. We are the first and only province with $1m net worth average, and blew by it to $1.1m. Take that Ontario and ROC!
Whatever the number for average BC household net worth, to apply it to Victoria homeowners (61% of households own in Victoria , typically the richest), and then applying it to Victoria (richer than BC average), there would need to be a significant multiple applied to that $1.1m Wealthscape number to get to 2018 net worth of an average Victoria house owner. statsCan data on incomes and net worth divided into quintiles show the uneven distribution of wealth in Canada. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110004901. Also, all these net worth numbers presented are averages, and medians are about half that https://www150.statcan.gc.ca/n1/daily-quotidien/171207/t001b-eng.htm.
KS 112: Have you looked at mortgage rates in the US. Do they look significantly higher to you?
@ Barrister then the buyer would have a higher rate for the long duration mortgage to begin with unless the yield curve completely flat or inverted. End of the day the buyer still most likely has to qualify at a higher rate than the current variable/5 year rate.
I would be a lot more impressed with the government if they instituted 30 or 25 year terms like the standard mortgage in the US. Then you would not have to have a stress test since your mortgage would never be impacted by increased interest rates.
Duran Duran: The other side of the coin is that in the last ten years almost all of the increase has been in housing. Also if the numbers are not adjusted for inflation then a very different picture emerges.
Since 2005 it says. There was a significant non-RE wealth gain from 1999 to 2005
Just a small correction –
In the wealth chart you state that ‘almost all’ of the net worth increase is from RE. If I’m reading the figures correctly, it looks like average goes from $400k in 1999 to about 890k in 2016. The orange bar looks like it goes to 525k or so, a gain of over 31%, which isn’t exactly negligible. Also, market gains in 2017 and 2018 were high, probably greater than the relative RE increase in those years.
So, yes, RE is a large percentage of British Columbians’ net worth increase since 1999, but probably not ‘almost all’ of it. It follows that a significant proportion of ‘the wealth effect’ is due to RE, but again, not all of it.
Yup that’s the one I’m thinking of. I actually have no problem with 30 years amorts. We have one and it is great to have the flexibility. As long as the stress test remains I have no objection to it.
Very good point. Right now the downturn is a moderation and public support for that is very high. If the downturn starts getting more significant and affecting all owners, public support will quickly turn around. At that point the government will likely remove some of the measures they have instituted. Of course it may be too late as the slide can take on its own momentum. It’s a tricky balance for any government but they have a chance of pulling it off. Start with taxes until it turns over, then invest hard on new affordable supply that will stimulate the economy and provide the units that are needed. I know bears don’t believe in soft landings but I do think they can be engineered if the market isn’t completely out of control yet (which Vancouver might be, but I don’t think Victoria is)
Anybody have the guts to put their guess on the correction in this market before the next leg up.
From here 5% down…on the HPI index SFH 847k Jan
Come on????
Can’t wait for Patrick to promote how the high net worth of Victoria folks will indeed support home prices in this thread.
Is the average net worth chart adjusted for inflation? If not, then this is not a very pretty picture.
Great article. I agree with your observations that wealth effects tend to encourage spending and vice versa. So as a citizen you have to hope that the policy makers see this and model the economic effects of their decisions. Many times Carole James has stated that they did not do any modeling of their taxes & policies nor consult with anyone in industry.
Even though their aim is to balance a market (and the results are clear it is working), looking at the 1980s it is also clear that sometimes governments pull the lever too far, and too fast, resulting in massive shockwaves to the entire economy. I hope B.C. is spared from that because it can impact an entire generation’s outlook.
Thanks for the post Leo.
Here is the bone you were mentioning.
https://www.theglobeandmail.com/politics/article-morneau-taking-close-look-at-return-to-30-year-insured-mortgages/
We all knew this was coming but this seems a little fast moving. Morneau has quite a few friends at the bank so we can safely assume they are lobbying for this and may be in a lot more trouble than it looks from the outside. Marketing it as a favour for first time home buyers and millennials reminds us that an election is around the corner. It’s unfortunate that a move like this will just ensnare more people into massive debt servitude while banks get to keep the doors swinging open.
Comic of today. Seems in tune with the recent comments of the last article.
Good article.
Great summary.