Most unaffordable housing market in the world? Vancouver.

[Greenstoner]

^ freaking awesome article that you wrote

[too_slow]

"Chuck Norris does not know where you live, but he knows where you will die."

Epic post by Chuck ..

[taylor192]

Originally Posted by Chuck Norris

First, the job market here for professionals is very weak.

I agree. I am a software developer and expected the market in Vancouver to be decent after the stories I've heard of EA and other companies, plus Seattle (Amazon, Microsoft) is just accross the border. What I found is the industry is weak here, and consider myself lucky to have found a great job.

Originally Posted by Chuck Norris

Vancouver's claim to fame right now is the Olympics. Time will tell if it is going to be the success that was promised to us, the residents of the city.

I don't think we need time to tell. I play sports with many 25-35yos, and the recent talk is of when people are moving home. They moved here from across the country (and some from other countries) to take advantage of the booming economy before the games, and stay for the festivities. They already see the economy cooling, and have plans to move back if conditions worsen.

Some never planned to stay. The city is too expensive to raise a family, and they plan to enjoy their time here while it lasts, then settle back where they came from.

Originally Posted by Chuck Norris

When I used to travel to Winnipeg for example, people there said they couldn't stand living in Vancouver due to all the cloudy and rainy weather. They say it's depressing and I would have to agree.

Of my 5 friends and 2 family members that moved to Vancouver, only 2 friends remain. The rest warned me against SAD.

Originally Posted by Chuck Norris

My mortgage payments at the time were $1500, my strata and bills took that up to $1700. That still left about $1300 a month to enjoy life as a young man after taxes.

I was renting the place out for $1300 a month but I was working in the US

This is an awesome example. In 2000, 10 yrs ago, you were renting for a $400 loss. The market has only gotten worse since then, and rents have not skyrocketed with housing.

Originally Posted by Chuck Norris

4% to 8% is the same ratio as 9% to 18%. Percentage ratio increase is what's dangerous.

Good point, I had not considered that.

I don't think they'll hit 8%, 6% is very possible.

Originally Posted by Chuck Norris

That said, as long as people are willing and can pay, people will pay. Can you afford a condo right now in Vancouver? Could your parents afford the home they're in if they had to buy it at the prices today?

The only one who can answer these questions are the actual buyer.

I would love to know why some buyers are snapping up condos to rent. The only way they can be making money is by leaving a huge downpayment, which would be better invested elsewhere.

[Chuck Norris]

Originally Posted by taylor192

This is an awesome example. In 2000, 10 yrs ago, you were renting for a $400 loss. The market has only gotten worse since then, and rents have not skyrocketed with housing.

Correct. This was the bear argument earlier this decade. The price/rent multiple was not within historical norms. Keep in mind my mortgage was over 25 years and the interest rate was higher. If I refinanced last year on a 35 year term I would have been sitting really well. The fact that rents haven't moved forward too much in the last 8 years would suggest that if rents are at the maximum for affordability, why should the price of ownership?

Originally Posted by taylor192

Good point, I had not considered that.

I don't think they'll hit 8%, 6% is very possible.

I'm sure you know of plenty of people who have locked in or are on a variable in the 2.5-3% range. 6% is enough. 8% is nothing too crazy however I do agree that it's not going to be going that high anytime soon.

Originally Posted by taylor192

I would love to know why some buyers are snapping up condos to rent. The only way they can be making money is by leaving a huge downpayment, which would be better invested elsewhere.

Monkey see monkey do. I already admitted I copied what others did. We don't go back Taylor but I know you enough from the forum to know you're self aware of the general thoughts on the market. We all know of at least one person who made a lot of money in real estate over the last 5-10 years and sooner or later, people want to get in on the action. Someone has to be last.

Like I said, I had no idea things would have gone the way they did. I knew when I purchased there was going to be capital appreciation but I never planned on making as much as I did.

People might hear my story and think "I want to do it to!" and they will get involved but past performance is no indication of future performance. Take my trading for example. I made money but plenty lose it. A few poker players make money but most do not.

I'm not trying to discourage anyone but the fact is markets have cycles and being patient and waiting IS an investment strategy

[q0192837465]

CMHC - Canada's Breaking Point
Posted on 11:17 AM by Jonathan

(ALL GRAPHS EXTRACTED FROM CMHC PUBLICATIONS)

Everyone here is probably very well aware of who CMHC is. For any international visitors, CMHC was formed as a crown corporation in Canada after World War II to address the shortage in housing. It's mandate was to make home ownership accessible to all Canadians. CMHC primary deliverables is mortgage insurance and mortgage backed securities. Think Fannie and Freddie.

In 2001 GE Capital was permitted to join CMHC in the Canadian mortgage insurance industry to provide competition in the marketplace. GE Capital began insuring Canadian mortgages and issuing NHA-MBS (Mortgage Backed securities insured by the Government of Canada). In response to competition, CMHC began its trip down a new road.


In 2002 total outstanding mortgage debt in Canada was still a cool $467 billion. This was predominantly issued to good credit and people with proper downpayments. CMHC insured a small portion of this debt.

In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.

In 2007, after years of lobbying, the now defunct AIG found new hope with the newly elected Conservative government. AIG was now permitted to insure high risk Canadian mortgages. It was also permitted to issue mortgage backed securities and exchange these on the open market. At the same time, the Conservative government launched a radical policy that allowed CMHC, AIG & GE to insure 35 year ams and 0% down payments. A few months later this was expanded to 40 year amortizations.

Thanks to this stimulus in 2007 the market radically changed. Historically high home prices continued to gain steam. High risk borrowers flooded the real estate market. Throughout 2007, the average home buyer who took out a mortgage had only 6% equity in their homes. That's the national average downpayment for all mortgages including buyers who moved up.
(2006 and prior years reflect a combination of larger downpayments, home price appreciations, payments on mortgages and shorter amortization terms)

In 2008, Canadian home prices started to dip as affordability became the worst on record in many cities. CMHC admits that it was ordered to approve as many high risk borrowers as possible to prop up the housing market and keep credit flowing. 42% of all high risk applications were approved, a 33% increase over 2007. (Please see matrix below for more information)



While many banks were flogging that it was a great time to buy a home, not one of them increased their mortgage holdings. Between the beginning of 2007 and 2009 Canadian Banks increased their total mortgage credit oustanding listed on their books by only 0.01% (see CMHC chart below). One has to question if real estate was such a great investment, why didn't they want to touch it?



The only growth has been in the securitization of Canadian mortgages. In Canada this scheme has worked very well despite the credit crisis since the government of Canada insures 100% of any losses (not just the 20% downpayment). This means that the securities are as secure as government bonds, yet pay a higher premium (currently 3.1%).

The banks get to keep the difference between the interest rate charged to consumers and the rate paid to investors. The result of a government backing is cheaper subsidized funds for them to issue mortgages with. It also removes all risk.

The largest market for MBS is 5-year fixed single residential homes. The average term has swelled over the past two years and the majority of issues are for ams over 30 years. Some pools of MBS were issued at 9% but pay investors only 4% - representing how risky and profitable these loans are. CMHC charges 0.2% for the insurance, leaving up to 4.8% profit for the bank.

Securitization has accounted for 90.5% of all growth in total Canadian mortgage credit outstanding since 2007. Its market has grown from 100 billion in 2006, to 130 billion in 2007, to 260 billion by Q1 of 2009 (UPDATE: $295 billion by mid-June 2009). CHMC plans to expand securitization of debt to 370 billion by the end of 2009 as per the conservative government request.

All of these securties are traded on an open exchange and insured by the Government of Canada. Currently TD issued 59 billion in securities outstanding, CIBC 51 billion, BNS 32 billion, RBC 45 billion and BMO 27 billion. This explains why, if you are like so many, your eye balls popped when the bank preapproved your mortgage. Many individuals are being granted 500-800K for their first home purchase if their household income ranges from 110-170K. The banks don't care. You either qualify for securitization or you don't. Their is no emotion or extra thought put into the loan by the bank since it bears zero risk. Investors don't care who you are since the security is backed by the government. In fact the only person who should care is you, the taxpayer. But apparently in Canada noone cares about the risk the taxpayer takes on. It's all about having a lavish political career.

As interest rates edged up about a percent in early 2008, Canadian real estate began to nose dive losing 10% of its value by September 2008. 10% is a significant confidence level in real estate. Surpassing it means that all the buyers in 2007 would move into negative equity. Cranking interest rates down to 0% in October of 2008 along with the expansion of government backed securities allowed mortgage rates to reach an all time low. The resulted in a house boom in the middle of the worst Canadian recession since the Great Depression. Home prices in May 2009 reached an all time high of $326,613 or over 7x the average Canadian income.


On Jan 1 2009 CMHC allowed non regulated financial institutions to issue mortgage backed securities. Furthermore on January 26, 2009 CMHC allowed the securitization of line of credits, non amortizing and amortizing loans and readvanceable loans to also be securitized.

CMHC indicates in its plan that it will insure $813 billion via a combination of mortgage insurance and mortgage-backed securities (MBS) by the end of 2009. Looking at 2008 and 2007, one can clearly see that CMHC has drastically exeeded their planned figures. 812 billion is more than likely a minimum target. At this rate the Government of Canada will be insuring well over $500 billion in securitized mortgages and lines of credit by the end of 2010. It will also have issued over $600 billion in outstanding mortgage insurance.

Even at the zenith of the US housing bubble, prices peaked around $230,000 US while incomes were around $47,000 US. In Canada, incomes are $44,000 and prices are now at $326,613. If I have evidenced to you at this point how risky our lending has been, how are we so different than America? One might even say that we are much worse.

None of this is sustainable. This will all end very badly for our nation and taxpayers in the next couple of years.

I stole this off RFD. It argues that the governemnt's policy is not helping the steam in the real estate bubble. A US stye meltdown is possible.

As for BC's housing, I was talking with a client who's quite involved in real estates. He points out that one of the reasons, among many, why the sky high housing price is "sustainable" is due to endless supply of drug money. The original report on the first page is a comparison of median income to house prices. However, tons of illegal money are not accounted for. So even though housing is too expensive for locals, there are still money in the system to back it up. Take it for what it's worth, I just wanna throw it out there for discussion purposes.

I like to think of Vancouver is a debenture. There's no real industry backing up economy. All you can count on is its credit worthiness

[goo3]

I may be wrong but here's why I think there's no high paying jobs here: We don't have any big employers who make big ass profits. It's all small biz or small sites of big companies from some place else.

[talentoverrated]

Thanks for the great reads Taylor and Chuck Norris!

I can really relate to what you guys are talking about in that my dad, uncles, friends' parents, etc. came from China in the 1980's, invested in Vancouver's real estate and are now all millionaires (doesn't even include monies earned from their dayjobs); not because they understood the industry (and they don't claim to *cough*). They understand that they were in the right place at the right time, and I know many others that are trying to duplicate their successes ATM and are struggling financially like crazy LOL.

Can you guys give us some reading recommendations? Thanks!

[Ferra]

At the end of the day, everything will depend on how the market move, and there is no way to tell for certain how it will move.

People think vancouver housing is overpriced now, but they also thought it was overpriced 10 years ago. So perhaps it is, perhaps it is not?

There are people like taylor192 who believe with 100% certainty that price will go down a lot. While there are others who believe it could only go up.

I think everything we know and believe are already reflected in the market value, so whether you take the invest money + rent option or the buy option, there is always a 50% chance you will do better or worse than the other option. It all comes down to you luck.

[Tapioca]

Originally Posted by goo3

I may be wrong but here's why I think there's no high paying jobs here: We don't have any big employers who make big ass profits. It's all small biz or small sites of big companies from some place else.

Vancouver used to be a base for the logging and forestry companies, but we all know what's happened to that industry.

I don't think having big companies necessarily means that you won't have decent to large salaries. Anyway, I'd like to know what's considered a 'large salary' - Chuck Norris' 200K USD? 40k? 60K? 100K?

Mind you, there are a lot of cash 'businesses' out there and much of that income is unreported.

[penner2k]

Have you thought about buying up property in the states right now?
I've heard stories of condos in Miami that were over a million a couple years ago are sitting around $300k right now. Sure if might take a couple years but I'm pretty sure those places will be around a million again.

[Wetordry]

The Vancouver market is built and hyped up by foreign cash and drug money.

Its the cash injection from these two sources that drives this real estate market or any other market really.

Vancouver is similar to Miami back in late 70's early 80's. The housing market will only "burst" or "crash" if the cops have some sort of handle on this drug trade.

[Tapioca]

Originally Posted by Wetordry

The Vancouver market is built and hyped up by foreign cash and drug money.

Its the cash injection from these two sources that drives this real estate market or any other market really.

Vancouver is similar to Miami back in late 70's early 80's. The housing market will only "burst" or "crash" if the cops have some sort of handle on this drug trade.

Actually, the more enforcement there is, the higher the stakes become and thus, the potential profits are even higher. The biggest dagger to the drug trade (and a large chunk of local ecnonomy), ironically, would be legalization of drugs. This of course would never be palatable politically, nor would it make sense from a public policy perspective either.

[achiam]

Damn. You boys all about to buy land. That's straight ballin'.
Unfortunately this is my total net worth. True story:

[twitchyzero]

love the discussion in this thread
chuck norris and hypa's accomplishments by the time they hit 30YO is quite impressive but I'm still on the skeptical side with taylor
it encourage us young folks of what we're capable of doing but at the same time puts us to shame that our income and the market value is messed up.

[seakrait]

new mortgage rules released by finance minister jim flaherty today:

http://www.theglobeandmail.com/repor...rticle1470117/

http://www.canadianmortgagetrends.co...n-the-new.html

thoughts?

[Carl Johnson]

I couldn't speculate how this would affect the housing prices in general. However, it does shows that the Government has plenty of tools in their arsenal and they are not afraid of deploying them in order to slow down the housing market.

[J____]

Originally Posted by too_slow

^Werd.

The key thing here to remember is that you're buying the place to 'live' in, not to flip. We're living in 2010. The realty market has changed drastically in the last 25 years. You cannot assume that you'll make a killer a profit when you decide to sell your property in say 15 years. Let's say the assessment of your property went up by 30% overall. You're still barely breaking even, if you factor in ALL the interest payments you've made to the bank (this may not be true if you subletted your place; but good luck keeping a roomate in the house when you have a wife and kid).

Anyways, I'll cut the crap: but if you're a first time buyer, remember this:

You have good points but i dont agree with this. A piece of real estate should ALWAYS be viewed as an investment. Yes the times of easy flippings are over but you priority should still be focused on being able to sell in the future for a higher value. I bought a 1600 sq ft condo last year focused on the priority of living in it. Fantastic location, good structure, nice place. But after a year, and adding the numbers (as well as finding hidden discoveries), I am regretting coming in with the wrong mindset. If i came in with the thought of investing, i wouldnt of bought this place, instead bought a 'less' cool place to live and have it worth more and easier to sell this or the up coming years.

That being said, no one is saying you cant live in your investment or you have to come into a purchase thinking to make a killing because those are false assumptions. However do always go into a real estate purchase with the idea of selling it in the future and you will find yourself having a decent return.

Im currently looking for another property, but waiting till after the games to see how things go haha.

[J____]

Originally Posted by goo3

I may be wrong but here's why I think there's no high paying jobs here: We don't have any big employers who make big ass profits. It's all small biz or small sites of big companies from some place else.

yup, because vancouver is a service market. the tax....

[J____]

Originally Posted by penner2k

Have you thought about buying up property in the states right now?
I've heard stories of condos in Miami that were over a million a couple years ago are sitting around $300k right now. Sure if might take a couple years but I'm pretty sure those places will be around a million again.

if you can straight up pay cash, then it would be a good opportunity. But with the US economy the way it is atm, no one with money is willing to risk it.

[willystyle]

Originally Posted by penner2k

Have you thought about buying up property in the states right now?
I've heard stories of condos in Miami that were over a million a couple years ago are sitting around $300k right now. Sure if might take a couple years but I'm pretty sure those places will be around a million again.

Originally Posted by J____

if you can straight up pay cash, then it would be a good opportunity. But with the US economy the way it is atm, no one with money is willing to risk it.

Unless you're planning to pay for the condominium for straight up cash, it's virtually impossible for foreigners to obtain a U.S. loan at this point in time.

[Ducdesmo]

Originally Posted by seakrait

new mortgage rules released by finance minister jim flaherty today:

http://www.theglobeandmail.com/repor...rticle1470117/

http://www.canadianmortgagetrends.co...n-the-new.html

thoughts?

Won't affect much...nothing bubble bursting, but it's something. Almost like "putting a bandaid on a third degree burn".

[LiquidTurbo]

I only just found this thread read every word of it. Awesome thread!

My question is: What advice would you give to new grads ? (as I'm sure there is a lot of them?)

What is a general path to follow for someone starting out w/ their first full-time career job?

[q0192837465]

Originally Posted by LiquidTurbo

I only just found this thread read every word of it.

My question is: What advice would you give to new grads ? (as I'm sure there is a lot of them?)

What is a general path to follow for someone starting out w/ their first full-time career job?

Save like your life depend on it. Scrap ur smart phone plans, stop eating out, pay off ur debts ASAP, get a yaris if u really need a car, if not, take the bus, forget about brand name clothings, live with your parents until they kick u out.

Simply put, live life like a bum and save every penny you can save. If you can do that, u should be on the right track in ~ 5 years.

[4444]

Originally Posted by q0192837465

Save like your life depend on it. Scrap ur smart phone plans, stop eating out, pay off ur debts ASAP, get a yaris if u really need a car, if not, take the bus, forget about brand name clothings, live with your parents until they kick u out.

Simply put, live life like a bum and save every penny you can save. If you can do that, u should be on the right track in ~ 5 years.

not really - who says you should live in vancouver? its totally unaffordable for no real reason

i earn good money, could afford to buy the place i rent, but why, it'd cost me between $500 and $1000 a month MORE to pay interest + principal (depending on if i go closed variable and get raped in a year or 2, or fixed 5 year)

you could argue capital appreciation, but i think we're not in a position to see large capital appreciation over the next 5+ years

so i'll enjoy my extra $500 - $1000 a month, and spend it on things such as a) investing/starting businesses/ventures and b) enjoying life - i've worked hard to where i'm at, might as well enjoy it (within reason)

i'm also considering moving to so.cal, a place with much nicer weather, more career opportunities (in my field), and a much more realistic cost of living (i've lived in LA before, so know what i'm getting into, i love it down there, before all the typical canadian responses of 'oh its america, there's no economy down there' - trust me, there is, and its much better than vancouver's small minded economy)

[no_clue]

^ you do realize that it is very hard nowadays to get permanent residence or sponsorship. Im looking to move as well, to irvine. And keep in mind that although there is plenty of more opportunities, there is also 10x more competition

I noticed that when you go to a major US city that has a fortune 100 company headquartered there, everyone is a go-getter and everything is so fast-paced and busy, not chill like hippy vancouver. I also noticed that when you meet americans, the first thing they ask is after greetings is usually, "what do you do for a living?" Canadians usually talk about hockey or current events

Homes are definitely cheaper in the states, but be wary of property taxes. I was looking at a lakefront home in texas, only $430 000 for 4bd + 3bath. but the property tax was around $8 grand. But still, better than anything in the lower mainland.