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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

January 7, 2018 | The Exodus

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Seven years ago Joan and her fresh husband decided not to buy a condo in Vancouver. “We did the math and got the willies thinking about dumping all our savings and salaries into a mortgage, and backed out of the offer.” Since then the same condo’s risen in market value by $190,000, she says. But Joan’s eyes are wide open.

“In that time we’ve managed to save $250K, which is in a nice diversified portfolio being managed by a fee-based advisor. If we had bought we would certainly have all that equity, but we would have missed out on the following:

  • Quitting our lousy jobs and going back to school so we could pursue better career opportunities; our combined income is easily double what we were making then.
  • Several vacations including South Africa, Costa Rica, the Dominican Republic, London, Mexico, 3 months of backpacking in Southeast Asia and numerous weekends to the USA. Yes, we are spoiled millennials.
  • Having enough savings for me to extend my maternity leave to 18 months without any financial stress.”

The first lesson Joan brings us is about balance. You can succumb to the siren call of real estate, bury your entire net worth in a single asset, swallow indigestible debt and pray values keep rising to bail you out, that you don’t lose a job, don’t get pregnant, don’t renew at a higher rate – or you can rent, save, invest and enjoy a less-stressed life. As a society, we’re obsessed with home ownership. The sacrifices made to own the same condo you can rent for half the cost are legion.

But Joan brings us more. Perspective.

“We’re now at a crossroads… our baby is 7 months old and even if I can find a daycare space for him, it’s going to cost us $2000/month. We are grandfathered into our rent at $1850/month so it’s affordable, but finding more space is in the $3000+ range — I had hoped an empty homes tax would create more availability in the market but I haven’t seen any indication of this.”

“It seems like all we talk about with friends is housing uncertainty — even the ones who did get in early are now stuck where they are, as they cannot possibly upgrade. While I have no expectations of having what my parents did (built their own home in the burbs by age 30, followed by 3 kids and a stay at home mom), it’s become incredibly frustrating watching our careers grow but falling further and further behind. We cannot afford even an average place to rent OR buy, while making well over double the average household income. Our landlord is a sketchy dude who randomly says the owners are thinking of selling at least once a year, not the kind of stress we feel we deserve after 4.5 years of paying rent to these jerks. The psychology of Vancouver is depressing these days.

“So we’re planning to leave. A lot of friends are leaving, too – Victoria, Comox Valley, Penticton, Kelowna… wherever they will not be punished for starting a family and there are job opportunities, including being able to try out starting your own business. AND the added benefit: even if housing is still overpriced, at least you can get into a space large enough to stay forever so you can stop worrying about the market and never deal with housing uncertainty again.

“We’re mid 30’s, so I can only imagine how much more frustrating this situation is for people in their 20’s. This got me thinking: what happens when all the when all the young people leave the Lower Mainland? I remember reading a stat early last year that a few thousand millennials left Metro Van in 2016. I’d be curious to hear your thoughts on the economic impacts of young people picking up and leaving for greener pastures, perhaps in a blog post?”

Census stats show Vancouver lost about 9% of residents between the ages of 35 and 44 in the last decade. This is a combination of stupid housing prices, caused by rampant speculation, and biology, says a UBC prof. The twentysomethings are happy to rent, be flexible and mobile, believes Paul Kershaw, but “then, they start running into their biological clocks.”

Couples delay having kids until they’re in their thirties when the nesting instinct – coupled with our tribal addiction to home ownership – sends them daily, frenzied, to realtor.ca. Then reality hits home. Detached houses have become unaffordable in Van or Toronto, and who wants to raise a family in a one-bedder concrete box overlooking needle park?

The deluge of capital into residential real estate since the credit crisis of 2008-9 has changed the nature of living in many of our largest cities. As financial markets temporarily tanked, politicians panicked. Rates were slashed to historic lows. Absurd housing incentives were created (0% down, 40-year amortizations). Governments encouraged over-borrowing and inflated house values as the easiest path to economic revival. And then the speculation and house lust started. Now we have average homes average people cannot afford.

But not everywhere.

Joan is wise to leave YVR. The city’s quality of life is fading as its citizens become property junkies and its leaders willfully create class warfare over real estate. How do people’s lives expand and enrich when they’re living an endless Groundhog Day of mortgage and maintenance charges, with all of their wealth in one thing at one address, devoid of choices, shackled to a deed?

These days many places offer hip cafes, vibrant entertainment scenes, startup enterprises, plus cultural, learning and arts centres at the same time more jobs are web-based, eliminating the need to cluster in high-rise urban boxes. The average house costs $298,000 in Halifax, $330,000 in Montreal, $325,000 in London, $260,000 in Windsor, $370,000 in Edmonton, $369,000 in Ottawa, $501,000 in the Okanagan or $259,000 in the most beautiful city in North America, Quebec.

Or, you can buy this Van heap for $1,478,000.

Joan knows. Vancouver is pooched. It will take years of housing correction for the city to restore. In the meantime the conflict, despair, anger and finger-pointing will continue between those who won the housing lottery and try to hang on and the disenfranchised who envy and hate. Get out of Dodge. Bring your mittens.

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January 7th, 2018

Posted In: The Greater Fool

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