Give Me Back My Five Bucks

Currently browsing: property

Thoughts on our open house tour

Last weekend, our Realtor took us on an open house tour in our desired neighbourhood. We wanted to see in person what we could afford, and what we actually wanted in a future home. Because it’s fine to start jotting down a list of condo requirements, but it’s completely different to actually be in the space and figure out exactly what you want.

I mentioned on Twitter a few weeks ago that our mortgage broker said we’d be pre-approved for an $850k mortgage. We both have good jobs, no debt, and a nice down payment, but still I couldn’t help but be shocked. I thought it would be much lower considering I only got approved based on income from my full time job, and didn’t take into consideration my average freelance earnings over the last 3-4 years. In what world would anyone be able to pay a $3,700/month mortgage?

The rule of thumb is that the cost of a home should be no more than three times your gross household income – which would put us firmly in the $475-500k range, which felt a lot better.

So we settled on looking at places in the $400-500k range (which is just a step above entry-level in the Lower Mainland lol) and picked a list of places to look at.

The first Open House was for a 2 bed/2 bath condo listed at around $400k, and it absolutely shocked me. There were literally dozens (!!!) of people lined up to view it by the time we got there. No joke. They had to take people through in waves because we all couldn’t fit at the same time … and who knows how many saw it in the previous 2 hours of the Open House. After we saw it, my Realtor said the condo probably should have been listed at closer to $475k, and we found out later that it eventually sold for well over $500k. Okay… moving on.

After that one, we saw a mix of other condos – some in more “entry level” buildings, some that were used for rental income (one tenant just sat on the couch while we poked around … which was weird), a beautiful (but small) condo in a heritage building, and a nice warehouse conversion loft.

Here are some observations I took away from that day … most of them didn’t come as a huge shock, but it was interesting to see with my own eyes:

  • There were a lot of young people with their parents. I don’t know if it’s because their parents were co-signing, gifting money, or if they just wanted their parents along, but I was definitely surprised.
  • One of the listing Realtors commented that he was seeing a lot of activity from younger buyers because they’re wanting to take advantage of the BC Government’s Home Partnership program, which provides loans up to $37,500 (or up to 5% of the purchase price) which are interest-free and payment-free for the first 5 years.
  • Most listings were going to multiple offers.
  • Most listings were being sold above asking price.
  • Since most people are getting priced out of the detached housing market here in Vancouver and the surrounding area, that’s putting a lot of pressure and competition on the condo market.
  • Most condos seem to be selling within 7-10 days of being listed. FAST. Not at all like when I was buying my first home back in 2011.

Personally, I was a little turned off by how competitive the market is. I’m annoyed at how listings are purposely priced low in order to push the price tens of thousands of dollars above asking. I hate the idea of multiple offers and bidding wars. I hate how crowded and busy Open Houses are. And I hate that look of desperation I can see on the faces of prospective buyers.

But I also see how easily it can be to get carried away. Emotions get involved when it comes to buying a home, no matter how much you swear you’ll think and act logically … and when you’re faced with a decision to bid $5-10k more or risk losing your “dream home,” all of a sudden it doesn’t seem like such a big deal to slap some more debt onto your back … even though $5-10k could represent an entire year (or more) of savings.

I know that RD are lucky in that we can afford to buy exactly what we’re looking for, even in this over-heated market. But it doesn’t mean that we’re going to. Maybe we’ll end up buying this year, or maybe we’ll just keep watching the insanity from the sidelines.

The crazy Vancouver real estate market

houseWe lovingly refer to our laneway house as the servant’s quarters, as it sits on top of a garage in the alley behind what is essentially a $3 million home. I’ve never been inside the main house, which looks very big and lovely from where we are. But we’ll never buy a home like that in Vancouver.

Related: We will never be homeowners in Vancouver

That’s why when we saw a piece of property in our neighbourhood being developed into multiple units, we were intrigued. I pass it every day on my way to work, so it’s been interesting to see the progress and speculate on how much it would cost to buy. From what I can tell, the property is divided into one stand alone unit (the laneway), and the main house is being sold as four separate units (two 1-bed units, and two 3-bed units). This is the only way in Vancouver to actually buy a laneway house – you’re essentially buying into a small strata, where you have to pay monthly maintenance fees towards the upkeep of the common property. You can’t buy a laneway house outright.

Related: I live in a Vancouver laneway house

Anyway, I was mostly interested in how much the laneway house would cost, as it’s the kind of place we are living in now. And since neither of us are interested in a big house or a big mortgage, we both agreed that the perfect sized house for us in the future would be about 900-1000 sq.ft.

Okay, so the new laneway house is nicer than ours. It’s 2 bed + den/2.5 bath and 1,077 sq.ft. Ours is 2 bed/1 bath and just under 700 sq.ft. Our home is nice, but their offering is bigger, has a secure parking spot, and comes with a second floor balcony (which I wish we had). But is it worth $1,400,000? 

I’ve thought about this a lot, and I can’t figure out how anyone could afford to pay $1.4m for a laneway house (and that’s not even considering a multiple offer or bidding war scenario which would drive the price up). It’s not like you have a basement suite to rent out to help offset the cost of the mortgage! If you were to estimate monthly costs at $5,800 ($5,000 mortgage + $50 hydro + $350 maintenance + $400 taxes), you’d need monthly net income of about $16,500 to stay within a 30% housing cost budget. Ha!

So then I ran the numbers through a mortgage calculator using the list price of $1,398,000 and a 20% down payment of $279,600 to see how much interest you’d pay in the first 5 years of ownership.

mortgage

The interest alone is more than then $19,800 we pay per year for our place. And that doesn’t even take into consideration the $4,080 in maintenance fees (which can only go up), or the $4,900 in property tax – which would mean whoever buys that home would see $36,425 disappear in the first year alone … and pay $128,794 in interest over 5 years. Which makes me wonder – why would anyone buy real estate in Vancouver when you can rent a similar home in a similar neighbourhood for a fraction of the price?

Related: From home ownership to renting

It seems crazy to invest so much money into one single asset – an “asset” in a market that is so unstable. But I’m pretty sure that all 5 units of this property will sell this weekend when they have their first open house (they’ve probably already received offers!).

I’ve always loved following the real estate market in Vancouver because it’s so fascinating. Even now that I’m renting and even though I know we’ll never buy a house in Vancouver, it’s still so interesting to me. I’ll be keeping an eye out on more multi-unit houses going up for sale in my neighbourhood, as well as other laneways. And in the meantime, we’ve both been looking online at vacant land on Vancouver Island, as well as the cost of pre-fab houses, tiny homes, and even yurts. :) It’s a fantasy for now, but could become reality in the future since the money we’re saving from renting could potentially pay for land and/or a home outright elsewhere in the province.

We will never be homeowners in Vancouver

We will never be homeowners in Vancouver. Combined, RD and I will gross about $165,000-175,000 this year. Our housing costs are relatively low ($1,650/month rent), and we are both good savers with enough in the bank for a decent down payment. The problem is, we live in Vancouver. And according to a recent Globe and Mail article, the average price of detached houses sold in November 2015 reached $2.53-million – which is up 27.7% from November 2014.

More than 91% of 66,752 detached homes surveyed within Vancouver had assessed values of at least $1-million on July 1, 2015, and prices have jumped at least 10% since then.

I just quickly plugged our numbers into a mortgage affordability calculator. Even if we spent a year or two saving a bit more money, we will still be forever priced out of the detached housing market here in Vancouver.

scotiabank_mortgageaffordability1

Based on the above numbers, the bank says we could afford a maximum purchase price of $982,000 (LOL), but we’d also be responsible for almost $20,000 in CMHC mortgage insurance (LOL x2). And our monthly mortgage payments would be $3,800? Hahaha just, no. But I went to Realtor.ca anyway and plugged in a search for detached houses in the Vancouver area that were less than $950,000 – and this is what I found:

housesinvancouver

A boat. In all of Vancouver, we could afford to live on a 480 sq.ft. boat. Sure that boat only costs $300,000 – but you also have to pay $9,700 in moorage fees each year, as well as an annual $1,870 licensing fee. And even still, you’re living on a boat.

As depressing as these numbers are, I’ve never pictured myself living in Vancouver forever. Neither has RD. Even though we both love our neighbourhood, our tiny house, and our jobs right now, I’ve never considered putting down permanent roots in this city. Vancouver is amazing, and I can absolutely see why it is so appealing. But it was always my plan to spend 10 years here gaining experience, and then move back to Victoria where I could use that experience to get a well-paying job. I don’t know if I’ll make it back in that 10 year time frame, but I think long-term living somewhere outside of this city is going to happen. At some point.

In conclusion, it’s obvious we will never EVER be homeowners in Vancouver. And I’m okay with that. Really. Because even if we could afford something, it doesn’t make sense to forfeit everything else in life that we love – like travel and early retirement and living a comfortable life with plenty of disposable income – just to own the roof over our heads. It’s also a very unsettling thought to have so much money tied up in a house that will drop in value when a housing correction hits Vancouver. So we’ll happily continue to pay 10% of our gross income towards rent, and maybe one day we’ll be ready to buy a home in another city … where we can afford more than a boat. :)

Page 3 of 21«12345»1020...Last »

Buy the Book!

A beginner's guide for Canadians looking to get their financial life in order. Get great info on budgeting and saving, RRSP's and pensions, investing types, insurance, and where to go for additional resources.

Recent Tweets

Instagram

  • Games and pizza just might be the perfect way tohellip
  • What an amazing weekend at the Canadian Personal Finance Conference!hellip
  • Loving this gorgeous Christmas tree at the vanartgallery!
  • Fanciest avocado toast Ive ever had! Nice catchup lunch todayhellip
  • Yep 2017 was a pretty good year! 1 Hiked thehellip
  • Current mood
  • We took Zoey to pawspetcentre this morning to get ahellip
  • We decided to check out pivanewwest this evening  thehellip

© 2017. Give Me Back My Five Bucks. All rights reserved. Powered by WordPress & Designed by Mike Smith