Sunday, March 9, 2008

Real Estate in Vancouver -- Again

Recently, in my post about the downside of Vancouver, I talked about real estate values here and gave an example of a recent sale. I also published the post at the Wet Coast Women site where I contribute on occasion. It was picked up by a search and excerpted to Vancouver Real Estate Anecdote Archive, a relatively new site, where the author made some comments that I thought might be of interest.

If you recall the property sold for $1,800.000 as basically a 53 x 130 foot lot since the house is small and considered a knockdown.

This will now be a markedly cash-flow-negative property. One presumes that the new owner is very confident that house and land prices will be going up over the next two years. We also presume that the new owner plans to demolish and build in 2 years.

The property's numbers look roughly like this: Purchase price $1.8 million, Rent (estimated) $1,800-$2,200 per month. Cost of $1.8 million mortgage, at 7.3%, 25 year amortization, 5% down: monthly payment >$13,000. Thus the property will be costing about net $11,000 per month to carry, or $254,000 for the 2 year period. To be more accurate, one would also have to add property taxes and maintenance costs to that.
This purchase is a bet on property price direction.

Interesting way of looking at this sale. My question would be what amount of money will the new owner spend to build a house that will warrant paying this amount for the land and not overbuild for the area. Are they looking to flip the property as is? I shall watch with interest.


Vancouver houses said...

In the US the prices of the houses hit the bottom while the Vancouver real estate remained the same, you can`t find a proper explanation to that. I think that despite to that people didn`t lose their interest in the home ownership as in this area it `s always been an essential issue. However these calculations you depicted above are really terrifying. Thanks for sharing with us this interesting article.

Bretwalda Edwin-Higham said...

These are unbelievable prices.

crunchycarpets said...

Vancouver is an anomaly when it comes to real estate.
We really cannot go by the rest of Canada and the US here as the majority of market economics that affect everyone else are not in play here.

Vancouver really is in a little fueled by overseas investors and speculators.

We have no big industry here or large Head offices...while the rest of BC may struggle with pulp mill closures etc...we sit here in lotus land with half empty towers of glass and steel...and east side properties going for close to a mil.

Totally nuts.

But that is Vancouver for you.

Janice Thomson said...

I agree that Vancouver's market is different, being highly influenced by Japanese investors. That is a ridiculous price for a 'knockdown' piece of property. It would be interesting to know the zoning status of that particular block and whether others will be following suit.

Crushed by Ingsoc said...

I thought property prices here were bad. Even allowing for exhange rates, that's very expensive.

£250,000 is a normal price now for an average home in the UK, which is pretty crazy I think.

the pope said...

In the US the prices of the houses hit the bottom (1) while the Vancouver real estate remained the same, you can`t find a proper explanation (2) to that.

1. US house prices have crashed, but most economist predict that they still haven't hit bottom. Timing that is as tricky as timing the peak of a market.

2. Speculation explains it pretty clearly I think, rents and incomes sure haven't gone up to match. Most people buying these days are gambling on continued appreciation and weren't watching the market during previous Vancouver house price crashes.

.. fueled by overseas investors and speculators.

Although this may partially true, the ironic thing is population growth dropped off at the end of the 90's and still hasn't hit the highs that we saw through that decade. Many people buying today are local. Check out this PDF graph of international migration to BC for a clear picture.

Many locals believe that the Olympics will bring even greater gains to the Vancouver market, without looking at what effect the games have had on other host cities like Sydney Australia.

Tai said...

The funny thing is (besides housing costs in Vancouver) is that I recognize that house! But I can't think where it is...41st, perhaps?

Ian Lidster said...

One of the downsides to the ridiculously inflated housing prices in Vancouver (and only to a slightly lesser degree in Victoria) is that such vital people as police personnel and firefighters cannot afford to live in the city in which they work, but must commute huge distances. This makes no sense, and it all boils down to an obscene greed by the real estate world.

Chervil said...

House prices have gone completely mad in Australia, too. I wonder when the big crunch will come here... I was living in Tokyo when house prices there were massively over-valued, and the ensuing bursting of the bubble contributed significantly to Japan's financial downturn in the last decade.

jmb said...

Hi Jay,
Even being in the business it must be difficult to understand this meteoric rise in real estate. The calculation is mind boggling.

Hi James,
Even we who are in the midst of it find it incredible and scary.

Hi Crunchy,
It is totally nuts and very scary. Will there be a huge correction, only time will tell.

Hi Janice,
Already more than half the block has been rebuilt over the last ten years. I wish we had kept our house as well as the one we have now.

Hi Crushed,
I'm sure prices in London are much higher but the average price here now for a house is $921,000! While the average income is $65,000 per annum.

Hi Pope,
It will be interesting to see how long this can go on before some kind of correction.

Hi Tai,
It's in the 4000 block of West 37th but is typical of many houses of that era.

Hi Ian,
It is a big problem for many people who must work in the city but can't afford to live here. Vancouver is not built as a commuter city although many do it each day.

Hi Chervil,
Well they have been pretty pricey in Sydney for a long time but I guess it's all over now.

Thanks to everyone for visiting and commenting.

Welshcakes Limoncello said...

Yes, interesting indeed - do keep us up-to-date on this one.

vancouver houses said...

It started in the USA in the end of 2007. The prices of the US houses fold down. That influenced whole real estate market in North America. Generally, it effected decreasing interest in buying houses. Many investors sold out their properties because they tried to protect the value of investmenets. I think this caused decreased prices at stock exchanges all over the world.

cabinman said...

Real estate values in southern BC are extremely over valued relative to historic norms. The last time we were at these relative valuations was in 1989 and the market was on the verge of a crash. You will never hear this from real estate agents but history clearly tells you where we are headed. Look to the last time median debt service levels to buy the median priced home exceeded 79% and what occurred shortly thereafter. A bear market in local real estate is coming very soon.

I believe that the U.S. is in recession. Canada has never avoided recession when the U.S. entered one. Therefore, we are headed to recession. Real estate has never gone up when the economy enters recession. In fact, recessions are real estate killers. For those who are heavily in debt you will go bankrupt.

Use your common sense look at the meltdown in the U.S. financial institutions and ask yourselves when is the last time the world witnessed anything similar.

The credit structures in the U.S. and globally are currently being tested to a point not unlike 1930.
This is not a time to be gambling on over valued real estate. The crash in property valves will likely come swiftly and unexpected. Catching all who are speculating on higher prices. Good luck and stay solvent.

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