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Dec 202012

You guys all know by now that I am incredibly bearish on Canadian housing, especially around the Vancouver and Toronto areas. If not, go check out where I wrote about it before, and then check out how I’m thinking of shorting it. (Aside: that trade would be down some 10% in about a month, in case any of you have any hope that I know what the hell I’m talking about.)

So let’s take a look at how the market has done since I wrote my original piece, back in March. We’ll focus on Vancouver, for reasons that’ll become apparent in a minute. First of all, let’s look at the average home price, shall we?

Wow. The average price fell about 15%, just in 8 months. Considering the U.S. real estate market fell 36% from peak to trough, that’s quite the decline. Of course, Van City (I can call it that because I’ve been there) still has a ways to fall. The price to income ratio fell from 11x median family income to just under 10x. Hey, baby steps.

Man, I’m bummed out now. How about we look at another stat, like the price to rent ratio. The numbers are from March, so you can automatically deduct 15% off everything. Not that it matters.


Let me crunch the numbers for those of you. See the number for Greater Vancouver? It’s 46. Let’s be generous and round it down to 40, to factor in the recent price declines. That’s a cap rate of 2.5%. A five year fixed mortgage can be obtained for 2.99% these days, meaning a typical rental in Vancouver doesn’t even spin off enough cash to cover the interest on the mortgage. Any taxes, maintenance or insurance on the place would only increase the yearly loss for the landlord.

The only reason Vancouver real estate is reachable for the average family is due to low interest rates. Assuming 10% down on an average priced home, ($68,000 down on a $680,000 average price, 25 year amortization) a 5 year fixed mortgage will set you back a mere $2893 per month. Chump change, really.

What happens if that 5 year rate increases, to say 4.99%? You’re looking at $3556 per month, every month. You’re easily topping $4000 once you factor in property taxes and insurance. Ouch. I’d recommend hitting up the chip guy for outdates, considering how you’d barely be able to afford to eat.

And yet, considering all that, Daisy from Add Vodka decided that now is a good time to buy a house in Vancouver. Here’s an artist’s rendering of my face when I started reading that post:

Okay Nelson, just calm down. Daisy is a personal finance blogger and Yakezie member. I’m sure she has legitimate reasons  for this purchase. Why don’t you just settle the F down and let her explain herself YOU GREAT BIG BULLY.

Whoa. Why is my superego such a dick? Oh, wait.

Daisy, take it away.

I didn’t want to say anything during our house hunting process because, frankly, I don’t want anybody’s opinions

Yeah! Opinions are like assholes – everyone’s got one and it smells like crap. Except mine.

Wait, I’m not sure if that’s how that saying goes. Oh well, it’s typed on a computer, there’s no changing it now.

Okay, so Dais (can I call you Dais? We’re pals, right?) doesn’t want to hear the opinion of some dumbass blogger who is definitely not funny. Okay, how about some really smart people who get paid a lot of money to look at this kind of stuff?

“BMO Nesbitt Burns wonders how long low interest rates will be able to prop up real estate prices, cautioning that it time to fasten seat-belts because ‘Vancouver’s market is on the down slope of its historical roller-coaster ride.’” (source)

What? BMO Nesbitt who? More like BMO Nesbitt Wrong, amirite Dais?

least of all those of a few of uneducated, bitter, chauvinistic bloggers who have nothing better to do than comment on my posts

HEY! I may be uneducated and bitter, but that doesn’t mean I’m that third thing you mentioned. I don’t know what it means, being how I’m so unedumacated. See? I can’t even spell.

I always love that argument. You have nothing better to do than to comment on my blog! The joke’s on you! Then what exactly does it say about the person who creates and updates a blog that’s nothing more than a narcissistic recap of their boring life?

“Vancouver’s home prices are down 12 percent from year-ago peak levels but still average $733,000. Toronto’s average is about $517,000. ‘Not sustainable, my friends,’ writes Rosenberg (economist for Gluskin Sheff and formerly Merrill Lynch)” (source)

Economist? Who let that uneducated moron in here?

I’m the first to admit that and I’m not in denial over the whole thing; I know the differences between renting an apartment and owning a 2500 sq foot home and being landlords will be vast.

Two things:

1. Is there no such thing as a starter home in Vancouver?

2. She’s going to be a landlord? Excuse me for a second.


Take it from somebody who’s in the business. It’s not easy.

Blahblahblah Vancouver housing market blah blah, criticize, hate mail… etc

Well, I’m convinced. There’s a reasonable argument if I’ve ever heard one.

Everybody pay attention, because this is the message I want you to get from this post. Daisy has no reasonable argument that the Vancouver real estate market is a good place to invest. All the metrics point to it being a bad place to be. And yet, instead of, you know, analyzing some g.d. data, she just went ahead and did what she wanted. It’s the adult version of sticking your fingers in your ears and shouting “LALALALALALA” as loud as you can.

This is an extreme case of confirmation bias, and something that will kill you as an investor. She didn’t buy a house because it was a prudent thing to do, she bought it because she wanted it so bad and can we Mom, please can we, I’ll take care of it all by myself I PROMISE WHY WON’T YOU LET ME BUY A HOUSE?!?!?!?1111

According to her about page, she is in her “(early) 20s” and currently owes approximately $23k in vehicle and student loan debt. She graduated with a business admin degree in August, (heh, irony) and has been working full time since. When I think of people who should be getting into a half million worth of debt, I think of a fresh university graduate who still has consumer debt, don’t you?

Don’t do this. Don’t do it when you buy a stock, and sweet Jesus don’t do it when you plunk down a half a million dollars on a house. Do you realize how badly you can get squashed if your gigantically levered bet goes against you?

I get buying a house. I’m currently writing this post in a house that is worth less than what I paid for it, ($10-20k) so I even understand that buying a house isn’t just a decision about money. But come on. At least try to look at it logically.

Tell everyone, yo!
 Posted by at 4:20 am

  42 Responses to “Want To Make Bad Decisions? Just Add Vodka”

  1. – I’m not a Yakezie member.
    – I didn’t buy in Vancouver (or technically any of the places on that nifty table in your post)
    – I’m becoming a landlord… to my brother, which doesn’t really count.
    – I’m not going to defend our choice to buy a house and not a “starter home”, because we had many reasons that I don’t think the entire world needs to know
    – I’m not sure how you think you know my reasons for buying a house, but that’s in interesting theory.

    Look, Nelson, I don’t think I should have to answer to you especially since you know so little about my life. While I am flattered that you care enough about my finances to write a whole post about it and I do appreciate that you think it’s a terrible investment to buy in Vancouver (and surrounding areas), I’m happy with our decision.

    • Wait, so the house is not in Vancouver then? More like Burnaby, Richmond or Port Moody? So, still over-priced but with less cachet. Gotcha!

      I think you are missing the point of Nelson’s post. He doesn’t care about your finances. He’s just using them as an example of questionable financial decision-making for the enlightenment of his readers. Buy a house; enjoy it. It’s your prerogative. But be prepared that, if you put it on the internet, people who don’t know your undisclosed personal motivations will judge the hard facts and might just find them wanting.

    • Hey Daisy, in your disastrous article about your even more disastrous choice, you misquoted me. It’s not “HGTV-Horny Youth Corps” It’s the “House-Horny HGTV Jugend”.

      Your article is intentionally vague so as to mask the stupidity of your decision. If you were only concerned about privacy and weren’t afraid of looking dumb, then you could at least talk percentages, e.g. price:gross income or the % discount you negotiated off the price rather than nominal.

      But instead of being forthcoming, you strategically say very little, so whenever somebody intelligently questions your decisions (no, that’s not hate mail and it doesn’t mean you’re a famous starlet being hounded by paparazzi, you’re just some chick who’s wallowing in debt and vodka who bought an overpriced house) you can act indignantly and say “I DIDNT BUY INNNNN VANCOUVER I BOUGHT AN OVERPRICED HOUSE OUTSIDE VANCOUVER SO MY COMMUTE WILL BE HELLISH DERP DE DERP PS I DON’T HAVE CABLE YOLOLOLOLOL”

      He doesn’t need to know your “reasons” to say it’s a stupid idea because, let’s be honest, it really is. The housing market is collapsing so badly that the owners dropped their asking by $100k and it still wasn’t getting serious offers, and you managed to hop in and only get them down another $10k? You are a Realtor’s DREAM. It was like lambs to the slaughter. You are the reason that CREA can keep producing seasonally-adjusted Frankenumbers that pretend the housing market isn’t imploding.

      Daisy, when your 3% fixed rate mortgage resets from the lowest rates EVER in five years to — oh, let’s say a fairly low 7% — your purchase is going to be a noose. Enjoy being debt indentured for the next 25 years for an unproductive asset with a leaky roof.

      If I were you, I’d order a double.

  2. Pshh. Let people do what they want with their money.

  3. I’m not sure what the uproar is about. (get it. uproar? and the site is called financial uproar? I’m as funny as Nelson now…) I and many others have always said that your primary home isn’t an investment. So, why are you looking at it as an investment? If Daisy bought a house that she likes, that she can afford, what’s the issue? Why buy a “starter house” just so you can outgrow it in 5-10 years and need to buy something else anyways? Sure, the “starter house” might make a better investment, but that’s not what it’s about. The sooner people stop thinking about houses as investments, and instead as that place that I live, and feel comfortable in, the better.

    • It’s still a financial decision (indeed, one of the largest ones there is), even if it’s not an investment. It’s a place to live, but it costs money to live there. You may prefer to own your shelter than rent it, and you may prefer to stretch and buy a bigger place than you need for the near future, but those decisions have price tags. And these days, pride of ownership can be a 6-figure expense in some cities.

      So just as we financial bloggers may rag on someone for over-spending in the name of ego on a gas-guzzling SUV, an overly fancy coffee-based beverage habit, or designer fashion accoutrements, over-spending on houses is fair game. Though in the end it is up to the individual to value their pride (or as Daisy puts it, her money her life), it’s important to make the decision with good information and some solid analysis.

      • Well, maybe I think about it differently. Some people really, really like their fancy coffee. And, if they’ve decided that a $5 coffee fits into their budget and they’re happy with that, why not spend it? Same for housing. If you’ve decided that your housing needs are X, and you find a house that is X, and the price is a price that you agree with and can afford, why wouldn’t you buy it? When it really comes down to it, it’s a cost analysis. Is the cost of the home more than you can afford? Are the savings by renting instead more valuable to you than owning your own home? How about the inconvenience of it all? Apartment living stinks sometimes. Is dealing with that worth it to save a few hundred a month that fit into your budget anyways?

        • Building structure shouldn’t be confused with ownership structure. If you really want to live in a detached house you can rent one. Apparently in West Vancouver this would cost you only 1.4% of the price every year, which is less than half of the amazingly low interest you would pay for the mortgage.

          • Sorry, let me rephrase that. Living in a rental stinks some times. Maybe you want to have a pet. I don’t know what it’s like in Vancouver, but it’s terribly difficult to have a pet and find a rental. Want to make improvements? Good luck with that. I own my house. If I want to do something to it, I can. I don’t have to ask the landlord if it’s ok, or beg them to make some repair. I just do it. To me, that’s worth the extra % points that I would pay. Maybe you’ve only ever had really, really good landlords that have always left you to what you wanted. Or, maybe the extra few % points is worth it to you to lose that freedom. If so, good for you, I’m glad you found that you can deal with it. Everybody has to make that decision for themselves.

          • We don’t have pets, just a baby. Landlords typically seem to be ok with that because it only takes a few years before they learn not to crap on the floor and they can even pay rent themselves one day.

            We own our house since the comparable rents around here are more than the interest+tax+insurance. Last time we looked the price to rent ratio was around 16x, a number you can’t even see from Vancouver judging by Nelson’s table. We’ve made plenty of improvements since buying our house. I wasn’t all that excited about colors (although they were truly an improvement here since the previous owners were free to choose some pretty scary ones) and even less excited once I saw what we had to pay for the improvements. And that’s not to mention a couple of things that won’t last long and will need to be “re-improved” in a few years.

            Landlords will build that cost into the rent if possible… but when the rent isn’t even enough to pay the interest on their mortgage let alone the principal/capital, property taxes, insurance, and inevitable maintenance, you can have a still good laugh about it while you sit by the fireplace enjoying a fine brandy and managing your investment portfolio that actually increases your net worth :)

            Up here Boardwalk is a good management company that maintains properties decently, can respond to things in the middle of the night, and presumably has a lower cost structure than the average amateur landlord. Other than a house I lived in with 9 other guys for 6 months that’s been the only rental I’ve experienced and it was good. You’re always free to not rent from a bad landlord, just as I’m free to not buy a house that costs 10x my income.

    • Do we know whether Daisy can afford it? She didn’t disclose the price of the house, but given the market in question, it is reasonable to assume an amount well north of $400K. At a minimum. We also don’t know Daisy’s income, but given that she still has some debt, I will venture to guess it’s not in the 6 figures, or generally high enough to allow her to wipe off the debt whilst still saving for a downpayment. So that leaves the question of how truly affordable this house is. Certainly, she can probably cover the monthly mortgage and insurance, especially now while the interests rates are so low. But even now, how much room does that leave for other things – needs, hobbies, long-term savings, or emergencies?

      The point of buying a “starter” home is not the investment angle. It’s the fact that, for most young people (with entry-level incomes and few assets), it’s a way to own a house without being “house poor”. It’s a way to satisfy the desire to be a home-owner without mortgaging your entire future for it.

      • Why do we always assume the worst? You assume that because she has debt, that you can assume her income. To some degree, you’re probably close. But, you know little to nothing about her situation. Even without that information, you assume that she can’t afford it, or that she’s stretching to afford it. I, too, am making assumptions. But, those assumptions are that someone who writes about personal finance has some modicum of ability to gauge what is important to her and what she can afford.

        • If it’s really NOT a stupid decision, why doesn’t she put some numbers around her choice? Oh, right, because that would make its obvious idiocy apparent to even the dimmest of Readers.

          She doesn’t owe anybody numbers, just like Nelson doesn’t owe anybody mercy. Why are you recognizing one non-obligation and not the other? The difference is that Nelson is promoting truth and doing a public service by promoting wisdom, while Daisy is promoting irresponsible overspending. She’s literally buying into an obvious bubble right at its peak. If you don’t want your decisions to be judged by personal finance writers when they’re found wanting, DON’T BE A PERSONAL FINANCE BLOGGER AND WRITE ABOUT STUPID DECISIONS. Problem solved.

          • What level of reveal would make you happy, Joe? I imagine that she isn’t sharing the numbers for a number of reasons. Maybe part of it is because they are stretching for it. I don’t know. But, maybe they aren’t sharing because they want to remain semi-private and don’t feel like they need to announce to the world how much they’re making, paying, etc? Also, since we don’t have numbers, and don’t know for sure, how can you say that she’s promoting irresponsible overspending? Just because you think the market is in a bubble?

            P.S. Where’s the numbers on this?

          • Joe, are you the guy who just bought a property in the dump aka “Newark, New Jersey of Canada”? Talk about stupid, and hypocritical.

            Buying a crappy house in a crappy city enslaves you to a crappy life forever. But, at least you’ll have more entertaining bitterness towards others!

          • “Just because” I “think” Vancouver is in a housing bubble? Dude, you’re a joker.

            No numbers? Clearly you can’t read. I gave plenty of numbers that could be used to properly assess the rationality of my decision — a key one is price to gross income. But it’s pretty clear from your comments here and your blog that you’re committed to destroying wealth not building it (as well as defending the indefencible).

            Jacob, nice sock puppeting. Sorry you live in a mountain of debt, never have a hope of owning in NYC, and need to lash out at truth. What’s stupid and hypocritical about Hamilton? I get cheap housing and your Mom is always available at the corner.

  4. Alright, you uneducated chauvinistic – hang on, what was the third insult? Anyway, what are your thoughts on the housing market here in Alberta? I’m up in Edmonton and thinking of buying a house. The scuttlebutt seems to be that prices will drop over the winter and into spring – what do you think?

    Not that your opinion matters. Pig.

    • In 2008/2009 when the world went into a tail-spin, Canadian real estate prices came down, behind most of the world. When interest rates were brought down to nearly nothing, demand roared back and housing in Vancouver and Toronto bounced back hard and kept going up to new highs. Alberta, on the other hand, stayed down — likely what the BoC was hoping the rest of Canada would do (the mythical soft landing). So do your own rent vs buy analysis for your own sub market, but Edmonton is from what I’ve seen stuck halfway through the cycle: it’s not cheap yet (for most reasonable assumptions, renting is still better than owning — though nowhere near the no-brainer that it is in Vancouver), but it’s not nearly as expensive and risky as it was 5 years ago. So on that hand, buying may not be so bad, even if it’s not a great idea. But, if the bubble blows up in Vancouver and Toronto, Edmonton could be pulled along for the ride and experience another down-leg and become legitimately cheap.

      I don’t really see a scenario where a fire magically gets lit under the market: it’s likely more flatness possibly further down from here. I don’t anticipate there being any urgency to buy.

    • Jessica, Potato pretty much nails it with his analysis. I’ll just add a couple things:

      The two major things I look at is the price to income ratio and the price to rent ratio. In Vancouver, you’re looking at the average house price being 10x the average household income. Historically, a price/income ratio of around 4 has signaled the market is fairly valued. That’s part of why I think Vancouver is massively overvalued. You can easily figure out Edmonton’s price/income ratio yourself by using the Google machine.

      When I bought the house I live in now, I paid about 2x my gross income. That’s about as high as I’d go, but that’s just me. When I bought rental properties, I was only paying 5x gross yearly rent. I wouldn’t buy a rental property at anything more than about 7x gross rent. The problem with the price to rent ratio is it’s much more subjective than price to income. You’ll have to decide what number is comfortable to you. (But hint, it’ll be under 40. At least I hope.)

      Just look at any potential houses as a landlord. Would you buy it to rent out? Could you make any money doing it? If the answer is no, then maybe the property is overvalued.

      Wow, I just made it a whole comment to a woman without being chauvinistic. I am ashamed of myself.

  5. […] Financial Uproar explains why buying a home in Vancouver is a bad idea […]

  6. This is precisely the kind of decision-making that drives the bubble. Even a personal finance blogger won’t take a few minutes to work with some spreadsheets and examine the housing market and rent-vs-buy decision. They just go out and emotionally buy a house “because that is what one does at a certain age.” Not even the seeking of sage council, just announce the house-warming to your friends once the purchase is a fait accompli.

  7. […] 1. Want To Make Bad Decisions? Just Add Vodka @ Financial Uproar. […]

  8. HHMMM I am not really too sure what to say about this except that it makes a really interesting post. I live in Montreal and housing prices are definitely less than Vancouver. I considered relocating when I had a great job offer but the cost of living is just too high! Happy holidays to you both.

  9. According to that chart, the market had a 15% decline last year too and then came back to get close to previous highs. I guess the lesson is not to buy a house in Vancouver between March – May. Actually it’s more like January – May. Even January – November. This might be a good quick flip for the spring market (or to a condo tower developer, since the land is worth more than the purchase price).

    I have no idea where they keep finding people willing to spend this much. But since we make some small profit from housing activity on the west coast (and never expect to live there) I encourage those who are willing to keep spending to keep spending!

  10. I’d have to have a really good reason to buy a home at a cost greater than rents even at a fixed rate. With the possibility for adjustable payments, I’m not sure I could do it. The risk is huge with little to no payoff if rents don’t rise to match prices.

    Gutsy move given the information we have, but again, we don’t know all the details, nor should we expect someone to share every detail necessary.

  11. I gotta say, this is a stupid argument by Nelson. Nelson is owns a home that he bought a while ago that is worth 20K less, he doesn’t reveal any of his finances, and likes to criticize others. Sounds like you are just bitter Nelson for buying at the wrong time. Lots of people did, don’t worry!

    • Hey “Jacob”. Or should I call you “Linda”? Or Is it “Kdiggg?” I wanna know why you keep switching up your name every time you comment.

      • “Linsey” tried to troll me with similar commentary last night. “Her” IP is NYC, not a proxy, and she uses Safari, presumably because her comp is a Mac (also, he/she is into researching real estate in Cali). Then there’s the persistent abuse of commas. My guess is C the Writer.

  12. […] speaking of tough love, Nelson at Financial Uproar really dished it out this week, with a post-mortem on the house purchase of fellow blogger Daisy, of Add Vodka. This is what you need to know: Daisy is a recent university […]

  13. Here’s what I think Nelson is pointing out, and what all the doomsday people are predicting – and many people seem to be missing.

    Current position:
    $500,000 asset (the home)
    3% interest
    Your Monthly payment is $2,366.23

    Things go to heck in a handbasket. Price of your home drops and interest rates go to 18%. Here’s your new position:
    $500,000 debt
    $350,000 asset
    18% interest
    Your Monthly payment is $7,331.90

    Now have a look at your paycheque. How’s a $7K mortgage payment going to go down? It’s not. So you’re going to sell. You get $350,000 and you still owe the bank $150,000. Your Monthly payment on the outstanding 150K (on an asset that you don’t even owe) is over $2K a month. Yeah, now you’re renting and paying $2K a month forever on top of that. Either that, or you go bankrupt. That’s the only two choices – you pay the $2k a month for years on something you don’t even own, or you go bankrupt.

    All that has to happen is that interest rates go to 18%. If you think that can’t happen, go ask your parents. They’ll likely remember when that exact scenario happened, and a lot of people went bankrupt and/or lost their houses.

    There’s a reason Harper is telling Canadians that they better make paying down debt a high priority in 2013. If you’re stretched right now, you’re truly screwed if interest rates rise. That’s why we ain’t out of this yet.

    • While I don’t think 18% interest rates are coming back any time soon, I think Daisy could easily see a rate of 6-7% when it’s time to renew. That’s a problem, especially since so many people have to reach to be able to afford Vancouver real estate.

      Here’s something I just thought of, and makes her decision even more dubious. Her boyfriend does renos for a living. Not only will they have 95%+ of their net worth in real estate, but half their income is dependent on it too.

      • Entertaining and informative. But where does it say that she got an adjustable mortgage? If she locked in a rate around 3.5% on a 15 or 30 year then why does she need to renew? I’m obviously missing something here. My main concern in making such a large purchase as my first real estate purchase would be giving up the opportunity to do something else with that money and tying up a lot of your monthly income into housing costs. You said 4x gross income is a reasonable real estate guide and I have also heard 5x. I’m looking in the range of less than 3x.

  14. […] – Financial Uproar – Want to make bad decisions? Just Add Vodka. […]

  15. […] I’ve noticed a disturbing trend in personal finance blogs recently. There is a widespread trend of people making a serious financial mistake, and worst of all they think it’s good for them! Even well-respected bloggers are doing this. I used to make the same mistake too but over time I managed to correct myself. It wasn’t easy to do but it’s worth it since this can do more harm than buying a new car [link to post about why new cars are a bad choice] or even an overpriced Vancouver house. […]

  16. […] I’ve noticed an odd trend while reading some personal finance blogs lately. People have been making a serious money mistake while saying it’s wonderful. I used to make the same mistake too, but I’ve corrected it over time. Yet this money mistake can do more harm than buying a new car or even an overpriced Vancouver house. […]

  17. […] which is a pretty decent rate. You’ll need a low rate if you’re trying to buy some overpriced Vancouver house. Who would do such a thing? GIC rates are solid as well, you’ll earn a handsome 2.4% if you […]

  18. […] I asked questions to smart people. I spent the time to understand my local real estate market, unlike some people. It’s not rocket science, but it took a lot of […]

  19. […] been bearish on Canadian housing for some time. I’ve made fun of other bloggers for buying a place while ignoring the underlying fundamentals. I’ve outlined a potential way for average […]

  20. […] Uproar responded to Add Vodka’s […]

  21. […] estate for every $1 of equity. This can go really badly if values go down, but that’s why you analyze a overall market before you buy into it and buy into markets where you think there’s potential for long term […]

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