Real Estate

Vancouver housing bubble?

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Sr. Member
Feb 5, 2013
592 posts
109 upvotes
On craigslist, UBC 2 BR are going about 1800- 2500/mth so 2K seems good for a newish build. Probably a low number as you would be forced to move if the unit sold, so rent is subsidized. Regardless, still a low yield either way.
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Jun 28, 2007
3863 posts
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minotaur3 wrote: I've never looked closely at UBC rentals (it's in the middle of nowhere and I didn't go to school there, so no point renting there), but $2.54/sf is what you'd pay to rent in nice areas downtown, which have the highest rents in Metro Vancouver. I would be shocked if UBC is on par with downtown. AFAIK there's been lots of condo construction there, so there should be plenty of supply.

I would guess it's more in the $1600-1800 range.
Not sure where you are getting your numbers but " nice" products rents downtown Vancouver are closer to 2.90 p. sq. ft. On brand new builds they are closer to 3.00 psf. 2.54 is for old 70s vintage crap.

Around UBC average rents are closer to 2,000 - it obviously varies greatly by product type but for "liveable" product you are definitely on the higher side of $2,000: (still results in a low yield though):

http://www.walkscore.com/apartments/nea ... uver-ca-bc
Jr. Member
Feb 6, 2014
176 posts
80 upvotes
Vancouver
gomyone wrote: Not sure where you are getting your numbers but " nice" products rents downtown Vancouver are closer to 2.90 p. sq. ft. On brand new builds they are closer to 3.00 psf. 2.54 is for old 70s vintage crap.
Sorry, but no. I was renting a 2br as recently as 2012 in a brand new building in Yaletown for $2.30/sf. Even the brand spanking new product in nice areas was under $2.50/sf (asking price), and I spent a while shopping around so I had a large sample size. Are you trying to say rents have gone up 30% in less than 2 years? That would be quite something, given low inflation and stagnant incomes.

Anyway, what do you know about it besides looking at craigslist asking prices? I actually lived downtown from 2005-2012.
Sr. Member
May 26, 2010
575 posts
138 upvotes
minotaur3 wrote: Sorry, but no. I was renting a 2br as recently as 2012 in a brand new building in Yaletown for $2.30/sf. Even the brand spanking new product in nice areas was under $2.50/sf (asking price), and I spent a while shopping around so I had a large sample size. Are you trying to say rents have gone up 30% in less than 2 years? That would be quite something, given low inflation and stagnant incomes.
There does seem to be plenty of supply on Craigslist to support your assertion:

$2.54 per sq. foot for a 2 bed 2.5 bath in Yaletown

$2.38 per sq. foot for a 2 bed 2 bath near Yaletown

$2.25 per sq. foot for a 2 bed 2 bath near the stadiums

$2.36 per sq. foot for a 2 bed 2 bath plus den in Coal Harbour

$2.61 per sq. foot for a 2 bed 2 bath in Yaletown with views of the water

$2.36 per sq. foot 2 bed 2 bath in Yaletown (I've got a friend who rents a place here, and from what I've seen of it, it is pretty nice there).

Whilst there are plenty of people asking for much higher rents, there is no idea whether they will get them. There is definitely no shortage of very solid looking units that are sub 10 years old at sub $2.50 per sq. foot prices. I'd be interested to know the corresponding purchase prices for the units above.
Sr. Member
Aug 29, 2004
871 posts
145 upvotes
As someone with significant family investments in vancouver rental stock - cap rates at current prices are awful. To be a successful landlord you have to have purchased ~10 years ago.
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Jan 19, 2005
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fdl wrote: Why would anyone want to willfully live in the basement of that place with their family just to finance their stock purchases. Why stop there, why not live in a tent and save even more on rent and dazzle over the ROI.

To each their own I guess, but the place you lay your head to rest every night is more than just an investment.
You're being ridiculous. Yes, it's to each their own. We just don't have expensive taste. We don't need to buy a $1-1.3M house to feel good about ourselves. We happen to live very comfortably in our current place and previous place. Public transit to work from the old place is 20-30min. to downtown, and 30-40min. from here.
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Deal Fanatic
Jul 3, 2011
5768 posts
2931 upvotes
Thornhill
What some of you fail to realize is the mathematics behind why some investors looking to park money (other than those who actually look for a loss to reduce their tax bracket and they do exist) have no issue with negative cash flow. They’re not typical landlords so cap rates are not what they are after.

They see what you don’t see – that the renter is shouldering the burden of the cost thereby producing a higher return on their investment.

In other words and for simplicity’s sake, if you took out a 1 year loan of $90 at 3% interest to buy an asset worth $100 then rented out that asset for $50, after 1 year you would own an asset worth $100 and the total cost to you would have been $52.70 for a pre-tax gain of 90%. With real estate, the landlord’s net cost is directly related to the principal paid off by the rent.

Using the condo mentioned by Mattieuk as an example, all of the numbers plus assuming a 3% mortgage rate, the owner may very well be in negative cash flow but their ROI (return of principal) for their annual cost starts at 261% and increases annually to 337% after 5 years. When the 25% downpayment is factored in, they averaged 25.2%.

If the market goes south they lose equity no different to any other leveraged investment that tanks.
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Feb 15, 2008
26318 posts
3217 upvotes
Calgary
licenced wrote: What some of you fail to realize is the mathematics behind why some investors looking to park money (other than those who actually look for a loss to reduce their tax bracket and they do exist) have no issue with negative cash flow. They’re not typical landlords so cap rates are not what they are after.
Of course, many of us understand that there is no rationality behind the pricing, and that pricing has gone off into some sort of never-never land. There's certainly many existing landlords, who, as a previous poster stated, got in a decade or longer ago, and have a reasonably low cost base. But the current crop of buyers is mostly being financed with extremely risky loans, minimal down-payments, and in some cases, de facto non-recourse situations (ie: prices go up, collect the equity, prices go down, get on a plane out of Canada and avoid the consequences!).
They see what you don’t see – that the renter is shouldering the burden of the cost thereby producing a higher return on their investment.
But they're not getting a return on their investment, unless they manage to find a sucker who will pay them an even higher price. ie: a Ponzi scheme, in essence. Which is why many of us are quite rightly alarmed.
In other words and for simplicity’s sake, if you took out a 1 year loan of $90 at 3% interest to buy an asset worth $100 then rented out that asset for $50, after 1 year you would own an asset worth $100 and the total cost to you would have been $52.70 for a pre-tax gain of 90%. With real estate, the landlord’s net cost is directly related to the principal paid off by the rent.
Except that we're not seeing principal paid off by rent once the full cycle of financing costs, cost of equity (risk) capital, and the full cycle of maintenance and vacancy are accounted for. On a broader basis, this is why BC has some of the worst 'savings' rates in the country -- there's simply such little capital being formed through investment in, among other things, RE, that there's little to actually 'save' from such. In the case of RE, there's actually destruction of value since the full cycle of financing costs exceeds the actual and even expected return.
Using the condo mentioned by Mattieuk as an example, all of the numbers plus assuming a 3% mortgage rate, the owner may very well be in negative cash flow but their ROI (return of principal) for their annual cost starts at 261% and increases annually to 337% after 5 years. When the 25% downpayment is factored in, they averaged 25.2%.
Nice spin, but that's quite the perversion of math. I'll let mattieuk or someone else explain why.
If the market goes south they lose equity no different to any other leveraged investment that tanks.
Its not a matter of 'if' at this point. Hence, the extremely weak Canadian economy in the past year, inability to meet CPI targets despite historically extremely accommodative central bank policy, etc.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Aug 23, 2007
1458 posts
251 upvotes
Vancouver
Almost two full years since this thread was started, and many years since crashers have been predicting or stating 200x or 201x is the year RE in Vancouver would crash.

I don't know why adamtheman abandoned this thread, but there have been various private blogs and threads on other forums, that have been abandoned as time passed.

The only thing crashing in Vancouver (proper) right now, are automobiles on the roads and streets.
Sr. Member
Feb 5, 2013
592 posts
109 upvotes
scarface wrote: As someone with significant family investments in vancouver rental stock - cap rates at current prices are awful. To be a successful landlord you have to have purchased ~10 years ago.
This is what my pals in RE holdings say. Question is, if the asset is overvalued, why are you still holding? (serious question)
Deal Addict
Aug 12, 2004
4455 posts
2109 upvotes
Calgary
bigsky2 wrote: Almost two full years since this thread was started, and many years since crashers have been predicting or stating 200x or 201x is the year RE in Vancouver would crash.

I don't know why adamtheman abandoned this thread, but there have been various private blogs and threads on other forums, that have been abandoned as time passed.

The only thing crashing in Vancouver (proper) right now, are automobiles on the roads and streets.
My favourite blog is this one. Last updated Wednesday, February 3, 2010

http://albertabubble.blogspot.ca/

Even more fun is the blog roll on the right of that page.

Alberta Real Estate Watch last post FRIDAY, JULY 8, 2011
Calgary Real Estate Bubble last post Tuesday, March 30, 2010
Garth Turner's Blog - name speaks for itself
House Hunt Victoria - suprisingly still going strong, the one market that did have a notable correction one time ago. Eventually will fall too.
Vancouver Condo Blog - still going strong, but more of a general info blog
Victoria Housing Blog - last post SATURDAY, JULY 18, 2009, ironically finished when the blogger bought a house

Some notable mentions

http://edmontonhousingbust.com/ - moved to a blog name with a less embarassing name in 2012, no new posts in the new blog
http://vancouverpricedrop.wordpress.com/ still going strong but only started in 2012. cherry picking single listings for the past 2 years. I give it another year.
http://fishyre.blogspot.ca/ - started in 2009, closed in October 2013 for 'personal reasons'. Ironically, about the same time as when the OP of this thread stopped updating, as any hope for a crash collapsed. Prices went up over 30% in that time period, great timing.
http://vancouverflippersintrouble.wordpress.com/ Great name. Last post on Sept 2013, coincidentally, again, same time that all hope was lost. Lasted only 5 months, should have started at least a year earlier.

Who can also forget our dear friend recharts, who's blog lasted about 6 months before falling into pure insanity as to prices rising in TO despite heat maps. Good times, good times.

So many have tried to become the ultimate predictor of a housing collapse despite ignoring the economic factors of why there has been no collapse, so many have failed. Maybe our newest RE crash guru posting of late can create a blog for the void that has been left on this board of late?
Sr. Member
May 26, 2010
575 posts
138 upvotes
licenced wrote: What some of you fail to realize is the mathematics behind why some investors looking to park money (other than those who actually look for a loss to reduce their tax bracket and they do exist) have no issue with negative cash flow. They’re not typical landlords so cap rates are not what they are after.

They see what you don’t see – that the renter is shouldering the burden of the cost thereby producing a higher return on their investment.

In other words and for simplicity’s sake, if you took out a 1 year loan of $90 at 3% interest to buy an asset worth $100 then rented out that asset for $50, after 1 year you would own an asset worth $100 and the total cost to you would have been $52.70 for a pre-tax gain of 90%. With real estate, the landlord’s net cost is directly related to the principal paid off by the rent.

Using the condo mentioned by Mattieuk as an example, all of the numbers plus assuming a 3% mortgage rate, the owner may very well be in negative cash flow but their ROI (return of principal) for their annual cost starts at 261% and increases annually to 337% after 5 years. When the 25% downpayment is factored in, they averaged 25.2%.

If the market goes south they lose equity no different to any other leveraged investment that tanks.
Surely the argument that you are using is focusing more on the power of using leverage, rather than focusing on the quality of the investment itself? Without the underlying cashflow, would it not be true that only way that an investor would be opening themselves to a decent return would be adding risk and putting themselves at the mercy of even small asset price changes and financing cost changes.

I don't pretend to be a real estate investor at all, and I (and presumably most others) have no clue what proportion of the landlord sector is not looking for cashflow, merely a place to park their money. I'm really not following the ROI calculations that you have provided, from the figures that I had posted in my original post - I'd appreciate it if you could take the time to walk me through them, then perhaps I'd be able to get a better understanding of why looking at the situation from a non-cashflow perspective would be beneficial.
Sr. Member
Aug 29, 2004
871 posts
145 upvotes
bankonit wrote: This is what my pals in RE holdings say. Question is, if the asset is overvalued, why are you still holding? (serious question)
Few reasons.

For one, the yeild is still decent when you don't pay much (if any) interest. Secondly, there is a lot of old school thinking at play - my family trusts "hard" assets more than paper ones, something that has done us pretty well thus far.
Penalty Box
Apr 16, 2012
3565 posts
685 upvotes
Greely
I equate the usual real estate bear to Tesla bears.

Back when Tesla was $30 a share, people were shorting the stock.

Back when Vancouver prices were $700K, people were hollering for real estate crash


Tesla hit a high of $200 a share.

Vancouver prices may hit $1,600,000 for single detached

Tesla then "crashed" to $115

Vancouver prices may very well crash to $1,000,000


Today, Tesla is over $200 a share.


The bear still lost because the "crash" after price was still higher than their initial target.
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Feb 15, 2008
26318 posts
3217 upvotes
Calgary
bankonit wrote: This is what my pals in RE holdings say. Question is, if the asset is overvalued, why are you still holding? (serious question)
People tend to be married to their trade. Whatever it may be. RE being no exception. And if its a principal residence, of course, uprooting oneself and moving can be incredibly disruptive. I certainly wouldn't advocate it if one doesn't otherwise suffer any financial distress. Of the many thousands of RFD posts I've made on RE, I don't think I've once suggested that someone in decent financial shape to sell their house, even in an especially bubble-prone location like Vancouver.

I'm sure if you look through the portfolios of 1970s-era gold bugs, you'll probably find much of the same -- that they held onto their stocks till the bitter end for most of them after the spectacular gains of the 1970s.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...

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