Priced out of the market? Think Again
Posted by editor on July 7, 2010 · 9 Comments
Joel Olson
It’s a pretty common conversation that happens in every coffee shop and grocery store in town. “I’d like to stay in Revelstoke, but I just can’t ever afford to buy here”. This is a pretty common perception ever since Revelstoke became a major ski destination and drove house prices and rent rates on a steep upward slope. However, nothing could be further then the truth, in fact most people can still afford to buy in Revelstoke. Think about it this way, if you can afford to rent here, you can definitely afford to live here. Consider this:
On average a house sells in Revelstoke for $350,000. If you were to finance you entire purchase based at today’s fixed rate you would be paying $1640 per month. Remember, we’re talking about an actual house here, not an apartment, and $350,000 is certainly not the bottom of the market anymore. So, let’s be realistic, there’s going to be some taxes and insurance, so let’s add $200 to your mortgage and make it $1840 per month. Based on what banks require for you to qualify, you could get a mortgage for this if you had no debt and made $55,000 per year (Having Good Credit of course). Believe it or not this alone is enough for some people to qualify for a house. Still, what if you don’t make $55,000 per year. Well, do you make $27,500, and does your partner make the same? Then, your in. Or maybe you have a friend, a parent, etc, if you combine your incomes you can buy this house. Remember this is based on having no down payment, because there still are ways to buy homes without a down payment. So, now we can get your qualified, but $1840 a month? That’s going to make me house poor, isn’t it? Well, remember were dealing with a house, so what if you rented one room downstairs for $400 dollars to the abundance of skiers or firefighters, in their respective seasons. What about if you rented two rooms? You’d still have the whole upstairs. Come to think of it two rooms at $400 a piece would be pretty good, and your share would be just over a $1000, now we’re talking. $1000 to rent an entire house would be incredible, but we’re talking about buying a house and having a monthly payment of about $1000 per month. It gets better though, we’re talking about a fixed rate, what if we have a variable rate? That’s a payment of $1141 per month. It won’t stay like that forever, but what if you still have two roommates, you’d be paying $341 per month. Can you afford that? I think so.
Convinced yet? Worried your landlord might kick you out before winter? It might be a bad time to sell, because there are houses to buy everywhere, but increased demand does make for lower prices, and incredible deals for those who want to move from renter to homeowner. What’s stopping you?
Joel Olson is a Revelstoke-based mortgage broker. You can contact him directly at joel@c3revelstoke.ca.
His website is at www.joelolson.ca and his telephone number is 250-814-1627.
Very informative information Joel, it is definately the market to be buying, and to use the equity in an existing home is a great idea!!
Thanks, keep suggestions like this coming
Your article makes some good points. However, it lacks a few very important points. When owning a home, you are 100% responsible for maintenance, major repairs, and any outcomes due to a downturn in the market. There are always risks to owning a home that must be well understood prior to purchasing. Yes, when all the stars are aligned, mortgage payments will be affordable, but what will someone’s back-up plan be if everything doesn’t work in their favour. How much money must someone have in the bank to cover periods of no rental income or an unexpected home repair? In a volatile real estate market such as Revelstoke, if the house price drops two months after moving in, what kind of loss is someone willing to manage mentally without feeling so stressed that a poor financial decision was made. If someone is unfortunate enough to experience a drop in the price of their newly purchased home, are they willing to stay in the market for an extended duration to wait for the price point graph to average out to a gentle, upward slope?
I have owned and rented out homes since 1992 and the bottom line is owning a home can be expensive. Some of the best advice I’ve given is to put aside the total amount of money you would expect to pay in a worse case scenario and do this for at least 6 months. Can you still manage or are you sinking in debt? The end result will be a reality check and quite a bit of money saved up for your new home, if that’s what you’d still like to do.
Thanks for the feedback Sarah. I agree with you that buyers must be prepared for the extra costs of owning a home and that this decision should not be taken lightly
There are risks to everything in life. However, if you afford your home now your mortgage payment will not change regardless of of your house price changes in value. Yes, you would need to employ different strategies if you are holding your home for only a few years, but the vast majority of people will hold their homes for an extended period of time, and history shows us that they will benefit from long-term appreciation. Again, the most important point is that even with slight mortgage rate flucatuons with some planning you will find yourself in a situation that will be stable regardless of market conditions
Ownership is far more gratifying than renting any day! I would encourage young people to invest early in life, it has long term benefits. We bought our first home when I was in my early twenties and have not rented since. I now have kids in there thirties who also became home owners in their twenties and have appreciated the value of ownership. There is a sense of security and pride that comes with being an owner, it gives young people a financial goal to work towards and teaches them responsibility that you would not have as a renter. For those who are looking to invest in a home, do your homework, ask lots of questions, get a home inspection, and shop around for the best value. They are out there!
Youth is wasted on the young. Being young is a gift, young and naive…not so (read “wet behind the ears”). Being clueless…is not a virtue. Obviously Joel has not been graced with enough lifespan to know that real estate goes down. This generation of his that have bought into (and is now trying to sell) the lie that real estate only appreciates in value is completely misguided. What happens Joel, when the poor sap who buys that run-down shack in Big Gheddo for $350k finds himself holding something worth $90k (where it traded for decades, when you were in diapers)? I know, “this time is different”. Compared to what time Joel? Interpose some wisdom here would you? You mean the time when Revelstoke actually had decent-paying jobs and a man could feed his family working a days work? (service-sector $12hr doesn’t accomplish this).
If there ever was a time for selling and renting, it is now. These ‘terrific deals’ Joel speaks of I suppose refer to prices backing off-peak by about 20% (to early 2007 levels) and they are set to ‘go to the moon’ again. Sadly, this will not be so. The entire Western-Canadian real estate froth is about to disappear and prices will be caught up in unprecedented reverse-momentum where we will see 80’s pricing again (yep Joel, sure hope you haven’t leveraged yourself as you are advising others). Revelstoke is most susceptible; Gaglardi’s won’t keep this money-losing gig running forever and the world who have come to Revelstoke ‘for the lifestyle’ will leave in droves ‘for the pay cheque’.
I’ve lived long enough to see real estate downdrafts…there is nothing quite like them in their brutality as you can’t catch an offer if your life depended on it! (eg. Calgary 1992) Sell now. Rent and wait until the B.C. market gets completely flushed-out and back to values we saw in 70’s & 80’s (affordable to a working person). ‘Working person’? Yes, Joel, I know…the great unwashed. Sadly, you and your entire generation that thought you were going to skate through life producing nothing and never breaking a sweat while ‘enjoying the lifestyle’ and writing blogs are going to have to find REAL jobs; produce, manufacture, invent, and be creative. Consultants and facilitators will have no place in the coming reckoning.
Put away the Tony Robbins, Allen, Joel Osteen, Et al. and all the other lying drivellers you are filling your mind with. Re-lace those work boots and see the coming storm-clouds. Plagiarizing others’ lies is so shallow; open your eyes and see the precarious times we live in and speak Truth.
Thanks for the comments Randy.
You are right, real estate does go down. However, I’m not speaking about some kind of quick flip strategy. I’m talking about buying a home that you have for twenty-thirty years. If you can afford the mortgage payment now, you can afford it throughout the life of your mortgage.
Don’t forget what drives real estate values down. Real estate values are driven down by it being unaffordable for the average income earner in your demographic. This is not the case in this region. In fact, many industries that drive the income level upwards in Revelstoke are not related to the ski hill or tourism, but rather those hard-working manufactoring jobs that you speak off.
Wow Joel you must be a amazing “young” man to be grouped together with Tony Robbins and Joel Osteen?
Keep challenging the mindsets of the nay sayers…….People need new creative ideas,….I guess if we want something different than what we have we might need to try something different than what we have tried before? Guess time will tell…….? But I see no reason to make fun of a generation that will soon be making the decisions for our future
Joel, your argument shows that real estate is a dreadful investment, long or short term. Take some simple numbers: $350,000 average home price, multiple of median-income to median home-price 2.5 times (has been actual North American average for 50 years, with the exception of 2004-2010), Revelstoke median family income $44,661 (2001 Census) (no, it has not increased, how’s your Latin? Service Jobs = Service = Serve = Servitude = Serf …get it yet?). So based on historical averages, that $350,000 Revelstoke home will again trade at $111,000. The earning demographic is PRECISELY why Revelstoke (and elsewhere) is overpriced! Again this displays AVERAGES and does not take into account the likelihood that any number of events would send Revelstoke home prices significantly below the $111,000 average where real value is/should be today; eg. Interest rates rising above historical lows, Major industry closure, Gaglardi’s L.O.C. being called as Simpson’s was, global financial meltdown Etc. Etc.
So you say, ‘short-term price fluctuations matter little to someone who plans to live a home for twenty-thirty years’. Tell that to CA,FL,AZ,NV,OH homeowners who are making monthlies on an asset worth 40% of what they paid…soul destroying! My parents had two careers in their lifetime, I’m at six and counting, my children… ? Overpriced real estate is completely illiquid in a world that is not static; who can say with even 80% probability that they will even be in Revelstoke 6 months from now?
Your last argument is completely absurd; what guarantees are there that what I can ‘afford’ today, I will be able to tomorrow? You are basing ‘affordability’ on historically record-low interest rates, do you warn your marks that if rates climb 2 points, (still well below historical averages) their broke? If you do not you are void of a conscience…if you have not thought the above through…you have no place peddling something you don’t understand when you have a fiduciary responsibility to potential clients.
Randy:
Thanks for your responses.
You clearly have your mind made up on a number of things.
I disagree, but you are free to think how you like.
And, yes I do tell client we have historically low interest rates and they will need to account for much higher interest rates in the future. I consider clients who have come under my care, well taken care of and prepared for the worst case situations, should they happen.