The 6th Round

At The Bell

I answered the phone to hear a nice female voice speaking. Tentative in her greeting, she asked twice if she was talking to Larry Yatkowsky.

“Yes” I confirmed, “you are speaking with him – how can I help you?”

Listening for Clues

The sound of an infant seeking her attention was in the background as she spoke in an anxious trembling voice of someone about to enter a boxing ring. The verbal punches came in rapid fire.

“I received six pieces of real estate advertisements in the mail today and I’m not happy about this, in fact, I’m very agitated! I think it ridiculous that Realtors® and the real estate industry continue to pump the market with your propaganda! I received six cards today telling me what has sold and listed in my neighbourhood and I wish you would just stop. My husband and I know we will never be able to own a home in this city because of you Realtors®. In that you continue to remind us of this fact with your incessant multiple mailings is beyond annoying. As a couple we earn an average income yet we can’t qualify for a mortgage that will allow us to buy a Vancouver home. All you Realtor’s® do is drive the price up to a point where the average Canadian can’t afford to live here. I have to work and most of what I earn goes to pay day care for the toddlers. It’s very frustrating. We work hard. We don’t spend on excess items. We rent and with rents being high we are unable to save for a down payment. We feel trapped and unable to ever achieve the dream of owning a home in which to raise our family. I just wish you would stop sending these advertisements in the mail – they only remind me of how hopeless it is and makes it unbearable.”

In Awe

I was struck by the palpable frustration and obvious desire to find peace of mind. How does one help in this situation? Providing a total solution would not be possible but perhaps I thought, a no cost band aid is better than nothing at all.

Interjecting the staccato speech, “Please allow me to interrupt and ask if all six pieces of advertising material were the same?”

“No” she replied, “they were from different Realtors® but, all six came in today’s mail.”

Relieved that the postal worker had not bombarded her duplicate copies I asked, “may I offer a solution that I believe will prove helpful?”

Two Band Aids

“My suggestion will not help you buy a home but it may solve the problem of receiving these and other ad-mail reminders. The answer lies in a phone call to Canada Post with the request that they place your address on the ‘do not deliver ad-mail list’. This will put an end to you receiving mail you find disturbing.”

“Further, if I may, I would like to clarify a point. While I empathize with your plight it is necessary to clarify that your belief that Realtors® are the only reason for high home prices is misguided. To be clear, Realtors® do not control the market and while we by the nature of our assigned task, have a part in facilitating the process, market makers we are not. Please understand that when we are asked to sell a home often the first question the seller will pose is ‘how much?’ It is unfortunate and unrealistic to believe that sellers will concern themselves with the issue of whether their asking price falls within the afford ability range of the ‘average Canadian’s income. Sorry – that is a card that I have yet to see on the table!”

She, now somewhat relieved at having the opportunity to vent her frustration, thanked me for the advice as we ended the call amicably. Returning my cell phone to its holster I was left to wonder.

Questions

This lady’s story prompted some questions about income and the ability of the ‘average Canadian’ to afford the purchase of a home. Beyond the price of a Vancouver home which in itself is insurmountable for many people, what else stands in the way of people like this lady that would preclude them from purchasing a home?

According to an April 2010 report by Niels Veldhuis of the Fraser Institute –

In 1961, the average family had to spend 56.5 per cent of their cash income to obtain food, clothing, and housing. In the same year, 33.5 per cent of the family’s income went to governments as tax. By 1981, the situation had been reversed; governments took 40.8 per cent of the income in the form of taxes, while the family used 40.5 per cent to buy food, clothing and housing. By 2009, the average family was giving 41.7 per cent of its income to governments for taxes while using 37.1 per cent of its income to buy the necessities of life-food, clothing, and housing.

Report

Round 6

High prices are definitely a deterrent for many as they seek to buy an affordable Vancouver home. However, there are other not so obvious aspects of our personal finances which also impact our ability to purchase a Vancouver home. They are not as obvious as target as a Realtor®.

Veldhuis would have us believe that taxes including the much argued HST, have combined to decrease our net disposable income making it more difficult to achieve our home ownership goal. Those not so obvious insidious little ‘tax hands in our pockets’ might be the real reason our state of well being is altered – a state, where like this nice lady who upon receipt of six Canada Post ad-mail brochures was triggered into a 6th round battle to land a punch on her very obvious neighbourhood Realtor®.

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

When Life Moves You - contact Larry:

*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

stats don't lie Says:
November 4th, 2010 at 4:50 am

I’m confused about the HST comment: does the HST really make the difference when houses cost 70%+ of the “average” household’s PRE-TAX income?

November 4th, 2010 at 8:45 am

@stats
HST wasn’t the point but more a handy target. What i was trying to get across was the cumulative effect all taxes may be having on all of us. It is a silent partner of everything we do and for average income earners it seems disproportionate.

jross Says:
November 4th, 2010 at 4:06 pm

In other words, according to your example:

In 1961, after taxes and necessities, the average family retained 10% of its income.

In 1981, after taxes and necessities, the average family retained 18.7% of its income.

In 2009, after taxes and necessities, the average family retained 21.2% of its income.

Granted the tax burden may have increased since 1961 (as have services like universal health care), this hardly supports the idea that families today are worse off. They may well be, but that is not a conclusion supported by your cited example.

November 4th, 2010 at 5:32 pm

@jross,
true enough considering that without current stats to back up my suspicion I am making a presumption that the HST broad sword is being realized now and will reduce that 21% figure.

Mark K Says:
November 5th, 2010 at 8:38 am

You’re a cool guy Larry. Not many Realtors would have published this lady’s rant. I’m also unable to afford to buy a home in Vancouver (or the burbs for that matter) suitable for my family size, though I do have a good deal on renting a house. Hope it lasts. I too get all sorts of Realtor cards through my mail slot telling me how nearby tear-downs went for $750K to $1M. It irks me but certainly not to the extent it did your caller.

Some random thoughts:
According to Stats Can the middle 20% of income earners saw their real earnings grow by only 0.1% between 1980 and 2005. That impacts affordability – and not just in Vancouver.

Realtors come in for abuse from the priced out population because as the gulf between what we can afford and what houses cost widens ever further Realtors get ever richer. Now no one ever decided to become a Realtor so they could screw people out of being able to afford a home. They just want to earn a living like everyone else. In moody moments people forget that.

Real estate is a very emotional topic for a number of reasons.

If someone were to buy 10 Hondas it wouldn’t impact my ability to buy a Honda. When someone buys 10 houses it does impact my ability to own a house. Groups of people would never gather to bid “over list” to buy a Honda thus depriving me of being able to buy one at a reasonable cost. The point I’m trying to make is that with real estate one group of peoples’ success (those with real estate that is appreciating rapidly) has a detrimental impact on another group (that is increasingly priced out). Makes emotions run high.

Keep up the good work Larry. You’re always an interesting read.

November 5th, 2010 at 8:57 am

@Mark
you know I didn’t hear a rant as much as a frightening sense of being overwhelmed by her situation. I could be wrong and perhaps read too much into her tone but what made me reflect was how the effect of 6 pieces of glossy real estate paper turned an otherwise gentle soul into an angry person. It served to remind me that many of us are on the edge and that the turning point could be as close as our mail box.

L8erdude Says:
November 5th, 2010 at 9:52 am

@Mark
“If someone were to buy 10 Hondas it wouldn’t impact my ability to buy a Honda. When someone buys 10 houses it does impact my ability to own a house”

not many places in the world could this scenario happen. Unfortunately, you’ve chosen a city with a severe shortage of land to make your future. Can you imagine what would happen to house prices in Vancouver if folks were allowed to own just one? I personally know scores of investors who have 5-6-7 houses each.

November 5th, 2010 at 10:03 am

@l8erdude
a city with a severe shortage of land – could you say the same about Edmonton and Calgary?

Mark K Says:
November 5th, 2010 at 12:35 pm

@L8erdude
I didn’t choose Vancouver. I was born here. If I thought I could take my job, family and friends with me I’d move in a heart beat.

Rob Says:
November 5th, 2010 at 1:34 pm

@L8erdude

“I personally know scores of investors who have 5-6-7 houses each.”

I’m not one of those people that think the market is going to crash, but statements like this really make me wonder about the state of Vancouver real estate.

If it is accurate that a large number of investors own multiple properties (presumably by using equity from one to finance the other, and so on) I would think that it wouldn’t take much of a correction in prices to cause some sort of domino effect to the downside.

L8erdude Says:
November 6th, 2010 at 9:50 am

@Larry

No Larry, Edm and Cal have no shortage of land. They simply annex more and spead out. Those two cities can keep growing for as long as I’m alive. Less wealthy immigrants now choose those two cities to move upon arrival rather than Vancouver.

@ Rob

The domino effect was already tested here in late 2008, early 2009). What did it produce? A very quick 15-20% off before eager buyers stepped in the scoop up that discount. I have my ear to the ground, so just because I know people who own multiple homes doesn’t mean it’s widespread.

bbcoq Says:
November 6th, 2010 at 2:46 pm

The only thing I might add is I always findmany realtors (not all Larry) are very quick to “spend” their customer’s money-knocking down walls, renovating kitchens and bathrooms and landscaping. It all adds aup and comes out of my pocket or added to my mortgage principal.

November 6th, 2010 at 4:07 pm

@bbcoq
you only need to experience one client divorce that results from an over ambitious-never-done-it-before Holmes on Holmes kind of guy who doesn’t understand that a home is easy to rip apart but it is an expensive project to put back together. Now add a baby and a wife who have to live in the place and you have trouble.
No offense to Mike Holmes but I’ve never heard him quote a price and he never does the renovation by himself. I think some seem to forget that part of the equation.

bbcoq Says:
November 6th, 2010 at 4:48 pm

I agree. I added up the suggested “refreshing” a selling realtor suggested on a Tri-cities area property and it added 80k plus all the blood, sweat and toil.
Add HST to reno costs and fixer uppers really need to price themselves well.
How many realtors could survive a 1995-2000 style prolonged bear market in real estate for the little value they add?

November 6th, 2010 at 6:18 pm

@bbcoq
re how many realtor’s
of the 10,000 agents in Vancouver (over which about 4000 have less than 5 years in the business) there are over 1,100 with 25 or more years of service which translates into a lot of knowledge and experience. I’m thinking the average age is somewhere around 52 but don’t hold my hands to the fire on that number. At 27 years, I felt like a teenager besides some of those old codgers. 🙂

November 7th, 2010 at 9:01 am

I really like the way you handled this, it’s a shame that many people are in this kind of situation. And though it’s not just about high prices, the most important fact still remains – after counting all their incomes and expenses, they still just can’t afford to buy. The only option left for them is often to wait for better days to come. No wonder they’re looking for someone to blame.

November 7th, 2010 at 9:53 am

@Elli
“only option left for them is often to wait for better days to come”

That is a welcomed bit of sunshine however, the problem as I see it is that prices in this city and yours have far outstripped the ability of the ‘average Canadian’ to manage the purchase of a home.

The mechanics of expectation and interest rates aside, my thoughts are not meant to sound alarmist but, incomes have not kept up with the increase in home prices. With a view to world wide and national economies I don’t think the income aspect can find sufficient relief in a short run of 5 years. I’m not even certain that it will be achieved in 10. The only alternate solution is that prices must drop if these marginal buyers are to have a shot at purchasing a home – that however, at least in this city, may not happen because of external and governmental influences that are affecting the market. These things are beyond our direct control and it was that lack of control and sense of frustration which I heard in her voice.

My take away was that she was desparately seeking a sense of permanence wherein she could raise her children and establish roots within a community. Ultimately, I think she was at the breaking point in understanding that there is a chance that this may play out badly for her, people like her and the community at large.

I’m actually glad she chose me to speak with. In the couple of minutes during which we spoke I heard and learned a lot. You simply can’t buy those lessons in life.

L8erdude Says:
November 7th, 2010 at 7:41 pm

@ Larry
“With a view to world wide and national economies I don’t think the income aspect can find sufficient relief in a short run of 5 years. I’m not even certain that it will be achieved in 10. The only alternate solution is that prices must drop if these marginal buyers are to have a shot at purchasing a home”

this is naive Larry. As a realtor I expect that you wold understand that Vancouver is not the kind of city you apply 40 year old paradigms to. In the “old world” land was abundant and the right of passage for most folks was to own a single family home. Fast forward 40 years – we ran out of land when the last subdivision was built in Vancouver around 1980. So over the past 3 decades there has been an ongoing shuffling which has created a tier system where wealth buys homes, not incomes. Because there are only so many SFHs to go around, this shortage means high high prices. If you want to use the old income/price formula do it with attached/condos – these are now entry level homes whereas 40 years ago the entry level was a post WW2 fixer-upper bungalow

November 7th, 2010 at 9:32 pm

@L8er
you can expect what ever you want –
if new paridigms are in play your thoughts on increased density are?

L8erdude Says:
November 8th, 2010 at 9:51 am

@ Larry

The paradigm has been in play in Vancouver since the late 80s – so it isn’t new…but it’s most certainly newer than your very old paradigm (simple rent/price calculations).
As to your question about the effect of density. Here’s an interesting article:
http://housing-analysis.blogspot.com/2009/03/densification.html

“But how about properties where densification is a ways off? We can take somewhere like Vancouver as an interesting example of this. Many neighbourhoods in Vancouver have been densifying for the past 20 years. Witness the addition of dual suites in the past 5-10 years where before it was common only to have one and 20 years before this suites were not necessarily the norm at all. It is conceivable that in 10-20 years from now houses will become multiplexes, as they are in certain parts of the city already. We can do some quick back-of-the-envelope math to figure out what to expect. From this we can determine a “densification premium” to put on a piece of land expected to be densified”.

So, due to land shortage, we should expect more multiplexes and redevelopment toward density – and less available single family homes. So Larry, does this put a premium on the single family home or not?

DaMann Says:
November 8th, 2010 at 5:05 pm

@L8erdude

If economics and fundamentals don’t apply to Vancouver as you put it ( paraphrasing) and prices will only go up infinitely ( which would put the average family home in Vancouver in 2030 at about 5 million) why did property values drop 15-20% in Vancouver only two short years ago in 2008? Yes , 2 years ago. The only thing that saved the market here from an even worse fate was the interest rates dropping to zero? So why did it drop then? Just for something to do?

If the prices going up are only about land then why has Victoria RE skyrocketed? Why Chilliwack , Abatsford? Calgary ? Edmonton? They all have massive amounts of land, yet prices went up bigtime.

It’s a bubble. People need to be patient and wait for the pop. It will come.

L8erdude Says:
November 9th, 2010 at 8:30 am

@ DaMann
you can only call a bubble after it pops – until then it’s appreciation. If the worst economic conditions since the Great Depression only produced 15-20% off I think you’re going to need a hearing aid to detect the “pop” of your said bubble.
And, to answer your question about that drop of 15-20%. A lot of folks holding properties expected the old paradigm – were caught unaware of what was true. This won’t happen again

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