With all-time high housing prices reached in the last couple of years, Vancouver's residents are finding it more and more necessary to turn to alternative ways of financing their home ownership: basement 'helper' suites, enlisting the help of family members as investment partners, and even splitting a larger home with friends are just a few examples of the increasingly common strategies which propose non-traditional social, financial, and living arrangements as a solution to the problem of high mortgage costs. It is interesting that even financial institutions - traditionally some of the most conservative organizations out there - are now adapting to the challenging housing market; VanCity Credit Union now offers the 'Mixer Mortgage,' enabling you to share the purchase of a home with friends or family. A myriad of other alternative approaches includes the idea of cohousing, living in a smaller house in an intentional community and contributing time and finances to shared spaces and resources. (One writer's experience with organizing a small cohousing group is outlined here.)
I find the prospect of the many unforseen social circumstances that could arise out of such arrangements really exciting for the future of Vancouver; not only could it produce some scenarios that actually improve the richness and quality of daily life for many (having older people available for child care in a cohousing community, for example), but it could also point to a way out of the significant social and demographic disparity that exists in the city, producing instead more integrated, diverse communities. It is significant, however, that while so many are willing to go to great lengths to re-examine the traditional social expectations associated with the American Dream (a nuclear family in a single-family house in the suburbs), we seem less willing to examine as critically the cultural imperative of home ownership at all costs.
Sunday, July 29, 2007
our friendly financial institutions
In addition to the marketing machine which does so much to drive the housing real estate market, the very nature of the Western economic system - including a reliable system of land titles and financial institutions willing to provide credit - provides the framework enabling the ownership and sale of land and property. As the course content points out, it is very unlikely that anyone would be able to own their home without the necessity of a mortgage: the bank provides most of the money you require to buy your home in exchange for the right to seize your property should you default on your payments, as well as a hefty surcharge by way of yearly interest payments. In this way, many people pay for their homes at minimum a couple of times over by the time they actually own it, but by doing so they are able to live in a home as they are buying it, instead of the not-so-feasible alternative of paying rent to a landlord while attempting to save for a home.
Although this process is so ubiquitous as to seem hardly worth mentioning, it is extremely important in determining the shape of our cities. The interest rates charged by banks on mortgages have historically varied widely, but have been comparatively low for a while. More and more, financial institutions are competing with each other to attract mortgagees, offering a confusing array of new financing packages, and generally lending money to riskier clients. As this Globe and Mail article points out, while the recent upsurge in 'alternative' mortgages (especially in the United States) has made home ownership accessible to more people than ever, it has also left them more vulnerable than before to market fluctuations:
Although this process is so ubiquitous as to seem hardly worth mentioning, it is extremely important in determining the shape of our cities. The interest rates charged by banks on mortgages have historically varied widely, but have been comparatively low for a while. More and more, financial institutions are competing with each other to attract mortgagees, offering a confusing array of new financing packages, and generally lending money to riskier clients. As this Globe and Mail article points out, while the recent upsurge in 'alternative' mortgages (especially in the United States) has made home ownership accessible to more people than ever, it has also left them more vulnerable than before to market fluctuations:
The conventional mortgage that Mom and Dad had -- a fixed rate over 30 years -- has given way to an increasingly exotic array of offerings. These include subprime loans, or high-rate mortgages for riskier borrowers. Subprime loans now account for nearly a quarter of all new U.S. home mortgages. (That compares to roughly 5 per cent in Canada.) There are also interest-only loans (designed to maximize tax breaks), no-down-payment mortgages and negative amortization loans, where borrowers take a break on monthly interest charges and add the amount to their debt.Obviously, this new family of financing options makes it significantly easier for less qualified buyers to qualify for a home loan. But it also could mean more serious consequences if things go wrong - if interest rates increase unexpectedly, for instance. This piece from the CBC makes clear, based on the recent U.S. "subprime mortgage meltdown," some of the concerns surrounding 'subprime' mortgages and the effect they could have on the economy overall:
By late 2006, one subprime loan in eight was in default across the U.S. Foreclosures were soaring. More than 20 subprime lenders were bankrupt. And the National Community Reinvestment Coalition estimated that as many as 1.5 million Americans could lose their homes by the time all the damage is done.Could the same thing happen here? What would be the outcome in Vancouver, for example, if the many people who bought an expensive condo they could afford at 4% interest suddenly found themselves proud owners of the same expensive condo at 10% interest when their mortgage came up for renewal? Certainly, this change would have a significant effect on housing prices, and the net costs of home ownership as indexed by RBC's quarterly Housing Affordability Index, making it much less affordable overall to own. Clearly, for better or for ill, the shift toward non-traditional mortgages has presented a riskier side of investment in real estate, but it has also had a profound effect on the demographics of the city by allowing a wider range of buyers into neighbourhoods they would once have been unable to afford.
bob rennie
Any discussion of real estate in Vancouver would be incomplete without a mention of Bob Rennie, creator of Rennie Marketing Systems, "pre-eminent marketer of residential condominiums in the Greater Vancouver Area." Beginning his real estate career when he was only 19 years old, Rennie's firm is now the leading marketer and provider of "unique and effective risk management plans to residential condominium marketing" in the Vancouver area, and increasingly across North America.
Rennie's 'sample' of past projects reads like a summary of Vancouver's residential redevelopment of its downtown. Clearly, his firm has spearheaded the marketing of almost every high-valued condo development in recent memory. It seems to go without saying that the vision of urban life marketed by Rennie has had a major influence on Vancouver's vision of itself as a cosmopolitan, global city in which it is possible to enjoy all the amenities of downtown living within view of the mountains and the ocean. As a major player in the local real estate market, and the person whose advice is most often sought by developers on everything from the most desirable interior finishes to the most profitable asking price for high-rise condos, Rennie is also frequently consulted by the media (as in this Vancouver Province article) for his predictions on the future of the market; his opinion - that it is "all systems go with every-rising prices" - has helped to create the popular perception that Vancouver's growth potential is nearly limitless, at least in the lead-up to the Olympics. In the same article, he cites Vancouver's limited land area and the fact that there is "virtually no inventory" of housing as a reason that prices will continue to grow. Surely, however, there is some limit to the market's potential growth; if this limit has not yet been reached at 70% of pre-tax income for a single family home, how much higher can it be?
Rennie's 'sample' of past projects reads like a summary of Vancouver's residential redevelopment of its downtown. Clearly, his firm has spearheaded the marketing of almost every high-valued condo development in recent memory. It seems to go without saying that the vision of urban life marketed by Rennie has had a major influence on Vancouver's vision of itself as a cosmopolitan, global city in which it is possible to enjoy all the amenities of downtown living within view of the mountains and the ocean. As a major player in the local real estate market, and the person whose advice is most often sought by developers on everything from the most desirable interior finishes to the most profitable asking price for high-rise condos, Rennie is also frequently consulted by the media (as in this Vancouver Province article) for his predictions on the future of the market; his opinion - that it is "all systems go with every-rising prices" - has helped to create the popular perception that Vancouver's growth potential is nearly limitless, at least in the lead-up to the Olympics. In the same article, he cites Vancouver's limited land area and the fact that there is "virtually no inventory" of housing as a reason that prices will continue to grow. Surely, however, there is some limit to the market's potential growth; if this limit has not yet been reached at 70% of pre-tax income for a single family home, how much higher can it be?
bubble watch
There seem to be conflicting opinions out there as to whether or not Vancouver's real estate market can be said to be in a "bubble," defined in this November 2006 article in the Tyee as a market condition in which real estate values rise, through speculation, to more than what people are willing and able to pay. The real question investigated by the article is whether or not Vancouver's recent dramatic climb in real estate prices "have risen to levels that reflect the current state of our economy, or whether they've risen too high (and will fall)." The key concern about a real estate bubble, of course, is that it eventually has to pop, sending real estate prices plummeting back down to levels reflective of the economic success of a given city, and leaving homeowners who 'bought high' owing far more on their homes than they can hope to recuperate in the short term.
Realtors and real estate developers, perhaps not surprisingly, hold firmly that the prices in Vancouver are reasonable and based on a variety of factors: the continued success of Vancouver's economy, the city's desirability as a destination for global visitors and retirees, and of course, the upcoming Olympics. But the article points out, too, the potential for a conflict of interest in asking realtors and developers to predict the future: naturally, the rosy picture they paint has the potential to benefit them directly, as potential buyers take the plunge with high expectations for upcoming growth. On the other hand, it is of course possible that they are right, and the real estate values that seem hopelessly inflated to locals are simply reflective of a wider demographic shift - thousands of baby boomers from across the country trading their expensive single family homes for a smaller condominium in what they view as a more desirable location, and being willing to pay a lot more than local first-time homebuyers, the traditional buyers of condominiums, are able to shell out. There is also the argument that globalization, which lies very close to the heart of the question of real estate in Vancouver, has resulted in a globally-competitive real estate market, with higher prices - and the accompanying higher levels of urban disparity - across the board.
But since the writing of this article in late 2006, there are already signs that the market madness may be slowing down. RBC's quarterly Housing Affordability Index shows - for the first time in a long time - that "both new listings and sales are cooling off simultaneously," likely indicating a controlled market cool-down rather than a dramatic bursting of the bubble per se. Keep in mind, too, that this recent trend (as of June) doesn't have house prices decreasing, just not increasing as quickly. It remains to be seen whether Vancouver's real estate is valued accurately when compared with the city's recent economic performance, and can be expected to grow even further in the future, or if, as UBC real estate specialist Tsur Sommerville suggests, "we had a really great party, but now the party is winding down."
Realtors and real estate developers, perhaps not surprisingly, hold firmly that the prices in Vancouver are reasonable and based on a variety of factors: the continued success of Vancouver's economy, the city's desirability as a destination for global visitors and retirees, and of course, the upcoming Olympics. But the article points out, too, the potential for a conflict of interest in asking realtors and developers to predict the future: naturally, the rosy picture they paint has the potential to benefit them directly, as potential buyers take the plunge with high expectations for upcoming growth. On the other hand, it is of course possible that they are right, and the real estate values that seem hopelessly inflated to locals are simply reflective of a wider demographic shift - thousands of baby boomers from across the country trading their expensive single family homes for a smaller condominium in what they view as a more desirable location, and being willing to pay a lot more than local first-time homebuyers, the traditional buyers of condominiums, are able to shell out. There is also the argument that globalization, which lies very close to the heart of the question of real estate in Vancouver, has resulted in a globally-competitive real estate market, with higher prices - and the accompanying higher levels of urban disparity - across the board.
But since the writing of this article in late 2006, there are already signs that the market madness may be slowing down. RBC's quarterly Housing Affordability Index shows - for the first time in a long time - that "both new listings and sales are cooling off simultaneously," likely indicating a controlled market cool-down rather than a dramatic bursting of the bubble per se. Keep in mind, too, that this recent trend (as of June) doesn't have house prices decreasing, just not increasing as quickly. It remains to be seen whether Vancouver's real estate is valued accurately when compared with the city's recent economic performance, and can be expected to grow even further in the future, or if, as UBC real estate specialist Tsur Sommerville suggests, "we had a really great party, but now the party is winding down."
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