Friday, October 29, 2021

Can you own a house for less than rent in Vancouver?

This is a good question. Ten years ago the answer was YES! But things have change and the value of single family houses has risen dramtically over the last 5 years. Rents in Vancouver have mostly stabilized locally. So does the math still add up? 

10 years ago the standard deduction for income tax for an individual was $6,800. In 2017 the deduction was increased to $12,000. This increase was very beneficial to lower income people who rarely were able to itemize deductions. However, it did make the tax deductable mortgage less effective since most sub-median earners wouldn't have more than $12,000 in interest. This effectively has eliminated the tax advantage for two income homeowners with loans under $400,000. So now it comes down to whether the rent is cheaper than the PITI loan payment. 

Before I dive in, lets be clear that homeownership has other definable advantages over renting beyond the actuial cost of ownership. Renting also has definable advanatges, although fewer. But this is just a look based on the cost to own vs. rent. I took neighborhoods all around Vancouver for average rent for a 3 bedroom detached home with either 2 or 2.5 baths and then found recently sold comparable homes in the neighborhood to determine the cost. I used for rentals and of course the RMLS for sold homes.

The typical three bedroom house in Vancouver has the following rental characteristics according to

  • Monthly rent: $2099.
  • Move in cost with no pet / pet : $4198 / $4698.
  • Rentals that forbid pets are about 45% of the market.
  • Utilities are typically paid by renter but the average is 90%, a fair number of landlords pay the water/sewer bill.
  • Typical renter's insurance policy $100
  • Rents are currently trending up, suggesting the home will be more expensive next year when lease is renewed.
When buying the terms for move in costs and such are often negotiated in the contract. I am operating under the assumption that the buyer negotiated to have seller pay loan closing costs on FHA and VA loans, even if they had to pay a little more for the house to get that. Mortgage rate data based on Washington State wide averages for last month. Taxes based on typical Vancouver assessed vale and millage rate. Typical three bedroom detached house in Vancouver has the following sales characteristics according to the latest data on the RMLS:
  • Home price : $454,718
  • Move in costs 20% Conventional / FHA / VA : $97945 / $15915 / $0
  • PITI* Mortgage Payment 20% Conventional / FHA / VA : $2097 / $2696 / $2497**
  • Although home values are still trending up, homeowners effectively lock in their payment with a fixed rate mortgage. Property taxes and the cost of insurance can fluctuate in either direction depending on trends.
* PITI stands for Principal, Interest, Taxes, Insurance insurance includes Mortgage Insurance and Homeowners insurance. 
** VA loans have special characteristics for Disabled Veterans that make the loan more affordable and could lower the payment. Check with a local loan professional for more info.

These scenarios for both rentals and purchases are generalized and anyone seeking to either rent or own a home should consult with a licensed real estate professional before making any decisions.

So it seems that renting in Vancouver overall is probably a bit cheaper in both monthly payment and move-in costs. However renters remain at the mercy of landlords that are trending towards substantial rental increases that significantly raise monthly expenses vs. a fixed rate mortgage that remains constant. Property taxes will fluctuate over the years, but that is a much smaller piece of the monthly expense.

Overall the rule should be that if you intend to stay local for 3-5 years or more, buying is by far the best approach. If you are someone that is not locally committed for a long term residency, renting is probably best. 

Friday, October 15, 2021

Vancouver continues high density development, will more city condos follow?

The last 5 years has seen Vancouver's Downtown area add a dozen or more mid-rise and high-rise residential towers. Most have been apartments with the exception of the Kirkland Tower opening very soon, with 40 luxury condo units. Will more condominium units come?

A couple of years ago Washington State made some important revisions to condominium law to make it easier for developers to build them. Primarily revamping the lawsuit section to help soften liability exposure. But since that revision the Kirkland Tower is the only urban condo building to go up. With so many apartments in the city core filling up as fast as they can build them, one might expect to see some condos.

Certainly condo towers are a little more difficult to pencil out whereas rental units can be a cash cow. But the city is looking for long term residents to fill the city center and eventually tenants get tired of making the landlord rich. There are a great many apartments Downtown fetching rents at three times the citywide median. These are people who can certainly afford to buy a condo.

As of now the only condo project not name Kirkland is the proposed 14 story Block 16 development shown on the Gramor Waterfront website. That tower is more in the concept phase at this point. It is an 83 unit proposal versus the 40 units in Kirkland. The building isn't much bigger in size so I'd guess these will be mostly smaller sized units within reach of people that are not multi-millionaires. It's portion fronting the mighty Columbia however suggests the units would be fairly spendy. 

I's like to see some additional high density condo projects go up downtown to give some ownership opportunity to the thousands of people currently renting in our fantastic and revitalized Downtown.  

Friday, October 8, 2021

Real Estate Market Trending Against Economic Factors

The real estate market normally would be affected by swings in the local economy. The underlying economy is strong with unemployment low and demand for goods and services high. But lurking under the surface is a concern that has some economists a bit spooked. Workplace participation is plummeting, recent stats from the Dept. of Labor show only 61% of available labor is employed and roughly 11 million jobs remain unfilled. The trend is leaning towards a worsening rather than improvement. This is not sustainable and without some form of "intervention" a recession is inevitable. Service sector businesses have an abundance of demand that they logistically cannot serve due to supply chain issues and a lack of willing labor. 

Typically this lack of employment would lead to a slowdown in market demand for homes. So far the saving grace for housing has been that new housing is suffering from the same labor and supply chain shortages causing a slowdown in new inventory, thus exasperating the tight inventory conditions and keeping home prices trending up, rather than down.

Government continues to coddle those that refuse to enter the workforce to take jobs that are now paying 15-25% over the typical wages pre-pandemic. Half of the homeless population on the West Coast could be working a full time job by the end of this month making enough money to house and feed themselves if only they had the initiative. The other half theoretically could be employed as well, but that half needs genuine help to either overcome drug addiction or mental health issues. Governments need to clean up homeless camps, offer the addicted and mentally ill real opportunity for help and kick the rest out. With no other option those that are able will in fact go to work. There is a basic human need to survive, but so long as camping on the street, begging in the park, and free money from the government continues to be viable, the problem of both homelessness and failing business in a roaring economy will continue until the suppression of local and national economics leads to recession.

If businesses fail because they cannot find employees to serve a major demand for their product or service, that is a government induced problem. There is no need to continue the excessive government payments to unemployed persons when 11 million jobs are out there waiting for workers. The bar is as low as it has been in decades for employability. Nearly anyone with a pulse can earn $15 an hour in our local market and that is enough to pay for half of a two bedroom apartment or to rent a comfortable room in rental house along with food and other necessities.

Until local government pulls its head out from that dark area in the aft section, homelessness, crime, and other social ills will continue. On the national front it is time for the feds to stop handing out money to people that do not need it. The moratorium on eviction and the increased unemployment payments although a bit too generous, made sense in April of 2020 when governments were forcing business to shut down under the threat of what was then a bit of an unknown threat from the COVID 19 virus. By February of 2021 the pandemic conditions were stabilizing and workplaces started to reopen in earnest. That is when the unemployment payment bonus should have stopped and the moratorium on evictions should have stopped shortly thereafter. But they did not. This is why we find ourselves in the most unusual of economic situations with a huge demand for goods and services and a complete inability to serve that demand.

If this economic stagnation continues, interest rates will rise and that will close the door to a large portion of the buyers, then prices will likely soften. If employment returns to pre-pandemic levels or at least close to it, the real estate market should continue to be very healthy. Therein lies the mystery... what will the government do?


Friday, October 1, 2021

To Fix or not to Fix

Many sellers have homes that need some TLC. Maybe the carpets are worn or the interior paint is due for a refresh. It is tempting to sell the house as is in a market as hot as this one. But there remains the notion that fixing the carpet and paint might yield more in the final price than the cost of the work. This is probably true. 

With a vacant property the decision is a bit easier as these types of work are more easily completed without ones personal belongings all over. But the contractor market right now is tighter than the housing market. Getting qualified people to fix stuff is hard and as such more expensive than usual. My experience over the years has been that entry level buyers of small single family homes are more likely to buy a light cosmetic fixer than say condo buyers. Although some condo buyers intend to tear out all that dated stuff if the condo is more than 10 years old anyway, the bulk of condo owners are looking for the less demanding home ownership experience. 

I have a light cosmetic fixer condo listed right now in the Village at Columbia Shores. This is a wonderful building right along the Columbia River. The seller is letting it go as is. I'll be monitoring the agent remarks and comments to see if I will advise my client to hire out for a fresh paint and flooring. I have always been of a mindset to let the market tell me what it wants, rather than trying the Nostradamus approach whereby I try to conjure up a vision of the future as if I know what the thousands of local buyers are looking for at this very moment. Even after more than two decades experience, I simply don't carry that much hubris. I have said it over and over again, "the market is cold hearted, and it doesn't care about your feelings." It will buy what it wants, and reject what it does not.

That said, patience can be a seller's best friend. Not all sellers have the luxury of time, those that do can wait for the buyer ideally suited to their home. That buyer is out there, we just are not sure when they will arrive. A buyer looking to tear out all the flooring and repaint the home to their personal taste may prefer a slightly less expensive cosmo-fixer since they are remodeling anyway.

For the seller looking for the quick sale, fresh neutral paint will almost always pay for itself at the closing table.