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Wednesday, March 29, 2017

Since When Did I Move to an Upscale Area?

Posted by Tim Stobbs on April 29, 2010

I’m seeing lots of ‘for sale’ signs in the city lately, but apparently this is common right now.  What is some what weird is the huge variation on pricing I’m starting to see on some listings in Regina.  For example, there is a similar size house not to far from me listed for $380,000, then another house with about 100 extra sq ft going for $440,000.  Trust me when I say I looked at the pictures for both places and they are not that different inside.

So what the hell is going on?  I suspect we are hitting another housing fever similar to the spring of 2008 when my house value went through the roof and then crashed back down afterward.  If you are curious what that looked like go check out any net worth post with graphs you can see what the bubble of house value did to my net worth.  What gets me about this every time housing values get near the $400,000 range is I feel like I moved to an upscale area, but I didn’t leave my house.  I keep looking around and thinking ‘you paid WHAT for that?’ Even with adjusting for inflation 2% per year my house should only be worth about $205,000 from what I paid for it.

What’s really interesting to me about this is when I talk to any of the new neighbours they are not much different than us.  They make a decant living, but they are not rich.  So how are people paying for these over priced houses?  Good old fashion debt and lots of it.  This is then driving two interesting consequences: one we have a lot of people who are vulnerable to interest rate increases over a five year cycle and second that’s a lot of potential retirement savings being used to pay the mortgage.  No wonder retirement savings rates and balances are crap in Canada.  We are putting everything we have into our houses.

So is this the classic case of unintended consequences in action?  Perhaps the plan to encourage home ownership and boost economic activity, but over the long haul all the government has encouraged is making a mortgage payment instead of making an RRSP contribution.  The net result is we aren’t actually increasing the GDP, we are just moving future home ownership from the future to now and getting a short term boost. Over the long run the banks will do well on mortgages but everyone else won’t be doing much other than paying the mortgage.

At the end of the day I’m thankful for buying what I did when I did it.  That way I won’t be stuck paying off debt for the next decade or two.  I do feel sorry for anyone who is getting in right now since they are losing so much of their future freedom to just a mortgage payment.

In order to keep this from again causing a little bubble in my net worth I’m freezing my house valuation at the Feb. level.  If it goes down from there I’ll adjust it, but I won’t be taking it up.  I might remove the freeze after things settle down again.

So how’s the housing market in your part of the world?  Are they just as over priced as here or have you already seen your peak and are heading down?

Comments

5 Responses to “Since When Did I Move to an Upscale Area?”
  1. Traciatim says:

    Housing where I am is pretty reasonable. Though it does seem to be increasing at an unsustainable pace. I purchased my place in 2007 for 102K, and each year since then things have been going about 10% a year. The average sale price is hovering just under 170K for my city. The average income for my city is somewhere near 65K or somewhere around there. That puts the average home at 2.6 times average income, which is pretty reasonable. What’s interesting is that when I purchased my house I did that same math and found our city at 2.3 times average income, so even though the prices are reasonable they still seem to be out-pacing incomes in increases by quite a good margin.

  2. Dillon says:

    I noticed the same thing; in the last month or so, there are a number of properties that have been listed in Regina where the asking price seems completely unreasonable.

    Asking price means nothing, though. A lot of these houses aren’t selling, and if they are, it isn’t at anywhere near asking price. For all the talk of a continued hot market in Regina, inventory is starting to build, particularly for homes over $400,000.

  3. Kerry says:

    It is amazing how different prices are in different parts of the country. I read that, and think, $400k? For a whole house? WOW, I’d *so* jump on that deal. My husband and I rent, because even with low interest rates our rent is less than the interest on a mortgage + property taxes/strata fees.

    To put it into perspective the most affordable (hah) house in my neighborhood is $650k. 5 years ago it was a marijuana grow op. 3 years ago it was abandoned and left open to the elements, with squatters. 1 year ago someone redid the drywall, painted the outside, and installed some laminate flooring. And now, they want 650 THOUSAND dollars for it? Please note that this is a 2 bedroom house we are talking about, not a castle with a moat.

    If you hadn’t guessed, I live in Vancouver. Oh west coast – so beautiful, but SO expensive.

  4. Addicted2dividends says:

    We just purchased a new 1910 sqft house in Edmonton, fully upgraded for 455k. We are situated in one of the more expensive neighborhoods.

    Prices here did skyrocket with the Alberta boom, then settled a bit. My wife wanted a bigger house, but I told her to get real.

    I hear Sask has more oil sands then Alberta does, and tons of mining going on right now. It’s going to be the next big boom province.

  5. George says:

    In my neck of the woods in Oregon (rural zoning just outside Portland), home values are highly influenced by the foreclosures. So what was a $425k house in 2007 has now sold as a short sale at <$300k (family that bought late in 2007 decided to divorce in 2008 and the house has been on the market for over a year–can't say that the family exhibited much foresight!).

    I'm sure part of the housing strength in Canada is the looney's recovery against the US$. That's just now reversing with the sovereign debt crisis and rumours of Canadian mortgage crisis looming.

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