Out Of Whack

How inflated is the Greater Vancouver housing bubble?

The house above is at 5580 Lancing Road in the Vancouver suburb of Richmond. Built fifty years ago in 1961, the 1,590 sq. ft. three bedroom, one bathroom home sits on a 10,768 rectangular square foot lot.

Asking price: $1,100,000.

Below is a screen shot of the real estate listing (click on image to enlarge).

The house has languished on the market and the owners have now pulled it.  It appears they are desperately trying to rent it out.

I say desperate because the owners have been dropping the monthly rent to find tenants for their vacant house.

The first time it caught my eye, it was being offered for $2,000/month:

Then the asking rent was dropped to $1800:

Unable to secure tenants at that price, rent was slashed to $1700/month.

With no takers at that amount, the rent was recently dropped to $1600/month:

How dysfunctional is that rent ($1600/mth) to the asking price of $1.1 million?

With 5% down, a $1.1 million mortgage (at emergency level interest rates of 3.89%) requires about $4,800 per month to service.

But perhaps the most telling metric is a handy little option offered on the website by ING Direct.

It's called a 'rent translator' and allows you to input the current rent you are now paying and ING will instantly tell you what size of a mortgage that monthly payment would equal to.

For $1,600/month ING says the mortgage this house should support is $340,924:

Obviously this is an oversimplification. But as a rough guide you get a sense of just how overvalued the market is right now.

Bubble value: $1,100,000

Rent value: $341,000

A stable market is one where rents can support your mortgage. The vast majority of mortgages these days are with 5% or 0% down. It means these properties are overvalued by at least 67%. That's why so many bloggers believe that when this market does finally implode, you will see property values drop by over 70%.

And, as faithful readers know, this blog believes the correction will be even sharper.

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Email: village_whisperer@live.ca
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