Managing Broker and father of three Millennials, Mike Hofer, offers some advice and strategies for young people looking to stay in the Lower Mainland amidst rising home prices and increasing affordability issues.
You have three kids, right?
Yes, I have three millennials: my son is 22, my middle daughter is 20, and my youngest is 18. All are in university.
We’ve heard a lot about affordability in the Lower Mainland and many people expressing they’re leaving because they can’t afford a home here. Not sure whether this is anecdotal or reality. What are your thoughts on it?
It is a concern of mine; it’s tempered by if they want to stay in Vancouver. My son is working on web-based applications and is in the integrated arts and technology program at SFU. He has friends making close to six figures in the US without finishing their degrees, and has had invites to go down there. My youngest daughter is in animation, particularly anime, and I wouldn’t be surprised to see her go to Japan since she’s learning the language. In terms of strategies to have them stay here, I’m trying to keep a stake in the game by maintaining as much real estate that I have, and the family has as a whole, and following it all. I’m trying to maintain a modest lifestyle and get my kids to understand that there are certain things you don’t need to do now. Delayed gratification, eat your vegetables first.
I’ve done some reading on millennials and think they have a bad rap. They’re much farther advanced and mature and tapped in than I would have been at their age, so their challenge is getting ready for life after leaving home. I think it’s the obligation of parents to try and chip in for them – there are different strategies of course. Mine is simply to maintain as much real estate as I can and leave something behind.
What advice over the years have you given your kids about real estate? Do you have specific advice for millennials?
Other than don’t become a realtor? Just that it’s important to have it, whether the market goes up or down. It’s consistently bailed me out of difficulties from time to time; it’s proven to be the single best investment. When people are deciding whether to buy or rent, I advise them to compare what their rent is getting them in terms of a mortgage payment and other associated costs of owning property.
Can you give us an example of that?
An entry level condo downtown is about $400,000, and less in outlying areas. With 5% down, that’s a $380,000 mortgage. It’s about $380 to support $100,000 right now, about $240 in maintenance and $50 in tax, so that’s $1734 for a downtown condo that rents for $1850. What gets in the way of this is the current bank rules that make it brutally difficult for anyone to get financing. So, the indirect message is you can’t buy but you can rent and pay someone who’s invested in a property to bring their equity down, but you can’t build your own equity. I just think this is ridiculous.
Most people are talking about local/provincial/federal government action taken to regulate and help people get into real estate in the Lower Mainland. It sounds like, from your perspective, it’s more an issue of lending than government oversight or intervention?
Yeah. The issues with lending are the five major banks are regulated by the Bank Act, which means the federal government. There are regional areas like Vancouver where it’s no secret we have some of the most expensive real estate in the world, so our issues are different than those in Calgary or Winnipeg, or anywhere else. The federal government can’t legislate free enterprise. We are in a market that is supply and demand. Currently, the demand is greater than supply which is why we’ve seen the market that we have, although we’re in a transitional market now. So, if they want people to stay here, they need to make lending rules so people can buy here rather than rent from people who don’t live here. On a provincial level, they try to offset some of the PTT (property transfer tax) but there are thresholds in place and it’s not always the easiest or, frankly, a huge help at that point.
I’ve done a couple of interviews about millennials and this type of thing, and one conversation came up about creating low-cost housing. I’m not in favour of that because I think you create a slum and can also indirectly create a caste system. Can you have lower cost housing interspersed in certain areas of Vancouver? I think so. We’re seeing a new trend over the past few years where municipalities are mandating that new developments carry three-bedroom units, and that’s to keep a family unit in tact.
Yeah, I’ve heard the three-bedroom unit referred to as the “unicorn”: everybody’s looking for it and it’s tough to find.
I wrote a letter when the Avalon Dairy site got redeveloped into Avalon Mews. This was a historic site. I know the developer group and used to manage their real estate activities. They wanted to increase the density and asked me to write a letter to the City about this. My whole focus was three-bedrooms. You can look at millennials in several different ways, but the people downtown still need the servers, the baristas, and retail workers. These people traditionally don’t make a lot of money and if you force them out to the suburbs to live, you force them into situations where they’re buying cars, insurance, and maintenance, and paying for car repairs if they can’t buy a new car. All that adds hundreds of dollars a month. It gets to a point of what is important, what is lifestyle? My 22-year-old and my 18-year-old still don’t have learners permits. My son is commuting from Coquitlam to Richmond which is about 2 hours. There are a lot of different avenues to this.
One thing that I wanted to touch on is you said the market was transitional. We’ve talked a bit about this in our office but since we started this podcast, we’ve been trumpeting how hot the market is. Can you speak a bit more to current market conditions?
For a few weeks now in sales meetings, we’ve been talking about setting expectations of the sellers that we are in what I call listing season now. In most years, you’ll see a dramatic increase in listings in early to late spring. You’ll see inventory build over the summer, but the buyers pool remains fairly static and doesn’t grow. What happens is listings for the market evaluations that were done on properties based on Dec-Jan and early Feb now come onstream; just imagine there are a whole bunch of those CMAs being done. Everybody’s thinking they’re coming to the market at the right time, and suddenly inventory starts doubling, quadrupling. Buyers take a collective pause; we see numerous situations like this. There was one in the office with five offers and four of them withdrew. The one left had to be advised that they weren’t in multiples anymore, so they came back and wrote under-asking instead of over-asking. We’re also seeing realtors setting false expectations with sellers who aren’t following trends. We’ve had people being countered back $100,000 over asking without being in multiples. That’s the transition we’re at right now. Interestingly enough, if a property is well priced it may not generate multiples but we’re still seeing them sell for full price. It’s the people who think they’re being clever by under-pricing, and quite frankly I’m tired of getting those phone calls.
In terms of a transition, it sounds like part of this is the spring market with more inventory. Do you see this as part of a larger shift away from the last year-and-a-half of a market that’s been on fire?
2012 was the first year I had seen in 27 years where we bucked the trend and the market remained pretty busy continually throughout the year. It was on a fairly flat curve going up, or a flat increase. But we are getting back into what I call a traditional pattern. If I were to sell a house, I’d sell it in December and if I were to buy a house, I’d buy it in August. The reason is there’s the least amount of buyer activity in August because most people are on holidays and inventory is at its max. This is because all these sellers had expectations of coming out and it gets to a point of sellers bidding down to undercut their competition to be sold, depending on their motivation. In December, it’s busy with the holiday season and inventory is lowest because people don’t want to sell during this time. Supply is greatest over spring and summer so you may have softer prices or at least subjects to sale where you can still win. You aren’t competing with so many people. There is a tremendous amount of risk when going in without subjects on offers. All we can do is advise our clients appropriately, yet it’s what it takes to win and sometimes it’s about winning. In the summer, you have more breathing room.
Bringing this back to millennials – if you are a first-time homebuyer, would you buy today?
If I could find what I needed to live in and I could afford the payment, and if the payment was close enough or within $100 of what the rent would be including maintenance and property taxes, absolutely. I wouldn’t delay.
Would you buy in a hot market, or try to time the market?
If you look at any graph in the real estate market, it goes up and it goes down. The key to real estate is a long-term hold. If you’re getting in to do a quick hit or a quick score and get out, I don’t think you should buy. This is because you’re losing so much money on soft costs: commissions, lawyer’s fees, taxes, possible penalties on mortgages – everything goes up. If you buy a place in a hot market and it goes down six months in a year, then absolutely, maybe that wasn’t the best idea is how it will feel at that time. However, hold on and wait to see what happens in five years. In my mind, there’s nothing that says over the next ten years we should see any kind of downturn in the market. Get in. If you can make the payment, do that.
In Greater Vancouver, there are many great areas. Downtown has almost become unachievable for many millennials. What other areas in Vancouver would you encourage people to look? Is there an area you think has a lot of potential? Where do you want to see your kids invest?
I’m a big fan of dirt; I’m not necessarily a big fan of condos per se. They go up like anything else but not at the same rate. I think the keys for us right now are anywhere there’s transit. Look at Brentwood and Metrotown; some of Surrey has SkyTrain. New West, Coquitlam (Blue Mountain Corridor) has SkyTrain. Towers are coming in. In Coquitlam, this is all near the Evergreen Line which runs from Coquitlam Centre up through Port Moody and down to Clarke or North Road. Bosa and Beedie are in there now. It’s a half-hour train ride to downtown. If you work in an urban area like New York, Toronto or Chicago, people don’t think anything of sitting on a train for 90 minutes to get to work. You can sit on the West Coast Express with WiFi and your latte and take 45 minutes from Mission to Vancouver, and you can buy a house for maybe $200,000-300,000 in Mission. One-bedroom condos in fairly new buildings in Coquitlam were recently under $200,000. With a $10,000 down payment and with maintenance, etc., this is lower than rent. Although you get higher rents downtown than outlying areas, the rents don’t go down that much for the accommodation. Another option for millennials is to buy with someone else; a trend might be with two or three couples. You might get a house with two or three suites. It’s like an Italian wedding I went to where aunts and uncles were dropping envelopes off at the table, and those envelopes contained anywhere from $5000-15,000 each. The couple goes and buys a house to rent out, then lives in mom and dad’s basement until they get a bit more of a stake and equity goes up so they can do it.
It sounds like your advice to millennials, or those under 35, is to get into the market in outlying areas as it’s still achievable and be close to transit.
Close to transit is the key. I’ll stress another thing here too: modest lifestyle. A report a friend shared with me said the lowest net worth in Canada is in Yaletown. It comes down to choices. Some people won’t go near a Superstore and instead shop at Whole Foods or Thriftys. This has a different impact when a single income is feeding five people. For every dollar a millennial spends, they must earn $1.75-2.00. Live within your means; don’t carry extra debt.
How different is affordability today from when you were a first-time homebuyer? You grew up in East Van?
I grew up in East Van, and moved to Coquitlam in my teens and have been there ever since. I still own the first house I ever bought. It was $192,000 and is now worth over $1 million. When I was with RE/MAX in 2007, I was asked to prepare information for an interview that my boss was going to do. The question was, “what is the difference between 1992 and 2007?” In 1982, we had 18-19% interest rates; in 2007, they were 3-4%. I believe real estate had gone up 400-600% during that time. What had not changed in this period was average household income. In 1982, 28% of household income went to support a single attached bungalow; in 2007, it was 68%. If we want to go back to where we were in 2007, I’d suggest our market is at least 50-60% higher, and if household income did not go up significantly from 1982-2007, I doubt it’s gone up very much [now]. You’re probably pushing close to 70-80% of household income to support a single attached bungalow.
Occasionally in the Vancouver Sun, older journalists write about how it’s always been this hard; quit the whining, millennials. It sounds like you’re suggesting the opposite.
I think the best thing we can do for millennials is [understand] they’re incredibly plugged in. The demand or need for them is to get unplugged as much as possible. They need that physical contact; they need one-on-one. I read an article on what a millennial looks for in a real estate agent, and it was digitized information. At the same time, it emphasized the importance of physical contact and a personal touch. My three [kids] are dealing with anxiety, one is meditating, one is off caffeine, the other is working out; they’re working on their social skills. They are far more advanced than my generation ever was in terms of academics. I think the best thing is to get out of their way and allow them to grow, and that we be there to pick them up and just to support and listen to them. They are way ahead of where we were at that age.
Any advice for the Alf and Teddy Ruxpin generation? We’re somewhere in between!
All the information I have in that regard holds true – it’s a modest lifestyle. I’m continually amazed at how many people don’t cook anymore and eat out. Buy a six pack of beer and go home to drink it there. By the time you drink it in a bar, you’ve paid ten times more. It’s a tough world and you’re being hit with a lot of marketing where people want you to spend your money. You need to be smart about it and pick and choose. I’d refer to the book, The Richest Man in Babylon. It’s a very simple book that’s been around a long time. Take 10% of your income and put it away for a rainy day, invest it. Take 20% of your income and pay down your debt. Spend the rest living. Don’t go into debt to have a good time – that’s ridiculous.