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episode # 58

The Most Valuable Square Footage is Outside Your Home with Dustan Woodhouse

Dustan Woodhouse joins Matt and Adam to discuss why the sky is not falling and his predictions for the spring market.

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Episode Summary


 

On the market right now:

Dustan was involved in an offer on a half-duplex in North Vancouver. Five of the six potential buyers walked away when the foreign buyers’ tax came out—they didn’t want to be in the market because of the new tax. However, foreign buyers were only buying 5-6% of the properties. Stats were skewed because there was only a one-week window to complete deals before getting taxed, so there was a mad rush. Suddenly, the government can say they all stopped buying as soon as the tax came in. But, there were so many buyers right before it was effective—so, the stats were skewed and you will not see this story in a paper. The 15% tax won’t slow anyone down because the 33% increase in property values hasn’t. it’s affected non-foreign buyers much more than the foreign buyers it was intended for.

A bigger reason the market cooled was the winter weather conditions: snow and ice. People here aren’t prepared for it, so the market was massively impacted. Things just froze. The only transactions that occurred were ones that really needed to happen, with highly motivated buyers and sellers. There was no typical spring fever, but March did pick up when the weather improved.

The big [price] drop wasn’t going to come because that comes from excess supply—there are record-low listings month after month, which also keeps sales down to some extent. Demand is up though, and we will see this in April and May. A couple of months ago, Dustan heard that by 2040 only 10% of local families in Greater Vancouver will live in a detached home—90% will be in multi-family properties, and not all of these people will be happy about that. Hundreds of billions of dollars will be transferred from one generation to the next over the next 20 years, and much of this will come through real estate.

On debt-to-income/debt-servicing ratios:

Whose opinion are these based on? Many other parts of Canada have some long, harsh winters. In Vancouver, you’re not paying for the square footage inside the walls of your home; you’re paying for the square footage outside of it—you have access to mountains, lakes and ocean year-round. People don’t realize how good they have it here until they spend time in other cities with a less dynamic environment. Economists in rural areas outside of BC think our numbers are crazy because we pay 10-40% more than buyers in their provinces pay, but we don’t need multiple tropical vacations a year to get over living where we do—we are already in a vacation spot! We may pay more for housing, but we get more for our money.

The debt-to-income ratio is a bit skewed: take someone who makes $100,000 per year, or $8,300 gross per month. They take on a $2,000 per month mortgage payment (about 25% of their income), which seems reasonable. $2,600 per month may be tighter on their budget, but is still acceptable. The $2,000 is a payment on a $500,000 mortgage, while $2,600 is a payment on the same mortgage five years from now, if interest rates have doubled. Your payment only goes up 30% if interest rates go up 100%, and in five years that household probably has an extra $7,200 per year coming in (their income has probably gone up to $110,000 but if not, they would still be alright). So, when you look at the 167% debt-to-income ratio it sounds scary, but in reality, this $100,000 income on a $500,000 mortgage works out to a 500% debt-to-income ratio. Would you really be worried in this scenario, especially if the home had a suite you could rent out? Dustan’s own debt-to-income ratio is over 1,000% because he owns and rents out multiple properties. Nothing wild is about to happen—the media blows this out of proportion.

On the biggest change buyers should be aware of now, regarding the financing crackdown from the Federal Government:

Most people are hopefully aware of these changes from October: anyone purchasing with less than a 20% down payment had a new stress test that reduced their pre-approved mortgage amount by 20%. Most households, especially those with two incomes, are pretty conservative and were not reaching their qualification limits anyhow (with the exception being single-income households, so it’s ironic they’re being punished more).

Toronto is enjoying a 37-year, record-low supply—there is nothing to buy. Until you bring more supply into the market, prices won’t drop no matter what the feds do. Small-town Canada has the majority of single-income households, and they’re being punished the most. In Atlantic Canada during January 2016, there were 9,000 housing starts. Exactly one year later, there were less than 900. This isn’t because they couldn’t sell them, it’s not inflated property values, but with the 20% reduction, the metrics just don’t work anymore.

Five-wire:

  1. Favorite area in Vancouver: Anmore, where he lives (it has mountains, lakes, hiking and riding trails) on the weekend, and Main & 5th during the week
  2. Favorite restaurant or bar: A Lebanese place on Commercial
  3. Downtown penthouse or west-side mansion: Downtown penthouse
  4. Where he first takes someone from out of town: Whistler or Grouse Mountain
  5. Dogs or cats: Dogs

To reach Dustan:

www.dustanwoodhouse.ca

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