Wednesday, July 12, 2006

No thanks...

Colette mentioned in the comments section the other day why not just bite the bullet and buy a house up here. After all, the mortgage payments would probably be around $2,000 a month on a $300,000 house and we would get out of an apartment that we're clearly feeling a little frustrated with.

The problem, of course, isn't that a mortgage would be $2,000 a month (although that it is a mildly freaky number to look at). It's that there is also increased costs in electricity, not to mention costs we don't have right now, such as water and sceptic, municipal taxes, heating oil, homeowners insurance and other expenses that I can't even think of right now. I think it's safe to say that our costs would balloon up to closer to $3,000 a month on a house, which is considerably more than double what we have to pay right now.

People have different reasons for coming to Iqaluit. Some come here and love it. Some come here and last weeks. It's like any place, I suppose. Lord knows there are plenty of Newfoundlanders in Alberta working. Some may well love it there. But I suspect that most are there because the money is good.

It's not dissimilar to what we're doing in Iqaluit. We like the place well enough. If we didn't, we would already be getting fidgety and be planning on when we would be moving. But we're not. However, it doesn't feel like home either. Which means the original plan is in place - to save as much money as we can so we can do things that we want. We'll reevaluate around 2010.

And what do we want to do? Travel.

We're going to San Francisco in a few weeks. We haven't officially decided on 2007 yet, but a co-worker showed me this place in Costa Rica that's now high up on the list. I've just got to figure out how rainy is the rainy season of Costa Rica in July. We're thinking Italy in 2008, although that might change because of how annoyed I am with Italy winning the World Cup. It might be Greece instead. Australia or New Zealand is in 2009. Ireland and Scotland are tentatively 2010, although I'd love to go to the World Cup at some point. Perhaps I can strike a deal with Cathy - she can go to the Winter Olympics in Vancouver that year if I can go to the World Cup in South Africa. Hmmmm.....

And realistically, I don't see how we can go to those places and do fun, interesting things if we get a house up here. I mock Dups, but really, he's been to some amazing places and done some amazing things. I'm a touch envious of that. Not his Visa bill, you understand. But he's done some great travelling. So have many of my friends. And that's what we want to do.

So the house might be smart in the long run, but I think I'd rather look forward to Australia, personally...

Oh, and if people want to get an idea of some actual houses for sale in Iqaluit, go here.


Mireille Sampson said...

I crunched the local housing numbers recently only to discover that it's not the great investment real estate companies like to tell you - ooohh, lack of truth in advertising, what a surprise. My numbers were a little more complex, but the basic comparison is this: the interest you are paying on your mortgage versus the rate of appreciation of you home. The latter depends highly on local numbers, I got mine from the CMHC (Canadian Housing and Mortgage Corporation).

The current interest rate for a short-term lock in is about 6.75% (and you want to lock in because the interest rates are going to continue to go up). The current rate of appreciation of the average Ottawa house: 3.8%. Oh, and it's expected to flat-line or go down. If you purchase a house in Ottawa today you can expect to be losing money for the next few years (I'm sure the rate of appreciation in Iqaluit must be higher than here). Long-term is a different story, but I ain't staying here for any longer than I have too.

Himself has been telling me I have to blog on this...stay tuned for a more detailed analysis of why you ought to be happy to rent for the short-term;)

And Craig, I feel like I'm living in a hotel too, but it's better than being trapped in a house we can't afford and don't particularly care for.

colette said...

Sorry Mireille but what you've stated isn't surprising at all. Any comment I've seen about investing in real estate qualifies the comment by saying that, unless you are buying in a very hot market with high demand (like Iqaluit currently), then buying a house for only several years IS a bad investment for the reasons you cite. A house is only a decent investment if you're going to be in real estate for the long term (i.e. not necessarily the same house but you're committing to real estate in general for the long term)and you expect to remain in similiar or upgraded markets (i.e. you don't buy for only a few years in Ottawa and then go to rural Newfoundland).

(That can change depending on amount of down payment etc. etc.)

So, buying isn't right for you and Himself. Definitely.

For example, I don't expect any return on the house I just bought (and whatever house I may buy to replace this one should we sell) for at least ten years, barring some incredible blip in the local market. Actually, it probably wouldn't take that long for this particular house but, as you've said, it depends on the market. In our case, the market in St. John's is humming merrily along--not bad, not great--but the market for our particular neighbourhood is above the average for St. John's. It's one of the reasons we wanted to buy there and also one of the reasons it took three years to even find a house for sale in that neighbourhood that wasn't sold before the listing hit the agents list. We've already been approached about selling it--not by an agent looking to increase his book of business but by an agent that had someone specifically ask about our house. Like the Oscars--it's nice to be nominated. :^)

But if worse came to worse and we followed the typical real estate trend than I don't expect any payback for ten years. It'll take that long to build up any decent equity and for the house to appreciate (hopefully) even a little bit.

So--long term investment, not short-term investment. The real payoff though, comes when you have a place to live at age 65 that is not going to take a huge chunk of your income monthly just at a time when your income drops. There'll be taxes to pay and utilities etc. etc. of course but no mortgage. And you have an asset that represents "forced savings" that can be liquidated should you need $$$ in your elder years. That "forced savings" may or may not be equivalent to the amount of money plus interest that you socked away into it during your 25 years of paying a mortgage (ideally it exceeds it) but it's there in lump form should you need it.

After all, not many people have the discipline or know-how to take the near-equivalent of a mortgage payment and put it into any other type of decent, safe investment. So think of a mortgage as "Investment Planning for Dummies". (And if someone does have that discipline and know-how, then they should be looking at investment rather than real estate, to tell the truth.)

What's going to be interesting is the effect that the projected surplus of housing is going to have on the market in the next twenty years. Baby Boomers are dropping dead, selling their homes for multiple reasons and you have this incredible amount of new construction adding to the pool of housing. I'd never build new in many of the subdivisions going up around St. John's right now--they're not worth the money that's being charged for them and they're too far on the outskirts of town.

BTW, I may have found a place to live in S'Ville. Next to the beach and one minute away from that cafe we talked about. Talk about an interesting housing market.

Mireille Sampson said...

Colette, try telling a home-owner it isn't a good investment. I've had friends look at me like I was a total idiot for saying buying wasn't necessarily a good idea.

And as far as long-term investment, again, it isn't good. Being 65 and having to sell your home in order to get cash out of it still leaves you without a roof over your head. You'd have to buy or rent another roof at current market prices so you aren't any further ahead. Yeah, stock markets are a much better bet.

If/when we buy another house it'll be to live in and that's the end of it.

colette said...

Oh no, I agree with you-- a house for most people in most circumstances is a good investment for a variety of reasons. But it's not a good investment for people buying for the short term. Which is why I said it isn't a good idea for you and Himself right now--you want out of your city in a few short years and Ottawa isn't a good market to recoup your investment in that short a span of time (let alone make any money off the deal, but let's just deal with not losing money). Iqaluit would be, Fort McMurray would be, there may be a few other places but I can't think of any right now.

It kills me that we would be paying off our first house this year if it wasn't for the fact that we sold it and didn't buy again for nearly ten years. We lost a lot of money in those intervening years--both in the rent we paid out and the equity that didn't accrue in our non-house. That house is today worth 50% more than what we paid for it. (And the thought of being absolutely mortgage-free by 40 is a nice one too.)

The "forced savings" aspect isn't because you sell at 65 to take the money out of it and still have to rent or buy at then current market prices. You're right there isn't a heck of a lot to be said for that--it's foolish. But if you're 70 (say)and moving to a much smaller, cheaper house, or moving into an assisted living or senior's complex (of various types--not all are nursing homes for the infirm elderly), or buying the Winnebago to travel, then you've got extra cash lying around. (And no, nursing homes for the infirm do not take your principal residence anymore.)

If you want complete and utter madness, in the States, they have something called an interest-only mortgage. You only pay the interest on the mortgage, _never_ the principal. Which means that your payment is lower and you can afford a lot more house. It also means, theoretically, you never own (in the strict legal sense) your house. So, if you have to sell your house, you better hope you get what you paid for it because if your mortgage was 400K to start with, it's still 400K now, even if you've been there for five years. You have no equity and thus no wiggle room on the price. It's starting to bite a lot of people on the ass down there because the market was overheated and house prices went sky-high. Now it's starting to resemble reality again,the value of the houses have gone down and it's not pretty.

colette said...

Ack, sorry, disregard my first paragraph--I misread what you wrote. Too much wine with dinner.