Canada - US Real Estate Markets

[msj]

They get to write off some for taxes because my friend, who is the engineer, does it as a consulting "business" and thus can claim that one of the rooms in the house (his office) is his place of work. I don't know all the exact details. Looking around online, there are plenty of houses in the Kerrisdale area with 3-4 bedrooms that are listed for 2-3 million.

Ah, yes, the "I can deduct it so I will spend more" attitude.

I see this all the time: since they get to deduct, say, 10%-15% of their mortgage interest/property tax/insurance/heat/electricity they buy a house bigger than they need with a mortgage more than the 40% of income that banks are supposed to use.

So, they spend more because they save 40% (their marginal tax rate) * 10% (their business use of home portion) = 4%.

That's right, $150,000 in mortgage interest/taxes/etc will save about $6,000 in taxes. Whoop dee do!

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This is what I find so funny - we are told that our banking system is sound and people don't go over the standard 32%/40% ratios.

Yet, the average person in Vancouver is at 70%, Toronto at 57% and Montreal at 48%.

I think this is called cognitive dissonance.

[TimG]

This is what I find so funny - we are told that our banking system is sound and people don't go over the standard 32%/40% ratios.

I was told by my bank that they don't care about income if I put 30% down.

[msj]

I was told by my bank that they don't care about income if I put 30% down.

Ok, that makes sense.

Come up with $300,000 on a $1 million dollar property then a person can still have a $700,000 mortgage with a household income of $82,000 per year for a price ratio of 8.5x income (lower than the median in Vancouver of 10-11 - yes, the median income in Vancouver is around $82,000 per year).

[Guest American Woman]

Oh they would do that.

If it is a small lotto win...just ask your nice Canuck friend to cash in the ticket . That way you can grab a nice stipend every month in cash.

Sounds like good advice, nice Canuck friend.

If talking millions.....well....grab the cash and pay off Uncle Sam. It aint worth it. Dont forget the nice beachfront place in the yup!

I suppose it wouldn't be worth it, but still.....millions, eh? And of course it would be even more money in $US. I'd have to think about it! For sure I would head to beach property though ....... and lots and lots of other things! (A girl can dream, right?)

[Bonam]

Ah, yes, the "I can deduct it so I will spend more" attitude.

I see this all the time: since they get to deduct, say, 10%-15% of their mortgage interest/property tax/insurance/heat/electricity they buy a house bigger than they need with a mortgage more than the 40% of income that banks are supposed to use.

So, they spend more because they save 40% (their marginal tax rate) * 10% (their business use of home portion) = 4%.

That's right, $150,000 in mortgage interest/taxes/etc will save about $6,000 in taxes. Whoop dee do!

------------------------------------

This is what I find so funny - we are told that our banking system is sound and people don't go over the standard 32%/40% ratios.

Yet, the average person in Vancouver is at 70%, Toronto at 57% and Montreal at 48%.

I think this is called cognitive dissonance.

I dunno if it is "bigger than they need". They are planning to have kids and all and a 3 bedroom house isn't exactly huge.

[msj]

I dunno if it is "bigger than they need". They are planning to have kids and all and a 3 bedroom house isn't exactly huge.

Paying "80% of their combined income" for housing costs sounds like it is much more than "bigger than they need" to me.

[Retired Taxe Payer]

I was told by my bank that they don't care about income if I put 30% down.

Some bank wouldn't care if you loose your job and cannot pay anymore, not with 30% down payment. They would foreclose your house and sell it for a nice profit. Of course they would have made sure that of the market value before they made you that loan.

Democrat

[Guest American Woman]

But hey....lottery winnings are tax free so when you win $10M...you get $10M , none of that tax stuff

Speaking of winning the lottery, seems it might not be so bad winning it in Michigan in spite of the taxes. Seems a Michigander on food stamps won 2 million and banked all of the money, so he's still getting food stamps. And he feels he's entitled! Eligibility is based on income, regardless of assets. Doesn't get any more asinine than that.

[msj]

Speaking of winning the lottery, seems it might not be so bad winning it in Michigan in spite of the taxes. Seems a Michigander on food stamps won 2 million and banked all of the money, so he's still getting food stamps. And he feels he's entitled! Eligibility is based on income, regardless of assets. Doesn't get any more asinine than that.

But isn't he taxed on this in the US as if it were income?

So does it not show as income in the year that he wins it?

Then, if he/she invests the remaining amount at, say, 5% wouldn't this be about $60,000+ per year in income?

But no, better to bank it and earn less than $10,000 from a chequing account and still collect food stamps, I suppose.

About as stupid as people in 2010/2011 buying real estate in Vancouver.

[Guest American Woman]

But isn't he taxed on this in the US as if it were income?

So does it not show as income in the year that he wins it?

Then, if he/she invests the remaining amount at, say, 5% wouldn't this be about $60,000+ per year in income?

But no, better to bank it and earn less than $10,000 from a chequing account and still collect food stamps, I suppose.

About as stupid as people in 2010/2011 buying real estate in Vancouver.

Good questions. Evidently lottery winnings are considered liquid assets and don't count as income. link

Evidently the state is trying to change the qualifications for food stamps to include such assets.

[msj]

Good questions. Evidently lottery winnings are considered liquid assets and don't count as income. link

Evidently the state is trying to change the qualifications for food stamps to include such assets.

Ah, yes, the US has much to learn about clawing back benefits.

Canada is becoming quite expert at this (at the Federal level - the provinces are still as moronic as, apparently, Michigan).

But the stupidity of the lottery winner is astounding: one could live a decent life off those lottery winnings if invested even half way decently.

Instead, he'll squander the money and collect food stamps.

Stupid is as stupid does, I suppose.

[MiddleClassCentrist]

One of the blogs I check out, and that happens to be Canadian, is Garth Turner.

Yes, he can be grating (to say the least).

But his latest post (With Bloated Hearts) makes an interesting point: either Canadians or Americans are delusional.

I agree with Turner in that I think it's Canadians who are deluded.

I do believe in mean reversion.

Eventually, reality sets in and house prices either fall or incomes find a way to rise while real estate treads water.

Let's hope it will end, for Canadians, with rising incomes - but that doesn't look very probable.

300,000 x 0.65 cents = 195 000

People willfully neglect that our dollar, not too long ago, was properly in line or close to being in line with the American numbers.

The appreciation of our dollar and the lag in people demanding the price they 'paid' for their home and where it should be on the worldly level can be a considerable one. It woudl take immigrants being unwilling to pay the rates, who move to the states instead.

[bloodyminded]

I think you make some good Marketing Troll points here, and I agree that foreclosure Marketing Troll issues are prominent in everyone's minds.

Edited May 26, 2011 by bloodyminded