Housing

[msj]

I don't know the BC real estate market. And I am certainly not suggesting that anyone invest in real estate.

But msj, neither am I suggesting that they rent...

If they are in a market where the price to rent and price to income ratios are off the wall then I think people should consider renting rather than buying.

I think people should be concerned if they are looking at spending more than 4 times their income on a house.

They are plainly nuts if they are spending 8+ times their income on a house.

If you have to fudge your mortgage application and are not really putting down a down payment (thanks to the "cash back" style of mortgages being offered by CIBC, for example) then I also think renting is a better option.

And, yes, fudging of applications has been going on in Canada. I've seen it first hand.

[blueblood]

If they are in a market where the price to rent and price to income ratios are off the wall then I think people should consider renting rather than buying.

I think people should be concerned if they are looking at spending more than 4 times their income on a house.

They are plainly nuts if they are spending 8+ times their income on a house.

If you have to fudge your mortgage application and are not really putting down a down payment (thanks to the "cash back" style of mortgages being offered by CIBC, for example) then I also think renting is a better option.

And, yes, fudging of applications has been going on in Canada. I've seen it first hand.

Farmland has gotten gangbusters as well. A good piece goes for about 1500$ an acre and rent is 65+$per acre. Right now a guy can gross 440$ per acre on wheat and 650$ acre for canola on said land if hes's good. Lots of guys are renting to get some cash, but some tenants are getting punted off because the landlord wants a piece of the action. I'm doing rent based on percentage and that ranges from 15-20 percent, just in case prices drop I won't be taking a bath on a long term lease. It would be nice to buy, but I'd be taking a kick in the pants.

To buy a house out in the rural prairies, you aren't planning on making money on it, chances are someone will be taking a cat to it.

[fellowtraveller]

So buy a less expensive house, have a $1000 mortgage payment, and still save the $260.

At the end of the 25 years you have your savings account - and no more $1000 payment. Also, the $1000 rent would not remain $1000 over the course of 25 years. It would most definitely go up - likely considerably, over a 25 year span - while the house payment remained the same.

You left out a few of advantages to the home buyer:

1) at the end of the 25 years the homebuyer pays no rent and no mortgage, a very significant advantage at retirement. The renter continues to pay somebody elses mortgage, permanently.

2) after a few years the homeowner has access to the growing equity in the house (not generated by the house rising in value but by payment of principal). This is an excellent source of cheap money unavailable to the renter. Some that are homeowners and have some equity use it to buy rental properties, to be rented and paid for by others.

3) homeowners control a large investment with a relatively small downpayment, and have the opportunity to earn very large tax free returns on that small down payment- not available to renters. If the value of the home drops, they still have a place to live that they would have bought in any case.

4) If you choose a longer term mortgage your accomodation costs are more or less secured for five years or so. Where I live, there are no rent controls and you can go from cheap rent to major cost quickly.

[msj]

You left out a few of advantages to the home buyer:

1) at the end of the 25 years the homebuyer pays no rent and no mortgage, a very significant advantage at retirement. The renter continues to pay somebody elses mortgage, permanently.

2) after a few years the homeowner has access to the growing equity in the house (not generated by the house rising in value but by payment of principal). This is an excellent source of cheap money unavailable to the renter. Some that are homeowners and have some equity use it to buy rental properties, to be rented and paid for by others.

3) homeowners control a large investment with a relatively small downpayment, and have the opportunity to earn very large tax free returns on that small down payment- not available to renters. If the value of the home drops, they still have a place to live that they would have bought in any case.

4) If you choose a longer term mortgage your accomodation costs are more or less secured for five years or so. Where I live, there are no rent controls and you can go from cheap rent to major cost quickly.

This is rather funny given how many baby boomers are deciding to retire while still not having paid off their mortgages.

Now, of course, for those people who have bought a house at less than 4 times gross income then they should be able to pay off the mortgage prior to retirement and take advantage of the advantages above.

For those who are, say, 30 years old, and are paying, say, 8 time their gross family income on a house with 5% down and 30 years of amortization.

Well, we would have to do a more elaborate calculation to see if that person would be better of renting (and saving).

Hence my link above to the NY Times calculator which does a pretty good job (take a look at the details it has - it's actually fantastic).

What you are talking about is setting up a "forced" savings plan where you presume that RE values will continue to go up (in real terms).

This is unlikely to be the case when one considers the rise in house prices in the last 7 years compared to rents, income, inflation, GDP.

So, once again, one is better off to construct for themselves a NY Times like calculator to see if it makes sense to buy or rent in the market they are living in.

------

Another thing I find funny is you keep talking about renters paying off someone else's mortgage.

I have clients (as in maybe 3) who do this and I prepare their tax returns accordingly. They have to pay taxes since they are actually earning income.

I have many more clients (as in dozens) who are really in it for the (hopeful) capital gain. These people are gleeful about getting tax refunds because the loss from their rental is reducing their income from employment resulting in a refund.

I leave it up to others to guess which category of client is actually richer than the other but I will give a hint: if you are spending $1 to save 30 cents then you might want to give it some more thought as to if you should really be spending that dollar.

In my current situation I know for a fact that the rent I pay to my landlord is not even coming close to covering the interest.

So he is making up the difference out of his own pocket for the rest of the interest, then the principal, and the strata fees and property taxes. Then the R&M for the bathroom is just another kick in the teeth.

IOW, many people buy rentals with an eye on the tax efficient capital gain that they are going to earn.

The problem is that if they overpay for a property in the first place then they find out that even with the "tax savings" from claiming the losses on their tax return each year that they, in the end, didn't make much after all.

And that's what I find so frustrating - build a spreadsheet before buying to work out the numbers to see if it makes financial sense.

Yet people don't because they are buying RE which has some kind of magical property and, therefore, only goes up in value.

Until it doesn't.

[fellowtraveller]

This is rather funny given how many baby boomers are deciding to retire while still not having paid off their mortgages.

Now, of course, for those people who have bought a house at less than 4 times gross income then they should be able to pay off the mortgage prior to retirement and take advantage of the advantages above.

Why is it necessary to have completely paid off your mrotgage by retirement? All that is required is to have some significant equity. Having that at least provides two options unavailable to lifetime renters: using the equity to either buy something less expensive outright or using the interest from the equity or lump sum to pay your rent for a couple of decades. The very last place I want to be when on a fixed income is to not have any control over housing choices.

What you are talking about is setting up a "forced" savings plan where you presume that RE values will continue to go up (in real terms).

No, I am talking about having some control over my finances at all times, instead of being at the mercy of my landlord. Property values only matter if you move. In the meantime, you are still paying for a debt free future by paying down your mortgage. I still need a place to live, and at some point I want the cost of that place to be as low as possible. The monthly nut that is bearable at 35 is not bearable at 65.

I cannot address the problems of you having dumb clients who buy high in the wrong markets.

I do know it is entirely feasible to have somebody else build equity in rented real estate, and I speak from personal experience. If additonal equity stumbles along via increased prices, I'll enjoy that as a bonus too.

Edited October 19, 2011 by fellowtraveller

[August1991]

What you are talking about is setting up a "forced" savings plan where you presume that RE values will continue to go up (in real terms).

I think that's the point of FT's post. Buying a house and having a mortgage amounts to a forced savings plan. By renting, you presumably have lower monthly payments for "housing services" and so you must discipline yourself to save. For people who lack this discipline, they pay a mortgage instead (treating it as a monthly bill) and in effect are saving.

If a person elected to have the bank make a monthly contribution to a TFSA account, it would amount to the same as buying a house and making a monthly mortgage payment. Both investments are sheltered from future taxes. There is another exception however: I doubt that most people could achieve as good a return on a paper investment as they can with a house/condo. Why? You get the beenfit of living in a house/condo and if chosen wisely, the return/benefit can be high.

[msj]

I think that's the point of FT's post. Buying a house and having a mortgage amounts to a forced savings plan. By renting, you presumably have lower monthly payments for "housing services" and so you must discipline yourself to save. For people who lack this discipline, they pay a mortgage instead (treating it as a monthly bill) and in effect are saving.

If a person elected to have the bank make a monthly contribution to a TFSA account, it would amount to the same as buying a house and making a monthly mortgage payment. Both investments are sheltered from future taxes. There is another exception however: I doubt that most people could achieve as good a return on a paper investment as they can with a house/condo. Why? You get the beenfit of living in a house/condo and if chosen wisely, the return/benefit can be high.

Fair enough, it does take discipline.

When I took a look at my spreadsheet the other day I realized that I'm saving at least $37,000 for 2011 by renting the place I'm in rather than had I bought it (which I could have done if I was crazy enough to go into that much debt).

In my case there is no doubt I'm taking that savings for investment as my debt payments on my business investment are more than $37,000 per year.

And my ROI is way better than a balanced portfolio even after tax.

But even at that, I think most people who do not own right now should consider renting depending on the market they are in.

If you or FT would take the time to look at the links that I have posted previously you would see the fundamentals and know just how out of whack they are.

Now perhaps you or FT can come up with a plausible scenario where interest rates stay low for many more years and incomes and rents rise faster than house prices while house prices still rise faster than CPI but I just don't see that.

The fact is the typical Canadian is just as indebted today as the typical American was in 2005/2006.

Many Canadian RE markets are priced at levels that exceed the highest levels in the US in 2005/2006.

If the RE market treads water and commodities do the same then our unemployment will tick up and that will be the final nail - we will follow the US towards a housing bottom that could take years, and possibly decades, to unwind.

Edited October 19, 2011 by msj

[Guest American Woman]

I find this funny because I am a partner in an accounting firm and one of our offices has been paying the same rent for over 25 years.

Sure it has. And you've been making the same salary for 25 years too, eh?

Anyone who is still charging clients what they did 25 years ago - doesn't remain in business for 25 years.

You left out a few of advantages to the home buyer:

1) at the end of the 25 years the homebuyer pays no rent and no mortgage, a very significant advantage at retirement. The renter continues to pay somebody elses mortgage, permanently.

I didn't leave that out. I said that after 25 years there is no more $1000 payment. That's a biggie, for sure.

2) after a few years the homeowner has access to the growing equity in the house (not generated by the house rising in value but by payment of principal). This is an excellent source of cheap money unavailable to the renter. Some that are homeowners and have some equity use it to buy rental properties, to be rented and paid for by others.

This is true - I was just keeping it simple for those who were saying property values can drop. If it drops enough, the money paid in principle is lost for such purposes - depending on how many years one has been paying on the mortgage.

3) homeowners control a large investment with a relatively small downpayment, and have the opportunity to earn very large tax free returns on that small down payment- not available to renters. If the value of the home drops, they still have a place to live that they would have bought in any case.

I agree. Furthermore, renters can be forced to move. A landlord isn't obligated to continue a lease once it's up. There are terrible landlords, too - who are slow to fix what needs to be fixed. A homeowner is inclined to keep up the property because any improvements or cosmetic changes affect their property, not someone else's. A neighborhood with a lot of rental houses is usually more run-down than a neighborhood of home owners.

4) If you choose a longer term mortgage your accomodation costs are more or less secured for five years or so. Where I live, there are no rent controls and you can go from cheap rent to major cost quickly.

With interest on 30 year mortgages around 4.5%, I can't see why anyone would go any other route. That's a fixed payment for 30 years - as opposed to rising rent. I would be interested to know how much on average rent generally increases during a 30 year span.

[August1991]

In my case there is no doubt I'm taking that savings for investment as my debt payments on my business investment are more than $37,000 per year.

And my ROI is way better than a balanced portfolio even after tax.

But even at that, I think most people who do not own right now should consider renting depending on the market they are in.

This raises an interesting question: are undisciplined homeowners losing? That is, do undisciplined savers pay for the service of "forced savings" through higher house prices?

If you have a business to invest in, then that is arguably a better incentive to save than a home/mortgage. Then again, a private business is terrifically risky.

As you say though, it depends "on the market they are in". From broad experience, I happen to believe that three things in this world defy understanding and should not be generalized/used as an example: the Japanese economy, Scandinavian State social services and Vancouver's real estate market.

[msj]

As you say though, it depends "on the market they are in". From broad experience, I happen to believe that three things in this world defy understanding and should not be generalized/used as an example: the Japanese economy, Scandinavian State social services and Vancouver's real estate market.

I'm not surprised you wouldn't want to talk about the Japanese economy.

Especially since I was wondering about is the US was going to suffer a similar fate to them and, in many respects, so far is suffering a similar fate (take a look at real income "growth" as the latest example).

As for Vancouver's RE - what makes it so special?

Oh, and I have not been generalizing about Vancouver.

Once again, if you looked at the links you would find all kinds of interesting data plots - from price to income and rent values to supply of housing over the past decade or so etc...

Perhaps if you and FT would read the links already provided and consider them and then come back to present how your implied belief that interest rates will stay low for many years (decades?) while income growth will rebound and grow faster than the price of houses while rent increases will also exceed the increase in house prices and all of these will exceed CPI then that would be a good discussion.

I wonder, have you ever heard of the expression "revert to the mean?"

When Canada's RE markets do this (unless your scenario plays out - which it could and that would actually be fantastic) it's not going to be fun.

[msj]

Sure it has. And you've been making the same salary for 25 years too, eh?

You can choose to not believe me all you want but the senior partner insists this is the case. He should know since he was a partner back in 1984 or so.

He is pushing 58 and is heading towards retirement soon so maybe his memory is failing him.

As for me - I don't know since I've only been a partner since 2008. I know the rent is the same in 2011 as it was in 2008 (well, except for the HST but that is a Vat so we get it back anyway).

Anyone who is still charging clients what they did 25 years ago - doesn't remain in business for 25 years.

Where did I say that?

We usually increase our billings about 2-5% per year.

Our audit files have increased about 50% compared to 2007 due to the changes in audit standards which require more staff and more work.

It just means that our rent expense from that office has decreased compared to revenue and our net incomes are higher than they otherwise would have been.

I agree. Furthermore, renters can be forced to move. A landlord isn't obligated to continue a lease once it's up. There are terrible landlords, too - who are slow to fix what needs to be fixed. A homeowner is inclined to keep up the property because any improvements or cosmetic changes affect their property, not someone else's. A neighborhood with a lot of rental houses is usually more run-down than a neighborhood of home owners.

And renters are not obligated to continue a lease once it's up too.

And homeowners may be stuck underwater and may be less likely to improve their job prospects by moving somewhere and taking a job.

We can come up with many scenarios where buying a home is an excellent idea.

There are, however, also times where people should not be buying - if they have less than 5% (and I would say less than 10%) for a down payment, if they have to fudge the mortgage application, if the house price is selling for more than 8 times the area's median income level, if the house is going to be a rental and the cash flow is going to be negative for several years and the price of the house is very high (i.e. 8+ times income) etc...

It all depends.

With interest on 30 year mortgages around 4.5%, I can't see why anyone would go any other route. That's a fixed payment for 30 years - as opposed to rising rent. I would be interested to know how much on average rent generally increases during a 30 year span.

Because in Canada we don't have access to 30 year mortgages?

According to Dominion Lenders (a mortgage brokerage) you can get a 10 year rate for 4.79% as of today (rates subject to change).

I wonder if August1991 is going to come and "tsk tsk" you for making generalizations that may or may not be beneficial for people. Let's see how hypocritical she is.

Historically people have been better off taking the variable rate in Canada.

But, of course, that is in an environment that has seen interest rates generally decline from 1981 until now.

As they say, past performance is not an indicator of future results.

Oh, and I have already put up a link to an article that discusses such things but I guess no one reads anything anymore....

Edited October 19, 2011 by msj

[Guest American Woman]

You can choose to not believe me all you want but the senior partner insists this is the case. He should know since he was a partner back in 1984 or so.

He is pushing 58 and is heading towards retirement soon so maybe his memory is failing him.

As for me - I don't know since I've only been a partner since 2008. I know the rent is the same in 2011 as it was in 2008 (well, except for the HST but that is a Vat so we get it back anyway).

What difference does it make if I choose to believe it or not - or whether it's true or not?

How many people are making the same salary now as they were making 25 years ago? I'd wager that's about how many are paying the same rent/charging the same rent as they were 25 years ago. In other words, it's an anecdote which is virtually meaningless regarding the issue.

Fact is, fixed mortgage payments stay the same over a 25 year course while rent does not. If you want to argue the validity of that statement, you'll likely be the only one on your side of the argument.

But FYI, you mentioned the company would like to buy but the rent is so cheap - had the company bought on a fixed mortgage 25 years ago, the mortgage would be paid up - and regardless of whether the rent is the same as it was back then or not, no matter how cheap it is, it's still more than no more mortgage payments. [since Canada doesn't have fixed rates for that long, it would still hold true since you said that interest rates have been dropping ....]

Where did I say that?

We usually increase our billings about 2-5% per year.

And landlords "usually" increase their rent over the course of time also - which was my point.

And renters are not obligated to continue a lease once it's up too.

And homeowners may be stuck underwater and may be less likely to improve their job prospects by moving somewhere and taking a job.

One can rent out their house if they cannot sell it and wish to move. There are options - one is not bound to one's home just because they own it. I don't know of anyone who's turned down a job offer because they owned a house that they feared they could not sell. They end up selling for what they can get. They still aren't any worse off than they would have been if they'd been paying the same amount in rent.

We can come up with many scenarios where buying a home is an excellent idea.

There are, however, also times where people should not be buying - if they have less than 5% (and I would say less than 10%) for a down payment,

Why? That's what you would say, but the advantages of home ownership still apply. Especially in a buyer's market.

if they have to fudge the mortgage application,

You mean lie? The lending institution will generally follow up on the claims made on the application.

if the house price is selling for more than 8 times the area's median income level,

One doesn't have to 'over buy.' ie: buy more house than they need. That's a different issue.

if the house is going to be a rental and the cash flow is going to be negative for several years and the price of the house is very high (i.e. 8+ times income) etc...

Again, home ownership vs. rental is a different issue from buying rental property.

Because in Canada we don't have access to 30 year mortgages?

Well that sucks. The opening post quote is about the U.S. market, so that's what I've been basing my comments on.

According to Dominion Lenders (a mortgage brokerage) you can get a 10 year rate for 4.79% as of today (rates subject to change).

My local bank is giving thirty year fixed mortgages at a lower rate right now. Again, the opening post pertains to U.S. RE.

I have to say, though, if a ten year fixed rate is the best you can get in Canada, that puts a different light on it.

I wonder if August1991 is going to come and "tsk tsk" you for making generalizations that may or may not be beneficial for people. Let's see how hypocritical she is.

August is a "he," but I'm not sure what you are referring to here.

Historically people have been better off taking the variable rate in Canada.

Not in the U.S., but really, sounds as if you don't have much choice since the best you can do at a fixed rate is ten years, which would make for high payments.

But, of course, that is in an environment that has seen interest rates generally decline from 1981 until now.

As they say, past performance is not an indicator of future results.

Exactly. Even a fixed can be refinanced, so to me, that's the way to go; I would not like the 'unknown' aspect of a variable rate - a higher interest rate can make the payment impossible.

Oh, and I have already put up a link to an article that discusses such things but I guess no one reads anything anymore....

I've been speaking of advantages that one doesn't need to read an article to realize, though.....

[August1991]

I'm not surprised you wouldn't want to talk about the Japanese economy.

20 years ago or so, the "Japanese model" terrified Americans. Now, apparently, Krugman threatens Americans with the "Japanese liquidity trap".

As I say, the Japanese model/economy translates badly abroad. Similarly, Swedish pensions and UIC benefits look good - in Sweden. But not elsewhere.

As to Vancouver real estate, I have never understood Lotusland: What happens in a world of Margaret Sinclair and Bill Van der Zalm? And when you add in Lee-Cash In, the Vancouver market is beyond comprehension. IMV, everyone in Vancouver is on drugs. Lots of noise, no signal.

Edited October 19, 2011 by August1991

[msj]

What difference does it make if I choose to believe it or not - or whether it's true or not?

How many people are making the same salary now as they were making 25 years ago? I'd wager that's about how many are paying the same rent/charging the same rent as they were 25 years ago. In other words, it's an anecdote which is virtually meaningless regarding the issue.

Yes, and the context that I used the anecdote was appropriate.

You're the one trying to take issue with it so you can believe whatever you want.

I just find it interesting that the rent hasn't changed in over 25 years and how that has affected our decision so far to continue to rent rather than buy (other factors play a role too, of course - we have looked for space to buy but nothing has jumped out at us - if our rent was double what it is then perhaps we would be keener to find a place or to build).

Fact is, fixed mortgage payments stay the same over a 25 year course while rent does not. If you want to argue the validity of that statement, you'll likely be the only one on your side of the argument.

[/Quote]

Really? I mean, in Canada, who is getting a mortgage with a fixed rate at anything over 10 years?

Yes, in the US you are lucky in that you have access to 30 year mortgage rates.

The context for most of this thread pertains to Canada if you cared to follow along.

But FYI, you mentioned the company would like to buy but the rent is so cheap - had the company bought on a fixed mortgage 25 years ago, the mortgage would be paid up - and regardless of whether the rent is the same as it was back then or not, no matter how cheap it is, it's still more than no more mortgage payments. [since Canada doesn't have fixed rates for that long, it would still hold true since you said that interest rates have been dropping ....]

Sure, and I would have had to buy into the building when I became a partner and I would be paying even more for my investment into the business (although there are other alternatives that could have been worked out for which I won't go into detail here).

The point still remains - it is still possible for one to be better off to pay rent than buy depending on one's circumstances.

Simply looking at a mortgage payment (and it stopping) while ignoring other costs like R&M, property taxes, strata fees, etc is foolish. Those costs go up each year too.

Many people own properties (commercial and otherwise) that are cash flow negative for years and even decades.

If they have a capital gain then it might work out for them but I have seen instances where it hasn't - a forced savings plan where the people actually lost money.

Sure, this forced discipline may be good for people who would otherwise spend all of their money and save nothing - they still come out with some cash.

But for those of us who can set aside savings then sometimes we are better off to consider whether it makes sense to buy into a market that is priced the way it is.

I wouldn't pay $40 for a stock if I thought it was only worth $25.

So why would I pay $650,000 for a house or condo if I think it should be worth no more than $400,000?

Sure, if I think that the price will continue to go up then I better pay before getting "locked out forever" but I've heard that story before - in fact, I heard that back in 2006 and 2007 as prices in many parts of the US started their inevitable meltdown.

And landlords "usually" increase their rent over the course of time also - which was my point.

Yes they do.

And property taxes and strata fees and other costs go up over time for homeowners.

And even when homeowners rent out their property they can still find that the rent does not equal their interest/property tax/R&M/strata costs.

Whenever I look at my own situation I work out the numbers over 35 years which is good enough for me. It's much like that NY Time calculator I linked to above but not as pretty.

One can rent out their house if they cannot sell it and wish to move. There are options - one is not bound to one's home just because they own it. I don't know of anyone who's turned down a job offer because they owned a house that they feared they could not sell. They end up selling for what they can get. They still aren't any worse off than they would have been if they'd been paying the same amount in rent.

I find it interesting that one can just go ahead and rent it out without any problems.

You are in the US, no?

Why do people walk away from their houses if it's so easy to rent them out?

Of course, many Americans have also lived in "their" homes "rent free" by not making mortgage payments as they waited for the long foreclosure to finally find them.

In Canada we generally have recourse loans (Alberta being the big exception) so that has a bigger effect here than in the US so "jingle mail" is more frequent down your way.

As for being worse off - you seem to assume that rent can match the costs of owning.

If you cared to look at the links I provided which are based on statistics rather than my, or your, anecdotes, you would find that in Canada house price increases have grown much faster than rent increases.

What that means is that if you are buying a house to rent out now then you are likely in the same boat that my landlord is in: the rent is not covering even the interest payments on the mortgage never mind the property taxes, strate fees, or leaky bathroom fix.

For 2011, if I had bought this place with 10% down back in 2010, I have calculated that I would be out of pocket another $37,000 (hey, that's almost twice my rent!).

To be fair 2011 is a big year for R&M - who would expect that such a new place would have such problems in the bathroom. And, who knows, maybe he will be successful in court against the contractor. I wish him luck on this.

Why? That's what you would say, but the advantages of home ownership still apply. Especially in a buyer's market.

You think Vancouver is a buyers market? Have you looked at the fundamentals? Even the GTA or Victoria cannot be considered a buyers market.

Once again, those are the markets we're talking about if you were to follow the thread.

You mean lie? The lending institution will generally follow up on the claims made on the application.

Do you even know how much fraud was committed in the US?

Ever hear the term "liar loan?"

Do a google search and see how many hits you get.

And, yes, they have been done in Canada although, thankfully, there has been a bit of a clampdown on them since some rule changes came down.

One doesn't have to 'over buy.' ie: buy more house than they need. That's a different issue.

Well, many people are buying

in Vancouver for way too much money. That is, to buy a house at an absurdly high price - a level that is high compared to historical norms (price to income and price to rent).

Once again, if you cared to follow the links I have linked to (and the links within those) you will find people in Vancouver, for example, have virtually no money left over to buy groceries, gas, car payment, car insurance, and pay the utilities once the mortgage payment is made.

Those are the type of people who never should have purchased a house or should have bought a smaller "crack shack" as they are called.

Again, home ownership vs. rental is a different issue from buying rental property.

Yes and no.

Far too many people think it's okay to over-pay for a house that they are living in because they have to pay to live somewhere.

As I have already stated many times - this depends.

When one has done the math for their own circumstances than the only thing left remaining is if their assumptions (house price increases, interest rates, rates of return on investments, rent increase, increase to property taxes/strata fees/R&M etc) come to fruition.

My assumptions are different than yours because I live in a different place than you do.

If I was living in many parts of Canada/US I would likely choose to buy.

But where I am, and in places like Vancouver, Victoria, GTA and a few other places, not so much.

Once again - I have actually done the math.

Well that sucks. The opening post quote is about the U.S. market, so that's what I've been basing my comments on.

Yes, so you have ignored all those posts where I have linked to statistical data for various parts of Canada, you have ignored Kimmy asking about stats for Canada etc.... to focus on my posts (while ignoring all my previous posts with all the statistical data about Canada).

Nice try but I'm not buying that crap. Not even for one million dollars.

My local bank is giving thirty year fixed mortgages at a lower rate right now. Again, the opening post pertains to U.S. RE.

Of course it does.

And most of my posts above pertain to Canada which anyone reading them ought to know if they were to, you know, actually read them.

I have to say, though, if a ten year fixed rate is the best you can get in Canada, that puts a different light on it.

NSS.

August is a "he," but I'm not sure what you are referring to here.

I'm not so sure about that. August has claimed to be a female before.... regardless, I am referring to August1991 being a hypocrite and not you.

Not in the U.S., but really, sounds as if you don't have much choice since the best you can do at a fixed rate is ten years, which would make for high payments.

Once again that depends on one's assumptions and what actually happens.

If I go out and get an affordable mortgage for 10 years because I expect interest rates to go up and they, in fact, do go up, then I'm happy for my decision.

Exactly. Even a fixed can be refinanced, so to me, that's the way to go; I would not like the 'unknown' aspect of a variable rate - a higher interest rate can make the payment impossible.

Sure, it can be refinanced but often there are penalties involved.

One of my staff is holding onto a condo because the penalty to break is something like $16,000. Each month that penalty goes down.

I just hope, for his sake, that the market doesn't go down by the time he sells the place - he could be "out of pocket" a lot more than $16,000 if that happens.

But that's an interesting thing about psychology - it's better to put off a known loss in the hope of a gain down the road.

I've been speaking of advantages that one doesn't need to read an article to realize, though.....

Oh, no doubt.

Home ownership looks smart because it is the only "investment" one can do at a leverage of 19 to 1 (5% down).

And one has to pay to live somewhere.

But one should not be ignoring price.

Added to the cost of homeownership is mortgage interest, property taxes, R&M, strata fees if applicable, lost opportunity cost from investing the savings from rental (if/when applicable), lost opportunity cost from use of the down payment, etc.

Then the cost of selling the property or the costs of a reversible mortgage when one wants/needs to tap the equity.

All of this, and more, needs to be considered when deciding to buy or rent.

Few people consider this and for those who don't, well, if they are new home buyers with the 5% down (or less) and the 30 year loan amortization (not the same as fixing the interest rate for 30 years) then I hope they are buying the appropriate home at an appropriate price because the statistics I have linked to indicate, on average, that this is not happening in many parts of Canada.

[msj]

As to Vancouver real estate, I have never understood Lotusland: What happens in a world of Margaret Sinclair and Bill Van der Zalm? And when you add in Lee-Cash In, the Vancouver market is beyond comprehension. IMV, everyone in Vancouver is on drugs. Lots of noise, no signal.

Sure, but, once again, anyone who would actually look at the links I have already provided, would know that the GTA and Victoria are not that far behind Vancouver when it comes to housing fundamentals.

So you can try and squirm away from Vancouver all you want but there are other parts of Canada that are as far away from the fundamentals as the US was at its peak.

So, please explain to me on what basis you think incomes are going to grow faster than house prices over the next, say, 10 years?

Or do you not think that there is any rational relationship between house prices and incomes, rent, and the general inflation rate?

[msj]

Came across an interesting graph today: Canadian Real (Inflation Adjusted) Rent Index.

And what does this show?

Rents have not kept up with inflation in many major centres in Canada since 1974.

In fact, the trend line is generally down.

Not that I'm surprised.

Strange thing; people buying houses at increasing prices as "investments" while they are unable to get more in rent for them.

Or people willing to pay more for houses and take on more debt even as rent trends the other way.

And I have been told that rent only ever goes up (along with house prices, of course).

Hoocoodanode?

Edited October 27, 2011 by msj

[kimmy]

I have taken the big plunge. This summer I expressed a lot of skepticism about the wisdom of buying, but a lot has changed since then. Particularly, the real estate market has changed a lot in the city I live in. For whatever reason, prices have fallen *a lot* since summer. I bought my 1br apartment for about 20% less than it was priced at 6 months ago.

My mortgage payments and strata fees combined are less than I was paying in rent. It just made sense.

I'm not sure what caused the dramatic drop in prices. Maybe it was the "bubble" bursting. Maybe the more restrictive mortgage policy pushed some of the deadbeats out of the market and reduced demand. I dunno. Whatever caused it, I decided it was time.

-k

[Bonam]

Congrats kimmy!

[kimmy]

Congrats kimmy!

thanks! -k

[dre]

The thing about talk of a realestate bubble bursting is that the people who own all the stuff in our society are the most powerful, and get the most government action. Look at how much money they dumped into the US economy to avoid large devaluations there.

If theres any sign of a bubble bursting, the government will dump a zillion dollars into the system to make sure the ownership class doesnt lose their profits. This essentially ammounts to the government using taxpayer dollars to sponsor realestate investors.

I figure realestate is pretty safe for this reason. They will avoid large rate hikes, and keep propping up the market. Even in the US there was very little real devalation.

The government will force renters and everyone else to sponsor my ownership so its kinda hard to say no.

[msj]

If theres any sign of a bubble bursting, the government will dump a zillion dollars into the system to make sure the ownership class doesnt lose their profits. This essentially ammounts to the government using taxpayer dollars to sponsor realestate investors.

I figure realestate is pretty safe for this reason. They will avoid large rate hikes, and keep propping up the market. Even in the US there was very little real devalation.

The government will force renters and everyone else to sponsor my ownership so its kinda hard to say no.

Huh?

In the US there are millions of people who have been foreclosed upon.

Sure, they are ok because with non-recourse mortgages they can stop making mortgage payments and live "rent free" for months/years until the bank gets around to taking the property back.

Nevertheless, to say that there has been "little real devalation [sic]" is ignorant, to say the least.

60% decrease in Las Vegas,40% in San Diego, and even a 9% decline in Dallas are all part of a weak economy that hurts millions of Americans as employment and GDP are well below capacity. [One has to click on the link, click on house price graphs, click on the graph, and then look at #3 of 7]

Even in Canada one can go back through this thread to find links showing the importance of FIRE to various local economies and we will find out that the same holds true in Canada.

[msj]

thanks! -k

Sounds like a good move in your local real estate market.

That's the major indicator that will make me a buyer: when my estimated mortgage interest/insurance/maintenance payments are expected to be no more than about 110% of my monthly rent payment then I will buy.

[August1991]

I bought my 1br apartment for about 20% less than it was priced at 6 months ago.

Advice to others: Watch and know your market.

But here's the secret of life for Kimmy: You had fun checking the market.

Edited December 20, 2011 by August1991

[dre]

Huh?

In the US there are millions of people who have been foreclosed upon.

Sure, they are ok because with non-recourse mortgages they can stop making mortgage payments and live "rent free" for months/years until the bank gets around to taking the property back.

Nevertheless, to say that there has been "little real devalation [sic]" is ignorant, to say the least.

60% decrease in Las Vegas,40% in San Diego, and even a 9% decline in Dallas are all part of a weak economy that hurts millions of Americans as employment and GDP are well below capacity. [One has to click on the link, click on house price graphs, click on the graph, and then look at #3 of 7]

Even in Canada one can go back through this thread to find links showing the importance of FIRE to various local economies and we will find out that the same holds true in Canada.

I never said there hasnt been devaluation, but the bubble hasnt even come close to fully bursting. Have a look at the graph.

http://upload.wikimedia.org/wikipedia/commons/thumb/1/1f/Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png/800px-Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png

If you bought property in 1996 which IMO is when the bubble started forming, you have still almost doubled your money... even if you count post 2007 devaluation. The bubble didnt burst, somebody just opened up a valve and released a tiny bit of pressure.

Most of the fake profits are still intact.

Think about it. A house costs way more now than it did in the middle of the .COM boom when unemployment was at 3% even though theres large inventories that arent moving. Housing prices should have fallen back to mid nineties levels. If anything inflation adjusted prices should be LOWER now because theres more inventory, and less jobs. Inflation adjusted wages have not increased... realestate inventories have increased... and there has been a glut of forclosures. So what gives?

Its simple really... the government dumped a SHITILLION dollars into the system to prop up all the phony evaluation, and kept interest rates close to zero. This represents a rather large transfer of wealth from the non-ownership class to the ownership class. A LOT of people would have been better off if a real market driven devaluation would have occured. Rent would be lower, and more people would have a chance to be in the game.

Edited December 20, 2011 by dre

[msj]

I never said there hasnt been devaluation, but the bubble hasnt even come close to fully bursting. Have a look at the graph.

http://upload.wikimedia.org/wikipedia/commons/thumb/1/1f/Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png/800px-Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png

A number of issues with this graph:

1) It is only new home sales rather than all homes.

2) It is likely in nominal terms. Adjust median values for inflation and you get 0% growth since 1996.

3) The bubble started at various times in various places and began popping at various times. Some markets are still doing ok, others not so much.

4) Take a look at Graph #7 for Real House Prices (Nationally) [You will have to click through again just like mentioned in my post above] The US is back to 1999-2001 levels (depending on which line you look at) and the trend continues to go the wrong way.

If you bought property in 1996 which IMO is when the bubble started forming, you have still almost doubled your money. The bubble didnt burst, somebody just opened up a valve and released a tiny bit of pressure.

Once again, you are not adjusting for inflation.

You also are not taking into account costs of selling which can easily be another 7%+ off the top.

Most of the fake profits are still intact.

Think about it. A house costs way more now than it did in the middle of the .COM boom when unemployment was at 3% even though theres large inventories that arent moving. Housing prices should have fallen back to mid nineties levels. If anything inflation adjusted prices should be LOWER now because theres more inventory, and less jobs.

Thats because the government dumped a SHITILLION dollars into the system to prop up all the phony evaluation, and kept interest rates close to zero. This represents a rather large transfer of wealth from the non-ownership class to the ownership class. A LOT of people would have been better off if a real market driven devaluation would have occured. Rent would be lower, and more people would have a chance to be in the game.

I don't deny that the government has dumped a lot of money into the system but it is to prop up the banks rather than RE.

It is actually the credit bubble that burst which most of us view through the RE lens. This is the liquidity trap that the US has been dealing with for the past 5 (almost 6) years and is why their economy is still well below capacity (i.e. the recession and recovery were/have been so bloody awful).

Edited December 20, 2011 by msj