Housing

[August1991]

If by timing the market you mean buying a business (rather than a house) to earn 2.5+ times my previous income and paying off the debt on that investment within 5 years, then, sure, I've timed the market.

Oh, and I also have liquid assets too.

Pretty soon I will be buying a house and maybe I will end up buying it for cash (my local market has turned down).

If true, more power to you.

But bragging about it on an Internet forum is, well, pathetic - and undercuts your credibility.

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Vancouver house prices continue to rise and the only prediction on this forum that you have made is that Vancouver house prices were a bubble, presumably with an imminent collapse.

[August1991]

I'm of the view that we should do what's best for the economy to run (proper bank regulations being paramount) and let recessions happen to clean up capitalism.

I disagree. A recession in which unemployment rises to 8% is not good.

The US has (yes, has still) terrible bank regulations that, thankfully, Canada does not have (although ours is not as good as many people think).

This is the rank conventional wisdom of the Left in Canada, and the US. It just ain't true.

Canada's banking/monetary history is completely different from the US. If anything, we have far fewer regulations than the Americans. But the systems and history are so different that the comparison is silly.

We know, historically, that debt bubbles (and that's what I'm really talking about here but I use the term RE bubble since this is what people seem to understand) effect the economy much more than regular recessions (you would have to go to the recession thread to find the links).

So, no, I don't buy your argument.

However, I am thankful that the CPC have come to their senses and have finally fully reversed their mortgage policy follies they changed back in 2006.

More American leftist conventional wisdom, circa 2012.

RE bubble? Debt bubble? As opposed to a tech bubble, I suppose.

[msj]

If true, more power to you.

But bragging about it on an Internet forum is, well, pathetic - and undercuts your credibility.

It's not bragging - simply stating the path I chose to follow.

Hopefully it will turn out well (but who knows when one is in business?)

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Vancouver house prices continue to rise and the only prediction on this forum that you have made is that Vancouver house prices were a bubble, presumably with an imminent collapse.

I do expect Vancouver house prices to decline.

A decline of 20% would not surprise me. Nor would a decline of 40%.

Who knows.

The larger question is timing.

Will house prices decline by, say, 15% and then sit stagnant for the next 10 years (so, adjusting for inflation, a real decline of ~35-40%, depending on the rate of inflation, of course).

Or will it be a slow steady decline? Or fast and then smooth out?

Who knows what the slope is going to be but the trend will be down unless incomes and rents miraculously start going up to support current house prices in that city.

Patience, August, for whenever a bubble starts to deflate it is the current listings that start to go up while sales start to fall. This creates inventory that sits on the market.

RE is not like stocks which can see their prices corrected within seconds, minutes, or days.

RE often takes many months just for people to notice a change in the market. Then it takes many months for people to adjust to the changes. These months often turn into years as many Americans have discovered (and Irish, and English, and Spanish, and ....).

When the market is doing well then it's better to get in Now! Now! Now! and when the market has done poorly one should just rent and NEVER buy a house.

I'm a contrarian by nature which is part of the reason I chose to buy a business rather than a house.

Better to be earning a higher income starting at a younger age than take on a debt load that may sit like a noose for 25+ years, was likely part of my thinking.

Part of my thinking, however, was also related to the craziness of the housing market at that time which was tempered in 2009/2010.

The RE market in my area has effectively been in the buy Now!Now!Now! mentality for nearly 4 years.

I'll gladly wait for that pass.

And why not? I've done the math and it makes no financial sense for me to buy (unless I am foolish enough to believe that house prices will continue increase faster then the inflation rate indefinitely).

[msj]

I disagree. A recession in which unemployment rises to 8% is not good.

Sure, and if that recession is pushed off so the next one has an unemployment rate of 9% and that rate holds for longer, is even worse.

I remember posting in that recession thread, and I remember you were still active in that thread when I posted it, about how financial led recessions are always worse (longer, deeper) than the standard business led recession.

You can reject the history all you want, but it has been documented and it has been pointed out to you in the past.

This is the rank conventional wisdom of the Left in Canada, and the US. It just ain't true.

As, yes, the ad hominem attack without any evidence to "prove" that it ain't true.

Canada's banking/monetary history is completely different from the US. If anything, we have far fewer regulations than the Americans. But the systems and history are so different that the comparison is silly.

Up until July 9 I would agree to you with respect to outcomes - Canadians have been able to effectively get $0 down and 40 then 35 then 30 year amortizations.

Canadians have also been able to extract quite a bit of equity from their homes.

And "no doc" loans are more prevalent in Canada than many appear ready to believe.

Fortunately, the CPC have come to their senses (albeit at several different instances over the past 4 years) and reversed their stupidity when they allowed such things to happen with the rule changes in 2006.

Now Canadians are stuck with 25 year amortizations and that does make it quite a bit harder to get a mortgage (on a cash flow basis, this is like increasing interest rates by about 1.1%)

And they will only allow CMHC to insure mortgages up to $1 million which will also make it more expensive to service a Vancouver crack shack (or require bigger down payments from people to meet CMHC rules).

I think between our bank regs and CMHC, Canada has finally been put back on track to where we were prior 2006.

That is to say that our bubble would likely continue to be spiraling upward, preparing us for a hard landing in 2018 or 2020, had the CPC not come to their senses to, hopefully, orchestrate a soft landing in 2013/2014.

We will have to wait and see.

More American leftist conventional wisdom, circa 2012.

Perhaps you should argue the points rather than express an opinion that is backed up with nothing.

Would be a refreshing change.

[kimmy]

Not exactly on topic, I suppose... but does anybody here know anything about buying US real-estate?

I have been looking at Canadian listings for undeveloped land in remote areas, trying to figure out when I will be able to afford to build my own little hillbilly haven way out in the sticks. And I've come to the conclusion that Canadian land is still pretty expensive.

But I've been noticing that American land can be found for pretty cheap. So I have been considering the possibility of doing like the carpetbaggers of days of yore.

Any thoughts? Is US land a good deal right now? Are there any down-sides to owning US land if you're a Canadian?

-k

[guyser]

Any thoughts? Is US land a good deal right now? Are there any down-sides to owning US land if you're a Canadian?

-k

This is something you will have to jump in deep to get a sense of.

There are downsides that include...

-US probate should you die, since your executor here in Canada has no authority

-withhold tax when you sell....and if you need to sell, then the problems come to light

-US tax return (unsure if every year or when you sell)

-cheaper land but generally higher property taxes

-non-residnt surcharge for insurance, prop taxes and so on.

-health insurance can be a cunundrum for you

-may be unmortgageable and reliance on your CDN assets to fund. What happens when in a pinch?

IOW, since it obvious I am no expert, this is something that requires serious sober thought (which I already know you know)and planning . My take is it is feasible, but for most smart shoppers it is only so when they have the cash on hand and no serious liabilities coming anytme soon.

So...if youre rich kimmy, then take advantage of the market there since in most cases where I suspect you would buy, the market is at the bottom thus future profitability is reasonably assured.

[msj]

Just had to link to this article about the Vancouver Housing Market.

It's a little bit dated (from June) but Ben does point out Vancouver's year over year average price decline of 12% for the month of May.

What I find more fascinating, however, is this:

2) Fun with anecdotes:Before diving into the data, consider this fun anecdote: There are currently over 5,000 homes in Vancouver metro area for sale for over $1 million according to MLS.ca. In comparison, the NAR reports that in April, just over 7,000 homes sold in the entire US were sold for over $1 million. And this despite the fact that the US population is 135X greater than the metro Vancouver market, the average personal disposable income in the US is 20% higher than the Vancouver average ($37,100 vs. $30,800) while US per capita GDP is higher than the average for all of BC.

I also like this line "I suspect that when the tide goes out, we’ll be shocked at how many Vancouver households have been swimming naked."

But that's to be expected when home costs are using up 90% of ones' household income.

House prices better keep going up otherwise where will these people be able to borrow the money to keep eating?

Anyway, some good charts in there and this really isn't a laughing matter.

Some people are going to end up being caught out and it is going to be a lot less pleasant than merely being naked.

[kimmy]

So...if youre rich kimmy, then take advantage of the market there since in most cases where I suspect you would buy, the market is at the bottom thus future profitability is reasonably assured.

Thanks for your thoughts, guyser. I'm certainly not rich, but I'm in a situation where I could afford to plunk down a few thousand dollars if I found the right piece of land. Unfortunately the right piece of land, in Canada at least, costs more than a few thousand dollars... but in some parts of the United States, maybe not. So I've been giving this some thought.

-k

[msj]

Thanks for your thoughts, guyser. I'm certainly not rich, but I'm in a situation where I could afford to plunk down a few thousand dollars if I found the right piece of land. Unfortunately the right piece of land, in Canada at least, costs more than a few thousand dollars... but in some parts of the United States, maybe not. So I've been giving this some thought.

-k

If you are going to buy land, and only land, then better make sure that you use it (tent/rv) so that it is "personal use property."

Otherwise, you could be speculating in land which means that if you sell the land then it is business income rather than capital gain.

The difference, in Alberta, is between paying tax on the gain at 39% versus 19.5%.

Edited August 6, 2012 by msj

[dre]

Canada's banking/monetary history is completely different from the US. If anything, we have far fewer regulations than the Americans. But the systems and history are so different that the comparison is silly.

Canada nationalized its central bank about 80 years ago. 100% of its shares are held by the minister of finance. The US has a private central bank. So it stands to reason Canada would need less/different regulations.