Calgary Real Estate predictions?

[The Yen Man]

Originally Posted by Cowboy89

I think the damning thing about it is that people are using HELOCs intentially for consumer consumption goods in times when things aren't sour.

To me, that's a scary situation to be in. I mean, something unexpected happens, and you're basically screwed. And it's not like you can sell off all your fancy new toys to pay for it. Stuff like electronics and toys depreciate so fast, they become a fraction of what they're worth pretty quick.

It just amazes me that something as simple as having a little bit of savings for a rainy day fund and proper cash management is so hard for some people. How hard is it to understand cash outflow > cash inflow = bad situation?

[Bill Bumface]

Well count me in for someone who's afraid they might be hooped. After being forced to look for a new place after a toxic mold fiasco in my condo, I decided it would be better to get a house now than another short term condo that would cost me tens of thousands in Realtor and legal fees to sell and buy a house in a few years, so I stretched myself a bit to get the house I wanted. I've got no problem paying for the house, but about $20K in unexpected expenses came up, and now I'm faced with the possibility of a substantial ($20-$30K/year) pay cut which will really leave me in an interesting spot. All I can hope for is that the job market for my area heats up before that becomes a problem, or else.... Fuuuuuuuuuuuuuuuuuuu

[macker]

Also, most people pay off their mortgages in 1/2 - 2/3 the actual amortization anyway which indicates a lot of Canadians do have extra money and throw it into extra payments when they can.[/QUOTE] WINDSOR PILATES



Do you have any links to back this statement up? CAAMP did a study that showed that only 13% of Canadians make lump-sum pre-payments and of those who made pre-payments in the last 12 months pre-paid just 1% of their mortgage principal on average this worked out to $1,380 per year.

Regarding the HELOC's etc. National Bank has one product that is making them a ton of money and that is their AIO (All in one) and it has been shown to have a 50% failure rate because people can't handle the easy access to credit. Manulife One is another similar product but they ding you $14 per month per account and also offer prime plus 1.25% vs AIO prime + 0.5% so there is no value proposition there aside from good avertising. Even "your richer than you think" Scotia bank has the Step Program and everyone wants to cash in on the concept of giving people just enough rope...if you use these products properly they are great but 50% of people who sign up for them aren't. Just transferring money from your balance sheet to the banks and they will gladly take it.

They still do have second mortgages and many people are going to be surprised when they go to re-fi when the banks tell them that 90% LTV is the figure they are working with and many people will end up with B and C lenders. Generally speaking those who bought before 2005 have equity and those who bought after don't.

[Bill Bumface]

What is LTV???

[macker]

Originally Posted by hulkrogan

What is LTV???

Loan to value. It is a formula used by the banks/lenders to qualify a borrower. It is basically the mortgage amount or loan amount divided by the purchase price or appraisal price and often lower of the two. Any LTV over 90% basically means the bank isn't very interested in lending to them and they have very little equity. Banks are loosening up a bit lately but still have very tight lending standards and won't budge one some of these ratios.

[Winsor_Pilates]

Originally Posted by macker

Do you have any links to back this statement up? CAAMP did a study that showed that only 13% of Canadians make lump-sum pre-payments and of those who made pre-payments in the last 12 months pre-paid just 1% of their mortgage principal on average this worked out to $1,380 per year.

I read it in a couple of articles recently; I'll see if I can find them and post.

Is that study saying that only 13% made pre-payments in the last 12 months? or only 13% do overall?

Edit for links:
Canadian Mortgage Trends
In almost all cases, people who take 35-year amortizations plan to pay off their mortgage much quicker. In fact, the average Canadian gets rid of their mortgage in 1/2 to 2/3 of their original amortization, according to insurer sources. In other words, due to pre-payments, people pay off their 35-year mortgages in far less than 35 years.

and

Despite all the debate, no one has ever provided public data (that we’re aware of) to show that 35-year amortizations create undue risk in the market. Insurers charge just a 0.40% higher premium on a 35-year amortization. That means something, because insurers are actuarial experts. They know default ratios better than anyone in Canada. None of them have indicated any public concern for extended ams.

and from a Manulife study
Almost two-thirds of those surveyed (64 per cent) said they did not make any additional mortgage payments in the past year.

A bad year for most, so this is to be expected. Still not nearly as low as only 13% making prepayments.
I haven't given these reports or stats a thorough read through, so I'm not sure how accurate their statements are, just basically reposting what I've read lately.

[Bill Bumface]

Originally Posted by macker

Loan to value. It is a formula used by the banks/lenders to qualify a borrower. It is basically the mortgage amount or loan amount divided by the purchase price or appraisal price and often lower of the two. Any LTV over 90% basically means the bank isn't very interested in lending to them and they have very little equity. Banks are loosening up a bit lately but still have very tight lending standards and won't budge one some of these ratios.

Sweet. At least I've got a good chunk of equity no matter what (I think I'm in the 70-75% range for LTV right now) so there's one thing that won't bone me.

[bomber317]

Originally Posted by WilsonFourTwo

I actually suspect that this is a much more common/frequent chain of events than banks approving people who shouldn't get mortgages in the first place.

My gf and I went to the bank to get a pre-approval to see what price range we should be looking at. I was thinking maybe a 300-400k mortgage, don't want a 400k mortgage as it makes things pretty tight in terms of saving money and actually having cash on hand.

Bank approves us for over 700k. Are you kidding me? That's a $3600 monthly payment on the current 5 year fix rate.

[Cowboy89]

Originally Posted by macker

Even "your richer than you think" Scotiabank has the Step Program and everyone wants to cash in on the concept of giving people just enough rope...if you use these products properly they are great but 50% of people who sign up for them aren't. Just transferring money from your balance sheet to the banks and they will gladly take it.

On a lighter note, my buddy who used to be an investment banker at Scotia phases their slogan a little differently . . . "Scotiabank - You're Poorer Than You Know"

[macker]

[QUOTE=Winsor_Pilates;2839860]I read it in a couple of articles recently; I'll see if I can find them and post.

Is that study saying that only 13% made pre-payments in the last 12 months? or only 13% do overall?



The Numbers:

• Only 13% of Canadians make lump-sum pre-payments according to CAAMP.
• Those who made lump-sum pre-payments in the last 12 months pre-paid just 1% of their mortgage principal on average. (In dollar terms, that's $1,380 of lump sum pre-payments based on the average mortgage balance.)

I don't think any Canadian reports on 35 year mortgages would be very accurate as they just got popular in recent years. How can they base this? I realize it is insurers using a crystal ball but it still seems very unrealistic.

As for Scotiabank http://www.tradingmarkets.com/news/p...n-1345693.html
They are richer than ever before...don't you think...

[chemgear]

I do find it interesting how things have picked up on this topic. We're now beating the Americans in household debt!

http://www.financialpost.com/news/Ca...362/story.html

http://www.financialpost.com/news/Ca...508/story.html

http://www.financialpost.com/news/Ho...228/story.html

The data has been there for a while but people now seem to be more aware of the trend. Heck, things got a little personal in this forum when some of the numbers/thoughts out loud were posted here.

I'm still not "misrepresenting" myself but I have meet some more people other than board of directors for various oil and gas companies.

Seriously though, it's good to see varied and detailed opinions and good numbers/stats out there.

Unfortunately, I can totally see how easy it can be for people to borrow/spend like crazy - people don't really break it down into realistic real life budget calculations. I've always found it interesting how the banks call it a line of credit when it's almost a pseudo 2nd mortgage . . . it sure makes it sound better/more palatable.

[chemgear]

Originally Posted by macker

Regarding the HELOC's etc. National Bank has one product that is making them a ton of money and that is their AIO (All in one) and it has been shown to have a 50% failure rate because people can't handle the easy access to credit. Manulife One is another similar product but they ding you $14 per month per account and also offer prime plus 1.25% vs AIO prime + 0.5% so there is no value proposition there aside from good avertising. Even "your richer than you think" Scotia bank has the Step Program and everyone wants to cash in on the concept of giving people just enough rope...if you use these products properly they are great but 50% of people who sign up for them aren't. Just transferring money from your balance sheet to the banks and they will gladly take it.

I have heard good things about Manulife One from a friend. She's extremely disciplined/frugal when it comes to money. It seemed to be a good product for her that gave her the flexibility to pay down debts she specifically targeted.

That being said, (as my coworker likes to say) banks seem to be more than happy/willing to hand out as much rope as people want to hang themselves with.

[macker]

Originally Posted by chemgear

I have heard good things about Manulife One from a friend. She's extremely disciplined/frugal when it comes to money. It seemed to be a good product for her that gave her the flexibility to pay down debts she specifically targeted.

That being said, (as my coworker likes to say) banks seem to be more than happy/willing to hand out as much rope as people want to hang themselves with.

Sounds like the perfect person for an all in one mortgage and she will cut years off her mortgage and save thousands in the process.
Looks like my post on Manulife One is not accurate as of today.
http://www.manulifebank.ca/canada/mB...c/todays_rates
They are prime + 0.5% just like National Bank AIO. A few months back I think it was prime +1.5% so it looks like this was brought back in line. I have heard that they aren't as predictable with the rate and don't always stick to prime + and set it more arbitrarily vs National Bank who always set the rate based around prime and don't charge $14 per month which isn't a big deal when you are paying off your mortgage based on daily interest and saving thousands if you structure things properly.

[Danijam]

Does anyone follow Tom Stanley? He was a coauthor of The Millionaire Next Door, which came out in 1996. In the book he makes the argument that the millionaire actually probably lives next door to you, rather than in the big house in the fancy neighbourhood. Once they are in the fancy house, people end up amassing consumer debt to fit the image of the house they bought – cars, clothes, furniture, etc.... There seems to have been some of this in Calgary during the boom of mid-2000s so my guess is that we’ll see a glut of pricier homes hit the market while sales of homes in the lower to middle price ranges will stay strong.

[Slava]

Originally Posted by macker

Sounds like the perfect person for an all in one mortgage and she will cut years off her mortgage and save thousands in the process.
Looks like my post on Manulife One is not accurate as of today.
http://www.manulifebank.ca/canada/mB...c/todays_rates
They are prime + 0.5% just like National Bank AIO. A few months back I think it was prime +1.5% so it looks like this was brought back in line. I have heard that they aren't as predictable with the rate and don't always stick to prime + and set it more arbitrarily vs National Bank who always set the rate based around prime and don't charge $14 per month which isn't a big deal when you are paying off your mortgage based on daily interest and saving thousands if you structure things properly.

Manulife has a rate set specifically for that account. It was at prime for years, until about November 2008. I think that the spread was at about 1.5% at one point and since then while prime has increased Manulife has not followed with these increases every time.

[Winsor_Pilates]

Originally Posted by Danijam

Does anyone follow Tom Stanley? He was a coauthor of The Millionaire Next Door, which came out in 1996. In the book he makes the argument that the millionaire actually probably lives next door to you, rather than in the big house in the fancy neighbourhood. Once they are in the fancy house, people end up amassing consumer debt to fit the image of the house they bought – cars, clothes, furniture, etc.... There seems to have been some of this in Calgary during the boom of mid-2000s so my guess is that we’ll see a glut of pricier homes hit the market while sales of homes in the lower to middle price ranges will stay strong.

Actually as the market has slowed down this year, it's the high end, luxery homes that have been selling the best.

[AFireInside]

Originally Posted by Winsor_Pilates

I read it in a couple of articles recently; I'll see if I can find them and post.

Is that study saying that only 13% made pre-payments in the last 12 months? or only 13% do overall?

Edit for links:
Canadian Mortgage Trends
In almost all cases, people who take 35-year amortizations plan to pay off their mortgage much quicker. In fact, the average Canadian gets rid of their mortgage in 1/2 to 2/3 of their original amortization, according to insurer sources. In other words, due to pre-payments, people pay off their 35-year mortgages in far less than 35 years.

How do we even know this since 35 year mortgages and these higher prices have only been around for a couple years.

It's much easier to pay off a house early if you only paid 185,000 for it....

I have a VERY hard time seeing many of those who bought houses with a 40 year 0 down mortgage paying anything off early. A few years, sure... They may pay it off in 32 years doing bi weekly payments or something, like that, but thats still 32 years.

[Travis Munroe]

As mentioned above, it is funny to think that home sales in the 1 million plus range have been the strongest during the slower times.

[AFireInside]

Originally Posted by Realtor 1

As mentioned above, it is funny to think that home sales in the 1 million plus range have been the strongest during the slower times.

Kind of weird... But if you are buying a million dollar property, you're probably not as worried about timing the market. If you're looking at spending a mil, you would probably just look until you found the place you want...

[Winsor_Pilates]

Originally Posted by AFireInside

How do we even know this since 35 year mortgages and these higher prices have only been around for a couple years.

It's much easier to pay off a house early if you only paid 185,000 for it....

I have a VERY hard time seeing many of those who bought houses with a 40 year 0 down mortgage paying anything off early. A few years, sure... They may pay it off in 32 years doing bi weekly payments or something, like that, but thats still 32 years.

We really don't know; it's all just speculating I guess until a change actual does come. I think small downpayments "0-5%" are a much bigger issue than the amortization period personally.
I'd be happy of new rules brought in restrictions to a minimum 10% down.

Originally Posted by AFireInside

Kind of weird... But if you are buying a million dollar property, you're probably not as worried about timing the market. If you're looking at spending a mil, you would probably just look until you found the place you want...

Also, if the market has come down a certain percent; that proportion is biggest for the more expensive homes.
Maybe those buyers think they're saving hundreds of thousands by buying now and are expecting prices to come back up within the next couple of years.