Jim Flaherty and mortgage rates

[Red]

Originally Posted by seattleflamer

Versus the wisdom of the geezers who took out mortgages at 18% in the early 80s only to put the keys in the mailbox and walk away after the economy tanked...

At least they could walk. You can't do that now (in most cases).

If anything, that crash should be a lesson to the younger generations. What suddenly comes up, must come down.

[jammies]

Originally Posted by MarchHare

IWhy would anyone choose to throw their money away to rent each month when they could be building equity in their home for the same price?

When you rent, you are exchanging money for a service. Nobody "throws money away" by renting, which implies that they might as well be spending it on giant coke-fueled parties (which, to be fair, isn't really throwing it away either). That whole line is guff that realtors have successfully infiltrated into the common consciousness like it makes any kind of sense. It's like claiming buying groceries is "throwing money away" because you could farm your backyard and save all that cash for, I dunno, giant coke-fueled parties.

I rent because I don't want to live in a house and I don't want to pay ridiculous condo fees on top of a mortgage. I also want to live downtown, and there is no way, even with the inflated prices rent is getting to, that you could live in an equivalent place that I am renting for the same money. Yes, I could buy some craphole house in Outer Tajikstan (Only 50 minutes to downtown! (fine print: Sundays and holidays, otherwise time estimates may vary)) if I wanted, but I don't. Not only because I don't want to live in the middle of some grim future ghetto, but because I don't see house values holding up in the long term, so I really could be throwing money away when the home I spent several hundred thousands dollars on is worth half that when I get around to wanting to sell it.

"Equity" isn't worth jack if no one wants to buy. Ask some of the people in Florida, Nevada or California how their "equity" held up when the market crashed and their mortgages were crushing them with no way out but bankruptcy. Is home ownership right for some people? Yes, it certainly is. Saying it's right for everyone and implying that doing anything else is wrong, is not.

[Red]

Originally Posted by MarchHare

You're missing my point. Saving $60k now would take me about five years given my present earnings. When I was younger, it would have taken even longer (since I had less experience and was earning a lower salary). If I absolutely had to save a 20% downpayment, it would have delayed my entry into home ownership by approximately another five years. During that time, I would have been spending roughly the same amount of money on rent that I'm currently paying towards my mortgage each month. What financial benefit is there to that?

When I bought my first house I had a principal of 82K. Right now it would be about 300K.

I made a lot less then than I do now, but in the end it would be much easier to pay off 82K then than the 300K now.

I will take a low principal with higher interest rates over the alternative any day. I hope that we go back to the days of 6% interest rates because that will produce more affordable housing for future buyers.

[Tinordi]

You can definitely come out ahead renting vs. owning.

There's an opportunity cost to mortgaging, it's the financing costs, maintenance costs, strata costs, insurance costs, tax costs versus none of those for renting.

The difference between the owning premium and the renting discount is real money and can be invested in better performing assets like stock equities.

It all depends on how long you are in the home for.

Use this calculator:

http://www.nytimes.com/interactive/b...ator.html?_r=0

One of the most enduring myths is that you're losing money renting. For the most part you're losing money mortgaging.

[The Yen Man]

Originally Posted by Red

The economy will recover and we will see a spike in interest rates. Those that ignore it will be affected. Most people keep a mortgage for a lot longer that the 3 year government imposed emergency level low interest rates we have had.

Meh, you predict a big spike in interest rates, I predict it won't. Even if it starts going up, it'll creep towards the 3-4% and probably stay there for another few years. And to be honest, I think Calgary's rental market is crazier than its housing market. It's nuts to be renting right now when you can qualify for a mortgage and own IMO.

[MarchHare]

I also want to live downtown, and there is no way, even with the inflated prices rent is getting to, that you could live in an equivalent place that I am renting for the same money.

Are you sure about that?

Two years ago, a good friend of mine moved to Calgary. He was new to the city and didn't know which area he wanted to live in, so he and his wife chose to rent an apartment in Mission when they first arrived. One year later, his rent was jacked up to $2000/month. If they're going to be spending that amount on rent each month, they figured they might as well buy instead. They're now living in a condo in the Beltline and are paying only slightly more in mortgage+condo fees than they would have been paying if they'd continued renting their apartment in Mission.

[Red]

Originally Posted by NuclearPizzaMan

Yeah, them entitled Gen Y'ers, taking advantage of the poor innocent banks!


I'm much more interested in seeing what happens to the economy when the baby boomers retire en masse with not nearly enough savings and a 3rd of a mortgage left to pay. Should be exciting.

I am not a boomer so I shouldn't care, but if we laugh at them then we should cry about the X and Y because they are much worse off than the boomers.

[Red]

Originally Posted by The Yen Man

Meh, you predict a big spike in interest rates, I predict it won't. Even if it starts going up, it'll creep towards the 3-4% and probably stay there for another few years. And to be honest, I think Calgary's rental market is crazier than its housing market. It's nuts to be renting right now when you can qualify for a mortgage and own IMO.

That does a lot of good to the kids that took 35-40 year mortgages.

[MarchHare]

Originally Posted by Red

I am not a boomer so I shouldn't care, but if we laugh at them then we should cry about the X and Y because they are much worse off than the boomers.

This is also false. Statistically, Gen X has saved more for retirement than the baby boomers had at the same age.

[Red]

Originally Posted by MarchHare

This is also false. Statistically, Gen X has saved more for retirement than the baby boomers had at the same age.

But they have a lot more debt (student, consumer and mortgage) and have less employer funded pensions.

[Tinordi]

Originally Posted by Red

But they have a lot more debt (student, consumer and mortgage) and have less employer funded pensions.

And lower real incomes/higher unemployment.

[chemgear]

Originally Posted by fotze

This is like the chemgear the sky is going to fall sometime thread.

OMG PANIC!!

I continue to find the continued evolution of the housing market to very interesting. Canadians keep piling on more debt that's making the government quite uncomfortable apparently. The tone of news sites seems to have changed to "things will be flat for many years" or that "it's not a bubble, just a balloon".

And such low rock bottom rates, it is surprising that sales aren't massively higher. Seeing what is unfolding in BC (and to a lesser extent in Toronto) is quite intriguing.

[MarchHare]

Originally Posted by Red

But they have a lot more debt (student, consumer and mortgage) and have less employer funded pensions.

This is true (especially the lack of pensions), but it's not as simple as looking at raw debt numbers. Take a look at the below chart from the Bank of Canada:



As you can see, the most-indebted group is Canadians aged 31-35 who owe on average $120k (the vast majority of which is their mortgages). However, we must also remember that they still have ~35 working years to pay off that debt, so they owe about $3.5k per remaining working year. The most alarming thing about that chart to me is the age 61-65 group. That demographic has, on average, $40k in household debt but are imminently approaching retirement age. The age 56-60 group isn't faring much better.

[jammies]

Originally Posted by MarchHare

Are you sure about that?

Yes. Even if I found a 2 bedroom place for $300 000 (highly doubtful), I'd be paying a little less than $1500 a month or so for a mortgage of $250000. Condo fees run around $300-$450 a month - I've seen as low as $250 but I've also seen $600+. I'm paying about $1550, so it'd even at a best case scenario it'd be $200-$250 more.

And that's before you look at maintenance. Or special assessments. Or that I've got $50000 tied up as "equity" that may or may not get recovered when I sell.

[Street Pharmacist]

Originally Posted by jammies

Because they don't have enough money to buy?

But they do? 20% is arbitrary, why not 10%

[V]

Originally Posted by Red

I agree with that under normal conditions. We have had a bubble fueled by cheap credit and that bubble is about to burst.

To be fair, you've been saying this for almost 7 years now, IIRC. Now, maybe some time in the future you'll actually be right, but since part of accurate forecasting includes timing, you actually won't be right at all. People will have bought and completely paid off houses by the time you finally get it right.

[La Flames Fan]

Originally Posted by Tinordi

You can definitely come out ahead renting vs. owning.

There's an opportunity cost to mortgaging, it's the financing costs, maintenance costs, strata costs, insurance costs, tax costs versus none of those for renting.

The difference between the owning premium and the renting discount is real money and can be invested in better performing assets like stock equities.

It all depends on how long you are in the home for.

Use this calculator:

http://www.nytimes.com/interactive/b...ator.html?_r=0

One of the most enduring myths is that you're losing money renting. For the most part you're losing money mortgaging.

I love this video series...Renting vs. Owning - The Science

https://www.khanacademy.org/science/...-buying-a-home

[MoneyGuy]

Renting is NOT throwing money away!!

[jammies]

Originally Posted by Street Pharmacist

But they do? 20% is arbitrary, why not 10%

Why not -10%? It's arbitrary, so maybe we should be paid when we take out a mortgage.

[Red]

Originally Posted by V

To be fair, you've been saying this for almost 7 years now, IIRC. Now, maybe some time in the future you'll actually be right, but since part of accurate forecasting includes timing, you actually won't be right at all. People will have bought and completely paid off houses by the time you finally get it right.

Of course they will....just like the ones in Vancouver and Toronto.

And if it weren't for the government stepping in in 09 we would see my prediction to fruition then. They delayed the inevitable then and they are pretty much out of lifelines.