Options for Home Downpayment?

[ken0042]

Originally Posted by pylon

Have you considered finding an assumable? That is what I did 5 years back when I was strapped for the necessary down payment, as I didn't qualify for CMHC at the time. Or are you stuck on this one property?

The rules on assumables have changed from what I have been told; I also did an assumable 5 years ago.

Also, keep in mind the size of the OP's town. It is quite possible that he is looking at the house that is for sale right now.

[SeeGeeWhy]

Originally Posted by cmyden

Yeah, it seems people are either in the bubble camp or the non-bubble camp.

Reasons why I think we're in a bubble....

1) The price to rent ratio for a SFH in Calgary is currently around 250-275X. The long term average is 200.

2) Historically, home prices increase at about 1.5% above inflation in Calgary. In 2010, we should be at about 300k for an average home. Right now we're at 2020 house prices.

3) Everyone and their dog has been talking non-stop about where real estate prices are headed for the past 5 years. This might be the most telling of all.

One day when this has finally run its course, Calgary will be back at a 200X p/r ratio, as the just fine second-tier city in the middle of the Canadian prairies that it is.

People will no longer want to talk about real estate, or why they tied up and leveraged all of their money into a single asset class. Just like nobody wants to talk about Nortel or their dot-com portfolio of '99.

Granite counter tops, hardwood floors and stainless steel appliances will mark that ridiculous time period where everyone seemed to be manic about real estate.

I agree with what you're saying to a point, but what happens when a city reaches a significant population milestone like 1MM citizens? Is there a critical mass there that helps support a higher average price and p/r ratio? With inflation adjusted commodity prices being higher than long-run historical levels, is there enough to support a shift in the economic fundamentals of property values in energy focused urban centres like Calgary?

I don't know where you got your figures, but I think an interesting study would be to look at other Canadian cities like Vancouver, Montreal and Toronto to see what their p/r ratios and average SFH levels did when they hit different population milestones (might tell you what milestones are significant, and what are not i.e. 1MM might be signficant, but the 2MM level might not be). It would also be interesting to compare other energy cities stats in the past 6 years - http://www.energycities.org/partnership.asp

I think that high p/r ratio is a strong argument for council to approve secondary suites. The ability to generate rental income would increase, and it would help support the house prices that we are seeing.

All of that said, your stats are very much focused on Calgary and would speak more to a Calgarian house bubble, not a Canadian House Bubble.

[yads]

These aren't great reasons why this is a buble. Mostly the low interest rate is the reason for the spike in prices. I don't really see a huge correction coming. Maybe on the order of 10%.

Originally Posted by cmyden

Yeah, it seems people are either in the bubble camp or the non-bubble camp.

Reasons why I think we're in a bubble....

1) The price to rent ratio for a SFH in Calgary is currently around 250-275X. The long term average is 200.

Big reason why this is, is due to rental market being flooded. Doesn't necessarily mean that housing prices will go down. Will likely mean that rental prices go up in addition to housing prices going down.

2) Historically, home prices increase at about 1.5% above inflation in Calgary. In 2010, we should be at about 300k for an average home. Right now we're at 2020 house prices.

This is not good logic. If you're flipping coins and you get a run of 10 heads in a row, are you expecting the next bunch of flips to come up tails more often?

3) Everyone and their dog has been talking non-stop about where real estate prices are headed for the past 5 years. This might be the most telling of all.

I agree with this. It's toned down quite a bit, though since 08.

[Cowboy89]

Originally Posted by SeeGeeWhy

I agree with what you're saying to a point, but what happens when a city reaches a significant population milestone like 1MM citizens? Is there a critical mass there that helps support a higher average price and p/r ratio? With inflation adjusted commodity prices being higher than long-run historical levels, is there enough to support a shift in the economic fundamentals of property values in energy focused urban centres like Calgary?

I don't know where you got your figures, but I think an interesting study would be to look at other Canadian cities like Vancouver, Montreal and Toronto to see what their p/r ratios and average SFH levels did when they hit different population milestones (might tell you what milestones are significant, and what are not i.e. 1MM might be signficant, but the 2MM level might not be). It would also be interesting to compare other energy cities stats in the past 6 years - http://www.energycities.org/partnership.asp

I think that high p/r ratio is a strong argument for council to approve secondary suites. The ability to generate rental income would increase, and it would help support the house prices that we are seeing.

All of that said, your stats are very much focused on Calgary and would speak more to a Calgarian house bubble, not a Canadian House Bubble.

Really? Wouldn't adding more rental supply further depress rental rates and thus increase the p/r ratio? Or would there be a corresponding drop in housing prices to account for such lower rental rate?

Personally a historically high p/r rate tells me to rent and invest the difference. Those who stress "Buy now or miss the boat", fail to understand that return generated on investments might very well exceed returns on RE and/or pose much less of a risk to your capital base because you can diversify among different asset classes. Investments also offers more flexibility with lower transaction costs than buying houses.

Of course the big issue with the 'rent + invest' vs. buying is that a lot of people do not have the dicipline to invest the extra free cash flow. In that case buying is the superior choice because building equity is far better than wasting money.

[Shazam]

Originally Posted by SeeGeeWhy

I agree with what you're saying to a point, but what happens when a city reaches a significant population milestone like 1MM citizens? Is there a critical mass there that helps support a higher average price and p/r ratio? With inflation adjusted commodity prices being higher than long-run historical levels, is there enough to support a shift in the economic fundamentals of property values in energy focused urban centres like Calgary?

I don't know where you got your figures, but I think an interesting study would be to look at other Canadian cities like Vancouver, Montreal and Toronto to see what their p/r ratios and average SFH levels did when they hit different population milestones (might tell you what milestones are significant, and what are not i.e. 1MM might be signficant, but the 2MM level might not be). It would also be interesting to compare other energy cities stats in the past 6 years - http://www.energycities.org/partnership.asp

I think that high p/r ratio is a strong argument for council to approve secondary suites. The ability to generate rental income would increase, and it would help support the house prices that we are seeing.

All of that said, your stats are very much focused on Calgary and would speak more to a Calgarian house bubble, not a Canadian House Bubble.

The main restriction is available land. Calgary doesn't really have that problem.

[MJK]

Well lots of great advice in this thread and we have decided NOT to buy a second home right now. We are going to focus on what we currently have and look at it again in the future.

But, keep chatting becuase this thread has really turned into a good one with lots of great information and advice.

[Pastiche]

I'm a big advocate of renting over buying (to a point) and there's alot of really solid arguments out there on why you should rent instead of buy.

Here's a renting vs. buying calculator: http://www.nytimes.com/interactive/b...alculator.html

Here's another (better) one: http://michaelbluejay.com/house/rentvsbuy.html

The basic idea is that if you invest the cost savings of renting then you could come out well ahead.

[Shazam]

I've never understood why people would rent long term.

I started renting when I was 18. Even if it took me 30 years to get payback, well, I'd only be 43 if I started a mortgage back then.

[fundmark19]

How would I really be saving money renting though? For a house my size I am looking at least 1500 dollars a month or more anyways for renting so I pay 200 or so more a month on utilities paying my house hold expenses owning. But then I just add 1 roomate for 500 a month and im 300 bucks on top or I have 2 roomates and it only cost me 700 bucks a month to own my own property and pay for it all and the extra 800 dollars goes to paying down my mtg? People who rent and say its better than owning don't think about ways to still have a nice place to live and have someone else pay down your mtg for you.

That being said I am 22 and have 3 properties so I am biased on the issue. But I cannot for the life of me understand why someone would throw money away each month on renting.

[Shazam]

I'm 12 and have 10 properties.

[SeeGeeWhy]

Originally Posted by Cowboy89

Really? Wouldn't adding more rental supply further depress rental rates and thus increase the p/r ratio? Or would there be a corresponding drop in housing prices to account for such lower rental rate?

Personally a historically high p/r rate tells me to rent and invest the difference. Those who stress "Buy now or miss the boat", fail to understand that return generated on investments might very well exceed returns on RE and/or pose much less of a risk to your capital base because you can diversify among different asset classes. Investments also offers more flexibility with lower transaction costs than buying houses.

Of course the big issue with the 'rent + invest' vs. buying is that a lot of people do not have the dicipline to invest the extra free cash flow. In that case buying is the superior choice because building equity is far better than wasting money.

Yes, I suppose my main assumption was that rental demand stays strong.

It really does make one nervous to see high p/r ratios when rent demand is low. There shouldbe a connection between property value and its ability to generate rent. Is the social value of having your own house really worth that much of a premium over the earning capacity of the asset?

Your second point is that a portfolio can get exposure to real estate in the stock market by investing in REITs, so you can have a bit of both unless there is a specific property class that is desired.

What I don't like about "building equity" is that you pay for your house twice while doing it.

[SeeGeeWhy]

Originally Posted by Shazam

The main restriction is available land. Calgary doesn't really have that problem.

True, but you could look at the GVA, not just Vancouver proper.

Do Montreal and Toronto have the same land restriction issues?

[Pastiche]

That being said I am 22 and have 3 properties so I am biased on the issue. But I cannot for the life of me understand why someone would throw money away each month on renting.

Well you are also throwing money away on interest payments for the mortgage and any maintenance, condo fees, property tax you are incurring from owning. Those fees along with the principal payment are usually always larger than rent. At least in my case, renting a giant house probably doesn't apply but if you can rent an apartment in a central local versus buying a property out in a suburb you forego all of the significant transaction costs of buying all the while enjoying the benefits (which can be monetized) of living in a central location.

So long as you bank those savings and invest them at a rate that is higher that real estate appreciation (typically 3%) then in 20 years you can come out well ahead. At THAT point you would buy with a huge down payment and significantly lower borrowing costs.

[Shazam]

Originally Posted by SeeGeeWhy

True, but you could look at the GVA, not just Vancouver proper.

Do Montreal and Toronto have the same land restriction issues?

Hmm, Montreal's prices haven't gone up that much, really.

Yes, Toronto has a few geographical restrictions. Lakes, mountains, the US border.

[Pastiche]

Quebec has way different regulations on property. For example, it is very strict on how high you can raise rent every year. As a result, housing prices are alot lower.

[JustAnotherGuy]

Originally Posted by Pastiche

I'm a big advocate of renting over buying (to a point) and there's alot of really solid arguments out there on why you should rent instead of buy.

Here's a renting vs. buying calculator: http://www.nytimes.com/interactive/b...alculator.html

Here's another (better) one: http://michaelbluejay.com/house/rentvsbuy.html

The basic idea is that if you invest the cost savings of renting then you could come out well ahead.

Great charts. Makes for some interesting what if scenerios.

I think it is up to the individual on what they think is best. I believe that buying a house is the right way to do it. I have paid a mortgage for 20 years now. I will do this for another 5-10 years and then downsize. At that time I will be mortgage and rent free. Which will be sweet.

[Bring_Back_Shantz]

Originally Posted by SeeGeeWhy

What I don't like about "building equity" is that you pay for your house twice while doing it.

That last point in your post is completely irrelvant, and ignores all of the other factors that go into the decison to rent vs buy.

Saying buying isn't a good option because you pay for your house twice, is just as valid as saying renting is a bad idea because you don't have anything at the end. Sure both statements are technically true, but they completely ignore the underlying (and most important) factors that go into the rent vs buy decision.

Buying isn't always a better option, but dismissing it because you "Pay for your house twice" is really short sighted.

[fundmark19]

I think it also comes down to life style as well. Are most people who are doing these comparisons single? I for one could not live in a small condo down town. I all ready own a condo and have out grown it for my needs so it is now a rental. Being engaged and married in august with 2 dogs and child ( or possibly 2) in the next 5 years I would need a house regardless. So isn't it better to just buy the house now while prices were at their lowest since the boom and settle into a house that I love and can make improvements and changes to rather then live in a smaller condo down town. Sure I would save 80 bucks a month on my bus pass but I really enjoy sitting on my deck bbqing while my dogs play with eachother in the back yard.


again though I may be an exception to the standard.

And Shazam I was not trying to gloat I was implying why I may be biased on the issue

[Jordan!]

Originally Posted by Pastiche

What's wrong with renting? Nothing actually, so long as the save the cost savings from renting and buying and invest it.

Hold on.. a cost saving with renting?? Since when? Renters ALWAYS get raped.

[Regorium]

Originally Posted by fundmark19

I think it also comes down to life style as well. Are most people who are doing these comparisons single? I for one could not live in a small condo down town. I all ready own a condo and have out grown it for my needs so it is now a rental. Being engaged and married in august with 2 dogs and child ( or possibly 2) in the next 5 years I would need a house regardless. So isn't it better to just buy the house now while prices were at their lowest since the boom and settle into a house that I love and can make improvements and changes to rather then live in a smaller condo down town. Sure I would save 80 bucks a month on my bus pass but I really enjoy sitting on my deck bbqing while my dogs play with eachother in the back yard.


again though I may be an exception to the standard.

And Shazam I was not trying to gloat I was implying why I may be biased on the issue

One nit pick - you state that you should buy the house now due to the fact prices are at their lowest.

However, at the same time, many investment vehicles are also at their lowest price at this point. You may realize a 20% increase in your home price, but probably 200% if you invested that money last year (unfortunately, I'm not one of those people).

Frankly, the last two years would've been the perfect time to rent and buy stock, rather than buy property. This is not usually the case though, and even now the stock market and housing market have mostly recovered, where you'll see nominal increases every year once again.