Calgary Real Estate predictions?

[AFireInside]

Originally Posted by Winsor_Pilates

Explain? When he purchased it has absolutely nothing to do with it.
The value today vs forecasted decrease is all that matters.

We don't know his situation or whether it's feasible, but that's why I asked. Seems like the obvious thing to do for someone so certain of the impending burst. A no brainer really; why wouldn't he make the certain play to make an easy $100,000+?
I know I would, wouldn't you?

Of course it matters when he bought. I haven't heard anyone suggesting a 50% reduction in prices, just 15 - 20% for the most part..

If he bought for 300,000 in 2006. Then in 2007 that house is worth 400,000. Now it is worth around 360,000 we will say (just took off 10% could be less could be more). So sell for 360, then wait for it to decrease by 20% or so. So then you buy back at 288,000. So you've made approx 72,000. Then add in waiting for 2 years or so for things to bottom out (so we'll say 1800/mth for rent) So subtract another 43000. So you've come out with approx 30,000 total by the end of that. Add in the equity you put into your place over the time you waited to the bottom and it's even less.

Of course all these numbers are fictional, and the situation could be completely different. Depending on the property type as well.

If you bought in 2002, yeah you could make a killing doing that, and I've heard of people who done just what you are suggesting. I guess the thing is, all signs (at least as far as I'm concerned) are pointing to a decent correction. If that does begin to happen are any of us 100% sure the government won't interfere and try to reduce the damage. We don't know, so unless you are going to make a LOT of money off of a sale, then it doesn't make much sense.

I don't know.. I'm tired and hungover so my numbers may be off or I may be forgetting something.... meh...

[Winsor_Pilates]

Originally Posted by AFireInside

Of course it matters when he bought. I haven't heard anyone suggesting a 50% reduction in prices, just 15 - 20% for the most part..

If he bought for 300,000 in 2006. Then in 2007 that house is worth 400,000. Now it is worth around 360,000 we will say (just took off 10% could be less could be more). So sell for 360, then wait for it to decrease by 20% or so. So then you buy back at 288,000. So you've made approx 72,000. Then add in waiting for 2 years or so for things to bottom out (so we'll say 1800/mth for rent) So subtract another 43000. So you've come out with approx 30,000 total by the end of that. Add in the equity you put into your place over the time you waited to the bottom and it's even less.

Of course all these numbers are fictional, and the situation could be completely different. Depending on the property type as well.

Using your numbers:

Option 2: Do nothing and wait for the correction. The house you bought for $300,000 is now worth only $288,000. A loss of $12,000 and a home worth less than originally financed at (assuming financing is used).

That $30,000 profit in your example is still the no brainer move ($42,000 better option) to make if you're convinced the market is coming down in the 20% range.

Use more expensive houses in your example and numbers get better and better. Over $500,000 and you'll be looking at the range of six figure profits.

[chemgear]

What do most people factor for realtor/lawyer/inspection/moving fees normally in such a calculation?

[1stLand]

Originally Posted by chemgear

What do most people factor for realtor/lawyer/inspection/moving fees normally in such a calculation?

Plus CMHC Fees which in some cases are $4,000 - $5,000
(when you bought)
You will never recoup this cost. So it is even more painful if you pay $5k to get your mortgage insured and then turn around and sell in a few years.

[AFireInside]

Originally Posted by Winsor_Pilates

Using your numbers:

Option 2: Do nothing and wait for the correction. The house you bought for $300,000 is now worth only $288,000. A loss of $12,000 and a home worth less than originally financed at (assuming financing is used).

That $30,000 profit in your example is still the no brainer move ($42,000 better option) to make if you're convinced the market is coming down in the 20% range.

Use more expensive houses in your example and numbers get better and better. Over $500,000 and you'll be looking at the range of six figure profits.

Use more expensive houses DEPENDING on when you purchased. Depending on WHEN you bought you can make a killing.... Maybe they've refinanced, maybe they have kids, maybe it's a huge pain in the butt to move to possibly make $30,000 after a year or 2. I know if I had purchased and was going to make about 25 - 30 by renting for two years ,I don't know that I would do it. I'm not buying a place to make money, I'm buying a place to live in first and foremost.

I could just get a part time job and make the same amount of money over that time, and just put it towards my property.

I have friends who purchased a property last year to flip. After seeing the work, time and money that's gone into it, I would rather get a part time job. Unless of course they sell for a LOT more then it's worth it. If they come out with 30,000 a piece, they can have it. It's not worth the time and stress that comes with it.

Look you can be pretty sure that the market is going to correct, but NOTHING is 100%. Why risk it unless you can make a killing. In my books 20 - 30,000 is not worth it. Maybe it only drops 15%. Maybe it drops 40%. Obviously you know it's damn hard to predict the market. If it were easy no one would make any money. There are potential factors that may not have come up yet that will affect price one way or the other.

I think the point is that everything right now is pointing to a significant correction.

[AFireInside]

Originally Posted by fotze

I'm not following the when it was bought cost argument. Lets say an old lady bought her house 35 years ago in Sunnyside for $25,000. The property is now worth $750,000, if sold today. If it is coming down 20%. That means in a year or so it will be worth $150,000 less.

If someone bought that same house last year for $750,000 and the value is still $750,000. 20% less is still $150k.

In either case they can make the same cash.

Yes, the more it costs the more you can potentially make, I'm not arguing that. What I'm saying is, depending on when you buy it may not make a lot of sense to an individual to sell just because there is going to be a decrease.


Wouldn't the old lady have the chance to make 725,000 since she would clearly be mortgage free. Don't think that just because there may be a correction that absolutely every neighbourhood will decrease either. Some locations will always be pricey. Obviously no one thinks a 20% correction means every house will correct by 20%. Some more, some less.

Money is not the end all be all for everyone. Just because we have greedy culture doesn't mean that everyone follows that.

If I were going to make 150,000 would I sell. Absolutely. Since we aren't all living in or dreaming of buying a property worth $700,000, you may only make 30,000 - 40,000 before cmhc, realtor fees etc. Is that worth 2 years of renting, and leaving a home you like? Not for me....

Those are the numbers I was using.. What a starter home would likely cost.... There are all kinds of scenario's and situations where it may not make a lot of sense for an individual to sell immediately and wait. That was my point. Don't take my example so literal and apply to every property. It's not so black and white.

[Clarkey]

Originally Posted by 1stLand

Plus CMHC Fees which in some cases are $4,000 - $5,000
(when you bought)
You will never recoup this cost. So it is even more painful if you pay $5k to get your mortgage insured and then turn around and sell in a few years.

I think you can get credit for the amount you already paid when you buy your next property. They just charge CMHC on the mortgage difference. There's some stipulations.

[Shazam]

Originally Posted by Clarkey

I think you can get credit for the amount you already paid when you buy your next property. They just charge CMHC on the mortgage difference. There's some stipulations.

The rule is if the down payment is less that 25%, then you pay CMHC. That's it.

[1stLand]

Originally Posted by Clarkey

I think you can get credit for the amount you already paid when you buy your next property. They just charge CMHC on the mortgage difference. There's some stipulations.

Wouldnt that only be so you have a 'portable mortgage' ?
The argument here is that someone would hastily sell their home only after one, or two or three years of owning it, because they are predicting armageddon in the real estate market and will have to rent for a few years and wait it out until the market reaches bottom..... only to buy again once that has occurred.

In that case, that CMHC fee is a sunk cost.
And there is no guarantee the market will come down 20%

The way I see it, every MLX listing I see, I attach a price to it based on what I think it would sell for today.
So when the term '20% drop in prices' comes to mind, I am thinking "Can this price I have in mind on this home go down 20%?"

I am just not seeing it happen.

People forget the 60's, 70's, 80's and even part of the 90's were a different time.

There werent as many dual income households. The norm was usually a stay at home mom situation, or a mother that had a part time job to supplement income.

Today, it is the other way around, there are more women enrolled in post secondary education and the rise in the number of dual income households is astonishing.

Dual income households are going to increase the price of a home a household can afford to purchase, and the amount of debt it can service.

The big jump in prices was in my mind, a correction, to reflect an increase in purchasing power for a typical household in Calgary, plus the advent of 40 year mortgages, and the significant amount of in-migration this province was experiencing, hence the greater demand for homes.

The pendullem swung to far to the right in 2007 and now it has swung back. I just dont see it swinging further left to the point we see a drop of $80,000 on an average $400,000 single family home.

Just my 2 cents

[Slava]

Originally Posted by pepper24

I think it comes down to that homes are still too expensive (ala home prices 4-11 times median income but historically are 3-4 times). This makes me think that we have some more room to drop. Whether it'll be another 20% from current sales is a fair assessment but I think we still have more pain to go over the next while.

Originally Posted by 1stLand

People forget the 60's, 70's, 80's and even part of the 90's were a different time.

There werent as many dual income households. The norm was usually a stay at home mom situation, or a mother that had a part time job to supplement income.

Today, it is the other way around, there are more women enrolled in post secondary education and the rise in the number of dual income households is astonishing.

Dual income households are going to increase the price of a home a household can afford to purchase, and the amount of debt it can service.

I think that this is a really interesting point and probably brings that 4-11 times income figure down to half that in many cases, making the situation not as dire as laid out? Interesting take for sure though.

[Mike Oxlong]

Originally Posted by Shazam

The rule is if the down payment is less that 25%, then you pay CMHC. That's it.

Nope actually that's not it.
If you have a down payment of less than 20% you pay CMHC (or Genworth or Canada Guaranty) fees.

If you sell that house and are moving to another place right away that is more expensive you just pay the difference in the CMHC fees if your downpayment is still less than 20%

CMHC will port your current fees to the new house so you don't get hit twice with them. Even if you move to another lender for the new mortgage the CMHC fees are transferable. You should never have to pay them twice.

[Winsor_Pilates]

Originally Posted by Mike Oxlong

Nope actually that's not it.
If you have a down payment of less than 20% you pay CMHC (or Genworth or Canada Guaranty) fees.

If you sell that house and are moving to another place right away that is more expensive you just pay the difference in the CMHC fees if your downpayment is still less than 20%

CMHC will port your current fees to the new house so you don't get hit twice with them. Even if you move to another lender for the new mortgage the CMHC fees are transferable. You should never have to pay them twice.

Just to add, also certain size homes are subject to CMHC fees. IIRC correctly, it's under 500 sq feet.
Not something you see too much in Calgary, but a lot more common for buyers here in Van, especially first timers.

[Winsor_Pilates]

Originally Posted by AFireInside

Look you can be pretty sure that the market is going to correct, but NOTHING is 100%. Why risk it unless you can make a killing. In my books 20 - 30,000 is not worth it. Maybe it only drops 15%. Maybe it drops 40%. Obviously you know it's damn hard to predict the market. If it were easy no one would make any money. There are potential factors that may not have come up yet that will affect price one way or the other.

I agree, but from everything pepper24 has posted it doesn't sound like he does. That's why I asked.

Of everyone posting in this thread, he seems to be the only one acting 100% confident and absolute with his predictions.
So while I respect a lot of the logic and reasoning beyond money you've presented, I'm still waiting on the answer from the person I asked in the first place.

[Shazam]

Originally Posted by Mike Oxlong

Nope actually that's not it.
If you have a down payment of less than 20% you pay CMHC (or Genworth or Canada Guaranty) fees.

If you sell that house and are moving to another place right away that is more expensive you just pay the difference in the CMHC fees if your downpayment is still less than 20%

CMHC will port your current fees to the new house so you don't get hit twice with them. Even if you move to another lender for the new mortgage the CMHC fees are transferable. You should never have to pay them twice.

Oops, yes, 20%.

[bizaro86]

Another factor that could make a big difference is the RULES surrounding CMHC insurance. When the government restricted rentals to 20% down, that reduced the prices in some complexes where most of the units are rented. If the government decided (as has been rumoured) to try to cool the housing market by raising the minimum CMHC downpayment to 10%, that would have a huge affect on what people could afford, and would probably lower prices as less people could buy.

[hmmhmmcamo]

Here's a paper from Feb 2010 called "The Elusive Canadian Housing Bubble" by some dude at the Schulich School of Business in Ontario.

I've only skimmed through the first few pages but it looks like it could be some interesting reading. (warning: 52 pg pdf)

http://storage.ubertor.com/cl6051/co...ment/11454.pdf

This paper explores the subject of a possible housing bubble in Canada. It examines a diverse array of factors that may have contributed to the rise in house prices in Canada. The paper evaluates each factor individually and determines the health of the Canadian housing market using common valuation techniques.

Results suggest that economic fundamentals in Canada provide little explanation for the Canadian house price dynamics. Market fundamentals have become insignificant in affecting house prices, and the price-momentum conditions characteristic of a bubble now exist. The extreme decoupling of the market prices from the underlying fundamentals suggests an upcoming correction in housing prices in Canada.

[Winsor_Pilates]

Originally Posted by hmmhmmcamo

Here's a paper from Feb 2010 called "The Elusive Canadian Housing Bubble" by some dude at the Schulich School of Business in Ontario.

I've only skimmed through the first few pages but it looks like it could be some interesting reading. (warning: 52 pg pdf)

http://storage.ubertor.com/cl6051/co...ment/11454.pdf

Wait a minute; the article is hosted by Ubertor. A hosting service for real estate agent websites.
No one related to and who profits from the real estate market would ever share information suggesting the market was going to go down!!

[chemgear]

Originally Posted by 1stLand

People forget the 60's, 70's, 80's and even part of the 90's were a different time.

There werent as many dual income households. The norm was usually a stay at home mom situation, or a mother that had a part time job to supplement income.

Today, it is the other way around, there are more women enrolled in post secondary education and the rise in the number of dual income households is astonishing.

Dual income households are going to increase the price of a home a household can afford to purchase, and the amount of debt it can service.

Originally Posted by Slava

I think that this is a really interesting point and probably brings that 4-11 times income figure down to half that in many cases, making the situation not as dire as laid out? Interesting take for sure though.

I could be wrong, but isn't this 4-11 times income . . . household income? Sure, you have dual income and so it goes up - but the ratio is still based on the household living in it. Having dual or single income doesn't really factor into it I think - other than the income being higher everything else being equal.

For example, the demographia report for Q3 2009 distinctly refers to the "household":

http://www.demographia.com/dhi.pdf

Vancouver's "severely unaffordable" is based on the median multiple of 9.3 times househould income (at Q3 2009 - probably a little worse now, for now?)

[David Ginola]

Vancouver's unaffordability is based on the fact that it is the most beautiful city in the world, combined with the fact that it is the only city in Canada that you're not going to freeze your butt off in for at least half of the calendar year.

[Slava]

^I don't know chemgear. I just kind of accepted the 4-11 times figure that was posted in the first place as being accurate and don't know what it's based on really.