Jim Flaherty and mortgage rates

[Maccalus]

Originally Posted by Cowboy89

That's actually the point, housing is only unaffordable for first time buyers to buy with a good downpayment because we have a government insurance corporation essentially subsidize buyers to bid up house prices with other peoples money. This system forces many middle class people to essentially use their house as their only means of wealth and retirement fund because many cannot both save for retirement and buy a house.

This is 100% true, but it has been around for 40+ years now. With all the money wrapped up in it, it will probably take another 40+ years for us to unwind it without causing significant economic damage. This is assuming we can get housing prices to flatline until inflation can catch up and tighten up mortgage rules at the same time. I doubt that this will happen until everything does actually blow up.

[Red]

Originally Posted by MarchHare

We did save for nearly five years (to get even 10% down, we both had to liquidate our RRSPs using the Home Buyers' Plan). If we needed 20% down, it would have been another five years of saving on top of that (10 years total). Instead, we bought our home with 10% down and have been building equity in it ever since instead of throwing away money every month by renting.

If it takes a couple10 years to save 50/60K then you must not be making a lot or you are spending too much. Either way, a case can be made that you can't really afford a house.

[Cowboy89]

Originally Posted by MarchHare

"Back in the day of sanity" housing prices weren't rising significantly faster than the rate of inflation. It's now all but impossible for "most youngins" to save 20% down.

That chart for the US from the 1800s to present looks exactly the same except for the last 5 years when house prices dropped back closer to the rate of inflation.

For the record I'm not predicting an imminent 50% crash in Canadian Real Estate, but I'm fairly confident that the excess price gains of the past decade are exactly that, in the past. The fundamentals do not go around to continue to support that trend forevermore into the future. If it were true then we all should leverage ourselves to the hilt and buy 20 houses if we can.

An economy based on selling each other houses at ever increasing values funded by government insured mortgage debt doesn't continue on forever and that's exactly why Flaherty and the Bank of Canada are trying to hammer home buyers while keeping the Bank of Canada overnight rate low. They want households to stop taking on more leverage (Because households are overleveraged in Canada) but they also want businesses, large and small to have access to cheap funding (because businesses have very healthy balance sheets and they want to spur more capital investment).

[MarchHare]

Originally Posted by Red

Cheap credit made this insane increase possible. RE typically keeps up with inflation. What you have seen in the last 10 years is not the norm. Youngins need to realize that and be patient instead of being stupid and jumping in to huge mortgages for shoeboxes. It is not a requirement to own a house before you are 30 years old. Gen Y is so entitled sometimes......

I was waiting for someone to break out the "Gen Y is so entitled!" line. Gen Y (which I don't even belong to, btw) did not create this situation. Cheap credit and a huge emphasis placed on the importance of home ownership are products of the baby boom generation.

And while it may not be a requirement to own a house before one is 30, it's certainly financially prudent for many people. I'm not sure if you've looked into the price of renting in Calgary recently, but it's barely a cost savings vs. buying a home instead. Why 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?

[jar_e]

Originally Posted by Red

If it takes a couple10 years to save 50/60K then you must not be making a lot or you are spending too much. Either way, a case can be made that you can't really afford a house.

How does one "not afford a house"? If you can make your payments, I don't see how its not affording it. Is it not smart financially? Debatable, but people "afford" houses all the time when you're implying they can't.

[Red]

Originally Posted by fotze

It may be magic how he does it but Marchhare is currently affording his house.

With a 3% interest rate anyone with a pulse can "afford" a house.

[Red]

Originally Posted by jar_e

How does one "not afford a house"? If you can make your payments, I don't see how its not affording it. Is it not smart financially? Debatable, but people "afford" houses all the time when you're implying they can't.

He is making the lowest payment ever. Next renewal will be more expensive and then one after that could be even worse. 3% interest rates are not going to be here forever.

[jar_e]

Originally Posted by Red

He is making the lowest payment ever. Next renewal will be more expensive and then one after that could be even worse. 3% interest rates are not going to be here forever.

It sounds like MarchHare (if that's who you're referring to) is expediting his mortgage to be paid off in 10 years. That's impressive in any recent time, regardless of generation.

[Red]

Originally Posted by MarchHare

I was waiting for someone to break out the "Gen Y is so entitled!" line. Gen Y (which I don't even belong to, btw) did not create this situation. Cheap credit and a huge emphasis placed on the importance of home ownership are products of the baby boom generation.

And while it may not be a requirement to own a house before one is 30, it's certainly financially prudent for many people. I'm not sure if you've looked into the price of renting in Calgary recently, but it's barely a cost savings vs. buying a home instead. Why 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?

I agree with that under normal conditions. We have had a bubble fueled by cheap credit and that bubble is about to burst. Just like it did all over the world.

[MarchHare]

Originally Posted by Red

With a 3% interest rate anyone with a pulse can "afford" a house.

Since 2007, I have:

a) Never missed a mortgage payment
b) Made several lump sum payments directly against the principal to pay off my mortgage faster
c) Saved 10% of my gross salary to my RRSP account (plus my employer contributes another 5%)
d) Invested the $5,000 annual maximum to my TFSA

So no, I can't "afford" my home; I really can afford it. And I'm not even a member of the CalgaryPuck $100k Salary Club.

[Tinordi]

You need to drill down to the city level to get a better understanding. Vancouver is set for a 30-60% correction based on the fundamentals, Toronto similar. Calgary with solid employment and rents seems to be set up for not as big of a correction.

Anyway, the thing with bubbles of any asset class is that they always collapse under their own weight. Housing in Canada is no different.

[Red]

Originally Posted by jar_e

It sounds like MarchHare (if that's who you're referring to) is expediting his mortgage to be paid off in 10 years. That's impressive in any recent time, regardless of generation.

Everybody on the internet is either mortgage free or about to be.

My comments are not directed at MH. More of a general young people observation.

[Red]

Originally Posted by MarchHare

Since 2007, I have:

a) Never missed a mortgage payment
b) Made several lump sum payments directly against the principal to pay off my mortgage faster
c) Saved 10% of my gross salary to my RRSP account (plus my employer contributes another 5%)
d) Invested the $5,000 annual maximum to my TFSA

So no, I can't "afford" my home; I really can afford it. And I'm not even a member of the CalgaryPuck $100k Salary Club.

Sounds like saving that 20% downpayment would be such a problem. No?

What are we fussing about then?

[MarchHare]

Originally Posted by Red

He is making the lowest payment ever. Next renewal will be more expensive and then one after that could be even worse. 3% interest rates are not going to be here forever.

This is absolutely false. When we bought our home in 2007 (pre-recession), interest rates were much higher than they were when we renewed last year. We also elected to increase the amount of our bi-weekly payments several times so as to pay off the mortgage faster.

[The Yen Man]

Originally Posted by Red

If it takes a couple10 years to save 50/60K then you must not be making a lot or you are spending too much. Either way, a case can be made that you can't really afford a house.

I guess I disagree. I'd rather put 10% down and carry a mortgage over renting. Currently in Calgary, to rent even a basement suite you're looking at $1,000+ per month. Why would you pay money to help someone else mortgage their property when you can have it go towards your own?

Some people keep harping (and some I swear cheering for) a housing crash in Calgary. Yes, house prices will go down if that happens. But that's not going to be good for anyone, because that would probably mean Calgary's economy is tanking.

[Red]

Originally Posted by fotze

Ya, they will go lower like Japan.

This is like the chemgear the sky is going to fall sometime thread. Seems like we have been arguing about the interest rates going up for the past 10 years and they just keep going down. I don't pretend to know why, but no matter how many people say they are going to go up, year after year, they don't.

These rates are ridiculous. 2.69% 5 year fixed, that blows my mind. Last time I was in the market it was ~5.4%. This almost makes me want to get a mortgage.

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.

[seattleflamer]

Originally Posted by Red

Cheap credit made this insane increase possible. RE typically keeps up with inflation. What you have seen in the last 10 years is not the norm. Youngins need to realize that and be patient instead of being stupid and jumping in to huge mortgages for shoeboxes.

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...

[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.

[Red]

Originally Posted by The Yen Man

I guess I disagree. I'd rather put 10% down and carry a mortgage over renting. Currently in Calgary, to rent even a basement suite you're looking at $1,000+ per month. Why would you pay money to help someone else mortgage their property when you can have it go towards your own?

Some people keep harping (and some I swear cheering for) a housing crash in Calgary. Yes, house prices will go down if that happens. But that's not going to be good for anyone, because that would probably mean Calgary's economy is tanking.

I am not saying it's good or bad. I am just saying that people would be wise to take that in to consideration. People that max out on cheap mortgage not only hurt themselves long term, but also hurt others by inflating prices.

[MarchHare]

Originally Posted by Red

Sounds like saving that 20% downpayment would be such a problem. No?

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?