*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[MillerTime GFG]

These variable rates are 5-year terms remember, so they may not be in as bad shape as most people think. They (2021 VRM holders) did very well in the first 1-1.5 years, but will be much higher for the next year to year and a half. That still leaves another ~2 years on their term where rates will very likely go back down as we head into this manufactured recession.

[OutOfTheCube]

Never been a better time to be in the middle of term on a fixed rate mortgage...

[Azure]

Originally Posted by DoubleF

The stat was for 2021. I was thinking the same thing at first. Someone taking a variable rate in 2021 doesn't seem out of the ordinary IMO. We didn't get hints of rate hikes until very late 2021 and early 2022. Anyone who took a variable rate any time in 2022 while maxing out their leverage is a complete buffoon though.

Someone in 2021 with a variable rate mortgage should be relatively OK though, even if they're annoyed. Enough down payment float and they bought at the lowest vs the 2022 housing FOMO spike.

The other thing that boggles my mind, and this is really about grade 11 economics.

We had a red hot housing market before COVID.
Then COVID hit and the government had to spend a bunch of money to keep things going.
Grade 11 economics would probably tell you that about 1-2 years after that money is spent and the purse strings tighten up, we are likely due for major inflation. Which would equal interest rate increases.

Therefore it would make prudent sense around July of 2021 to think about going fixed rate.

I personally know people as well that had the ABILITY to go fixed rate 3%, went variable instead, didn't bother paying attention, and are now paying variable 5%+.

Crazy.

[MillerTime GFG]

Originally Posted by Azure

My original question was also ignored.

Do people honestly believe Toronto & Vancouver housing prices were driven by actual demand and not external shady circumstances?

Why is Vancouver SO much higher than Montreal? Calgary? And why has it been higher for so much longer than other cities in Canada? Where is the money coming from that is driving that insane demand?

https://www.mpamag.com/ca/business-n...A-DB3FF4CE2FC9

For 13 years straight, urban consultancy Demographia has named it the continent’s most expensive place for housing. The cost of owning a home in Vancouver, including interest payments on a mortgage, now sits at a staggering 90% of the city’s median income, according to the Royal Bank of Canada. Yet officials and experts couldn’t agree on the cause, let alone a solution.

Until now.
Suddenly, out of a municipal election, a consensus is forming: housing isn't expensive because of foreign money sloshing into the city. The problem is simply that there aren't enough homes. The answer: rezone and build more.

[BlackArcher101]

Originally Posted by shermanator

People who over leveraged on cheap money are in for some trouble...

The amount of times I was called stupid for not taking advantage of it was staggering. So I feel no remorse for people who may get caught out in it.

[afc wimbledon]

Being the only place in Canada that doesn't freeze in winter and is also by the beach next to the pretty mountains is going to make it pretty much always about the most desirable place to live in Canada, add to that free money for mortgages spurring almost endless market stimulation for 20 years and you easily get a 640k studio, it still makes more sense than crypto and people dumped billions into that

[tvp2003]

It's hard for me to criticize -- unless you've owned a property for more than 10 years, you've probably never seen an interest rate above 4% let alone 5% or more.

But yes, there was seemingly nowhere for interest rates to go but higher -- negating a lot of the upside of going variable. In my case I had the option of renewing for a 4-year term versus a 5-year term (both fixed); I ended up doing 5 years even though it meant paying a little more -- we'll see how that turns out.

[powderjunkie]

Originally Posted by DoubleF

The stat was for 2021. I was thinking the same thing at first. Someone taking a variable rate in 2021 doesn't seem out of the ordinary IMO. We didn't get hints of rate hikes until very late 2021 and early 2022. Anyone who took a variable rate any time in 2022 while maxing out their leverage is a complete buffoon though.

Someone in 2021 with a variable rate mortgage should be relatively OK though, even if they're annoyed. Enough down payment float and they bought at the lowest vs the 2022 housing FOMO spike.

Did 'we' really think in 2021 that there weren't going to be any economic repurcussions? I don't think you needed an iota of financial acumen to recognize that status quo wasn't a very likely outcome.

[Azure]

Originally Posted by powderjunkie

That's the $640k studio question. I think that positive feedback loop could easily emerge without any nefarious intervention (of which there is obviously some, but I'm skeptical that it's truly a root cause).

I'd ask the opposite...why is it not possible that demand simply >>>> supply?

Supply will play a part, obviously. But I'd say the Vancouver & Toronto market is probably 20-30% over the top because of a few things.

Money Laundering
Foreign Investments
Corporate Investments
Zoning Stupidity (rich single unit owners making sure rental units can't be built in their area, whereas other cities were zoning for this)
Stupidity about thinking you can buy any real estate and make 30% returns in one year. Higher it pumps, the more idiots invested.

[DoubleF]

Originally Posted by Azure

My original question was also ignored.

Do people honestly believe Toronto & Vancouver housing prices were driven by actual demand and not external shady circumstances?

Why is Vancouver SO much higher than Montreal? Calgary? And why has it been higher for so much longer than other cities in Canada? Where is the money coming from that is driving that insane demand?

I thought he answered your question though... sprawl. And to a certain extent, yes. Actual demand. Temporary FOMO demand, so the demand will crash once the FOMO momentum is gone, but still demand none the less.

Toronto and Vancouver don't have the ability to spread out further. Toronto is already surrounded by other areas that limit the city's ability to expand. You'd be in a different jurisdiction past the Toronto limits. This isn't the same case as other cities like Calgary, Edmonton, Montreal (I believe), Ottawa etc. There's space to go further out. Vancouver is similar to Toronto but geographical before hitting the other cities. Both have spent a lot gentrifying their centres spiking prices. Those charts are nuts showing 30-40% for BC and Ontario whereas the other provinces are in the single digits.

Lots of the money is not purely shady such as asset parking of several years ago. It's debt. I know of many friends in Toronto and Vancouver whose parents with paid off houses that have shot up in value since they were purchased decades ago, pulled out huge HELOC loans to help down payment on their kids' expensive homes. They also typically guaranteed their kid's loans too.

Another huge factor that I noticed locally too, is foreign source wages paid to people who WFH in the Calgary and Edmonton area. I don't know the real numbers, but it seems like there's a lot of people in Calgary who are working from home/getting more work from the US while maintaining residence here. This is a huge difference and a major boon for many people here who were without jobs for a while due to the local recession. This helped to spur a lot of housing purchases in the area, especially as many started upsizing their home to address long term WFH outlooks.

[blankall]

Originally Posted by Azure

My original question was also ignored.

Do people honestly believe Toronto & Vancouver housing prices were driven by actual demand and not external shady circumstances?

Why is Vancouver SO much higher than Montreal? Calgary? And why has it been higher for so much longer than other cities in Canada? Where is the money coming from that is driving that insane demand?

It's both. Investors only enter a market in large numbers when they think it's profitable. There has to be high demand to create the circumstances for investors to profit.

The idea that, long term, investors alone will result in a market is false. If that were the case, why weren't they snapping up all the property in Regina? Because they will only profit from investing if its in a market where natural demand is likely to sustain investment.

And yes, the demand for housing is extremely high in both Vancouver and Toronto. My own experience buying a home in Jan-Feb of 2021 was that every house would have dozens and dozens of people viewing with 10-20 offers made the next day. The vast majority of people I saw viewing were people aged 30-45, many with a young kid(s) and many with their own parents.

Vancouver and Toronto both simply do not have enough housing units to accommodate their populations. Vancouver and Toronto are both cities that have more demand than other cities in Canada. They have also not done anything to accommodate their low housing supply for several decades, and the problems are boiling over.

Vancouver also has horrid zoning for a city of its size. Land is kept artificially scarce via permitting, the ALR, and Nymbyism. On top of that, they do have their own geographic restrictions, being surrounded by ocean and mountains. They can't just build a new suburb, the way Calgary can.

Montreal is a bit of an exception, as they have much better zoning and city structure than either Toronto or Vancouver. Montreal is a high demand city, but not as in demand as Vancouver and Toronto.

You can alleviate some pressure by removing investors and launderers from the equation, but things are far beyond that now. There's not enough housing full stop.

[Azure]

Originally Posted by MillerTime GFG

https://www.mpamag.com/ca/business-n...A-DB3FF4CE2FC9

Sure, supply is a major issue.

But in Vancouver I doubt that it is the 'biggest' issue.

Didn't prices fall quite a bit once the foreign tax was introduced, but in Toronto where no tax was applied, prices just kept shooting up.

The percentage of foreign buyers might be low, but not all buyers are the same, and someone with 'money', will drive prices up fast even if only being 1 out of 10 buyers.

[Monahammer]

Originally Posted by OutOfTheCube

Never been a better time to be in the middle of term on a fixed rate mortgage...

my term ends mid 2024 lol... REALLY hoping that we start seeing rate decreases by then

[afc wimbledon]

Originally Posted by tvp2003

It's hard for me to criticize -- unless you've owned a property for more than 10 years, you've probably never seen an interest rate above 4% let alone 5% or more.

But yes, there was seemingly nowhere for interest rates to go but higher -- negating a lot of the upside of going variable. In my case I had the option of renewing for a 4-year term versus a 5-year term (both fixed); I ended up doing 5 years even though it meant paying a little more -- we'll see how that turns out.

It's been 30 years since we have seen over 6%, that's beyond practical living memory for almost everyone, no one is paying attention to interest rates and housing markets at 10 or 15 years old, my generation, 60 and above, are the only ones that remember, albeit briefly on our first mortgage, rates in the 10 and 15% range.

For almost everyone in Canada's/Vancouvers lifetime housing has only ever gone up and you could never lose money, the more a house cost the more money you made

[blankall]

Originally Posted by DoubleF

I thought he answered your question though... sprawl. And to a certain extent, yes. Actual demand. Temporary FOMO demand, so the demand will crash once the FOMO momentum is gone, but still demand none the less.

I disagree with the characterization that it's just FOMO. That does cause temporary spikes, but it's not as though. Vancouver has frequent "adjustments", but I doubt we'll ever see that major crash. There's just too much demand and too much money in Vancouver. If houses ever came down to half of what they are now, people would just drive up with barrel full of cash.

Unless something drastically changes to alter the demand for housing in Vancouver, the limited supply of housing will always be in high enough demand to keep things from truly crashing.

[DoubleF]

Originally Posted by powderjunkie

Did 'we' really think in 2021 that there weren't going to be any economic repurcussions? I don't think you needed an iota of financial acumen to recognize that status quo wasn't a very likely outcome.

I agree with your hindsight, but disagree that the 2021 foresight was logical.

I'm financially literate and I keep up to date on things. There was no way I was expecting us to more than double the rates from 2021 to 2022. Others were the same and if you suspected that in 2021, most people would have likely called you paranoid.

The issue wasn't that we didn't expect rates to go up. It was that in 2021 we didn't expect it to "at worst" go up more than 1-2% total in 2022. We are currently exceeding that 2% "super worst case scenario" that most people probably thought and still moving up.

Yes, some of the lunacy of that time was also that "why park your cash and pay 1.2% less when you can easily make 10-20% on the market in a few weeks or months?" Those investments crashed AND many people technically took on extra leverage to do it... it was a double whammy.

[DoubleF]

Originally Posted by blankall

I disagree with the characterization that it's just FOMO. That does cause temporary spikes, but it's not as though. Vancouver has frequent "adjustments", but I doubt we'll ever see that major crash. There's just too much demand and too much money in Vancouver. If houses ever came down to half of what they are now, people would just drive up with barrel full of cash.

Unless something drastically changes to alter the demand for housing in Vancouver, the limited supply of housing will always be in high enough demand to keep things from truly crashing.

Oh, it's not just FOMO. I agree. But I do think a decent sized portion is from FOMO. FOMO is probably a bigger thing in Calgary. Lots of people saw the metoric rise, got excited, sold, then blew out the rental market for cheap rentals.

For my friends in Vancouver and Toronto though, I did see a lot of FOMO too, but many didn't fully admit that it was FOMO. Many lived in decent housing and never really expressed short term interest to upsize or move more central, but as the prices went crazy, they leveraged their existing places/converted them to rentals to nab bigger places. Many had expressed they might do that one day, but I was surprised at the amounts throwing bids during some recent periods. A few who were "I will rent forever" to suddenly announcing they purchased a place during the bidding war periods. I was hearing quite a few anecdotes of people in Vancouver and Toronto cashing out during these times and moving to Calgary nearly mortgage free with extra. Since they were WFH and rarely left home, why not?

Originally Posted by Azure

Sure, supply is a major issue.

But in Vancouver I doubt that it is the 'biggest' issue.

Didn't prices fall quite a bit once the foreign tax was introduced, but in Toronto where no tax was applied, prices just kept shooting up.

The percentage of foreign buyers might be low, but not all buyers are the same, and someone with 'money', will drive prices up fast even if only being 1 out of 10 buyers.

It definitely happened in Calgary. I was chatting with people who moved to Calgary in 2022. They'd cash out their million+ dollar townhomes in Vancouver/Toronto and come here to a significantly upgraded home priced between $600-800K, add $100-150K to ensure they get it (thinking things worked the same here as there) and still have money left over for flights, fun, vehicles etc.

[opendoor]

Originally Posted by Azure

The other thing that boggles my mind, and this is really about grade 11 economics.

We had a red hot housing market before COVID.
Then COVID hit and the government had to spend a bunch of money to keep things going.
Grade 11 economics would probably tell you that about 1-2 years after that money is spent and the purse strings tighten up, we are likely due for major inflation. Which would equal interest rate increases.

Therefore it would make prudent sense around July of 2021 to think about going fixed rate.

I personally know people as well that had the ABILITY to go fixed rate 3%, went variable instead, didn't bother paying attention, and are now paying variable 5%+.

Crazy.

Not necessarily. There was just as much money injected into the system in 2007-2009 and there was virtually no inflation (in fact they were worried about deflation for a while). Current inflation likely has more to do with the recovery happening too quickly, to the point where shuttered production capacity and supply chains weren't able to catch up to the demand that returned so quickly. It has taken 4-6 years for jobs to recover to their pre-recession levels in the prior 2 recessions, but it happened within 2 years of COVID's recession.

Going fixed in 2021 made sense because the floor for variable rates was barely below what was being offered, so there wasn't a whole lot of upside in return for the risk of a rate increase. Because there was virtualy zero chance of variable rates dropping, effectively you could trade a ~0.5% higher rate (which represents a 4-5% increase in payments) for a guarantee of low rates for 5 years. That's very cheap insurance.

[powderjunkie]

Originally Posted by DoubleF

I agree with your hindsight, but disagree that the 2021 foresight was logical.

I'm financially literate and I keep up to date on things. There was no way I was expecting us to more than double the rates from 2021 to 2022. Others were the same and if you suspected that in 2021, most people would have likely called you paranoid.

The issue wasn't that we didn't expect rates to go up. It was that in 2021 we didn't expect it to "at worst" go up more than 1-2% total in 2022. We are currently exceeding that 2% "super worst case scenario" that most people probably thought and still moving up.

Yes, some of the lunacy of that time was also that "why park your cash and pay 1.2% less when you can easily make 10-20% on the market in a few weeks or months?" Those investments crashed AND many people technically took on extra leverage to do it... it was a double whammy.

I guess I'm saying that I thought it was dumb to hazard an 'educated guess' at that time. Uncertainty seemed obvious. If I had to hazard a guess I'd see a pretty simple bell curve with 'modest increase' (whatever that means) at the peak. Attach whatever shape you want, but in my mind it was:

25% - status quo = variable slight win
50% - small increase = it's a wash
25% - bigger increases = variable slight to massive lose

There was just so much more risk than reward at the fringes.

[pseudoreality]

When I went fixed in 2021 my logic was that rates didn't have a lot of room to go down, but could go way up. It seems like a smart move now, but again I also went fixed in 2007 and lost some opportunity there.