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Old 04-06-2022, 10:01 AM   #1521
Vinny01
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I read an article today about how many are discouraged and hesitant to enter the housing market due to immediate uncertainty due to inflation, and the ridiculous market many Canadian cities are dealing with. I wonder as we shift out of the pandemic lifestyle if we don’t see a return to people valuing where they live more than the house they live in.

Covid really saw a spike in people wanting detached homes with spaces for offices, gyms, and a yard where you can spend a lot of time outdoors.

I was lucky the pandemic didn’t have a negative impact on mine or my wife’s job so in 2020 we saved a lot of money which helped us put together a downpayment for a house. We moved in 2021 and focused on spending money on furnishing and doing some small upgrades to the new place. Now in 2022 we are already shifting to planning vacations and trips as we have not had the chance to do so in the past. My wife is heading to California for the second time this year, we have booked Vegas in June, and looking at a Disney trip in the fall (I am also budgeting for a long playoff run with the Flames where tickets will be costly). If we were still deep in the pandemic I think our focus would be on improving our backyard which could use an expensive renovation.

I just wonder if we do not see a rebound from the condo market and less demand for housing once society fully adjusts to the post pandemic lifestyle? Living in a two bedroom condo close to downtown where there is a small commute and more night life may become more appealing than having a 3-4 bedroom townhouse/house with a 45 min+ commute to downtown especially if the WFH option is limited or removed
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Old 04-06-2022, 10:40 AM   #1522
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The real question is how high do interests rates need to go in order to slow/stop inflation, and whether this triggers the largest housing crash in humanities history.

From 1975-1990 the BOC 5 year fixed posted rate did not fall below 10%. It wasn't until 1995 that BOC 5 year rates hit 8.5% and continued on a trend down.

https://www.ratehub.ca/5-year-fixed-...e-rate-history

However, almost anyone who has lived through the Canadian housing boom of the last 25 years didn't own a home during high interest timeframes. (Or are almost in retirement, etc)

How the Fed can balance inflation vs the increased debt load Canadians hold especially in their homes will be very interesting over the next 18 months.

I use to think the Fed could never raise interests rate very much due to the immediate destruction of the highly leveraged Canadian households. However, if inflation keeps rising they are out of tools in their toolboxes

A lot of people may get an economics 101 lesson before the end of 2023.
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Old 04-06-2022, 10:43 AM   #1523
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Originally Posted by Vinny01 View Post

Covid really saw a spike in people wanting detached homes with spaces for offices, gyms, and a yard where you can spend a lot of time outdoors.
While that probably accelerated things in the short term, Cliff is right about the demographics. People who are starting families always and everywhere will want more space.
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Old 04-06-2022, 10:43 AM   #1524
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Haven't most high risk mortgages in the past several years had to pass the stress test of about 5%? I imagine rates won't really get higher than 5 or 6%, so in theory, buyers should be capable of handling it.
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Old 04-06-2022, 10:53 AM   #1525
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Haven't most high risk mortgages in the past several years had to pass the stress test of about 5%? I imagine rates won't really get higher than 5 or 6%, so in theory, buyers should be capable of handling it.
Why do you think rates will only go that high? Because in most people's lifetime they haven't seen it higher...

US 30 year rates passed 5% yesterday. They were 3% in Dec.

If inflation doesnt slow down what other tool do you think the Fed has?

They will have to choose between crashing housing or destroying the low and fixed income earners with inflation

And even if people can afford it to a certain extent, this increase in 'costs' takes disposable $$ out of the economy and directs it at their mortgage, and we plunge into a recession, requiring interest rates to drop and inflation to kick back up

Last edited by Jason14h; 04-06-2022 at 10:59 AM.
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Old 04-06-2022, 11:05 AM   #1526
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Why do you think rates will only go that high? Because in most people's lifetime they haven't seen it higher...

US 30 year rates passed 5% yesterday. They were 3% in Dec.

If inflation doesnt slow down what other tool do you think the Fed has?

They will have to choose between crashing housing or destroying the low and fixed income earners with inflation

And even if people can afford it to a certain extent, this increase in 'costs' takes disposable $$ out of the economy and directs it at their mortgage, and we plunge into a recession, requiring interest rates to drop and inflation to kick back up
So how high do you think they will go? 10%? 20%? I just don't see it happening. 5-7%? Sure, that's possible. The last time it was as high as 7% was 1995. Economists have learned a lot since then.

Last edited by Fuzz; 04-06-2022 at 11:07 AM.
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Old 04-06-2022, 11:13 AM   #1527
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I think a lot of this "I just can't see interest rates going that high" sentiment is wishful thinking. A lot of us own homes on this board and most of us will probably have to come to the realization that we're getting screwed some way or another in the next 5 years or so.
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Old 04-06-2022, 11:16 AM   #1528
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So how high do you think they will go? 10%? 20%? I just don't see it happening. 5-7%? Sure, that's possible.
Well from what I was reading the US threshold for 'panic' and people running into refinancing problems is when the 30 year hits 5.75%

Canadian were able to get 2% fixed or even lower variable mortgages for the past 5 years. On a $500K mortgage that is monthly payments of $2100

At 5% renewal that goes up to $2900

At 7% $3500

At 10% $4500

The problem is the exponential increase in monthly costs/amount needed to furnish the interest

How high do I think it will go? I have no clue. No one does. I predict the next 18 months will be one of the most interesting (and terrifying) economic periods in Canadian history.

Hopefully inflation slows with the planned BoC rate rises over the next year and bond rates slow for fixed mortgages don't hyper inflate in rates and we see variable and fixed Mortgage rates stabilize between 4-5.5%

However, if inflation doesnt yield to rate increases...Look out

It is actually easier in some ways to stimulate the economy then slow down the economy. Especially one where the country is addicted to debt, as Canada is
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Old 04-06-2022, 11:18 AM   #1529
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That's just wrong. There are 140 homes for sale on realtor.ca in Calgary right now under $400,000.

Literally the first one I looked at is a completely respectable home to raise a family in:
https://www.realtor.ca/real-estate/2...gary-shawnessy

Here's another closer to downtown if you'd rather trade a bedroom for location:
https://www.realtor.ca/real-estate/2...escent-heights

There are still affordable homes available but people's expectations have changed.

We wanted a single family home and wanted to be able to walk downtown so our price point put us in a small 2 bedroom bungalow. We're raising a family here just fine. One day I was doing some work on the house and found some old photos from the 60s. Guess what? The photos were a family with kids and they raised a family here too.

The argument of not being able to buy a home at $350k and raise a family is flawed when the very same homes that many calgarians grew up in are available at that price point.
I'm sure there are cheaper homes out there but....

Your example #1:

Floor space: 967 sqft

It's listed as having 4 bedrooms, and the photos look okay, but I guarantee you that if you were to look at this property, the rooms would be tiny, and this place would be barely liveable. Also, if you're moving all the way out to Shawnessy what's the point of buying a 967 sqft property? The worst of both worlds. No space and a large commute.

This house is also on an odd shaped lot, and the left side of the house borders a railway and a bunch of power lines. The property is so small, there's no room for a driveway. The property is literally just some left over space between the adjacent lot and the railway.


Your example #2:

Quote:
Attention Builders! Fantastic Opportunity to own a MC1 zoning 25'x120' lot in the Heart of Crescent Heights! Ideal opportunity to build that dream home in this great inner-city neighborhood of Crescent Heights. Located between Edmonton Trail and Centre Street on a quiet tree-lined street. The existing bungalow has 2 bedrooms, kitchen, living room, laundry and a 4pc bath. Don't Miss out. Call today! (25239008)
This is a tear down that is being advertised for lot value. In other words you need to have another 500k to actually build a liveable house on the plot.


In any market there will always be outlying problem properties that will sell well below market value. IMO both of these properties you've listed fit into that category.

I think your argument that people need to work harder and lower their expectations is complete BS. There's something fundamentally wrong with the system. A dual income household should have no problem affording basic housing. We've gone from a system where a single income house could easily afford a relative large and liveable space, to a system where a dual income household can afford..... a 970 sq foot place in Shawnessy on a partial lot....that is immediately adjacent to a railway...great....


Edit:

As an added bonus 2 Shawglen Way SW has a giant green electrical box in your front yard. So no letting your kids play in the front yard unattended either.

Last edited by blankall; 04-06-2022 at 05:42 PM.
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Old 04-06-2022, 11:23 AM   #1530
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They will have to choose between crashing housing or destroying the low and fixed income earners with inflation
I think you are right about this looming tradeoff, but wrong about who the Canadian government will ultimately be protecting. I think the government will be giving inflation a lot of room to run in the hopes that it simply slows of its own accord before cratering housing prices.
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Old 04-06-2022, 11:26 AM   #1531
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I think a lot of this "I just can't see interest rates going that high" sentiment is wishful thinking. A lot of us own homes on this board and most of us will probably have to come to the realization that we're getting screwed some way or another in the next 5 years or so.
What do you mean "getting screwed"? Interest rates are at rock bottom levels, and have been for years. Everyone has been warning to expect higher rates one day. Well that day is coming. No one is getting "screwed" by rising interest rates, anymore than we are getting "screwed" by inflation. Everyone has been getting a sweet deal for so long, they forget this isn't normal. I think my first mortgage rate was around 5.5%.
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Old 04-06-2022, 11:26 AM   #1532
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I think you are right about this looming tradeoff, but wrong about who the Canadian government will ultimately be protecting. I think the government will be giving inflation a lot of room to run in the hopes that it simply slows of its own accord before cratering housing prices.
Potentially, but their actions on raising rates faster and by full half points aren't suggesting that

The risk is the longer inflation goes on, that higher rates need to keep going.

Almost better to shock the system and stop it (In theory) and then start slowly lowering rates again
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Old 04-06-2022, 11:32 AM   #1533
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What do you mean "getting screwed"? Interest rates are at rock bottom levels, and have been for years. Everyone has been warning to expect higher rates one day. Well that day is coming. No one is getting "screwed" by rising interest rates, anymore than we are getting "screwed" by inflation. Everyone has been getting a sweet deal for so long, they forget this isn't normal. I think my first mortgage rate was around 5.5%.
You may be able to handle a rate increase to 6% or higher, but do you think most canadian households are in the same boat? And when that shoe drops, will you be ok with your property value dropping along with it?
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Old 04-06-2022, 11:35 AM   #1534
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You may be able to handle a rate increase to 6% or higher, but do you think most canadian households are in the same boat? And when that shoe drops, will you be ok with your property value dropping along with it?
That's the point, they should be. And my property value has gone up and down over the years, I don't care. Lower value would help people get into homes. Baffling that you think low interest rates are a given, and it's some no-go zone to raise them to a more typical range.
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Old 04-06-2022, 11:35 AM   #1535
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Potentially, but their actions on raising rates faster and by full half points aren't suggesting that

The risk is the longer inflation goes on, that higher rates need to keep going.

Almost better to shock the system and stop it (In theory) and then start slowly lowering rates again
Possibly, but real-world inflation hasn't made sense economically for quite some time now throughout the Western world. It should've been much higher than it was for most of the past two decades according to basic macroeconomics, and yet it... just wasn't. I think the government will be betting heavily on that peculiar feature of modern economies to return.

Also - our banks. Canada's true masters.

I should add that I think these interest rate hikes of a full half point ARE the shocks. That's it, that's all they've got. Maybe a few more, but there will be a point where the risks are too great.
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Old 04-06-2022, 11:36 AM   #1536
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You may be able to handle a rate increase to 6% or higher, but do you think most canadian households are in the same boat? And when that shoe drops, will you be ok with your property value dropping along with it?
Personally, I would love it. I have very little sympathy for somebody who overbought without factoring in the near-certainty of eventual interest rate hikes.

I would also like property values to come down. Once you're in the market with no plans of exiting, what do you care if the prices comes down (other than those guys who would be underwater, but still, that's just on paper if you're going to be in the market for the long term)? My kids are in their teens now. I'm more focused on wanting a downward price correction so they and all the other young people shut out of the market will have an opportunity at home ownership.
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Old 04-06-2022, 11:37 AM   #1537
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Same here. I own my house and I wouldn't mind housing prices dropping at all (even significantly). The current situation is simply untenable in the long term, as you cannot have a healthy society with such high housing insecurity.
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Old 04-06-2022, 11:50 AM   #1538
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I should add that I think these interest rate hikes of a full half point ARE the shocks. That's it, that's all they've got. Maybe a few more, but there will be a point where the risks are too great.
Yeah, it's quite possible that raising interest rates won't be all that effective in curbing inflation. If it's being largely driven by low supply/high prices for things with inelastic demands (energy, commodities, etc.), then how much effect is an interest rate hike really going to have? The downsides of higher interest rates might not be worth the benefit right now.

The whole thing is stupid. There's is absolutely no reason that central banks shouldn't have been raising interest rates in the 2014-2019 period to build in some buffer room when it was needed. It didn't take a genius to predict that sustained low rates when they weren't really needed was going to result in some serious issues down the road.
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Old 04-06-2022, 11:52 AM   #1539
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That's the point, they should be. And my property value has gone up and down over the years, I don't care. Lower value would help people get into homes. Baffling that you think low interest rates are a given, and it's some no-go zone to raise them to a more typical range.
I think there's a misunderstanding.

I agree that there isn't a no-go interest rate zone. Understand rates will go as high as they need to and us home owners need to be comfortable with higher mortgage payments and lower equity.

The over leveraged households that bought $1.3 million homes in Toronto on a $150k salary using their parents money for down-payment won't be so lucky.
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Old 04-06-2022, 11:59 AM   #1540
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The whole thing is stupid. There's is absolutely no reason that central banks shouldn't have been raising interest rates in the 2014-2019 period to build in some buffer room when it was needed. It didn't take a genius to predict that sustained low rates when they weren't really needed was going to result in some serious issues down the road.
This. We're always so dumb.
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