Options for Home Downpayment?

[hmmhmmcamo]

Originally Posted by Rerun

Everybody is talking about what a bad investment real estate has been in the USA. Guess what folks.... most of us don't live in the USA.
I doubt you will find anywhere in Canada where re investment has crashed like it has south of the border.

...gotta love the old "it's different here" argument.

Here is my really simple view on things - please correct me where I'm wrong.

Real estate crashed in the US due to creative lending schemes (like subprime) that allowed many people to qualify for mortgages that they had no business qualifying for. Property values peaked and starting falling, interest rates jumped up, and suddenly people are underwater because their property was now worth less than what they paid for it. The combination of not being able to afford the new payments combined with not being able to refinance there mortgage (or sell) because of the value drop = forclosure.

Why can't the same thing happen in Canada? We have the same people stretching themselves so thin with massive mortgages on way over valued properties, all while interest rates are at historically low levels. What happens to these people when interest rates rise here over the next couple years?

Our financing regulations are way different. Totally different kettle of fish.

How so? Please elaborate because I'm not not seeing what speciffically is different here and how it's going to prevent our massivly inflated real estate market from crumbling.

Just look at the one example in this thread. Someone is looking to get a second property/mortgage but doesn't have the required down payment. What followed were several different ways people have/have heard of getting around the rules/requirements for a down payment.

[1stLand]

There are plenty of buyers that have taken out a mortgage based on Canada's current low variable rates.

I hope they have done their homework and realize what their payments will be once the rate rises 3 or 4% in a few years time........

[Regorium]

Originally Posted by Slava

While I "disgust" you I'm still going to take the time to respond. Feel free to show one example of where an advisor has posted that you should be buying at the top here. I can't think of a single time when an advisor has said this, but would be happily proven wrong.

Well, here's you saying buy in Aug 2007. (Near the top)

http://forum.calgarypuck.com/showthr...ghlight=invest

Then stop in Jan. 2008 (other advisors still recommending buy) - so halfway down:

http://forum.calgarypuck.com/showthread.php?t=53296

Not going to drag up two other threads but you did make good calls on buying when it was really low, and buying January this year (halfway up). My statement wasn't that far off actually.

So the Aug 2007 was a bad call but the call to stop in early 2008 was masterful. Going through your post history, it's very clear you've made far more right calls than bad ones, and I must have lumped your advice with that of others. As you know, there's always a cacophony of "BUY" from your whole industry.

Since you seem to attack my post earlier about the 1200% retrn you should know that was a statement of fact. I didn't tell anyone to buy anything and instead was saying that If you had purchased at that point this was the result. I'm not sure how that was misunderstood!

Obviously your post is accurate from a factual basis, but it means nothing. I could say "If you invested in Coca Cola 30 years ago, you would be rich." Does that make me a great financial advisor? You were using that statement to show that stocks were a great investment compared to real estate. It would be far better to show that in the last year the index has recovered and home prices have not, which you (and I) have also said in this thread. I feel many financial advisors and analysts pick and choose their best performers to make a point, while disregarding the hundreds of poor picks, and poor timing of statements. As I said earlier, your track record is quite good, and I do backtrack and apologize should you feel like it was directed at you. The industry as a whole, however, is extremely poor, which is the basis of my rant. (shows evidence that you need a GOOD advisor!)

As far as the "do you know how ridiculous you sound" comment just feel free to put me on ignore. Frankly I know that the service that I and fellow advisors provide to clients is valuable, worthwhile and in many cases completely necessary for people. It extends far beyond which stock to buy at which time and instead helps people change their entire financial picture for the better.

Fair enough. Perhaps I should've directed the rant towards investment bankers and hedge fund managers rather than financial advisors.

[Cowboy89]

Originally Posted by Regorium

Fair enough. Perhaps I should've directed the rant towards investment bankers and hedge fund managers rather than financial advisors.

How have investment bankers and hedge fund managers wronged you?

[Regorium]

Originally Posted by Cowboy89

How have investment bankers and hedge fund managers wronged you?

This whole recession?

[Cowboy89]

Originally Posted by Regorium

This whole recession?

I didn't know it was investment bankers and hedge fund managers that encouraged people to take on mortgages that they had no business servicing.

[pepper24]

Originally Posted by Rerun

Everybody is talking about what a bad investment real estate has been in the USA. Guess what folks.... most of us don't live in the USA.
I doubt you will find anywhere in Canada where re investment has crashed like it has south of the border. Our financing regulations are way different. Totally different kettle of fish.

I'd be interested in seeing what the stats are for Canadian real estate values and Canadian stocks over the past 20 years say.

Plus... when I sell my primary residence, I don't have to pay Capital Gains tax on it. Plus you don't have to be an investment guru to understand real estate like you do the stock market. IMHO, stock investment is a suckers game. Mostly only the rich insiders make the big money. By the time the average Joe hears about a good investment, its way too late.

I'll stick with a house that I can see and live in, property that I can stand on, and a place thats all my own and nobody can kick me out of (if I pay my bills).

I doubt you will ever find one millionaire who is a renter but I bet you will find millions who are real estate investors.

Below is some info I posted earlier about how the stock market has greatly outperformed the housing market in the US. It was data from 1980 to 2004 and for Canada we would have similar results.

I think the lesson is that one should have a goal of owning a house but don't go overboard. It should be a way of life, not an investment. Don't get house poor, don't buy more house than you need. Diversify and do other investments such as stocks. Don't have all your wealth tied into more house than you can afford because you're missing out on better returns. I disagree that stocks are for the rich and tough to invest in. The S&P 500 as per below follows the general US market and you can buy easily via index and exchange traded funds. Low fees, easy to invest in and very liquid. You can get similar investments in Canada and other parts of the world. Very passive strategy.

I also don't buy the arguement that the super rich have made their money on real estate. The richest and 3rd richest men in the world (Slim and Buffet) have lived in their houses for 20+ years. They have made their fortune by investing in companies via the equity markets.

http://www.forbes.com/2005/05/27/cx_sc_0527home.html

Where's a better place to put your money: the stock market or real estate? These days the accepted wisdom (at least at cocktail parties) says to pick real estate. But is the accepted wisdom right?

It is--in the short term. U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index dipped nearly 6% during that same period.

But if you take a longer view--say 25 years--you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sale prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

[Regorium]

Originally Posted by Cowboy89

I didn't know it was investment bankers and hedge fund managers that encouraged people to take on mortgages that they had no business servicing.

You can argue a whole number of reasons that started this whole thing. Yours is absolutely valid. So is the fact that bankers and managers speculated and leveraged like there was no tomorrow.

You can also argue that the fact that 0% down 40 year mortgage sub-prime adjustable rate products were offered by the financial industry absolutely encouraged people to take on mortgages that they had no business servicing.

The tougher regulations in Canada is to prevent these types of products from appearing. So I would say that the government agrees that these products are too much encouragement for the average person.

[hmmhmmcamo]

I hope this thread isn't dying...there's been some good conversation/debate going on.

Plus there are still a few people that have some elaborating to do....

[yads]

Originally Posted by Rerun

Plus... when I sell my primary residence, I don't have to pay Capital Gains tax on it. Plus you don't have to be an investment guru to understand real estate like you do the stock market. IMHO, stock investment is a suckers game. Mostly only the rich insiders make the big money. By the time the average Joe hears about a good investment, its way too late.

So are you planning to live on the street when you sell your primary residence? Most likely you're going to buy in the same market that you sold in, thereby netting you a negative return with transaction costs. Also if that's how you think stock markets work, then you probably should just pump your money into your house, since it's like, as a previous poster alluded, a forced savings plan.

[chemgear]

I don't know about you, but I'm going to sell my corner loft and buy a Lamborghini Murcielago. I'll move back home if I have to.

Oh and for the "it's different here" thingy:

http://www.greaterfool.ca/2010/03/02...ifferent-here/

[Rerun]

Originally Posted by yads

So are you planning to live on the street when you sell your primary residence? Most likely you're going to buy in the same market that you sold in, thereby netting you a negative return with transaction costs. Also if that's how you think stock markets work, then you probably should just pump your money into your house, since it's like, as a previous poster alluded, a forced savings plan.

You missed a very important component to my plan...

Then..... I'll sell it and retire to some cheap ass South American country where I can buy a hacienda on the beach for peanuts and have servants that I only have to pay $5 per day to look after me, my house, and my mistress...

Then it will be Hasta luego Calgary and Buenos dias to my new beach house...

[Mike Oxlong]

The Canadian housing situation is far different than what happened in the US.

Not that we haven't seen a correction is prices as we obviously have over the last few years but that is what Real Estate cycles do. Prices rise, and they fall, then they rise again, and so on and so on. Long term though prices do climb. Housing will be more expensive 20 years from now than it is today.

However, the Canadian lending model is far more stable and secure than the US.
In the States they were giving out what they called NINJA loans They stood for No Income No Job or Assets. Really they were giving anyone who would sign a mortgage on a house. In addition to these Ninja loans banks were offering teaser rate mortgages. Basically how they worked was the first couple years of a clients mortgage was at some ridiculously low rate like 1 or 2%. After a couple years they rate increased to a ridiculously high rate of like 8 or 9%.

The banks qualified these people at the low teaser rate and many people were buying WAY more house than they could afford. Once these interest rates reset to the 8 or 9% people just simply couldn't afford the monthly payments on these mortgages anymore. That's when the foreclosures started.

With that many foreclosres on the market it just crushed property values and more and more people were walking away from their homes.

How the bankers didn't see these problems coming I really don't know. I can't believe they would have allowed these lending practices. That's what caused the mess we have seen over the last few years.

Now I am not arguing that there aren't people in Canada who haven't spread themselves a little thin on their mortgages and could be in trouble if rates do happen to rise. However the lending practices in Canada were never as liberal as they were down in the US. Our controls were far tighter and lending guidelines far stricter. I just don't see us having anywhere near the foreclosures that the US had.

A couple years ago the government took steps to avoid some issues by getting rid of 40 year ammortizations as well as zero down mortgages. Again this spring they have announced changes to try and prevent people from getting in over their heads by making people qualify at the 5 year posted rate for any mortgage term less than 5 years or any variable rate mortgage.

Not that Canada doesn't have some overpriced markets but I really don't see any bubble at all.

Land is at a premium. They aren't making it anymore. Even a city like Calgary that has lots of room to expand has limits. The worlds population continues to increase every day, shelter is one of man's essential needs. Canada is one of the most desirable places in the world to live, we have tons of people immigrating to Canada every year. When they get here they need somewhere to live. There will always be a demand for land and housing.

As far as wealth being created by Real estate goes, 90% of the worlds wealth has been created through Real Estate. If you are smart about it and in it for the long term owning Real Estate is a fantastic way to make money.

Sure stocks and other investments have a place in your portfolio as well and I am not saying they don't offer you great returns. However Real Estate is a very solid investment for the long term.

Keep in mind people who are making money in Real Estate are not making it through their primary residences. Unless you are downsizing, the equity appreciation you gain on your primary residence is just on paper. However, if you own rental properties you can earn passive income monthly through cash flow, equity appreciation by someone paying off your mortgage for you as well as the long term appreciation of the property. Not to mention there are things you can do to the property to increase it's value. (Build a garage, renovate, paint the exterior, landscape) It is a tangible investment that the investor can somewhat affect pricing on. You can't do that with stocks (unless you are a huge shareholder)

I think for a lot of people the stock market is intimidating. Myself included, I really don't know what shares to buy and what I should be looking for in companies that are good buys. One Oil company might be a great buy while the next one might be terrible. With Real Estate the entire market for an area generally moves as a whole. You can see when property values all over Calgary are rising and when they drop indicating good deals. Of course you still need to do your due dilligence and identify properties that are the best deals or have the most potential, but for me I just prefer that tangible asset.

[chemgear]

Hmmm, looks like some analysts believe interest rates will go up even before July. (I still think July based on the political fallout of their "promise.") Fun times ahead!

http://www.financialpost.com/news-se...tml?id=2685381

[Mike Oxlong]

Originally Posted by chemgear

Hmmm, looks like some analysts believe interest rates will go up even before July. (I still think July based on the political fallout of their "promise.") Fun times ahead!

http://www.financialpost.com/news-se...tml?id=2685381

No surprise rates are going to climb. Everyone is expecting that. They are historic lows right now and obviously aren't going to stay here forever.

People have to keep in mind they aren't going to jump up to 10% overnight. It is going to be a fairly gradual climb and I really don't think they are going to get that high anyways.

Just because rates are rising doesn't mean this "bubble" is going to burst and there are going to be foreclosures all over Canada. It's just natural for them to rise now that we are climbing out of this recession.

[chemgear]

An interesting read, note the date when the statements were made.

http://www.washingtonpost.com/wp-dyn...102602255.html

Oopsie with hindsight.

[GreenLantern]

So right now I am looking into buying my first place, which will be a condo for around the $150k price range. (Here in Stoon that gets you into a decent place).

Is this 20% DP regulation expected to drop the pricing of houses?

[Mike Oxlong]

Originally Posted by GreenLantern

So right now I am looking into buying my first place, which will be a condo for around the $150k price range. (Here in Stoon that gets you into a decent place).

Is this 20% DP regulation expected to drop the pricing of houses?

The 20% down payment is only for rental properties. Primary residences still only require 5% down.

I don't think it will affect pricing too much at all really.

[Winsor_Pilates]

Originally Posted by GreenLantern

So right now I am looking into buying my first place, which will be a condo for around the $150k price range. (Here in Stoon that gets you into a decent place).

Is this 20% DP regulation expected to drop the pricing of houses?

The part that will effect you is you will have to qualify for a 5 year rate. This is a healthy way for you to go anyway, and I wouldn't recommend buying what you can afford on a variable rate, but not on a 5 year.
I don't see this effecting pricing, especially in the spring, but if you buy in the summer you might save a little.

[seattleflamer]

Originally Posted by Rerun

Everybody is talking about what a bad investment real estate has been in the USA. Guess what folks.... most of us don't live in the USA.
I doubt you will find anywhere in Canada where re investment has crashed like it has south of the border. Our financing regulations are way different. Totally different kettle of fish.

.

I do live in the States and have property in both countries. The reality is both countries are very similiar but have different names for it. In the US, these Adjustable Rate Mortages (ARMs) products are equivalent to Canadian mortages in that they are short term fixed rate (5 years and less). A popular "long term" mortgage in Canada is 5 years with a 25 year amortization. In the States, the standard for a long term mortgage is fixed rate for 30 year amortization. People in the US got into trouble confusing and abusing these teaser ARM rates as 30 year fixed rates.

US Interest Only loans are equivalent to the Canadian 40 year amortized loan where you essentially don't pay any principal for 10 years but the same thing as a 30 year I/O loan where you don't pay any principal for 10 years and then readjusts to P/I in the 10th year.

The Canadian financial regulation system protects the banks from losses and passes all the risk and costs to the consumer. In the States, competition protects the consumer assuming the consumer does their due diligence and reads the fine print (which didn't happen for many people unfortunately.)

It wasn't too long ago that the Canadian banks wanted to merge to compete with American banks and now these same banks tout themselves as bastions of financial common sense.

The Canadian system really screws over the consumer and I'm afraid it will be the Canadian consumer absorbing most of the losses from any potential bubble rather than the banks.