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09-25-2022, 07:23 PM
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#382
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First Line Centre
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Quote:
Originally Posted by Slava
Yeah, but let’s be clear; houses weren’t being sold for a dollar. Mortgages were being assumed for a dollar. It’s just a pet peeve of mine. It’s not like you could literally own 100 houses for a $100 bill.
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Your exaggerating. Yes, theoretically you could literally buy 100 houses for $100. providing you had enough collateral to convince the lender it was prudent to do so. I believe there were people purchasing several of them at a time.
I seem to recall in W. Canada at the time, you could legally walk away from mortgages, so while you were assuming the mortgage debt (difference between PV and EV) the liability was often not all that great. You just had to wait until Pierre's disastrous scheme was dismantled, and house price inflation resumed.
I considered purchasing a house up the street from me for $1.00 with an $83,000 dollar mortgage. It was probably worth all of that at the time. The house would be close to a million now, and the mortgage would have been paid off 20 years ago by renting it.
Last edited by flamesfever; 09-25-2022 at 08:08 PM.
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09-25-2022, 08:06 PM
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#383
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Franchise Player
Join Date: Dec 2006
Location: Calgary, Alberta
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Quote:
Originally Posted by flamesfever
Your exaggerating. Yes, theoretically you could literally buy 100 houses for $100. providing you had enough collateral to convince the lender it was prudent to do so. I believe there were people purchasing several of them at a time.
I seem to recall in W. Canada at the time, you could legally walk away from mortgages, so while you were assuming the mortgage debt (difference between PV and EV) the liability was often not all that great. You just had to wait until Pierre's disastrous scheme was dismantled, and house price inflation resumed.
I considered purchasing a house up the street from me for $1.00 with an $83,000 dollar mortgage. The house would be close to a million now, and the mortgage would have been paid off 20 years ago by renting it.
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There’s no exaggeration. You literally could not buy a house for a dollar. You got the debt with that, so that house was say $83,001. Of course that seems like a steal 40 years later. But houses for $250k around 2000 also seem like a steal.
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09-25-2022, 09:03 PM
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#384
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First Line Centre
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Quote:
Originally Posted by Slava
There’s no exaggeration. You literally could not buy a house for a dollar. You got the debt with that, so that house was say $83,001. Of course that seems like a steal 40 years later. But houses for $250k around 2000 also seem like a steal.
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People were panicking...money was flying out of the country, and jobs were disappearing. Many of the houses, that sold for a dollar, were actually worth close to the equity value in the house. And when you consider that worse come to worse, you could always walk away from the mortgage, your overall liability was negligeable.
You can sit here and debate about how much you know about the situation in the 80s, but you have to live through it to imagine just how ludicrous the situation really was.
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09-25-2022, 09:23 PM
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#385
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Franchise Player
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Quote:
Originally Posted by flamesfever
Your exaggerating. Yes, theoretically you could literally buy 100 houses for $100. providing you had enough collateral to convince the lender it was prudent to do so. I believe there were people purchasing several of them at a time.
I seem to recall in W. Canada at the time, you could legally walk away from mortgages, so while you were assuming the mortgage debt (difference between PV and EV) the liability was often not all that great. You just had to wait until Pierre's disastrous scheme was dismantled, and house price inflation resumed.
I considered purchasing a house up the street from me for $1.00 with an $83,000 dollar mortgage. It was probably worth all of that at the time. The house would be close to a million now, and the mortgage would have been paid off 20 years ago by renting it.
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If it was as easy as renting it to cover the mortgage, why didn't the walkers just do that?
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09-25-2022, 10:02 PM
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#386
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First Line Centre
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Quote:
Originally Posted by powderjunkie
If it was as easy as renting it to cover the mortgage, why didn't the walkers just do that?
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I guess that may have been a consideration for some. However, when you have high inflation, high interest rates, job insecurity, restrictive borrowing, and an unpredictable and weak economy, then reducing your debt becomes your prime motivation. My guess is, as the house prices decreased, and the EV approached or became lower than the PV, people started to panic.
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09-26-2022, 05:49 AM
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#387
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Franchise Player
Join Date: Dec 2006
Location: Calgary, Alberta
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Quote:
Originally Posted by flamesfever
People were panicking...money was flying out of the country, and jobs were disappearing. Many of the houses, that sold for a dollar, were actually worth close to the equity value in the house. And when you consider that worse come to worse, you could always walk away from the mortgage, your overall liability was negligeable.
You can sit here and debate about how much you know about the situation in the 80s, but you have to live through it to imagine just how ludicrous the situation really was.
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All of that can be true and still no one was actually buying a house for $1.00. It just never happened.
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10-07-2022, 06:36 PM
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#389
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Franchise Player
Join Date: Sep 2005
Location: Toronto, Ontario
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Does the BOC truly march to their own drummer or does what they do largely follow what the US Fed does? If they do the latter, I'd think it's their view, moreso than the absolute path. Having said all this I'm looking forward to housing coming down more in the GTA here because it's been so high since the pandemic.
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10-07-2022, 07:14 PM
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#390
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Franchise Player
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I think they have to follow the US fed to some degree or it will crush our dollar.
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10-08-2022, 06:38 AM
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#391
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Franchise Player
Join Date: Jun 2004
Location: Calgary
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I'm not sure how far we need to keep going with the interest rates. The annual inflation rate continues to read as a big number because of the massive run up between December and May. Even if we keep inflation to 0 in the next few months the inflation reports will still show larger numbers until those big jumps are flushed out of the calculation.
If we look at the numbers from May 2022 through August 2022 the annualized increase in the total CPI is 1.84% which is within the target range.
With OPEC boosting the price of oil we may see that jump back up again though.
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10-08-2022, 06:46 AM
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#392
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Franchise Player
Join Date: Dec 2006
Location: Calgary, Alberta
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Quote:
Originally Posted by Dan02
I'm not sure how far we need to keep going with the interest rates. The annual inflation rate continues to read as a big number because of the massive run up between December and May. Even if we keep inflation to 0 in the next few months the inflation reports will still show larger numbers until those big jumps are flushed out of the calculation.
If we look at the numbers from May 2022 through August 2022 the annualized increase in the total CPI is 1.84% which is within the target range.
With OPEC boosting the price of oil we may see that jump back up again though.
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Yeah and to add to this, rents lag because tenants sign say a one year lease. I think shelter makes up about 7% of CPI (can’t be bothered to look this up right now!), so it would appear elevated despite a decline.
And of course, a rate increase takes time to work through the system, which was part of the reason they tried to “front-load” the hikes this past summer. I think we see another CPI reading this week though, so that could give a little more information to consider. The jobs report (and particularly the wage segment) indicates that they’d continue to hike rates though.
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10-08-2022, 06:50 AM
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#393
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Franchise Player
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Quote:
Originally Posted by Slava
Yeah and to add to this, rents lag because tenants sign say a one year lease. I think shelter makes up about 7% of CPI (can’t be bothered to look this up right now!), so it would appear elevated despite a decline.
And of course, a rate increase takes time to work through the system, which was part of the reason they tried to “front-load” the hikes this past summer. I think we see another CPI reading this week though, so that could give a little more information to consider. The jobs report (and particularly the wage segment) indicates that they’d continue to hike rates though.
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Rents only make up 7% of the overall CPI
https://www150.statcan.gc.ca/n1/pub/...017001-eng.htm
Any declines in rent over time are likely offset by mortgage interest cost increases which is 3.5%
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10-08-2022, 06:58 AM
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#394
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Franchise Player
Join Date: Dec 2006
Location: Calgary, Alberta
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Quote:
Originally Posted by GGG
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Lol, doesn’t my post say I think shelter makes up about 7%?
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10-08-2022, 08:45 AM
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#395
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Franchise Player
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I saw this article this week and I thought it was interesting although I'm definitely not smart enough about inflation to fully understand what it completely means aside from the potential allegation that we might not really have a good measure for inflation.
Quote:
Canadian economists are scrambling for a reliable measure to track underlying inflation as large and frequent revisions have dented the credibility of a key Bank of Canada yardstick, even as the central bank said it was sticking with its core measures.
Canada's central bank has three preferred measures of core inflation - CPI-common, CPI-median and CPI-trim. CPI-common, once touted as the best gauge of the economy's performance, has been subject to repeated revisions since the start of this year.
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https://www.reuters.com/markets/us/i...es-2022-10-04/
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10-08-2022, 11:21 AM
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#396
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Powerplay Quarterback
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Quote:
Originally Posted by Slava
Yeah and to add to this, rents lag because tenants sign say a one year lease. I think shelter makes up about 7% of CPI (can’t be bothered to look this up right now!), so it would appear elevated despite a decline.
And of course, a rate increase takes time to work through the system, which was part of the reason they tried to “front-load” the hikes this past summer. I think we see another CPI reading this week though, so that could give a little more information to consider. The jobs report (and particularly the wage segment) indicates that they’d continue to hike rates though.
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You would also have to consider that a lot of rental rates were dropped during covid, so the baseline is somewhat misleadingly low as some of those rates may not have yet recovered to pre-pandemic levels.
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10-08-2022, 09:51 PM
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#397
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Franchise Player
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Quote:
Originally Posted by Slava
Lol, doesn’t my post say I think shelter makes up about 7%?
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Shelter is 26 which includes rent and mortgage interest and other things. But that doesn’t really matter as my point was that increases in mortgage interest are going to offset decreases in rent so expecting the shelter component of CPI to drop in the near future may not be accurate.
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10-10-2022, 08:10 AM
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#398
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Lifetime Suspension
Join Date: Jul 2012
Location: North America
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10-10-2022, 08:44 AM
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#399
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Franchise Player
Join Date: Dec 2006
Location: Calgary, Alberta
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Quote:
Originally Posted by GGG
Shelter is 26 which includes rent and mortgage interest and other things. But that doesn’t really matter as my point was that increases in mortgage interest are going to offset decreases in rent so expecting the shelter component of CPI to drop in the near future may not be accurate.
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The biggest correlation with shelter costs is wages, not interest rates. Basically, the US fed (and to some extent the BoC) wants to see job losses and/or wage decreases. When we see data like this past week where the employment figures are stronger it gives the impression there are more rate increases to follow for that reason.
In other words, it’s not that interest rate increases are going to offset decreases here. It’s that (a) shelter historically lags by about 12 months and (b) we need to see higher unemployment and reduced wage growth to really bring down shelter costs. That second point is not something popular and not something you want politically if you’re in the midst of midterms , but that’s the harsh reality.
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10-10-2022, 09:04 AM
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#400
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Franchise Player
Join Date: Mar 2002
Location: Auckland, NZ
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When interest rates go up, who gets the additional interest? The banks? As profit?
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