Mortgage stress test rules

[MoneyGuy]

Originally Posted by blankall

I fully support the stress test, as it's simply just forcing people to take precautions they should take anyways. The stress test is, in my opinion, not the reason for the market cooling either., nor even a major contributor. Vancouver and Toronto are cooling due to decreased foreign capital inflow. Calgary is cooling due to low oil prices.

Fully, as in every bit of it?

[blankall]

Originally Posted by Scroopy Noopers

I agree with the first half of this.

The issue with the “cooling” due to decrease foreign capital inflow, is that foreign capital inflated prices to begin with. They shouldn’t have been driven up to the level they’re currently at. This is the problem.

I agree 100%. Real estate prices have had a devastating effect on the economy and society here in Vancouver. There's been a mass exodus of young people, particularly those looking to start families. A large portion of the old privately run businesses have shut down. It's impossible to find good staff anywhere.

This is part of a larger societal problem in Canada right now, where an entire younger generation is being denied access to capital and their wages are not in line with the cost of living/capital. The Canadian economy is not in a good place right now, and due for a major correction.

The answer to economic problems for the last 15 years or so, has been to implement policies that kick the problem further down the road. We're now in a position where's there's not really a way to deal with the problems without short term pain.

[squiggs96]

Originally Posted by Hockey Fan #751

So in a city like Vancouver where there are virtually no homes under $1 million, what do you do?

There are approximately 1,200 homes in Vancouver proper under $1,000,000 right now. If you include metro Vancouver, but exclude the Valley (Langley, Abbotsford, Maple Ridge, etc.), there are about 7,500 homes under $1,000,000.


For context, there are about 4,000 homes priced between $1,000,000 and $2,000,000 in the same metro Vancouver area, excluding the valley, and 14,000 homes overall. So, a little more than half of the homes for sale in this area are under $1,000,000. I wouldn't say virtually no homes are under $1,000,000.

[OMG!WTF!]

I'm glad we didnt have these stupid rules when I was a kid. In my day we just paid our 6% and were happy to do it. Stress test this and qualify that. Pfft.

[stone hands]

Originally Posted by PsYcNeT

House poor is probably the most easily avoidable form of poor, and yet people are so bad about buying to the top of their affordability that we need rules like this to get them to pump the brakes.

Sad.

We went into our appointment for our mortgage with a clear number in mind based on our budget and savings goals, 300,000. The bank said we were approved for 550,000.

Seeing as how we are rational, we said no thanks. Unfortunately most people i talk to have no idea what their monthly expenses actually are, so if the bank tells them "Yeah you are approved for x" then they think x is what their mortgage should be. It really is sad. I have thought for a long time that (not that high school kids will listen anyways) financial planning should be something taught in school so people dont ruin their lives with debt they can't afford

[afc wimbledon]

Originally Posted by stone hands

We went into our appointment for our mortgage with a clear number in mind based on our budget and savings goals, 300,000. The bank said we were approved for 550,000.

Seeing as how we are rational, we said no thanks. Unfortunately most people i talk to have no idea what their monthly expenses actually are, so if the bank tells them "Yeah you are approved for x" then they think x is what their mortgage should be. It really is sad. I have thought for a long time that (not that high school kids will listen anyways) financial planning should be something taught in school so people dont ruin their lives with debt they can't afford

When I wanted to do some extensive renos on my east van shack I asked for an extra 200,000, I was approved for, without asking, a million 'just in case' was never asked what the money was for other than me volunteering 'its for a renovation', half of its actually sitting in investments in case I get the chance to buy out my fathers lease in London, again they don't care at all. The only real question they had was how fast did I need the money.

One of my less than savy soccer mates took out money to buy himself a Porsche, the banks in Vancouver just didn't care, this was a couple of years ago and things may have changed if the market has flatlined

[Fire]

Of course realtors are complaining, because it's less business for them. They are totally not biased at all. The slowing down on the house market now is a lot better than a crash in 5-10 years.

[bizaro86]

Originally Posted by MillerTime GFG

A $500,000 detached home that will rent for $1,700? Yea I feel like that is pretty cherry-picked. Certainly not the case for homes I've come across.

I had a client buy a $388,000 downtown condo, which is a completely over-saturated market, rented out for $1,700.

I will attest there may be more of a gap in today's economy/market than what we're accustomed to.

It isn't linear at all though. I have an inner city condo rented for $1450/month, that would be worth probably $230k.

The lower you get in price point the better deal owning tends to be.

[OMG!WTF!]

Rent vs own totally depends on property values. A lot of people have seen no gain in property value in the last 10 years in Calgary. I don't really see much reason to own yet.

[Weitz]

A lot of Canada’s economy and people’s retirements are based on real estate always increasing in value. To really try and affect that will have huge effects on this country.

[afc wimbledon]

Originally Posted by OMG!WTF!

Rent vs own totally depends on property values. A lot of people have seen no gain in property value in the last 10 years in Calgary. I don't really see much reason to own yet.

And your age, there is little point in first time buying once you are over 50, it takes to long to swallow the fees, taxes and start to see equity build up

[you&me]

Originally Posted by OMG!WTF!

Rent vs own totally depends on property values. A lot of people have seen no gain in property value in the last 10 years in Calgary. I don't really see much reason to own yet.

This is the crux of it.

Whoever said renting returns 0% wasn't accounting for the equity component of owning that, as you said, in Calgary for the last 10 years has basically been stranded, non-producing capital.

20% on an average house is about $100k. From an investment standpoint, Calgary real estate would not have been my first choice as a place to park $100k over the last 10 years... It would be worth roughly, um, $100k today (not even going to factor in property taxes and upkeep)... That's horrendous.

I may be biased because we're currently renting while we find the right opportunity to build. Our original intention was to buy, but when we couldn't find the goldilocks home, we started looking at rentals.

At first it felt a little strange to be renting at this stage in life, but I've come to appreciate certain advantages we're experiencing. For one, we're in a slightly nicer (probably ~20% more expensive) home than what we sold, but our monthly nut is a little under 1/2 of what it had been paying; we're well under what an typical mortgage payment would be and there are savings from property taxes and other ownership costs that aren't ours to bear now.

On top of that, the equity freed up from the sale of our last place has been far more productive, which feels nice.

Lots talk of the intangible benefits to owning a home, usually the "security", but unless you're mortgage free, that whole "security" thing seems a little suspect to me. On the flip side, I now feel a certain intangible "freedom" knowing that most every part of our living situation is more, um, liquid now.

Obviously there are compromises to renting which is ultimately why we're still looking to buy - that's what it will take to get us everything we want & need in a home for our family. But we're also ok with our current circumstances and not in a rush, which is an entirely different feeling from when I was a first time home buyer and got out of renting. I'm sure there's a FOMO component to all of this, but with how things are right now, I'm please to sit back and cheery pick an opportunity.

[Weitz]

^^ value in a home though isn’t just quantified in making money though. The appreciation is nice but having $500k in an asset is nice too. I karge portion of people who rent for 25 years won’t have $500k in savings.

You always need a place to live so it changes the economics a bit.

[GGG]

Originally Posted by Weitz

^^ value in a home though isn’t just quantified in making money though. The appreciation is nice but having $500k in an asset is nice too. I karge portion of people who rent for 25 years won’t have $500k in savings.

You always need a place to live so it changes the economics a bit.

This is a behavioural choice. Owning provides forced savings. With the ease that HELOCs are handed out now I'm not sure that homeowners in general will have a 500k asset in 25 years either.

[Robbob]

Originally Posted by you&me

This is the crux of it.

Whoever said renting returns 0% wasn't accounting for the equity component of owning that, as you said, in Calgary for the last 10 years has basically been stranded, non-producing capital.

20% on an average house is about $100k. From an investment standpoint, Calgary real estate would not have been my first choice as a place to park $100k over the last 10 years... It would be worth roughly, um, $100k today (not even going to factor in property taxes and upkeep)... That's horrendous.

I may be biased because we're currently renting while we find the right opportunity to build. Our original intention was to buy, but when we couldn't find the goldilocks home, we started looking at rentals.

At first it felt a little strange to be renting at this stage in life, but I've come to appreciate certain advantages we're experiencing. For one, we're in a slightly nicer (probably ~20% more expensive) home than what we sold, but our monthly nut is a little under 1/2 of what it had been paying; we're well under what an typical mortgage payment would be and there are savings from property taxes and other ownership costs that aren't ours to bear now.

On top of that, the equity freed up from the sale of our last place has been far more productive, which feels nice.

Lots talk of the intangible benefits to owning a home, usually the "security", but unless you're mortgage free, that whole "security" thing seems a little suspect to me. On the flip side, I now feel a certain intangible "freedom" knowing that most every part of our living situation is more, um, liquid now.

Obviously there are compromises to renting which is ultimately why we're still looking to buy - that's what it will take to get us everything we want & need in a home for our family. But we're also ok with our current circumstances and not in a rush, which is an entirely different feeling from when I was a first time home buyer and got out of renting. I'm sure there's a FOMO component to all of this, but with how things are right now, I'm please to sit back and cheery pick an opportunity.

I have been an owner for about 20. Lucky enough to get in before the boom and have a decent amount of equity in my home. My wife and I are starting to warm to the idea of moving closer to downtown and rent and take our equity and invest it. We figure that return in 10 years would be better than the property value increase for a condo (unless there is another boom).

I figure any saving on rent could also be rolled into savings/investing.

[Weitz]

Originally Posted by GGG

This is a behavioural choice. Owning provides forced savings. With the ease that HELOCs are handed out now I'm not sure that homeowners in general will have a 500k asset in 25 years either.

Well you just confirmed what I said?

Are HELOCS that popular? I’m not so sure.

[Winsor_Pilates]

Originally Posted by blankall

The stress test is, in my opinion, not the reason for the market cooling either., nor even a major contributor. Vancouver and Toronto are cooling due to decreased foreign capital inflow. Calgary is cooling due to low oil prices.

The stress test is a major player in the cooling of Vancouver and the number 1 reason for collapsed sales.

Speculation tax, vacant homes tax, foreign buyer's tax & most of all buyer psychology also all play a part.
The government has basically just added as many taxes as possible to slow down the Vancouver market and most buyers are trying to time the bottom.

But, it's all temporary IMO and people expecting major price corrections or a long term drop won't see it (for most areas and price points).

[GGG]

Originally Posted by Weitz

Well you just confirmed what I said?

Are HELOCS that popular? I’m not so sure.

Maybe,

I am saying that a renter can put the difference in money between rent and mortgage into an investment account and at the end of a 25 year period have a 500k asset. This is the same as a homeowner can use Helocs and never actually pay off the Mortgage.

We have a weird situation where the cost of renting appears to be less than the cost of ownership it certain segments of the market.

The concept of I don't want to pay the Landlords mortgage doesn't really exist in this free access to borrowing world we live in.

[you&me]

Originally Posted by Robbob

I have been an owner for about 20. Lucky enough to get in before the boom and have a decent amount of equity in my home. My wife and I are starting to warm to the idea of moving closer to downtown and rent and take our equity and invest it. We figure that return in 10 years would be better than the property value increase for a condo (unless there is another boom).

I figure any saving on rent could also be rolled into savings/investing.

Everyone's situation is different, from the amount of equity in their homes, to what requirements they have for their next home (move up, down, sideways), to the risk tolerance and investment prowess and market conditions. And all of this can change from year to year.

My MIL is in a somewhat similar boat - She's recently retired from O&G, widowed and an empty nester in a large, suburban fully paid off house (purchased 20 years ago) and she would like to downsize. She's familiar enough with the O&G sector and the current situation and is now reconsidering her original intent to purchase a condo or town home. I'm telling her the same thing - rent for now & see what happens. If (when? Please be when!) the economy turns around and the market picks up, she's liquid and ready to make a purchase. In the meantime, she's got extra cash to invest and further cushion her retirement, rather than dump it into an under-performing asset (Calgary real estate).

[blankall]

Originally Posted by Winsor_Pilates

The stress test is a major player in the cooling of Vancouver and the number 1 reason for collapsed sales.

Speculation tax, vacant homes tax, foreign buyer's tax & most of all buyer psychology also all play a part.
The government has basically just added as many taxes as possible to slow down the Vancouver market and most buyers are trying to time the bottom.

But, it's all temporary IMO and people expecting major price corrections or a long term drop won't see it (for most areas and price points).

I very much disagree with this. Even without a stress test, locals were not affording to buy detached houses, which were literally starting at 1.5 million for a tear down. Foreign investment was the major driver of the crazy market.

China cut down on capital outflows, and the market dried up instantly. It's also why the market dried up internationally, at the exact same time. Australia, NYC, London, Paris, San Francisco etc... are all seeing the exact same slowdown.

I agree that we won't see those ultra-cheap prices in Vancouver everyone is hoping for. However, that crazy price jump that occurred about 2 years ago is going to be wiped out. Prices will head down towards where they were in 2014-2015. Already prices are down over 20% for detached.