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Old 04-04-2015, 12:02 PM   #41
Matata
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I lean more to the European theory, a day will come when it takes a family 75-100 years to payoff a piece of property, mutli-generation homes will become normal, and people will have to put major reinvestment into their family property every 25-30 year.

Its probably going to take a big change in the way our banking system views lending.

Really it is too bad for all of us that were teenagers in '99, because not having the chance to buy property before then put us way behind where we could have been.
Not all Europeans lean that way. The German model has their government regulating home prices and development, which has lead to economic stability and has freed a great deal of their nations wealth and resources from being tied up in real estate:

http://www.forbes.com/sites/eamonnfi...posed-to-do/2/

A generation ago, a home was closer to the equivalent of 1 years salary for the new home buyer, now it's closer to 10-20 times the salary. We've seem to have agreed, as a society, that a home is a financial burden we should carry our whole lives. The majority of a homes value is in the cultural perception of it's value and cultural perception is a tricky thing that is capable of dramatic change within a single generation. Taking a 75-100 year mortgage based on good faith in cultural perception and stable economic growth seems like madness to me.
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Old 04-04-2015, 12:07 PM   #42
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I don't think it really matters what you 'think' will happen, housing prices are still a concern. Family debt is as well.
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Old 04-04-2015, 12:16 PM   #43
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The US fed has already signaled they are raising rates, eventually Canada will have to follow or we will have a 50 cent dollar, then it's hello 1980s again. We all will be in for a rude awakening.
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Old 04-04-2015, 12:43 PM   #44
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The US fed has already signaled they are raising rates, eventually Canada will have to follow or we will have a 50 cent dollar, then it's hello 1980s again. We all will be in for a rude awakening.
The USA will not raise rates any time soon.
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Old 04-04-2015, 01:08 PM   #45
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now it's closer to 10-20 times the salary.
How many people on an annual salary of 30k are buying a house?

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The USA will not raise rates any time soon.
Where did this 'fact' come from? A lot of speculation that they'll be raising by summer.
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Old 04-04-2015, 01:12 PM   #46
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How many people on an annual salary of 30k are buying a house?
That's the freakin' issue.

Most of the country is making an income within 10k of that figure.

If no one can afford to buy a house, who are you going to sell one to?
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Old 04-04-2015, 01:14 PM   #47
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The US fed has already signaled they are raising rates, eventually Canada will have to follow or we will have a 50 cent dollar, then it's hello 1980s again. We all will be in for a rude awakening.
I don't think that's going to happen. The CAD is traded every day by people who aleady know the US is likely to raise rates. As such, a lot of the downward price movement based on this paradigm has already happened. It's not like the news will surprise any body. I think most people are calling for a .75 cent dollar if the US raises rates.

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Except the last time housing prices had such a precipitous climb, they were stagnant for about 20 years afterwards.

That's the big issue here.

Canadians are over leveraged in terms of the debt they carry, and most of these debt carriers are relying in some capacity on continuation of rising prices. With the ripple effect of Alberta shedding jobs, the potential for a cascading effect of people not being locked into their mortgages has a pretty serious potential impact.

A correction might not just mean a drop in value of 10-20 percent, based on wages in the country, it's likely that drop will remain where it is for 15-25 years until it begins to increase again. That's the historical market trend.
According to the chart in this thread, house prices have never had such a precipitous climb as they have since 1990. If you're looking at the 20 years after the great depression, look closer and you'll see house prices actually had a range of about 20% during that period. It's a huge chart.

People not bing locked into mortgages is usually a good thing when the economy sucks. Rates have already gone down this year so floating rates are less. Plus no payout penalties if they have to sell.

I can't see an "historical market trend" in the chart you provided. I'm sure prices will go down in one of two ways, dramatically down followed by a bounce. Or slowly down and generally sideways until reaching the trend line when we will start to get increases. It's much less likely to suffer an emotional sell off followed by a stagnating sideways trend.
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Old 04-04-2015, 01:19 PM   #48
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That's the freakin' issue.
Most of the country is making an income within 10k of that figure.
I'd love to see some stats on income of home buyers vs home price. And for the amount of people that own two or more homes, are the people who are making the average income actually the ones buying half the homes in the country? Doubtful.

I can't even imagine anyone making 30-40k could qualify for a mortgage. And in areas where 20-40k salaries are more common, I'd have to think home prices are not half a million plus.
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Old 04-04-2015, 02:21 PM   #49
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For those saying a fall off the cliff is inevitable and the Americans have the experience to see it, what are you basing this on?
I am a corporate finance professional who has a keen interest in valuation bubbles and how they end. I have read books specifically on such things. My favorite being "Manias, Panics, and Crashes: A history of Financial Crashes" by Charles P. Kindleberger & Robert Aliber.

What's happened in Canada is a classic valuation bubble, and all bubbles tend to end violently. It's inevitable, the primary reason is because market valuations in bubble scenarios are based more on expansion of credit and psychology rather than market fundamentals. Prices reach such unsustainable levels financed by increasingly high leverage that as prices climb higher the fragility of underlying market participants grows (160% debt to income, higher than our American friends ever were at). Eventually something upsets the apple cart, the market psychology turns which leads to a contraction in credit, which exposes the fragility of the underlying market participants, which then turns into a panic and eventually a market crash.

In any case the book I suggested above is a an interesting read if you're into this kind of stuff and it highlights that basically no valuation bubble ends with a soft landing and provides basically every example in history going back centuries and great underlying rationale to why.

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Old 04-04-2015, 02:37 PM   #50
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http://en.wikipedia.org/wiki/Irish_p...File:Fishy.jpg

https://www.vancity.com/Mortgages/Ty...PaymentHelper/

The first link is an advertisement for a Dublin bank in July of 2007 that encourages a 100% mortgage for first time home buyers. Today if you showed that ad to an Irish person, knowing what they now know gleaned from painful first hand experience, they would double face palm.

The second link is to Vancity where they essentially have a program that allows first time buyers to borrow 97.5% of the value of the property they wish to buy. Now sure, the 'soft landing' types will get into an argument of semantics about how underwriting standards are better here than they were in Ireland, that, hey someone who can scrape together 2.5% of a down payment is a better credit risk than someone who has to borrow a full 100%, hey it's insured by the government here in Canada, etc. etc. But the point that actually matters about the two examples is that buying something that costs hundreds of thousands of dollars and many multiples of annual income for 100% or 97.5% or 95% borrowing is generally a stupid risky financial decision. In aggregate, the Americans and the Irish now know this, Canadians do not.

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Old 04-04-2015, 02:43 PM   #51
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Old 04-04-2015, 06:55 PM   #52
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^ well at least chemgear is here to enjoy this!
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Old 04-04-2015, 07:06 PM   #53
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I am a corporate finance professional who has a keen interest in valuation bubbles and how they end. I have read books specifically on such things. My favorite being "Manias, Panics, and Crashes: A history of Financial Crashes" by Charles P. Kindleberger & Robert Aliber.

What's happened in Canada is a classic valuation bubble, and all bubbles tend to end violently. It's inevitable, the primary reason is because market valuations in bubble scenarios are based more on expansion of credit and psychology rather than market fundamentals. Prices reach such unsustainable levels financed by increasingly high leverage that as prices climb higher the fragility of underlying market participants grows (160% debt to income, higher than our American friends ever were at). Eventually something upsets the apple cart, the market psychology turns which leads to a contraction in credit, which exposes the fragility of the underlying market participants, which then turns into a panic and eventually a market crash.

In any case the book I suggested above is a an interesting read if you're into this kind of stuff and it highlights that basically no valuation bubble ends with a soft landing and provides basically every example in history going back centuries and great underlying rationale to why.
While I see where you're coming from, I also think that this is appropriate for certain areas, but maybe not the country as a whole. The bubble has been forecast for a long time in Toronto and Vancouver, but elsewhere I'm not so sure. Even that 160% debt to income that is mentioned is basically a Canada-wide stat that would be higher in some areas than in others. Of course that doesn't mean that if Vancouver real estate crashes that everywhere else is free and clear, but there surely would be less impact in some areas where the price hasn't grown as swiftly and the fundamentals are not as out of line.
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Old 04-05-2015, 01:05 PM   #54
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I'll repost that i bought a place in 08 and am really glad i didn't listen to all the housing bubble talk back then. Got myself a home and some nice equity since then.
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Old 04-05-2015, 01:42 PM   #55
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http://en.wikipedia.org/wiki/Irish_p...File:Fishy.jpg

https://www.vancity.com/Mortgages/Ty...PaymentHelper/

The first link is an advertisement for a Dublin bank in July of 2007 that encourages a 100% mortgage for first time home buyers. Today if you showed that ad to an Irish person, knowing what they now know gleaned from painful first hand experience, they would double face palm.

The second link is to Vancity where they essentially have a program that allows first time buyers to borrow 97.5% of the value of the property they wish to buy. Now sure, the 'soft landing' types will get into an argument of semantics about how underwriting standards are better here than they were in Ireland, that, hey someone who can scrape together 2.5% of a down payment is a better credit risk than someone who has to borrow a full 100%, hey it's insured by the government here in Canada, etc. etc. But the point that actually matters about the two examples is that buying something that costs hundreds of thousands of dollars and many multiples of annual income for 100% or 97.5% or 95% borrowing is generally a stupid risky financial decision. In aggregate, the Americans and the Irish now know this, Canadians do not.
Why is the total % burrowed so important?

If I am able to hypothetically scrape up 500K and put that towards a million dollar home, am i some how better off than someone who only put down 5% on a 250K home?

I think the only thing that matters is how the debt is structured vs. the income of the home owner. If you make 2 or 3 times your mortgage payment in a month (for a normal term mortgage of course) but for some reason can't currently save your suggested down payment, you shouldn't buy a home?

Genuinely interested in opinions here as this is the position I am in. I can comfortably afford the mortgage I'm looking to get in to but i dont have the luxury of time to save up a hefty down payment. Even if you ignore the ridiculously low interest rates, I don't feel like I'm some how making a poor financial decision.
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Old 04-05-2015, 02:30 PM   #56
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Why is the total % burrowed so important?

If I am able to hypothetically scrape up 500K and put that towards a million dollar home, am i some how better off than someone who only put down 5% on a 250K home?

I think the only thing that matters is how the debt is structured vs. the income of the home owner. If you make 2 or 3 times your mortgage payment in a month (for a normal term mortgage of course) but for some reason can't currently save your suggested down payment, you shouldn't buy a home?

Genuinely interested in opinions here as this is the position I am in. I can comfortably afford the mortgage I'm looking to get in to but i dont have the luxury of time to save up a hefty down payment. Even if you ignore the ridiculously low interest rates, I don't feel like I'm some how making a poor financial decision.
If you are someone who can "hypothetically scrape" up 500k for a down payment, you have already signaled yourself as someone with high saving discipline, and a decent income over someone who can barely get $12,500 together.
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Old 04-05-2015, 02:47 PM   #57
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If you are someone who can "hypothetically scrape" up 500k for a down payment, you have already signaled yourself as someone with high saving discipline, and a decent income over someone who can barely get $12,500 together.
There's plenty of ways for some one to have 500k without saving it.

Regardless, I still don't see how only having 12,500 makes me any more of a risk though? Saving is just a matter of time. Plenty of people out there like me who are in a position to buy but don't have the option to wait another year or two without needlessly throwing away money on rent.
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Old 04-05-2015, 02:55 PM   #58
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There's plenty of ways for some one to have 500k without saving it.

Regardless, I still don't see how only having 12,500 makes me any more of a risk though? Saving is just a matter of time. Plenty of people out there like me who are in a position to buy but don't have the option to wait another year or two without needlessly throwing away money on rent.
because if you default on your payments, they get 500k to cover their losses instead of 12,500.

...I don't understand why this is so complicated.
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Old 04-05-2015, 02:58 PM   #59
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It really does amaze me how people are willing to take the huge long-term risk of a mortgage with such a tiny down payment on the basis that throwing money at rent is a waste. Your house is not a long-term investment, it is a consumption good. If you pay less rent than you would a mortgage payment, save it for a down payment, or invest it. Simple as that.
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Old 04-05-2015, 03:39 PM   #60
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because if you default on your payments, they get 500k to cover their losses instead of 12,500.

...I don't understand why this is so complicated.
I get that.

But in my mind the risk/benefit in having 12,500 versus having 50,000 down on a 250K property is not worth the 31,200 I throw away in two years of rent for living in a comparable (or most likely worse for that price in the current market) property. Add to the fact that renting cuts extremely deep into the amount I can save (which in turn increases what I spend on rent) and that 37,500 of extra down payment doesn't seem like much of safety net.

ESPECIALLY if this prediction is wrong and the market keeps increasing in price mid to long term and I get priced out of the market by waiting.

Oh and that 31,200 is based on 1300 a month. Basically the price of getting out of a basement suite if you don't want to live on the wrong side of 8 mile.

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It really does amaze me how people are willing to take the huge long-term risk of a mortgage with such a tiny down payment on the basis that throwing money at rent is a waste. Your house is not a long-term investment, it is a consumption good. If you pay less rent than you would a mortgage payment, save it for a down payment, or invest it. Simple as that.
Well to start, it's only a "HUGE" risk if you plan on either living in it short term or you take on more than you can comfortably afford.

Now, have you looked at rents in this city? Most rents are higher than the comparable mortgages and those that aren't, you'd only save maybe 100 or 200 bucks a month on rent. That $1200-$3000 (if we're being REALLY generous) a year is nothing.

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