Calgary Real Estate predictions?

[Slava]

Originally Posted by Red

Maybe they bought in 2008 for 500k? Selling sets them back 100k immediately. Renting out with negative cash flow eases the pain and there is a chance of a turnaround.

There are tons of people in that situation. Got caught with their pants down when realized that RE doesn't always go up.

Are there tons? How many places went down 20% since 2008 and haven't come back at all? I really have no idea as I don't follow real estate that closely. Honestly I just like where I live and things don't change fast enough for me to have any real concerns. That being said, everyone tells me that we're a year and a half behind the US so I've been reading this thread waiting for about 3 years for our market to crater...

[hmmhmmcamo]

Originally Posted by Slava

I might be missing something and I don't rent or rent out a property, but why would I rent out a place flr $1700/mo if its costing me $2500+/mo ?

Rental rates are determined by the people that live and work in the area and what they can afford based on incomes. Over the last few years I've watched several properties sit empty for months at a time because the landlord refuses to price their rental at the market rate.

There's another factor here as well though. Lets say you can save $500 a month by renting instead of buying. (I'm not convinced that is the case, but just bear with me). If you're like most people that money is wasted and not actually saved anywhere. I know that there are exceptions, but seriously it can't be a huge number percentage wise who are that disciplined. So when/if the market rises this is where the renter's are caught. The guy who has been putting money into a property now has a smaller debt against a rising asset, whereas the renter had a few years of hookers and blow. Sure, if the market tanks then the renter comes out ahead, but that doesn't appear imminent either.

Rental rates haven't shot through the roof over the last few years the way home prices have, so if prices do rise, the renters will just continue renting as they have been.

I agree that most renters probably aren't saving the difference, but they are benefiting from that money in that they have it to use however they want ie. pay down debt, eating out, companionship and pharmaceuticals etc.

People act as if a mortgage is this magical equity bank that just keeps going up every month. Prices in Victoria dropped by about 9% in 2011. That's a huge hit to the equity bank for those that bought in the last few years with little down and long amortization periods. As a new owner, that would probably be keeping me up at night. As a renter, it's making me giddy.

Originally Posted by stacey

Not sure which normal market you are in...

If it is never cheaper to buy than rent, why would anyone ever be a landlord?

[pepper24]

Originally Posted by Mike Vernon

England is far far far more expensive than Calgary, it also makes Vancouver look cheap by comparison. Not sure where that article is coming from. North America is a steal compared to Europe in general.

Housing prices in Calgary are very Oil and Gas connected. The scary thing right now is that Gas is at an extreme low, so if you think Nat Gas will eventually go up, where do you think house prices are going? The people that are sitting on their hands are in for big surprise come 2015 onward.

The article is not about comparing housing prices in England vs. Canada. It's about salary in Canada vs. house prices in Canada which point to RE not being a steal. The reason why housing prices in England have collapsed even at low interest rates is due to this same disconnect. Calgary isn't much different but just at a smaller gap. The average working Calgarian is poorer now than 10 years ago as housing prices have not kept pace with salaries.

Energy prices have some connection to housing prices in Calgary but the biggest factor still is easy, cheap credit (low interest rates). That's why other places in Canada without oil revenue have increased just as much and could fall back just as much. If those dominos fall, high energy prices will have little effect in on softening the blow in Calgary.

Sitting on your hands probably isn't a bad idea though it should be more on your own personal finances than predictions of home prices and energy prices.

[stacey]

Originally Posted by hmmhmmcamo

If it is never cheaper to buy than rent, why would anyone ever be a landlord?

If it is never cheaper to rent than own why would anyone buy?

[hmmhmmcamo]

Originally Posted by stacey

If it is never cheaper to rent than own why would anyone buy?

huh? That doesn't make any sense. It is cheaper to rent right now, so that's why some people are not buying.

Red said: in a normal market renting is more expensive than ownership or at least close to break even.

You said: Not sure which normal market you are in...stunnedface.jpg

I thought your comment was implying that what Red said isn't true. Sorry if I misunderstood.

[photon]

Originally Posted by stacey

If it is never cheaper to rent than own why would anyone buy?

Lifestyle choice. Some people want to be able to do anything to their house/yard that they want. Renters can't convert the basement into a Star Trek theme'd home theater, or double the size of the deck, or plant a back-yard sized garden, or whatever.

Ability. Lots of people can't buy even if they wanted to (bad credit, inability to come up with down payment, etc).

Security. Some people don't like being subject to a landlord.. possibility of having to move even if they don't want to. Or having to wait on the landlord to make repairs.

[Red]

Originally Posted by stacey

If it is never cheaper to rent than own why would anyone buy?

Ownership pays off later on when your house is paid for. That's huge.

Why do people rent? No money for downpayment, unstable jobs, unable to afford the area of choice etc. Rent in a nice neighbourhood or own in the projects? Tons of reasons.
In the past few years the banks with the help of our government enabled people that would normally not be able to buy. That's what fueled this bubble.

Normally 100 x rent payment defines house value. That's how it's always been.

That's why buying a revenue property has always been a good investment. You always had positive cash flow.

What's the ratio in the case in that article? 400k house that rents for $1700. 235?

Here's some stats on this.

http://canadabubble.com/bubble-watch...ome-ratio.html

[Sylvanfan]

Originally Posted by stacey

If it is never cheaper to rent than own why would anyone buy?

Well if you have a family, you have control of your living situation as an owner as opposed to being a renter. I treat home ownership as being able to provide a stable living situation for my family. If you need real estate to be an investment that appreciates...you can get yourself into trouble. Home ownership for a young couple with no kids who came to the city for work, and don't know if they want to stick around but who can live in a 800 sq.ft apartment may not be the right choice.

Houses are not an investment and you shouldn't expect your house too make you rich. But we all need a place to live, and for most of us who fall in line with the ideal of getting married, having kids...owning a house to live in can be a choice that you can accept.

[stacey]

Originally Posted by hmmhmmcamo

huh? That doesn't make any sense. It is cheaper to rent right now, so that's why some people are not buying.

Red said: in a normal market renting is more expensive than ownership or at least close to break even.

You said: Not sure which normal market you are in...stunnedface.jpg

I thought your comment was implying that what Red said isn't true. Sorry if I misunderstood.

No you were bang on. Who in their right mind would rent if it was cheaper to own? That is the definition of throwing money away and you can "flower" it up with presonal choices ect. all you want

Bottom line when someone (owner) who is retiring and has their house paid off with no mortgage, and another person who will be paying that same amount (probably more) until they die.
Who do you think the "winner" is as Red likes to say?

[photon]

Originally Posted by stacey

Bottom line when someone (owner) who is retiring and has their house paid off with no mortgage, and another person who will be paying that same amount (probably more) until they die.
Who do you think the "winner" is as Red likes to say?

Depends. If they save the money differential (times when it's cheaper to rent than to own, savings of maintenance costs (which are usually significantly underestimated)) and invest it, I've seen a number of people put forward convincing arguments that it's better overall to rent.

You don't own a house at the end, but you have a larger overall investment.

[hmmhmmcamo]

Originally Posted by stacey

No you were bang on. Who in their right mind would rent if it was cheaper to own? That is the definition of throwing money away and you can "flower" it up with presonal choices ect. all you want

You make it sound like it's just a choice to rent vs buy. Like Red said

Originally Posted by Red

In the past few years the banks with the help of our government enabled people that would normally not be able to buy. That's what fueled this bubble.

Only recently has it been that pretty much any idiot can walk into the bank and get a mortgage, because they buy taxpayer backed insurance, so there's next to zero risk for the bank issuing the loan. Normally people had to save a 20-25% down payment before they could even think about buying a place. Try doing that at today's prices while paying rent at the same time.

[ranchlandsselling]

You can't really compare the SFH market to rental market.

The SFH home is influenced too much by sentimental values or intrinsic values. The majority of houses are owner occupied. People don't buy houses as a rational investment looking at cash flow and break even factors. They determine what they can afford and what they like and buy. Much like buying an engagement ring. What I can affoard, what she'll like, end of story.

The best way to look at a rent vs. buy comparison is comparing apples to apples. The only way I can think of doing that is the apartment style condo vs. apartment buildings.

If you look at the buy/sell decisions of entities like Boardwalk, Mainstreet, Timbercreek, some of the other REITs.

They take their income, expenses, mortgage, ROI, and the NOI apply their cap rate and come up with a per door value. Whatever that value is I've never seen any of those come close to what a similar style condo would go for in this city.

An individual investor might be able to make it work, Put 20% plus down, maybe you eek out a few % a year return. Compare that to a 3.3% yield by Boardwalk REIT, the equity return should basically follow the Canadian rental market so you're on par with that either way. Unless you're into playing the area market. Buy one condo in Calgary as prices will go up more than Montreal etc. vs Boardwalk being more diversified. But you can probably find an area play REIT too.

Now imagine the effort in renting out a condo, time for repairs and maintenance (which like Photon said, everyone underestimates it), and costs of buying, selling, mortgages, etc. Vs. buying or selling a boardwalk unit.

I don't think there's many good opportunities to do well buying in the Calgary market right now with the intention of renting out. Prices are too high, rents aren't high enough.

That 3.99% mortgage that is available right now is pretty tempting for landlords I'd imagine. If you know your stuff I'm sure there's properties to be found, but not very many and you'd have to know your stuff.

[Robotic]

The argument renters vs. owners can go around in circles forever. They both have good points. I may be biased as I currently rent, due to me being younger and would prefer to save up preferably 50% down deposit so I can still afford the lifestyle I have. I have been investing the money I've saved each month compared to what I would be paying if I had a mortgage. My savings has gained 15% interest since the beginning of the year. Has the housing market raised that much since then? Probably not.

[Mike Vernon]

Originally Posted by Robotic

My savings has gained 15% interest since the beginning of the year. Has the housing market raised that much since then? Probably not.

What savings account pays 15% interest?

[Robotic]

Originally Posted by Mike Vernon

What savings account pays 15% interest?

Stocks.

[Mike Vernon]

Originally Posted by Robotic

Stocks.

You can't lose with that style of investment

[Sylvanfan]

Originally Posted by Robotic

Stocks.

Taxes will eat into that return, plus you need to time the market to get that type of return. It's not like everyone who put money in the stock market made 15 % so far this year.

Over time I do believe it's been proven that you would come out ahead if you invested say 100 grand in the index and rented at 1500 a month, than put it down on a 500 k house. Hence why most people will invest in stocks, and bonds, and live in a house.

[hmmhmmcamo]

Originally Posted by Mike Vernon

You can't lose with that style of investment

Of course he can lose his savings, but he can't go into negative savings. Home owners can get into negative equity in a real hurry.

[Mike Vernon]

Originally Posted by hmmhmmcamo

Of course he can lose his savings, but he can't go into negative savings. Home owners can get into negative equity in a real hurry.

Good point. But you can't live in your stocks and your stocks can't keep you warm at night either

[opendoor]

Originally Posted by Red

Normally 100 x rent payment defines house value. That's how it's always been.

Much like purchase price to income ratios, that's completely dependent on interest rates at a given time.

Using a 100:1 ratio, a house that rents for $2500 a month should only be worth $250,000. Yet even with zero money down, you could buy that house right now for a mortgage payment of about $1100. That would never happen because if people could buy houses for less than half the price of renting then barely anyone would rent.

A 100:1 ratio makes sense when you're talking about 7-9 % interest rates, but not right now. High prices are being fueled by historically low interest rates that are throwing most of the old adages and benchmarks out of whack. Conversely, high interest rates in the early 80s made a 100:1 ratio a terrible investment.