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Old 01-12-2008, 06:24 PM   #41
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Originally Posted by Claeren View Post
And? It still influences prices significantly.

I am actually curious what the ratio is between resales and new sales in Calgary? 50/50?



Claeren.
I don't know for sure but I would be REALLY surprsied if it was that close.

I would guess 70% or more for resale and 30%ish for New home sales.

I couldn't find the stats but perhaps Nabber could get them? Any other realtors on the board that has access to those stats? Or anyone know exactly where to find them?
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Old 01-12-2008, 06:52 PM   #42
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I'm currently selling and I see prices creeping up around me again. I think people have been waiting for the market to hit bottom and I think it did so. My agent was saying that traditionally the media is a couple of months behind what is acutally happening. I was so concerned in fact that I actually put a thread up about whether I should increase the price of my condo to get inl-ine with some of the more recent listings in my area.
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Old 01-12-2008, 07:01 PM   #43
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If there is one thing that could put a chill on the market this year, it would be if there were a federal election and the Liberals won; presumably, their platform would include something about global warming. The jobs report that came out last week showed a lot of jobs lost out east in the last quarter, presumably the high Canadian dollar is starting to take its toll. No minority government is going to survive if there is a recession in Ontario.
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Old 01-12-2008, 07:27 PM   #44
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If there is one thing that could put a chill on the market this year, it would be if there were a federal election and the Liberals won; presumably, their platform would include something about global warming. The jobs report that came out last week showed a lot of jobs lost out east in the last quarter, presumably the high Canadian dollar is starting to take its toll. No minority government is going to survive if there is a recession in Ontario.
Jobs lost in the east means people heading out West where we'll remain understaffd in lots of areas.
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Old 01-12-2008, 09:16 PM   #45
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Someone stated that renting instead of buying is like throwing your money away.

I find that this rent vs. buy calculator is a great tool in estimating the value of renting vs. buying:

http://www.ic.gc.ca/epic/site/oca-bc.../ca01821e.html

It is almost impossible to find a situation where buying vs. renting is financially advantageous even over a investment horizon of 30 years (assuming the difference between rent and mortgage costs are reinvested).

This illustrates the problem of the divergence between price to rent ratio that I had posted in some of my earlier graphs. House prices are not substantiated by rental yields.

Personally, I have chosen not to buy this year. I believe it may be two or three years before there are some decent buying opportunities.

However, I recommend basing your choice to buy on your own lifestyle and economic situation.

I work as a petroleum engineer, so buying is not limited by affordability so much as being a poor investment decision. Lifestyle issues such as being mobile for work is also an important factor to me.
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Old 01-12-2008, 09:38 PM   #46
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Originally Posted by Mike Oxlong View Post
I think the last few months have been a fantastic time to buy. There have been lots of people in fairly desperate situations that have to seel their homes. You can get some fantastic deals from some really motivated buyers.

Some speculators might be in a jam, people who have built a house and need to get rid of their old place, situations like that were all over the place in the last few months. The market is starting to balance out but if you have a good realtor and look carefully there are some fantastic deals available out there right now.

I would reccomend buying as soon as possible if you are renting. Your throwing your rent away. Even if the market stays where it is at least you are paying into your own equity.

As a general rule Fall/winter are good times to buy as it is more of a buyers market. Less people buying means more time to look and sellers are genrally willing to negotiate on price. Spring/early summer are more of a sellers market as there are more buyers in the market increasing your competition.
The carrying costs to the bank in most cases exceeds the costs of renting. Wouldn't that be like throwing money away as well?

Last edited by Radley77; 01-12-2008 at 09:44 PM.
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Old 01-12-2008, 10:31 PM   #47
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The carrying costs to the bank in most cases exceeds the costs of renting. Wouldn't that be like throwing money away as well?
If you rent the money you are paying in rent is gone forever to your landlord.

If you buy at least that money is going towards building equity in your own property. Even if it does cost more than renting, it isn't being thrown away. When the property appreciates (which it eventually will provided you hold on to it long enough) then you will see even more of a retun on investment on your down payment.

If you put 10% down on a house and it appreciates 10% (whether that takes 1 year or 10 years) you just made 100% return on your money. Buying Real estate allows you to use the banks money to finance your investments. The bank doesn't get a penny of any of the appreciation. I do understand that the market can go down and there will be peaks and valleys but historically Real Estate has always gone up. Don't see that changing anytime soon.

If you think renting is the better option then by all means rent and please tell everyone else to rent as well. I have 5 investment properties that I rent out and I really appreciate the fact people are renting. Their money pays down my mortgage every month and adds to my equity in every property.

I agree with your statement about basing your choice on buying on lifestyle and economic situation. Some people don't want the headaches of home ownership, some people don't want to save for a down payment, there are still lots of reasons that people rent. For some it is the more affordable alternative.

However if you have the means to buy and can afford the payments as long as you buy smartly there aren't many better investments.
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Old 01-12-2008, 10:46 PM   #48
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Originally Posted by Mike Oxlong View Post
If you put 10% down on a house and it appreciates 10% (whether that takes 1 year or 10 years) you just made 100% return on your money.
Not everyone can get interest free loans like you seem to be able to get.
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Old 01-12-2008, 11:03 PM   #49
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Originally Posted by GreenTeaFrapp View Post
Not everyone can get interest free loans like you seem to be able to get.
Never said anything about an interest free loan. However at current interest rates it is a very cheap way to borrow money. When you buy a house it's not like the interst accumulates every month and starts increasing. If you buy a house for $100,000 you don't owe $101,000 the next month. (I think you know that but not sure after reading your post)

If you rent and are paying $1000 a month rent that is $1000 you will never see again.

If you buy and are paying say $1400 a month some of that money is interest and some of the money goes towards principal which contributes to your equity. Meanwhile when the value of the property goes up that is also contributing to your equity.

I'd rather pay interest and get some equity in a place than pay a landlord and get nothing. That's just my opinion. Everyone is entitled to their own and obviously there are many varying opinions.

Last edited by Mike Oxlong; 01-12-2008 at 11:05 PM.
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Old 01-12-2008, 11:10 PM   #50
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The 1980's bust took 20 years for inflation adjusted prices to return to there previous inflation adjusted values. That's a very long time to wait for prices to return to their previous valuations.

So in the long run, the most important thing you can look at is what is the capitalization rate. In some cases I have found it is less than 4%, which is less than a long term government bond of 5.75% which is 100% safe.

So why invest in real estate that has rates of return that is less than bonds which are totally safe?

It seems like a lot of risk, for a very low rate of return.
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Old 01-12-2008, 11:15 PM   #51
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Originally Posted by Radley77 View Post

So in the long run, the most important thing you can look at is what is the capitalization rate. In some cases I have found it is less than 4%, which is less than a long term government bond of 5.75% which is 100% safe.

So why invest in real estate that has rates of return that is less than bonds which are totally safe?

It seems like a lot of risk, for a very low rate of return.
It's really quite simple.

Numbers used for easy Math:
If you have 10,000 to invest:

$100,000 house
$10,000 down payment
$90,000 mortgage
Using your 4% rate
House is now worth $104,000
ROI is 40%



$10,000 spent on bonds
5.75% rate
Investment is now $10,575

Does that make sense?

Last edited by Mike Oxlong; 01-12-2008 at 11:22 PM.
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Old 01-12-2008, 11:21 PM   #52
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Not to nitpick, but the 40% return you cite is created by the use of leverage, not by the underlying investment itself. You could buy bonds or other securities using leverage and achieve the same result. Also, leverage works in both directions, i.e. a 4% price decline turns into a 40% loss.
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Old 01-12-2008, 11:25 PM   #53
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Originally Posted by MacDougalbry View Post
Not to nitpick, but the 40% return you cite is created by the use of leverage, not by the underlying investment itself. You could buy bonds or other securities using leverage and achieve the same result. Also, leverage works in both directions, i.e. a 4% price decline turns into a 40% loss.
Totally agree. That is my exact argument. Real Estate allows you to use leverage.

That is the advantage of it. You are using the banks money.

As I have said numerous times. There will be peaks and valleys but historically Real Estate always goes up. It is a good LONG term investment.

How can you use leverage to buy bonds or other securites? (Serious question. I have never heard of a bank loaning you $90,000 to buy $100,000 worth of stocks or bonds)
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Old 01-12-2008, 11:26 PM   #54
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Quote:
Originally Posted by Mike Oxlong View Post
It's really quite simple.

Numbers used for easy Math:
If you have 10,000 to invest:

$100,000 house
$10,000 down payment
$90,000 mortgage
Using your 4% rate
House is now worth $104,000
ROI is 40%


$10,000 spent on bonds
5.75% rate
Investment is now $10,575

Does that make sense?
Not quite (using the simple math):

$100,000 house
$10,000 down payment
$90,000 mortgage
Using 4% rate
Value is now worth $104,000
Less carrying costs at 7% on $90,000 = -$6,300
Equity = $7,700

Whereas:

$10,000 spent on bonds
5.75% rate
Equity = $10,575

Last edited by Radley77; 01-12-2008 at 11:34 PM.
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Old 01-12-2008, 11:34 PM   #55
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Quote:
Originally Posted by Radley77 View Post
Not quite (using the simple math):

$100,000 house
$10,000 down payment
$90,000 mortgage
Using 4% rate
Value is now worth $104,000
Less carrying costs at 7% on $90,000
-$6,300
=$97,700
Equity = -$2,300

Whereas:

$10,000 spent on bonds
5.75% rate
Investment is now $10,575
Well not sure where you are getting your figures from but if we are going to get silly.

$10,000 spent on bonds
5.75% rate
Investment is now $10,575
Less $1000 paid each month for rent (unless you are lucky enough to live somewhere for free)
$12,000
Looks like you are down $1425 for the year???
I guess it is a better investment


You can twist the number all you want to support your argument. Doesn't make sense to me.

I'll take leveraging my investment with the bank's money anyday. If I am paying for shelter of some sort anyway I would rather be working towards owning it and building to equity.

I think Bonds can be a good investment for some people and you should likely have a diversified portfolio with some safe investments but that is never going to get you ahead in the world.

Last edited by Mike Oxlong; 01-12-2008 at 11:37 PM.
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Old 01-12-2008, 11:41 PM   #56
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Or spend $450,000*.06= $27,000 to bank in interest
vs. renting at your $1000*12= $12,000 in rent?

It's a game of which is the lesser evil...

By the way, I agree that bonds aren't the best investment vehichle, but I think it is a valid comparison because bonds are 100% safe, so I'd hope that anything I invest in has a spread above the long term bond to compensate me for taking that risk.

Last edited by Radley77; 01-12-2008 at 11:47 PM.
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Old 01-12-2008, 11:46 PM   #57
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Or spend $450,000*.06= $27,000 to bank in interest
vs. renting at your $1000*12= $12,000 in rent?

It's a game of which is the lesser evil...
.

You are going to get a hell of a lot nicer place if you buy something at $450,000 than if you rent a place for $1000. Renting a place that is worth $450,000 is going to cost you almost $2000 a month. (If we are going to compare apples to apples)

It comes down to a lifestyle choice.....

You rent, I'll own and we'll both be happy with our decisions.
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Old 01-13-2008, 04:24 AM   #58
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How can you use leverage to buy bonds or other securites? (Serious question. I have never heard of a bank loaning you $90,000 to buy $100,000 worth of stocks or bonds)
Open a margin account.
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Old 01-13-2008, 09:25 AM   #59
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Originally Posted by Mike Oxlong View Post
If you rent and are paying $1000 a month rent that is $1000 you will never see again.

If you buy and are paying say $1400 a month some of that money is interest and some of the money goes towards principal which contributes to your equity. Meanwhile when the value of the property goes up that is also contributing to your equity.
In your example do you know how long it will be before you start paying more then $400 a month towards your principal? It'll take more then a year to do so. In the first year of your mortgage you are paying mostly interest.

So even if your house goes up in value by 10% in one year, you've still had to pay thousands in interest in your first year.
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Old 01-13-2008, 12:01 PM   #60
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In your example do you know how long it will be before you start paying more then $400 a month towards your principal? It'll take more then a year to do so. In the first year of your mortgage you are paying mostly interest.

So even if your house goes up in value by 10% in one year, you've still had to pay thousands in interest in your first year.
I realize that. The fact is with every mortgage payment you are contributing to your own equity. At first it's not much but eventually you will own it outright plus all the appreciation that has occured over the term of the mortgage.

Towards the end of the mortgage you are going to be paying $1000 towards principal and $400 to interest, and it just keeps getting less and less interest you pay.

With rent you throw it away and will never see it again period.

AsI said to Radley. If you are happy renting then continue doing so. For me buying is a way better option so that's what I have done and will continue to do.
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