Real estate in Calgary - another bubble?

[accord1999]

Originally Posted by InTheSlot

You'll have to forgive an American here, but are most traditional/conventional mortgages in Canada (or Calgary) 25 years? Here in the U.S. they're typically 30, though you can definitely get 10, 15, and sometimes 20 years.

The typical amortization is 25 years but the big difference is that in the US (thanks to government backing), you have 30 year fixed rate mortgages at an interest rate not much higher than what the US Treasury pays to borrow for 30 years. In Canada, there's nothing close to that, the interest rate terms are around the 5 year range, going higher requires a significant premium in interest rates. So a Canadian every few years has to renew their mortgage at the prevailing interest rates at that time.

[InTheSlot]

Originally Posted by accord1999

The typical amortization is 25 years but the big difference is that in the US (thanks to government backing), you have 30 year fixed rate mortgages at an interest rate not much higher than what the US Treasury pays to borrow for 30 years. In Canada, there's nothing close to that, the interest rate terms are around the 5 year range, going higher requires a significant premium in interest rates. So a Canadian every few years has to renew their mortgage at the prevailing interest rates at that time.

Interesting. I didn't know that, and it certainly seems like a big disadvantage to homebuyers in your country. Funny that you talk about renewing mortgages at the prevailing rate, because I am actually about to refinance my own home within the next few days in order to try to get a better rate, but the one thing I don't want to do is pay ridiculous closing costs that are typically attached to mortgages (~$10,000), so I am going with this company/bank that I've used before who has a $295 closing cost option, with the stipulation being that you get into an adjustable rate mortgage (they have fixed rate options for $295 too, but the rates are a little higher). Here in the U.S. things were pretty bad in 2008-09 when people were deathly afraid of adjustable rate mortgages, and rightfully so, because so many people were approved for them when they shouldn't have been, and then when the rates went up it became even worse, but with this program that I found (and again I've used it before in the past), they lock you into your rate for the first 5 years of your term, and then in the 6th year your rate can go up, but it can't go up more than 2% over what it started with (i.e. if my rate is 2% now, it could only go up to 4% in year 6), and it can never go up more than 6% total over the entire life of the loan - so again that 2% rate I have could only, at worst, become 8% if it went up to the maximum at any point over the 30 years. BUT...what's even better, at any point during the loan, for just another $295, I can "re-lock" my rate for another 5 years, so it doesn't go up at all. So basically at and before every 5 year increment (i.e. 5 times over the life of a 30yr mortgage) I'll gladly pay $295 and re-lock my rate so it stays at 2% for the whole time. $295 x5 is $1,475 and that's wayyyyy better than 10 grand that I would otherwise pay in closing costs for a typical mortgage.

I don't know many other banks that are doing a program like that and I'm not really sure what's in it for them, but I'll gladly take it. I recommend them to my friends whenever I hear someone is applying for a mortgage, and some people are still scared off by adjustable rates, but with the process I outlined above, it really is quite foolproof and great for the consumer/homebuyer.

[RichieRich]

Originally Posted by InTheSlot

Interesting. I didn't know that, and it certainly seems like a big disadvantage to homebuyers in your country. Funny that you talk about renewing mortgages at the prevailing rate, because I am actually about to refinance my own home within the next few days in order to try to get a better rate, but the one thing I don't want to do is pay ridiculous closing costs that are typically attached to mortgages (~$10,000), so I am going with this company/bank that I've used before who has a $295 closing cost option, with the stipulation being that you get into an adjustable rate mortgage (they have fixed rate options for $295 too, but the rates are a little higher). Here in the U.S. things were pretty bad in 2008-09 when people were deathly afraid of adjustable rate mortgages, and rightfully so, because so many people were approved for them when they shouldn't have been, and then when the rates went up it became even worse, but with this program that I found (and again I've used it before in the past), they lock you into your rate for the first 5 years of your term, and then in the 6th year your rate can go up, but it can't go up more than 2% over what it started with (i.e. if my rate is 2% now, it could only go up to 4% in year 6), and it can never go up more than 6% total over the entire life of the loan - so again that 2% rate I have could only, at worst, become 8% if it went up to the maximum at any point over the 30 years. BUT...what's even better, at any point during the loan, for just another $295, I can "re-lock" my rate for another 5 years, so it doesn't go up at all. So basically at and before every 5 year increment (i.e. 5 times over the life of a 30yr mortgage) I'll gladly pay $295 and re-lock my rate so it stays at 2% for the whole time. $295 x5 is $1,475 and that's wayyyyy better than 10 grand that I would otherwise pay in closing costs for a typical mortgage.

I don't know many other banks that are doing a program like that and I'm not really sure what's in it for them, but I'll gladly take it. I recommend them to my friends whenever I hear someone is applying for a mortgage, and some people are still scared off by adjustable rates, but with the process I outlined above, it really is quite foolproof and great for the consumer/homebuyer.

Interesting... thanks for sharing.
I heard, but am asking you to confirm, that US mortgage interest costs are tax deductible on your annual tax submissions?
Here in Canada they are not, by default, tax deductible although there is at least one way to work around this but requires quite some effort and assistance.

[CorsiHockeyLeague]

We do get a better capital gains exemption than the Yanks do, at least. Theirs is only 250k.

[Slava]

Originally Posted by CorsiHockeyLeague

We do get a better capital gains exemption than the Yanks do, at least. Theirs is only 250k.

Honestly, I’d much preferred the capital gains exemption on your residence rather than the deduction for the interest. It’s a huge advantage.

[CorsiHockeyLeague]

It is provided you only own one place. If you have a summer place or a cabin or whatever you might be better off with the interest deduction and mortgage benefits.

[blankall]

Originally Posted by CorsiHockeyLeague

It is provided you only own one place. If you have a summer place or a cabin or whatever you might be better off with the interest deduction and mortgage benefits.

It's also going to lead to a lot of inequality in many markets. For example, in Vancouver, it's already almost at the point where only people born there, who's parents own already, can afford to buy in. Most non-foreign purchases involve help from the bank of mom and dad. This will only get worse. Unless they start taxing principle residences, they will become a vehicle for rich families to hide wealth.

It's obviously a different scenario in many markets. They need to come up with some middle ground though. It's absurd that you can buy and flip a multi-million dollar residence with few tax consequences.

[RichieRich]

My little spreadsheet... simplistic but enough to give ya'll an idea on quantifying your respective "investment" perspectives. I chose a 15yr time period for a $600k house versus $2k/mo rental, and in order for the rent versus buy to be equal, the home equity must increase by almost 60% whilst investments stay at 7% (or lower) consistently.



dagnabbit... I had copied/pasted but I guess it doesn't work too well...

[RichieRich]

[Sylvanfan]

If you have 800k at 37, no intention of every having kids...why are you wasting your life living in Calgary ? Go live somewhere exotic, you can likely make enough working remotely to live quite comfortably and have a way better lifestyle.

[dino7c]

Originally Posted by Sylvanfan

If you have 800k at 37, no intention of every having kids...why are you wasting your life living in Calgary ? Go live somewhere exotic, you can likely make enough working remotely to live quite comfortably and have a way better lifestyle.

working! move somewhere cheap and retire

[Sylvanfan]

Originally Posted by dino7c

working! move somewhere cheap and retire

He'd need something to occupy the next 63 years of his life.

To have that type of money at that age...I doubt he made it by doing a dead end job like being a Draftsman or Mark Schiefele's personal chef. So he's likely pretty good at his job, and he's doing a pretty high level job. So I did assume he takes some satisfaction from that.

For a low life like me...I'm nearly 10 years North of that and about half that....If I didn't have kids...going somewhere cheap to retire is exactly what I'd do right about now.

[MillerTime GFG]

There is a real problem in Vancouver and Toronto, and something needs to be done. Places going for 100k over list price, with no conditions, and then appraisals coming in lower than purchase price. Buyers then having to cover the difference as the lender lends on the lesser of PP vs appraisal.

The problem with these two markets is a problem for the rest of the country, as the Government tends to implement real estate policy cross Canada, when they really should have more local policies introduced.

Look at what just happened in New Zealand....minimum 20% down payment to buy a home, and 40% for a rental! I wouldn’t be surprised to see Canadian government step in and do something, though I don’t think it will be this drastic.

Couple other things I noticed when skimming through this thread:
- Stress test rate is currently 4.79%, or contract rate + 2% (whichever is higher). Average 5 year fixed right now is right around 2%
- Those that have rental properties they’re holding onto for a couple more years in hopes values will go up, but are subsidizing on monthly basis should look at converting mortgage to a HELOC. Significantly increase cash flow and no penalties to break a HELOC when you do end up selling. Great for tax purposes too
- I haven’t heard an updated stat, but as of December 2020, government subsidies (ie CERB) were around $1.3 trillion. Total job loss over that same timespan? $1.1 trillion. That means that on average, Canadians were better off during covid. Not to mention how many millions of households took advantage of mortgage deferrals even if they didn’t need it. Unsecured debt loads in many households is way down. Cabin fever way up

Haven’t seen this in Calgary in over 7 years, and that’s just fine with me.

[Winsor_Pilates]

Originally Posted by MillerTime GFG

There is a real problem in Vancouver and Toronto, and something needs to be done. Places going for 100k over list price, with no conditions, and then appraisals coming in lower than purchase price. Buyers then having to cover the difference as the lender lends on the lesser of PP vs appraisal.

The problem with these two markets is a problem for the rest of the country, as the Government tends to implement real estate policy cross Canada, when they really should have more local policies introduced.

Like a 20% foreign buyer tax?
Or a Vancouver empty homes tax?
Or a BC Speculation tax?
Or banning AirBnb on anything other than your principal residence so people don't buy additional properties for this purpose?

[peter12]

The only thing government can do is clear up the massive development permitting bureaucracy and rezone swathes of inner city suburbs to allow for construction of denser units.

In short, reduce development costs and allow the market to bring in the massive amount of supply needed.

[flamesfever]

Originally Posted by peter12

The only thing government can do is clear up the massive development permitting bureaucracy and rezone swathes of inner city suburbs to allow for construction of denser units.

In short, reduce development costs and allow the market to bring in the massive amount of supply needed.

You're going to screw up some pretty nice neighborhoods doing that. Have you seen what the parking looks like where infills are built?

Next thing you'll want to start selling off green areas, golf courses, etc. and the whole inner core turns to sh**.

What about all those empty building downtown? Why are we not thinking of turning a portion of them into apartments?

[MillerTime GFG]

Originally Posted by Winsor_Pilates

Like a 20% foreign buyer tax?
Or a Vancouver empty homes tax?
Or a BC Speculation tax?
Or banning AirBnb on anything other than your principal residence so people don't buy additional properties for this purpose?

Aside from the foreign buyers’ tax (which is useless), those aren’t Federal policies.

[CliffFletcher]

Originally Posted by peter12

The only thing government can do is clear up the massive development permitting bureaucracy and rezone swathes of inner city suburbs to allow for construction of denser units.

In short, reduce development costs and allow the market to bring in the massive amount of supply needed.

But 83 per cent of young families still want to live in detached homes.

https://www.huffingtonpost.ca/2018/1...ip_a_23576914/

You would have a glut of condos, many sitting empty, while bidding wars continued on houses.

The great majority of homes bought by first time buyers today are heavily subsidized by parents. All of that boomer wealth is starting to be transferred to their children. If an extra $100k in downpayment is enough to ensure the grandkids won’t be raised in a condo, the bank of mom and dad will happily oblige.

https://www.theglobeandmail.com/opin...-is-under-way/

And recent efforts to stem foreign buyers from using Canadian real estate as a way to stash wealth are half-hearted and difficult to enforce. Taxes are imposed on properties sitting empty? Let a nephew or family acquaintance live rent-free in a $3 million property while they go to school. Problem solved.

If Canadian governments were really serious about cutting off foreign money in Canada’s real estate market, they would impose New Zealand’s restrictions on foreign ownership. But they won’t, because they aren’t.

[peter12]

Originally Posted by flamesfever

You're going to screw up some pretty nice neighborhoods doing that. Have you seen what the parking looks like where infills are built?

Next thing you'll want to start selling off green areas, golf courses, etc. and the whole inner core turns to sh**.

What about all those empty building downtown? Why are we not thinking of turning a portion of them into apartments?

Remove parking minimums.

[peter12]

Originally Posted by CliffFletcher

But 83 per cent of young families still want to live in detached homes.

https://www.huffingtonpost.ca/2018/1...ip_a_23576914/

You would have a glut of condos, many sitting empty, while bidding wars continued on houses.

The great majority of homes bought by first time buyers today are heavily subsidized by parents. All of that boomer wealth is starting to be transferred to their children. If an extra $100k in downpayment is enough to ensure the grandkids won’t be raised in a condo, the bank of mom and dad will happily oblige.

https://www.theglobeandmail.com/opin...-is-under-way/

And recent efforts to stem foreign buyers from using Canadian real estate as a way to stash wealth are half-hearted and difficult to enforce. Taxes are imposed on properties sitting empty? Let a nephew or family acquaintance live rent-free in a $3 million property while they go to school. Problem solved.

If Canadian governments were really serious about cutting off foreign money in Canada’s real estate market, they would impose New Zealand’s restrictions on foreign ownership. But they won’t, because they aren’t.

That's fine, buckaroo, but in a very urban setting with land restrictions, like Vancouver, you should build condos. We still have a ton of suburbs in the Lower Mainland.

Or townhomes, or quadplexes or anything to make the land base more efficient.

This isn’t a foreign buyer problem. New Zealand is seeing massive price increases now too. It’s supply. Pure and simple.