Real estate in Calgary - another bubble?

[Weitz]

Originally Posted by Johnny199r

Unless you invest your additional capital in the markets as a renter, which can be an even better return than many housing markets in Canada subject to two caveats:

1. Having the discipline to continually invest (many people benefit from a mortgage being a "forced savings program". I have that discipline to invest every month, although I know many others do not.

2. Selling your principle residence results in no capital gains, which can be a big tax advantage vs investments being taxed after maxing out a TFSA not withstanding foreign dividend withholding tax.

Except you said $1800 a month not $900.

[Cowboy89]

Originally Posted by blankall

And their landlord had the option to evict them.

Renting is great for young people. I can't imagine anyone with a family thinking it's a good option. The other major downsides:

-rent goes up over time.
-you have to pay rent your whole life, even after retirement.
-landlords rarely do proper upkeep.
-unless your renting a whole house, expect lousy and close neighbors.
-increased moving costs.

Calgary is a bit of unique market in Canada, in that the boom/shortage during the last oil boom was so extreme. However in most markets the value of property has gone up substantially over the last ten years, as has rents. Off an initial investment of $60k my rental property now clears $300/month and adds another $500/month towards capital payments. This is 10 years after purchase. It's also increased in value by $200k.

The rent vs. buy is completely an individual circumstances / one's own housing market argument every time rather than a blanket 'renting's fine for single people' statement or other throw away statement.

My circumstances: I have a family of 4, and the biggest contributing decision positively impacting my net worth over the past decade has been my decision to rent in Calgary rather than buy. I live in a detached home in the burbs for $1800/mo. Buying a similar house 10 years ago would have cost me ~$3600/mo in mortgage payments plus property taxes and maintenance.

The 'if I rented, I'd have nothing to show for it argument' is plain wrong. Had I bought, essentially the interest portion of my mortgage payment would have equaled my rent payment and by not buying, the difference for me was invested in the markets at my annual avg return of 10% rather than as dead money in home equity earning a negative return in a declining / dying housing market.

With regards to the 'you'd have to pay rent for the rest of your life' argument. Technically that's true, but with the net worth I've amassed I can generate enough passive income from investments to pay my rent. So that argument is really one that only looks at the housing leger of one's finances and doesn't take into account one's finances holistically.

Now of course had I made the same decision in Toronto or Vancouver I probably would have been behind by renting instead of buying. So again it goes back to personal circumstances and the market you're in. And with regards to the market you're in comment, unless you can predict the future, you probably can't set your watch to the kind of housing/rent appreciation that's occurred in the frothiest markets nor count on Calgary's market being dead for almost a decade or count on the equity market's returns we have seen over the last decade. My point is that if you're being honest with yourself you can't generically with any confidence proclaim that buying or renting is the optimal decision.

[GGG]

Originally Posted by stampsx2

Great post. Curious where you got the 30-32% recommended max? Economist or bank standard?

I’m pretty sure it’s a cmhc requirement that mortgage plus tax cant be over x%. I’m going off memory though from 10 years ago when I last moved.

Edit: CMHC uses 35% now but it needs to include heating cost and 50% of Condo fees as well which I didn’t include in my post but the conclusion doesn’t really change Median family can afford median SFH in Calgary.

https://www.cmhc-schl.gc.ca/en/finan...ice-calculator

[Voodooman]

It also seems superheated in the inner city neighbourhoods. We are listing our place in Inglewood this week (moving out of city), and after purchasing in 2009, this should be the point we extract the best price since purchase.

It’s an older home, built in 1910, 2 bedroom, 1 bath, and our agent anticipates multiple offers. It’s been well maintained, and in decent shape, but still....crazy town.

[Red]

Originally Posted by Johnny199r

Assume someone owns a house with a value of $500k and they sell the house, how much does it cost them in transaction costs to move?

What if they've bought and sold two houses? How much did they fork over in realtor fees, lawyer fees, mortgage discharge fees etc each time? Why does no one ever talk about that when they sell a house? It's a huge amount of money that disappears into thin air.

If I rent a house and the house needs a new furnace or roof, should I be kicking myself that I don't get to fork over the $5-10k rather than telling the landlord and having them do it?

I rented a house that suddenly had substantial water damage in the basement. It came out of nowhere. My landlord spent a lot of money and time fixing that mess. Glad it wasn't me.

Property taxes are also a fun thing to pay. Those don't usually go down long term, do they?

There are also different rental situations. Renting a house is different than renting in a brand new, upscale, professionially managed apartment building. Landlord is never going to sell your place there. I live in such a building. I never hear my neighbours, but growing up in my families' SFH, the neighbours behind me had kids from hell that screamed at the top of their lungs all summer long, ruining life for us. No one mentions about how you can't have terrible neighbours if you own a house?

"Increased moving costs"? Hard to know how to respond to that. Renting a uhaul and buying pizza and beer for some friends or relatives doesn't cost very much.

Outside of getting lucky by buying at the right time in parts of of Vancouver and Toronto, investing in index ETFs on questrade once a year with excess money after rent is paid makes renters come out waaaaaaaay ahead of buyers from a financial standpoint. The U.S stock market has an annual return of about 10-11% over the last century. Buy a U.S market etf. That's all it takes. No skill required. Has anyone's house in Calgary increased in value annually by 10% every year they've owned it?

Again, it's not all about the financial standpoint, it can't be, otherwise no one would buy a house after doing the math of renting+investing vs buying.

On the flip side, owning provides a level of stability that sometimes can't be found renting. It also allows people to have more control over their property to make changes and presents the possibility of capital appreciation if the value of the home rises. For many, it provides peace of mind to rent their house from the bank for 30 years before they own it.

The rent vs own arguement is way more nuanced. Each side usually tends to leave out the arguments that are detrimental to their position. It always depends on ones own comfort levels and priorities in life. I think buying is crazy, but that doesn't mean I'm right.

It really comes down to this. "Rent" from the bank as you called it or rent from a landlord.
$1800 rent is equivalent to about 400K mortgage. So when you get that mortgage, you pay that "rent" for 25 years. At the end you have a place to live for free. Or you sell it and move in with the kids as payback :-)
Either way, you have an asset.
By renting you sign up to pay that same amount a month (probably more) for all of your adult life. Is that 50 years, 55, 60? A lot more than 25.

You said you'd be scared to have a mortgage till retirement. Isn't having a rent payment in retirement a scary alternative?

[GGG]

Originally Posted by Red

It really comes down to this. "Rent" from the bank as you called it or rent from a landlord.
$1800 rent is equivalent to about 400K mortgage. So when you get that mortgage, you pay that "rent" for 25 years. At the end you have a place to live for free. Or you sell it and move in with the kids as payback :-)
Either way, you have an asset.
By renting you sign up to pay that same amount a month (probably more) for all of your adult life. Is that 50 years, 55, 60? A lot more than 25.

You said you'd be scared to have a mortgage till retirement. Isn't having a rent payment in retirement a scary alternative?

Rent vs Interest plus tax plus maintenance +/- appreciation

That’s it. The fact you own something at the end is not material to the cost calculation as the capital payment of the loan is a revenue neutral transaction. Also any capital payment on the mortgage only has an ROI of the interest rate. Your false assumption is that cost of Rent = cost of mortgage payment. The difference in cost between the two options will determine which one is better.

[Red]

Originally Posted by GGG

Rent vs Interest plus tax plus maintenance +/- appreciation

That’s it. The fact you own something at the end is not material to the cost calculation as the capital payment of the loan is a revenue neutral transaction. You false assumption is that cost of Rent = cost of mortgage payment. The difference in cost between the two options will determine which one is better.

Nah, I am pretty sure that majority of people come out ahead by buying.

Formulas for rent/buy are great on paper.

And everyone is a great investor on a public message forum. Until we get to see those T5s it's all just talk LOL.

[The Yen Man]

Originally Posted by Johnny199r

I'm 37. No kids. My wife and I live in a 1200 square foot apartment that we pay $1800 a month for rent.

The thought of unloading a huge amount of cash and being tied to a monster mortgage on a property until retirement scares the hell out of me. I don't know how people do it. I understand that having kids changes everything, but man, I would have a hard time signing on the dotted line.

I'm like the complete opposite of you. The thought of being 65 and having paid off someone else's mortgage for 25 years and now having to continue to do that past retirement so I can have a place to live freaks the hell out of me.

[Cappy]

Originally Posted by Red

Nah, I am pretty sure that majority of people come out ahead by buying.

Formulas for rent/buy are great on paper.

And everyone is a great investor on a public message forum. Until we get to see those T5s it's all just talk LOL.

Ahead is a relative term. You can certainly make some money selling a home - while pissing that away buying in the same market.

A simple investment in the SPY over the last ten years would have doubled your investment. subtracting capital gains, i would imagine the investment is still ahead.

In any event, rent vs own benefits is entirely subjective. I like not being tied to any big payments because i want the ability to change my lifestyle/location etc at the drop of the hat. Some people come out of school or whatever and immediately look at marriage, kids, working the corp. ladder.

to each their own

[GGG]

Originally Posted by Red

Nah, I am pretty sure that majority of people come out ahead by buying.

Formulas for rent/buy are great on paper.

And everyone is a great investor on a public message forum. Until we get to see those T5s it's all just talk LOL.

I don’t think that is a rebuttal to what I am saying. I agree with you that most people are better of buying but the reason isn’t because buying is the better choice it’s that humanity is genetically terrible at deferred gratification.

No one is asking anyone to be a great investor. In fact attraction of trying to be a great investor is one of the reasons to buy a house. It forces you into an investment that you aren’t going to sell during a panic because say a brand new virus caused the market to drop 20%. If you don’t have the discipline to understand that portion of your investment is a 50yr time horizon then this strategy probably isn’t for you. A simple index fund is all you really need in this case. If you are counting on better than market returns then you probably should be buying a house.

But even before you discuss the investment disciple the bigger factor is the commitment to actually invest the savings in the first place. If you can’t do that regardless of what happens with the rest of your life then renting and investing might not be the strategy for you.

Those two hazards of renting are real and are what make owning a house one of the best investments a person can make. That doesn’t make the calculation wrong that done correctly the renter can come out ahead.

The final one is access to leverage, there are very few investments that a bank will give you 20-1 leverage on for a 3% fee.

I also bought for school stability without even considering the economic case. It doesn’t mean it doesn't exist.

[Johnny199r]

Originally Posted by Red

It really comes down to this. "Rent" from the bank as you called it or rent from a landlord.
$1800 rent is equivalent to about 400K mortgage. So when you get that mortgage, you pay that "rent" for 25 years. At the end you have a place to live for free. Or you sell it and move in with the kids as payback :-)
Either way, you have an asset.
By renting you sign up to pay that same amount a month (probably more) for all of your adult life. Is that 50 years, 55, 60? A lot more than 25.

You said you'd be scared to have a mortgage till retirement. Isn't having a rent payment in retirement a scary alternative?

Aren't there still property taxes, maintenance costs, insurance costs when you own a home? Do those diasappear when the mortgage is paid off?

I like the freedom renting brings. It doesn't cost me anything to move beyond renting a uhaul and buying some pizza. I know that buying/selling a home will cost a lot more than that just to the realtor. Lots of people own more than one home in their life, think how much money they paid to a realtor for the privilege.

The houses in the area I live in are around 600k-1.2 million. I get to live in this nice area with amenities like shopping and bike paths area without having to shell out serious money to do so. That's a huge win in my books.

Most of all, if someone invests wisely, the opportunity costs of having money tried up in a mortgage vs being in the markets is a huge hit. I have about 800k in the market rather than buying a house. I haven't seen any properties that have matched the historic annual returns of the S&P 500 of 10% over the last century. My decision to rent has me way ahead of where is be if I bought a house. I'll take early retirement and living on the beach somewhere at 55 while my investments continue to grow, but that's just me.

Does anyone here know anyone who bought a home in Calgary 25 years ago for $150,000 that's now worth $1.6 million, without renovations they would have paid for? That's a 10% annual return.

Again , if people have kids and want a big yard and lots of room, I get it. You want to make sure little johnny or Sally will never have to switch schools? Sure, Buying makes senses. But the financial argument of doing better by owning a house is nonsense.

[GGG]

You can’t take the whole principle and do a time value of money calc on it.

It’s a 15000 investment, with an interest payment, and a 5400 dollar annual investment for 25 years.

[bizaro86]

Originally Posted by The Yen Man

I'm like the complete opposite of you. The thought of being 65 and having paid off someone else's mortgage for 25 years and now having to continue to do that past retirement so I can have a place to live freaks the hell out of me.

I think of it from an asset/liability matching perspective.

A bucket of stock market type assets can be designed to throw off enough cash to cover rent. But if there's a big crash, or rents rise dramatically, there is risk there. By contrast, if you own the exact asset you need there isn't a mismatch.

It probably isn't the optimal strategy 100 times out of 100 (in fact I mostly agree with the renting is cheaper people) but it does take some of the edge case risk off the table, which has value to me.

I say that fully aware that my stock portfolio has done way, way better than my Calgary house over my entire adult life.

[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.

[Red]

Originally Posted by Johnny199r

Aren't there still property taxes, maintenance costs, insurance costs when you own a home? Do those diasappear when the mortgage is paid off?

I like the freedom renting brings. It doesn't cost me anything to move beyond renting a uhaul and buying some pizza. I know that buying/selling a home will cost a lot more than that just to the realtor. Lots of people own more than one home in their life, think how much money they paid to a realtor for the privilege.

The houses in the area I live in are around 600k-1.2 million. I get to live in this nice area with amenities like shopping and bike paths area without having to shell out serious money to do so. That's a huge win in my books.

Most of all, if someone invests wisely, the opportunity costs of having money tried up in a mortgage vs being in the markets is a huge hit. I have about 800k in the market rather than buying a house. I haven't seen any properties that have matched the historic annual returns of the S&P 500 of 10% over the last century. My decision to rent has me way ahead of where is be if I bought a house. I'll take early retirement and living on the beach somewhere at 55 while my investments continue to grow, but that's just me.

Does anyone here know anyone who bought a home in Calgary 25 years ago for $150,000 that's now worth $1.6 million, without renovations they would have paid for? That's a 10% annual return.

Again , if people have kids and want a big yard and lots of room, I get it. You want to make sure little johnny or Sally will never have to switch schools? Sure, Buying makes senses. But the financial argument of doing better by owning a house is nonsense.

You can own and invest. Your 1800 rent isn't providing you any real savings over what a mortgage would be. In normal times rent is more than a mortgage for the same place. It isn't like that right now because of the market, but over time that's what it will be.

And yes there is maintenance and property taxes. And there is appreciation that more than makes up for that.

And your $800k in investments is kind of weak for a 37 year old CPer. We set standards way higher than that on here 😂

[Regorium]

Originally Posted by Johnny199r

Aren't there still property taxes, maintenance costs, insurance costs when you own a home? Do those diasappear when the mortgage is paid off?

I like the freedom renting brings. It doesn't cost me anything to move beyond renting a uhaul and buying some pizza. I know that buying/selling a home will cost a lot more than that just to the realtor. Lots of people own more than one home in their life, think how much money they paid to a realtor for the privilege.

The houses in the area I live in are around 600k-1.2 million. I get to live in this nice area with amenities like shopping and bike paths area without having to shell out serious money to do so. That's a huge win in my books.

Most of all, if someone invests wisely, the opportunity costs of having money tried up in a mortgage vs being in the markets is a huge hit. I have about 800k in the market rather than buying a house. I haven't seen any properties that have matched the historic annual returns of the S&P 500 of 10% over the last century. My decision to rent has me way ahead of where is be if I bought a house. I'll take early retirement and living on the beach somewhere at 55 while my investments continue to grow, but that's just me.

Does anyone here know anyone who bought a home in Calgary 25 years ago for $150,000 that's now worth $1.6 million, without renovations they would have paid for? That's a 10% annual return.

Again , if people have kids and want a big yard and lots of room, I get it. You want to make sure little johnny or Sally will never have to switch schools? Sure, Buying makes senses. But the financial argument of doing better by owning a house is nonsense.

You're forgetting leverage with mortgages. The average person isn't going to play with margins and options. However, the average person is getting 5-1 leverage on their down payment on a home. This means that you only need 2% annual increase in home prices on 5-1 leverage to be equivalent to 10% on your money.

Works the opposite way too, but historically (aside from Calgary in the last 10 years, and niche markets like Japan), housing increasing with inflation has been pretty safe.

But I digress. If you have 800k liquid, you can do whatever you want, including buying houses or buying nothing or anything in between and you'll do alright.

[bizaro86]

On the original topic, I absolutely don't think housing in Calgary is a bubble in any way. It's more affordable compared to income than basically any other major city in Canada. I actually think the biggest risk is the government trying to cool down Toronto/Vancouver with rule changes and the rest of the country gets caught in the crossfire.

But oil prices are way up, the pandemic is looking like its on its last legs, and employment is improving. Plus the massive amount of money printing/deficit spending cash will end up somewhere. So real assets in general are potentially a good bet. I think Calgary RE may be in for a few very good years.

[RichieRich]

Gotta remember that many people take longer than 45mins even to get from their home to their place of work. Of course there are seasonal differences, such as construction season...


Many workers are "ok" with 60-75mins commute time, per direction. And in the GTO area I've heard of 90+ min commute times too.

[blankall]

Originally Posted by Cowboy89

The rent vs. buy is completely an individual circumstances / one's own housing market argument every time rather than a blanket 'renting's fine for single people' statement or other throw away statement.

My circumstances: I have a family of 4, and the biggest contributing decision positively impacting my net worth over the past decade has been my decision to rent in Calgary rather than buy. I live in a detached home in the burbs for $1800/mo. Buying a similar house 10 years ago would have cost me ~$3600/mo in mortgage payments plus property taxes and maintenance.

The 'if I rented, I'd have nothing to show for it argument' is plain wrong. Had I bought, essentially the interest portion of my mortgage payment would have equaled my rent payment and by not buying, the difference for me was invested in the markets at my annual avg return of 10% rather than as dead money in home equity earning a negative return in a declining / dying housing market.

With regards to the 'you'd have to pay rent for the rest of your life' argument. Technically that's true, but with the net worth I've amassed I can generate enough passive income from investments to pay my rent. So that argument is really one that only looks at the housing leger of one's finances and doesn't take into account one's finances holistically.

Now of course had I made the same decision in Toronto or Vancouver I probably would have been behind by renting instead of buying. So again it goes back to personal circumstances and the market you're in. And with regards to the market you're in comment, unless you can predict the future, you probably can't set your watch to the kind of housing/rent appreciation that's occurred in the frothiest markets nor count on Calgary's market being dead for almost a decade or count on the equity market's returns we have seen over the last decade. My point is that if you're being honest with yourself you can't generically with any confidence proclaim that buying or renting is the optimal decision.

I don't disagree with this at all. The main driving factor, economically, is that you are talking about buying at some kind of peak in the Calgary market. Obviously, it's not a good buy if you are buying right before a long term drop in the oil market in Calgary. It affects both purchase price and rents.

Here's a question. Don't you think the decision is different right now? You can buy a nice place in the burbs for $600k, with 20% down, that's a mortgage of $1,723 at 1.79%. Now let's look at how an uptick in the economic market might affect rents. Your landlord evicts you, you are forced to pay $3,000 for rent. The math changes again.

I also think you're very lucky to find a rental property that provides everything you need, is long term, and is that cheap.

You're basically comparing the ideal renting situation to the worst case buying situation (buying right at the peak).

[blankall]

Originally Posted by bizaro86

On the original topic, I absolutely don't think housing in Calgary is a bubble in any way. It's more affordable compared to income than basically any other major city in Canada. I actually think the biggest risk is the government trying to cool down Toronto/Vancouver with rule changes and the rest of the country gets caught in the crossfire.

But oil prices are way up, the pandemic is looking like its on its last legs, and employment is improving. Plus the massive amount of money printing/deficit spending cash will end up somewhere. So real assets in general are potentially a good bet. I think Calgary RE may be in for a few very good years.

I agree with this too. I know a few people in Vancouver who are buying cheap condos and commercial properties in Calgary. Calgary has the potential of seeing a double wammy of oil picking up, driving people to flock to the city and fill up the empty spaces, and continued low interest rates.

With housing, it doesn't take a large vacancy rate to dramatically tip the scales either way.