Mortgage stress test rules

[Winsor_Pilates]

Originally Posted by GGG

Maybe,

I am saying that a renter can put the difference in money between rent and mortgage into an investment account and at the end of a 25 year period have a 500k asset. This is the same as a homeowner can use Helocs and never actually pay off the Mortgage.

We have a weird situation where the cost of renting appears to be less than the cost of ownership it certain segments of the market.

The concept of I don't want to pay the Landlords mortgage doesn't really exist in this free access to borrowing world we live in.

It's all about good money habits in the end. Of course a smart renter who invests wisely will be further ahead than a homeowner who uses their Heloc and wastes it.

There's also the homeowner who uses that Heloc to make smart investments at a return much higher than the interest.
They end up with strong investment returns and property equity.

I have clients who have used equity to buy more investment properties and now sit on about 14-15 rental properties, all cash flowing and all way up in value from original purchase prices.

Moral of the story, any of these strategies are only as good as the people implementing them.

[OMG!WTF!]

Originally Posted by Winsor_Pilates

Moral of the story, any of these strategies are only as good as the people implementing them.

I'm not sure there is much if anything a really great property buyer can do to change the over all market condition to his or her favor. A savvy stock picker can beat the market. But winding up with equity in property has very little to do with your skill as a buyer of houses. It is almost entirely the luck of your draw that determines your net asset at the end. I think that's something to consider in this equation.

[bizaro86]

Originally Posted by OMG!WTF!

I'm not sure there is much if anything a really great property buyer can do to change the over all market condition to his or her favor. A savvy stock picker can beat the market. But winding up with equity in property has very little to do with your skill as a buyer of houses. It is almost entirely the luck of your draw that determines your net asset at the end. I think that's something to consider in this equation.

I disagree with that completely. There are 3 factors that control the return you make on an investment: how much you buy for, how much you sell for, and how much cash you take out/put in along the way.

In real estate you can individually control your buy price. If it's not a great deal don't buy it. You can probably only sell at the market price, but you can often change the market value with judicious changes to your property. Hard for me to call up the CEO of a big company and suggest some changes... If you do a good job along the way you can get better than average rents as well.

I've beaten the Calagry real estate market dramatically and consistently. Buy well located property that provides positive cash flow at below market prices. Do sensible renovations inexpensively. It isn't complicated, but it does take hard work and patience. Probably a similar level of difficulty to beating the stock market, imo. It definitely isn't just luck.

[OMG!WTF!]

Originally Posted by bizaro86

I disagree with that completely. There are 3 factors that control the return you make on an investment: how much you buy for, how much you sell for, and how much cash you take out/put in along the way.

In real estate you can individually control your buy price. If it's not a great deal don't buy it. You can probably only sell at the market price, but you can often change the market value with judicious changes to your property. Hard for me to call up the CEO of a big company and suggest some changes... If you do a good job along the way you can get better than average rents as well.

I've beaten the Calagry real estate market dramatically and consistently. Buy well located property that provides positive cash flow at below market prices. Do sensible renovations inexpensively. It isn't complicated, but it does take hard work and patience. Probably a similar level of difficulty to beating the stock market, imo. It definitely isn't just luck.

Yes that's true. Some do better than others at both ventures for sure. The real difference is risk to the average investor. You can absolutely control risk in the stock market. An average investor with a thousand dollars to lose can limit losses to that amount. What you see now in the real estate market is average investors losing way more than they ever thought. You can't predict your loss in real estate and you can't mitigate it. You can also make money in a bear market when stocks go down but not with real estate.

[InglewoodFan]

I'm all for the stress test rules, partly because I am old enough to remember the '80s. Watching families I knew just walking away from their houses at 20% mortgages stuck with me. It'll never get there again I'm sure, but even 2-3% increase will put the hurt on a lot of people.

https://www.theglobeandmail.com/real...ticle24398735/

[I_H8_Crawford]

Originally Posted by _Q_

I agree, but when everyone else is willing to take on enormous debt, it drives prices up unnecessarily, making it impossible to find a good home at a decent price. So you're kind of forced to extend yourself in order to get an adequate home.

Or you could rent?

[I_H8_Crawford]

Originally Posted by Weitz

Well you just confirmed what I said?

Are HELOCS that popular? I’m not so sure.

I think they're pretty popular:


https://www.businessinsider.com/cana...numbers-2018-4

[TorqueDog]

Originally Posted by I_H8_Crawford

I think they're pretty popular:


https://www.businessinsider.com/cana...numbers-2018-4

One thing we both made very clear when we decided to buy our home is that we will never, ever, get a line of credit on our home equity.

[Scroopy Noopers]

Originally Posted by I_H8_Crawford

Or you could rent?

I have always been frustrated renting as I felt like I was throwing money away.

I don’t think this way anymore. There is always a cost to living somewhere... I’ve accepted this.

[Pizza]

Originally Posted by TorqueDog

One thing we both made very clear when we decided to buy our home is that we will never, ever, get a line of credit on our home equity.

why? interest rates on a Home secured line of credit is significantly lower than creditcards and unsecured lines of credit

[GGG]

Originally Posted by Pizza

why? interest rates on a Home secured line of credit is significantly lower than creditcards and unsecured lines of credit

Probably because if you need a line of credit to buy something you probably shouldn’t be buying it.

Aside from a few noted exceptions like Education and Investment type things.

Essentially it’s the same as saying I will never cash out my RRSPs before I retire.

[TorqueDog]

Originally Posted by Pizza

why? interest rates on a Home secured line of credit is significantly lower than creditcards and unsecured lines of credit

I've seen far too many people let their home-secured LOC get away from them then have to bust their asses to fix the mess, my parents being a good example. It's too easy to think "ah, the interest is nice and low, put it on the LOC" and before you know it, you're never getting out from under that thing.

I see the high interest rates of credit cards as a deterrent from racking them up. A high interest rate is punitive so it encourages me to a) not spend beyond my means, b) make smarter purchasing decisions, and c) prioritize paying credit cards off faster if I do need to carry a balance.

[Winsor_Pilates]

Originally Posted by blankall

I very much disagree with this. Even without a stress test, locals were not affording to buy detached houses, which were literally starting at 1.5 million for a tear down. Foreign investment was the major driver of the crazy market.

Depends how you define "local".
Do you mean white skinned and been here for more than 40 years?
Or does the large wave of wealthy immigrants who have come to Vancouver since the 80s count?
At what point does their money get to be called "local"?

[Winsor_Pilates]

Originally Posted by OMG!WTF!

I'm not sure there is much if anything a really great property buyer can do to change the over all market condition to his or her favor. A savvy stock picker can beat the market. But winding up with equity in property has very little to do with your skill as a buyer of houses. It is almost entirely the luck of your draw that determines your net asset at the end. I think that's something to consider in this equation.

A few examples I see all the time:
1) Identifying up & coming areas before they gain mainstream traction.

2) Buying a property that is likely to get rezoned for higher density. There's many houses in Vancouver that went 4 or 5 times value along Cambie Street for example, once they were rezoned for condo density.

3) Buying presale condos through an insider agent. Disclaimer that I do this for a living, but we essentially get first pick, exclusive discounts and the best prices to high demand developments.
On the stock market this would be illegal.

But I do agree a savvy stock picker can do great. I just find there's not as many savvy stock pickers out there and real estate feels easier for a lot of people. It also has far less likelihood of going to zero.

[MillerTime GFG]

Originally Posted by TorqueDog

I've seen far too many people let their home-secured LOC get away from them then have to bust their asses to fix the mess, my parents being a good example. It's too easy to think "ah, the interest is nice and low, put it on the LOC" and before you know it, you're never getting out from under that thing.

I see the high interest rates of credit cards as a deterrent from racking them up. A high interest rate is punitive so it encourages me to a) not spend beyond my means, b) make smarter purchasing decisions, and c) prioritize paying credit cards off faster if I do need to carry a balance.

For disciplined homeowners, a HELOC can actually be an extremely effective strategy to pay down your mortgage quicker. It can certainly be abused, but it is a double edged sword.

[OMG!WTF!]

Originally Posted by Winsor_Pilates

A few examples I see all the time:
1) Identifying up & coming areas before they gain mainstream traction.

2) Buying a property that is likely to get rezoned for higher density. There's many houses in Vancouver that went 4 or 5 times value along Cambie Street for example, once they were rezoned for condo density.

3) Buying presale condos through an insider agent. Disclaimer that I do this for a living, but we essentially get first pick, exclusive discounts and the best prices to high demand developments.
On the stock market this would be illegal.

But I do agree a savvy stock picker can do great. I just find there's not as many savvy stock pickers out there and real estate feels easier for a lot of people. It also has far less likelihood of going to zero.

I kind of see your first and second point. But there are actually many similarities in the stock market to your third point. IPO's are often reserved for preferred bank clients as are warrants and similar restricted share offerings. And make no mistake, insider trading happens every day. It's not always illegal for some people to have better information than others. And even though sometimes it is illegal, it happens anyway.



And also real estate doesn't have to go to zero for people to end up with zero equity. People lose all their money and then some quite often in real restate. You are responsible for short comings when your insured mortgage is foreclosed. So you can actually lose more than all your money.



If stress tests are meant to save people from themselves, I would think a mandatory session with a lawyer who is mandated to explain the risks involved might be a better solution. Educated people in general make better decisions.

[Winsor_Pilates]

Originally Posted by OMG!WTF!

I kind of see your first and second point. But there are actually many similarities in the stock market to your third point. IPO's are often reserved for preferred bank clients as are warrants and similar restricted share offerings. And make no mistake, insider trading happens every day. It's not always illegal for some people to have better information than others. And even though sometimes it is illegal, it happens anyway.



And also real estate doesn't have to go to zero for people to end up with zero equity. People lose all their money and then some quite often in real restate. You are responsible for short comings when your insured mortgage is foreclosed. So you can actually lose more than all your money.



If stress tests are meant to save people from themselves, I would think a mandatory session with a lawyer who is mandated to explain the risks involved might be a better solution. Educated people in general make better decisions.

Don't disagree with anything you wrote.
I don't deal with stocks much so am not too familiar with some of the things you've mentioned, but I'm certainly not anti stock investment.

Was responding to your particular post, so wasn't trying to argue that those opportunities don't exist in stocks, more that there is strategy in real estate investment as well.

[troutman]

Buying a home? CMHC could soon kick in 10% of the cost — for a price

https://www.cbc.ca/news/business/bud...yers-1.5063204

[Winsor_Pilates]

Interested to see if they take on any gains/losses in the equity they're sharing, or just require you to pay back the loan amount.

[Calgary14]

If the amount has to be paid back when the house is sold what happens if there's negative equity on the sale, would CMHC then take a loss and write off the loan?