Calgary Real Estate predictions?

[pepper24]

Originally Posted by Cowboy89

That's ultimately the problem with real estate. Since buying a house is an experience that pretty much everyone experiences it makes it perceptively easy to do yet the financial IQ required to understand leverage and the best means to employ it remains elusive for the common man. Therefore people can easily make boneheaded financial decisions while still feeling like they understand the process. Also worse yet, because it's perceptively easier to go down the street and buy a new place than to research and consult with financial advisors about buying a real estate derived investments these "investment" decisions are done at $250,000 or more a pop instead of in much more manageable denominations that other instruments offer. In other words the higher price points pushes people to lever up more (Possibly more than is reasonably affordable).

I've seen tonnes of people the past few years who I'd consider financially illeterate get into the multiple houses, multiple mortgages game. These are the people who have amplified prices into bubble territory, and ultimately why it got much higher than economic activity alone would have taken prices. Thankfully these are the same people that will pay the price for being ill-informed speculators. It's one thing to take real estate and make it a buy and hold strategy for the long term and quite another to be overly opportunistic and buy because others have made quick and easy money doing it.

Well said.

History shows that house prices tend to keep pace with inflation over long periods, but don’t usually produce huge profits. People think that since they made big money on their current home that went up over 50% in a few year in a bubble market that they are financial wizards.

Don't pay too much for a home and don’t borrow more than needed. One home to live in, maybe a recreational home for weekends/summers and a few REITs is all that the average person needs to have for real estate in their portfolio. Invest the rest in stocks, bonds, cash, RRSPs and other investments. It's financial suicide to have a majority of your money in an investment that'll barely beat inflation.

[Cowboy89]

Originally Posted by pepper24

Well said.

History shows that house prices tend to keep pace with inflation over long periods, but don’t usually produce huge profits. People think that since they made big money on their current home that went up over 50% in a few year in a bubble market that they are financial wizards.

Don't pay too much for a home and don’t borrow more than needed. One home to live in, maybe a recreational home for weekends/summers and a few REITs is all that the average person needs to have for real estate in their portfolio. Invest the rest in stocks, bonds, cash, RRSPs and other investments. It's financial suicide to have a majority of your money in an investment that'll barely beat inflation.

Not only that, it's not very prudent to max out on buying a bunch of properties in only one real estate market. When you buy a REIT most of them will have a composition of many properties in many markets. You get diversification in the sector. Whereas if the region you're in tanks your entire finances tank if you're tied up in multiple properties in one market.

[ken0042]

Originally Posted by pepper24

It's financial suicide to have a majority of your money in an investment that'll barely beat inflation.

I suppose it depends on how you are investing in that property.

If you put $10K down, rent the property out, and the money you collect from rent pays for the mortgage, taxes, and repairs; you end up with something worth say $400K 25 years later with only 10K down. You would need to earn over 15% per year every year to do that somewhere else.

But if you buy a 2nd house for guests to use when they come into town, then I would agree it isn't a sound strategy.

[Red]

Originally Posted by ken0042

Why wouldn't a landlord work condo fees into the rent they charge? It makes no sense to pay something that you would charge to a tenant.

But getting back to the original subject, he said he bought before the boom, so let's say he paid $150K. That makes his mortgage $921. Plus tax and condo fees that is $1221. So out of that $987 is going out the window on interest, condo fees, tax. But 18 months ago a condo that would sell today for $250K would have rented for $1500 per month; I've seen rents on units like that closer to $1800. But using the $1500 example, he would have spent an extra $9200 on renting vs owning. So while he "lost" $40K, he really only lost $31K.

My original point still stands; there are more costs to look at besides the final selling price.

No, he bought in december.

re: condo fees, no the landlords don't "include" that, they rent for whatever they can get and right now that's about 60% what it costs to own (on a 25 year mortgage)

And your rent rates are way out of whack. 600s apartments do not rent for $1800. More like half that, but don't quote me on that, I don't know anybody that rents something similar. Either way, buying a condo last December was not a good move, not sure where you're going with this.

[Slava]

Originally Posted by photon

Except they usually won't margin call your house. The bank really doesn't want to end up owning a ton of houses to deal with. As long as you make your mortgage payments.

Not sure how a margin call works for trading though.

Well to be fair here there are a few different types of leveraged investing. Usually a margin call comes when your investment is worth less than a specified percentage of the loan and you have to add money to bring this percentage back in line.

There are a number of ways that you can leverage into the market however and not have a margin call to be concerned about at all...which truthfully is the way to go.

[ken0042]

Originally Posted by Red

No, he bought in december.

No, you are wrong. From his post:

Originally Posted by Robbob

My only saving grace is that I bought the condo before the huge boom so I'll have equity regardless, it just has gone down 40k

Originally Posted by Red

And your rent rates are way out of whack. 600s apartments do not rent for $1800. More like half that, but don't quote me on that, I don't know anybody that rents something similar. Either way, buying a condo last December was not a good move, not sure where you're going with this.

I don't know where to start with this- you say don't quote you on it, meaning you don't know what you are talking about. Assuming it was just 600 square feet (not sure where that came from)- then yes; I have seen those go for $1500 and up 18 months ago. And I have also seen those units go for closer to $900 at that time. Basically we don't know what kind of place he has.

Keep that in mind, we are talking about 18 months ago. Twice as long ago as the December date you came up with.

[Red]

Originally Posted by ken0042

No, you are wrong. From his post:




I don't know where to start with this- you say don't quote you on it, meaning you don't know what you are talking about. Assuming it was just 600 square feet (not sure where that came from)- then yes; I have seen those go for $1500 and up 18 months ago. And I have also seen those units go for closer to $900 at that time. Basically we don't know what kind of place he has.

Keep that in mind, we are talking about 18 months ago. Twice as long ago as the December date you came up with.

I was thinking of Oilers_Fan not Robbob and a price of 260K (at the peak) came up so that's where the 600 s came from. That's what that bought you then. And I don't know how much rents were, but I know a person who is renting a place for 900 and that would be comparable to what 260K got you then.



Either way, you can keep rationalizing it till we're blue in the face, but you're not going to convince me that anyone who bought their first home in the last 2 years is in a good situation. Quite the opposite.

[ken0042]

Originally Posted by Red

I was thinking of Oilers_Fan not Robbob <snip>

Either way, you can keep rationalizing it till we're blue in the face, but you're not going to convince me that anyone who bought their first home in the last 2 years is in a good situation. Quite the opposite.

And on that point you and I agree 100%. And I think that's where we were getting crossed; you were talking about a different scenario than the one I quoted.

[pepper24]

Originally Posted by Red

Either way, you can keep rationalizing it till we're blue in the face, but you're not going to convince me that anyone who bought their first home in the last 2 years is in a good situation. Quite the opposite.

As long as they can afford their current mortgage payments and plan to live there for a while they aren't necessarily in a bad position. They say you should plan to live in your home for a minimum of 5 years to make back all real estate related fees in a normal market. The buying, selling and speculation of the market over the past few years wasn't a normal market.

Heck, even if they plan to sell in the short term, they'll be able to buy another home which has also fallen assuming the ratios are close to the same minus all real estate related fees. The opposite holds true in a bull market.

[Claeren]

Originally Posted by pepper24

As long as they can afford their current mortgage payments and plan to live there for a while they aren't necessarily in a bad position. They say you should plan to live in your home for a minimum of 5 years to make back all real estate related fees in a normal market. The buying, selling and speculation of the market over the past few years wasn't a normal market.

Heck, even if they plan to sell in the short term, they'll be able to buy another home which has also fallen assuming the ratios are close to the same minus all real estate related fees. The opposite holds true in a bull market.

What?

IF you bought for $450k and the house is now worth $390k (The house across the street started at $469k 9 months ago and is now down to $379k with no takers...) the bank needs an EXTRA $60k from you before you are allowed to sell. Since 70% of new Calgary buyers were using 0 down and/or more than 25 year mortgages to buy in the past year that means the small downpayment MIGHT washout the realtor fees and such.

People are literally trapped in their homes if they bought in the last year or two with less than ~10% down (and likely to push those who put ~20% down within the next 2 years).

IF you couldn't come up with 10% ($45k on a $450k home) you certainly can't come up with $60k while making massive mortgage payments?

The power of leverage works both ways and this is why so many people lose more when the market goes down then what they gained on the way up. (Because too many people spend what they don't have, so a small downward leveraged movement hurts more than a large upward movement benefits them.)


The only exception (and what i think you were trying to get at) is that the spread between housing classes tends to narrow in absolute numbers during a downward trending market which does favour people who want to move-up from a paid off smaller house to a now cheaper larger house -- but that does not apply in this scenario.



Claeren.

[Flames in 07]

Originally Posted by Claeren

Well Japan has only gone 19 years waiting for their real etate "investments" to pay out!

Still at 1980 prices! (If you bought 29 YEARS ago you have not made any money.)

(Although interestingly probably ready to boom pretty soon....)

The USA is now at about where 1994 is on this chart (some acceptance but still thinking the bottom is close), Canada is at about 1992 (denial, 'never a better time to buy' talk from realtors).

"Never a better time to SELL" other than yesterday of course....








Claeren.

You have lots of good posts, here and on the skyscraper site, but this isn't one of them, to compare Japan to USA and Canada is completely wrong for a long list of reasons. Many of those reasons have to do with the economy.

The economy in the US and Canada in particular is doing quite well, unemployment is low, and few societies in the history of our planet have been so short of skilled labour. It's quite shocking to see what % of people make more than 75k now, and the same at 125k ... especially in Calgary. Japan's economy tanked and lots of jobs were lost or replaced with lower value jobs. With N Americans focus on creativity and individual innovation Canada and in particular the US have created all kinds of opportunity all over the place. The current labour position and overall opportunity here in North America is forecasted to be as bright as it has been over the last several years with everyone on the baby boomer bubble getting ready to retire.

Secondly I can show you all kinds of historical curves that could tell any story I want, and none of those are any more relavant than what has happened in China.

I know one thing about investing is that when people seem to simply lose their minds and develop extreme positions. I saw that in early 2007, and a critical mass of these kinds of thoughts will tell me to start buying everything in sight again.

[Flames in 07]

Originally Posted by pepper24

As long as they can afford their current mortgage payments and plan to live there for a while they aren't necessarily in a bad position. They say you should plan to live in your home for a minimum of 5 years to make back all real estate related fees in a normal market. The buying, selling and speculation of the market over the past few years wasn't a normal market.

Heck, even if they plan to sell in the short term, they'll be able to buy another home which has also fallen assuming the ratios are close to the same minus all real estate related fees. The opposite holds true in a bull market.

First paragraph is true, although poorly understood. The lack of understanding of this point helps perpetuate the large swings we see.

Second paragraph is only true if you still have equity in your home.

[Claeren]

Originally Posted by Flames in 07

You have lots of good posts, here and on the skyscraper site, but this isn't one of them, to compare Japan to USA and Canada is completely wrong for a long list of reasons. Many of those reasons have to do with the economy.

The economy in the US and Canada in particular is doing quite well, unemployment is low, and few societies in the history of our planet have been so short of skilled labour. It's quite shocking to see what % of people make more than 75k now, and the same at 125k ... especially in Calgary. Japan's economy tanked and lots of jobs were lost or replaced with lower value jobs. With N Americans focus on creativity and individual innovation Canada and in particular the US have created all kinds of opportunity all over the place. The current labour position and overall opportunity here in North America is forecasted to be as bright as it has been over the last several years with everyone on the baby boomer bubble getting ready to retire.

Secondly I can show you all kinds of historical curves that could tell any story I want, and none of those are any more relavant than what has happened in China.

I know one thing about investing is that when people seem to simply lose their minds and develop extreme positions. I saw that in early 2007, and a critical mass of these kinds of thoughts will tell me to start buying everything in sight again.

I only posted it to counter the assertion that in 2 years (or whatever) everything will be rosy and house prices will be skyward again.

Japan has sat around for 19 years waiting for that to happen and for the same reasons or different reasons America and/or Canada could well be in a similar situation.

While every bubble is different in the details the general concept and the general fallout is the same. I see this as no different.



Claeren.

[Flames in 07]

Originally Posted by Claeren

What?

IF you bought for $450k and the house is now worth $390k (The house across the street started at $469k 9 months ago and is now down to $379k with no takers...) the bank needs an EXTRA $60k from you before you are allowed to sell. Since 70% of new Calgary buyers were using 0 down and/or more than 25 year mortgages to buy in the past year that means the small downpayment MIGHT washout the realtor fees and such.

People are literally trapped in their homes if they bought in the last year or two with less than ~10% down (and likely to push those who put ~20% down within the next 2 years).

IF you couldn't come up with 10% ($45k on a $450k home) you certainly can't come up with $60k while making massive mortgage payments?

The power of leverage works both ways and this is why so many people lose more when the market goes down then what they gained on the way up. (Because too many people spend what they don't have, so a small downward leveraged movement hurts more than a large upward movement benefits them.)


The only exception (and what i think you were trying to get at) is that the spread between housing classes tends to narrow in absolute numbers during a downward trending market which does favour people who want to move-up from a paid off smaller house to a now cheaper larger house -- but that does not apply in this scenario.



Claeren.

yep, I think that is what he/she is trying to get at. Basically going longer real estate while it's down. Similar to buying more shares in something when the price goes down.

[Burninator]

Canadian Housing Prices Inflated

Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25 per cent.
....
Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20 per cent to be in balance and in Calgary by seven per cent and in Vancouver by 11 per cent.
...
In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary, $32,000; Halifax, $58,000; Montreal, $68,000; Ottawa, $81,000; Regina, $87,000; Vancouver, $85,000; and Winnipeg, $74,000.

That houses are overpriced doesn't, however, guarantee that they will fall, it said.


Link

[pepper24]

^ Bring it on! What goes up can drop just as quickly. Not surprised as things got out of hand and need to correct. 7% or $32,000 on average is actually better than I predicted assuming this is what happens.

I own a home that's gone up a ridiculous amount and welcome the drop. All homeowners should be in this for the long term where history tells us that real estate just beats inflation.

[Bertuzzied]

Total houses starts down 60% from last year.


http://www.canada.com/calgaryherald/...c-b2a1ab00bb0a

[automaton 3]

The average MLS sale price for a Calgary residential property in August was eight per cent less compared with a year ago - the biggest decline in the country, according to statistics released today by the Canadian Real Estate Association.

http://www.canada.com/calgaryherald/...b-ab33948702ae

[Claeren]

Originally Posted by Burninator

Canadian Housing Prices Inflated

Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25 per cent.
....
Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20 per cent to be in balance and in Calgary by seven per cent and in Vancouver by 11 per cent.
...
In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary, $32,000; Halifax, $58,000; Montreal, $68,000; Ottawa, $81,000; Regina, $87,000; Vancouver, $85,000; and Winnipeg, $74,000.

That houses are overpriced doesn't, however, guarantee that they will fall, it said.


Link

This study is tricky because (as I understand it) they looked primarily at rents in each city and average income in each city.

So if rents stagnate/fall (which they are) and income stagnates (which it likely will) then the projected support for prices will also drop. These modest(?) price drops predicted are based on everything else being equal in growth per year to these past few years (where those growth rates were as inflated as home price growth rates they support).

I personally think down 20% (or more) is more likely than down 7% -- the truth may be somewhere in the middle.

More importantly though is that I see high interest rates in a few years eating into affordability and then high inflation/stagflation eating into underlying home values.


So it can drop fast now or drop slowly over 10 years.

Either way it drops back to the long term historical norms. (<Which should be a no-brainer, that is why they are called 'long term historical norms.' Greed and/or fear seem to blind some people to that though...)




Claeren.

[Tron_fdc]

Strangely enough, there are still A LOT of people looking to rent right now. It took me a day to get tenants in my rental, and I've been getting about 5 calls a day for the last week from people still looking.

I would have thought that with all the houses on the market there would be a ton of rentals available from people who can't sell their spec houses.

I'm curious to see at what point the market swings and it picks back up. When do guys wanting to buy in take the plunge? This year? Next year? Move to Mexico?