# Bubble I think I know why



## jamesbe (May 8, 2010)

I've talked to a few people about investing lately and I have found a pattern.

Most people in the general populous are so uneducated and ignorant that they think 1) stocks are unsafe 2) mutual funds are safe 3) real estate is a sure thing.

But the key to #3 doesn't seem to come down to the fact it has risen so much but more that they are just uneducated and to most a house or condo is easy to understand. It is a physical entity that you buy, do stuff with then sell. Where as stocks and funds are some mystical virtual object.


All of this really comes down to education, people don't want to be bothered it seems. 

Read today a guy say the following:
Inherited some stocks
Stocks are unsafe, how do I sell them all to buy a condo in a not yet built building to yet out for awhile.


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## Jungle (Feb 17, 2010)

CMHC + low interest rates, 0% down = bubble


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## ddkay (Nov 20, 2010)

It always goes back to education and the average joe's general lack of intellectual curiosity. Obviously the same people also love sure-fire easy ways to make money. Why do we have to live the stereotype of a first world nation being fat dumb and lazy.

Industry Canada has dithered on a digital economy strategy for years while innovation is dying. Then with no specific objective sporadically allocated too little, too late $80 million to startups. People are getting dumber. I can tell from when I talk to them. I'm sure of it.


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## ddkay (Nov 20, 2010)

Have you also noticed how the government is always so quick to express concern about the issue, and then everyone assumes they will take care of it if something goes wrong.

The bubble wouldn't have burst if x y z didn't happen. I'm a victim! Why isn't our government doing anything to reinflate the value of my home?? No one wants to take personal responsibility anymore.

I don't know if you heard about the FHA refi program in the US. Obama to the rescue:



> The proposal includes a pilot program to sell foreclosed properties in bulk to investors who maintain the homes as rentals, according to the White House. The pilot will be limited to homes owned by Fannie Mae (FNMA), the mortgage company under government conservatorship.
> 
> In a separate announcement, the Federal Housing Finance Agency invited real estate investors to apply for eligibility to bid prior to the auction, which has not been scheduled.
> 
> ...


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## KaeJS (Sep 28, 2010)

jamesbe said:


> I've talked to a few people about investing lately and I have found a pattern.
> 
> Most people in the general populous are so uneducated and ignorant that they think 1) stocks are unsafe 2) mutual funds are safe 3) real estate is a sure thing.


Coincidentally, I've found the exact same pattern with the people I know.


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## andrewf (Mar 1, 2010)

That doesn't explain the bubble, because that has been the case for decades.


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## Eder (Feb 16, 2011)

The fact that it seems to be the dogma that we (all of Canada rather than a city or two)are in a real estate bubble causes me to think there is lots of legs left to the REIT space.


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## ddkay (Nov 20, 2010)

cause assets always need haters for them to go up


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## the-royal-mail (Dec 11, 2009)

CMHC + low interest rates + HBP + 0% down + industry rhetoric = bubble


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## the-royal-mail (Dec 11, 2009)

James, what you say is true. I was roasted by "the inlaws" a few years back about why I was throwing my money away in rent and that I was making good money or should be owning a house no matter what. Never mind the fact I was emerging from financial ruin at the time. They couldn't be reasoned with.

I believe what we're seeing is a result of decades of RE pumping and rhetoric in the media, to the point where RE purchases and "investing" are sacred cows and must be done by everyone no matter what.

I've done well for myself by ignoring this rhetoric and doing what's in my own interests That's all anyone else is doing.


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## ddkay (Nov 20, 2010)

I don't think the notion that Carney and Harper can prevent a crash helps. Everyone buys thinking the government is responsible for letting prices get out of hand and consequently fixing them. For everyone. Because that's why we elect them. And if they don't fix it, they won't get relected. That's how democracy works. Until your country becomes insolvent. But insolvency won't ever happen to us because we turn dirt in the ground to useful stuff people use and will do that forever until it runs out. Also the resource curse is a myth.


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## tinypotato (Jul 27, 2010)

*Bubble*

I think there are several reasons for the RE bubble. Being from Vancouver provides an interesting perspective as well.

1. Stocks are risky but RE is safe - I think this myth has to do with the fact that stock prices are very transparent, quoted publicly and change microsecond to microsecond. People are tempted to look up the value of their stocks more frequently. With a house the value is less transparent so people assume that the price they paid is the minimum they can get in a sale. Imagine if someone different rang your doorbell every minute and offered a different price to buy your home; sometimes up 20k, sometimes 20k less, etc. - I think the perception of real estate would change in a hurry.

2. Low rates - The persistence of low rates has created an entire generation of people who are used to free money. I'd bet that most people don't even know the relationship between interest rates and RE valuation...at least not many people in Vancouver. A by-product of low rates is the increasing property values creates the euphora of ever increasing prices. People ignore the rate of return generated by the actual property and are willing to pay any price since there is always someone else to sell to for even more!

I can't begin to count the number of times I hear "it doesn't matter what rent return I get, since the value will go up!"....sigh

3. Banks / Realtors - They've created the great myth that rent is throwing away money. Why pay someone else's mortgage..blah blah blah. While I agree that these concepts are valid and true under many circumstances, it's not a universal rule. Taking a big mortgage really is just renting money. Besides, the other person's mortgage pays the bank shareholder's dividends...

When people go out for dinner, are they worried that they're paying for the restaurant owner's mortgage? Every time you spend money anywhere you are paying someone else's mortgage, for their vacation, etc....

4. Parents - Asian parents....enough said....


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## Causalien (Apr 4, 2009)

I think Zillow ( A canadian startup) played a role in US real estate downfall by giving almost real time prices on houses sold. 

Funny they can't operate in Canada because our laws prevents that.


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## HaroldCrump (Jun 10, 2009)

ddkay said:


> I don't think the notion that Carney and Harper can prevent a crash helps.


Often the steps taken to prevent a situation ends up triggering the situation it was trying to prevent.
The super low interest rates, the lax lending rules, etc. policy that the govt. has adopted to prevent the RE market from crashing could end up causing the crash a few months/years from now.

And typically the real crash occurs months before the folks on main st. realize that there is a crash underway.
For instance, we were still partying in the summer of 2008 on the TSX (when it soared above 15K), while in reality the crash had already happened several months ago.


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## Uranium101 (Nov 18, 2011)

When will be the crush?
I want to buy a house with cash lol. and I am not paying 600k for a small house.


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## Causalien (Apr 4, 2009)

HaroldCrump said:


> Often the steps taken to prevent a situation ends up triggering the situation it was trying to prevent.
> The super low interest rates, the lax lending rules, etc. policy that the govt. has adopted to prevent the RE market from crashing could end up causing the crash a few months/years from now.
> 
> And typically the real crash occurs months before the folks on main st. realize that there is a crash underway.
> For instance, we were still partying in the summer of 2008 on the TSX (when it soared above 15K), while in reality the crash had already happened several months ago.


I went back to my financial logs and confirmed that 2006 the subprime sector got wiped out. Then 2007 is the hard confirmation of a death cross.

Excerps:

The Logs

September 2006, The subprime mess started where default rate started to rise and reports of illiquidity started appearing. These subprime mortgage companies have a valuation of several hundreds of millions in market value. Amongst those, the biggest of them is CFC (Countrywide Financial). We see the first dip in the market as the smart people sold and got out of everything. However, the overall stock market continued to climb

The climb continued till summer 2007, the subprime sector has been completely wiped out and reports of defaults started appearing in Alt-A loans (the next tier).

Note: The major subprime players are: New Century Financial (NEW), Fremont General (FMT), HSBC (HBC), Citigroup (C), Countrywide (CFC), Washington Mutual (WM)

February 2007, Asian market crashed for 15%, S&P followed. In hindsight, this is also where the 100 SMA crossed 200 SMA and the net cash flow is out

March 2007, Estimated 1.3 Trillion subprime mortgage outstanding, with 600 billion made in 2006 which represents 40% of mortgage loans. In the years 2004 and 2005, it account for only 20%. The year 2007 sees the peak delinquency of loans originated in 2003 and 2004.

March 12 2007, New Century Financial shares suspended trading.


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## Potato (Apr 3, 2009)

Uranium101 said:


> When will be the crush?
> I want to buy a house with cash lol.


You'll have to be very patient. On the one hand, we don't have jingle mail and all the other positive feedback elements that sped up the US crash; on the other, after witnessing that wreck the common buyer may be a little quicker to slam on the brakes, slowing things faster here once the correction does start. Assume the two factors roughly cancel and our unwinding will proceed at about the same rate as the US.

So if you've spotted the bubble with good timing near the top (and weren't early like myself or Mike Burry or whatever), then for the US experience that would be sometime around 2006, maybe even as late as 2007. When is the time to buy? It's still not clear if it's bottomed yet, but maybe around 2011/2012 you agree that even if there is more downside, the fundamentals are back in line and that it's worth the risk to buy again. 

That's a good 5 years or so.

The debate still rages about where the bottom will be, and how close the US is now, but maybe you figure once the major declines started to peter out in 2009 was close enough; that would still be 3 years from the peak you'd have to wait. 

Similarly, if in Toronto you had spotted the problems close to the peak in 1989, you'd have had to wait 3-4 years before you'd want to pencil "house shopping" into your day planner.

Real estate is not a fast-moving, efficient market, so patience will be required. But a 30% correction on a $600k house is $180k, and that savings can be even greater if renting is cheaper while you wait.


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## Uranium101 (Nov 18, 2011)

Potato said:


> You'll have to be very patient. On the one hand, we don't have jingle mail and all the other positive feedback elements that sped up the US crash; on the other, after witnessing that wreck the common buyer may be a little quicker to slam on the brakes, slowing things faster here once the correction does start. Assume the two factors roughly cancel and our unwinding will proceed at about the same rate as the US.
> 
> So if you've spotted the bubble with good timing near the top (and weren't early like myself or Mike Burry or whatever), then for the US experience that would be sometime around 2006, maybe even as late as 2007. When is the time to buy? It's still not clear if it's bottomed yet, but maybe around 2011/2012 you agree that even if there is more downside, the fundamentals are back in line and that it's worth the risk to buy again.
> 
> ...


I understand, I will give it another 10 years.
Just one thing I have noticed is that when most people said it's a bubble, then it's not a bubble ready to burst any time soon.
We just have to wait for awhile.


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## Square Root (Jan 30, 2010)

Real estate has an almost mythic role for most people. Not rational. We just bought a house in Arizona and if you want to be cured of the real estate myth come down here and talk to the people whose homes are under water and worth less than half of what they were in 2006. Even in Canada my bank shares have done better than Toronto real estate over a 15 year period. 
Go figure.


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## Fain (Oct 11, 2009)

Square Root said:


> Real estate has an almost mythic role for most people. Not rational. We just bought a house in Arizona and if you want to be cured of the real estate myth come down here and talk to the people whose homes are under water and worth less than half of what they were in 2006. Even in Canada my bank shares have done better than Toronto real estate over a 15 year period.
> Go figure.


Your bank shares do better but wouldn't real estate come out on top because of the greater leverage you can get.


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## dogcom (May 23, 2009)

Housing is way to expensive right now and that is mostly because interest rates are so low. I would far prefer buying when interest rates are high and ready to turn down rather then buy when they are at rock bottom. Also ask anyone in 1980 in Vancouver and Toronto in 1990 if house prices can drop because they certainly can.

Having said that people are right on the stock market being risky and owning a home is better, but wrong that real estate prices can't drop. Everyone can put out all the data they want that stocks are better historically and so on. But you ask any accountant over the last 60 years and they would be hard pressed to find very many people doing well in the stock market but could find tons of people doing well in real estate. Also buying stocks you have to deal with a large number of cheaters and scammers that real estate doesn't have to deal with on a large scale. You also have a ton of excellent companies over the decades that you could hold forever but for some reason they went under.

I have argued all this before but in the end stock returns just aren't a reality for most people and real estate returns are.


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## canadianbanks (Jun 5, 2009)

Fain said:


> Your bank shares do better but wouldn't real estate come out on top because of the greater leverage you can get.


Yes, but leverage works with the same speed against you on the way down .


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## Berubeland (Sep 6, 2009)

dogcom said:


> Housing is way to expensive right now and that is mostly because interest rates are so low. I would far prefer buying when interest rates are high and ready to turn down rather then buy when they are at rock bottom. Also ask anyone in 1980 in Vancouver and Toronto in 1990 if house prices can drop because they certainly can.
> 
> Having said that people are right on the stock market being risky and owning a home is better, but wrong that real estate prices can't drop. Everyone can put out all the data they want that stocks are better historically and so on. But you ask any accountant over the last 60 years and they would be hard pressed to find very many people doing well in the stock market but could find tons of people doing well in real estate. Also buying stocks you have to deal with a large number of cheaters and scammers that real estate doesn't have to deal with on a large scale. You also have a ton of excellent companies over the decades that you could hold forever but for some reason they went under.
> 
> I have argued all this before but in the end stock returns just aren't a reality for most people and real estate returns are.


Dogcom you're just saying that because your million dollar bungalow hasn't crashed yet. When it's worth $500K or less we'll discuss your "rate of return" It's isn't worth a damn thing unless you sell it.


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## marina628 (Dec 14, 2010)

I hope this is appropriate for this thread but I wanted to ask how you guys think the next year will be for the USA Housing Market particularly Florida .Just want to make a comment as well :I own five rental homes in Canada in the Whitby /Oshawa/Bowmanville area where the million dollar bungalow sells for about $300,000 .

These homes are part of my retirement plan they consist of One bungalow with two rental units and 4 single family homes.I paid $160,000 -$245,000 for them and range from 2004-2007 in age.My most expensive mortgage is $127,000 on my rentals so personally for myself any bubble won't affect me as the rental income more than sustains our liability.I love real estate about the same as I love poker but with the situation in Europe , USA and Now Iran I find myself tightening my belt and do not plan to buy any new Real Estate for Investment purposes. 

I bought my first home in 1991 for $160,000 which was listed for sale in 1990 for $240,000 and my first mortgage was 8.75% with first line trust.I know many CMF members have bought their first homes with double digit mortgages.My husband and i rented our basement and had a family member living with us paying us $400 a month ,we thought owing $100,000 was horrible and we both worked so hard to pay down that first mortgage.
I think today's buyers have been conditioned to look at the monthly payment not the big $500,000 mortgage and they count on appreciation to build equity to move on to the next house.
I do support people buying a home if they plan to live there long term and can still SAVE money while living in the home.The people who scare me are the ones who wipe out all savings to get into a house and then are living paycheck to paycheck just to cover the bills.There is no shame in renting and being a home owner does not instantly make you a successful person.


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## v_tofu (Apr 16, 2009)

Jungle said:


> CMHC + low interest rates, 0% down = bubble


Ok, ppl keep saying this, but I could have swore they got rid of 0% down didn't they? as well as 40 yr amorts?


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## v_tofu (Apr 16, 2009)

jamesbe said:


> It is a physical entity that you buy, do stuff with then sell. Where as stocks and funds are some mystical virtual object.



These are the only physical entities that I invest in, but I'm the guy with the tin foil hat on this forum so take everything I say with a grain of salt + a little crazy.


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## KaeJS (Sep 28, 2010)

^ They did.

It's 5% down and the max is usually 30 years.


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## Berubeland (Sep 6, 2009)

KaeJS said:


> ^ They did.
> 
> It's 5% down and the max is usually 30 years.


They have cash back mortages so you need 0$ down 

http://www.ratehub.ca/best-mortgage-rates/5-year/cash-back?gclid=CN6L-r6Zo64CFRQUKgod5HO3UA


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## dogcom (May 23, 2009)

Berubeland if you read what I said, I said home prices are to high today and I would rather buy when rates are higher and about to come down. When I first bought my home in 1991 after a correction had taken place I wasn't worried about the price falling because I wasn't going to sell for years. I have to admit though if I bought today with a big mortgage I would be very worried about prices falling even though I would still plan to live in it for years.

Still companies are full of untrustworthy people that you don't see trying to manipulate and screw with the numbers and so on. Sorry but the stock people always spout the numbers of the past but the reality is very few people ever realize those numbers in their portfolios. So those stupid people over the last decades are usually right and destroying the numbers of the stock types so who can blame them for thinking the way they do. They will get a wakeup call probably soon but the stock owners have already had numerous wake up calls.


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## dogcom (May 23, 2009)

Here is a good one for you guys.

If the bank gave you a million dollar loan and said you had to invest it in the equivalent real estate detached freehold house where you live or in the stock market value today with one catch. The catch is you had to get a member of this forum at random and not the mods to invest it what would you do. And one more thing they couldn't buy drug houses or houses with big known problems or penny stocks and stocks with big known trouble like RIM.

For me even though I know the real estate market is to high I would still rather hold a property in Richmond where I live then take a chance on the stock picks.


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## KaeJS (Sep 28, 2010)

Berubeland said:


> They have cash back mortages so you need 0$ down


... wow



5% cashback.... I can't believe people are really that foolish.


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## Berubeland (Sep 6, 2009)

I would take a good selection of blue chip dividend funds or a selection of long term warrants. 

I would at least have a chance to succeed while in RE I would be virtually guaranteed to fail with random poster X as my picker. 

If you gave *me* a million $$$ to spend in real estate I could probably make you some money by vulturing, and buying all cash properties. I wouldn't even consider residential for the most part and certainly not houses. 

I might be able to make 10% maybe... after my pay. Probably not.


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## Causalien (Apr 4, 2009)

I just got my HELOC approved in anticipation of a crash. Here's a hypothetical scenario that I asked [email protected] and both her and the service person she called for help said it is insane to think about the scenario. So the answer I got from her was that they will not yank the credit line. Even though the loan agreement language in the contract say they can yank the credit line at any time without any notice.

The scenario is, if my HELOC is for 100k and the house market value has fallen back down to $50k what will happen to the HELOC? Will they yank the loan? I am searching for previous cases in the US to see what banks there did, but I would like to hear from people in Canada on this to make sure.


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## marina628 (Dec 14, 2010)

I do not know about yanking it but i expect at maturity they would adjust it based on 80% equity.in Late 80's our friends were forced into bankruptcy because they owed 60k more than house was worth,every time they made payment the bank lowered limit on credit line so their minimum payments were something like $7000 and carry forward each month.


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## Four Pillars (Apr 5, 2009)

marina628 said:


> I do not know about yanking it but i expect at maturity they would adjust it based on 80% equity.


What maturity are you talking about? My HELOC is forever...


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## Causalien (Apr 4, 2009)

I think Marina is talking about the one she locked in.

Mine hasn't locked in yet and will remain variable rate without any principal payment if I decide to use it. So I am very worried that the bank will force me to repay the loan all at once while whatever asset I decides to buy in the future is at the lowest point in its price history.


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## Causalien (Apr 4, 2009)

Found an interesting article: 
http://www.bloomberg.com/news/2012-02-17/canada-housing-poised-for-severe-drop.html

What I am interested in, are the sources of this data. It says it's from stats canada, but I can't, for the life of me, find out which data it is. Anyone got an idea?


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## marina628 (Dec 14, 2010)

Yes I am talking about the one I locked in 2.99% for 4 years.


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## Square Root (Jan 30, 2010)

Fain said:


> Your bank shares do better but wouldn't real estate come out on top because of the greater leverage you can get.


Probably, but leverage is risky. Also, I have gotten more than half my money back in dividends over this period - reverse leverage.


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## v_tofu (Apr 16, 2009)

I'm wondering, for those that are talking about a bubble/crash, are we specifically talking about Vancouver/ TO here? I'm guessing so, since the prices of condos/homes must be sky high.

Also, Say there is a "crash", and if I can continue to make my payments, should I? My house is a wee 1250 sq ft bungaloo, built in 2009, and currently owe about 225k. The payments are reasonable, and currently the entry price for our area for a house thats pretty much the same design as ours is currently going for 330k brand new  So I'm guessing a crash wouldn't affect us as much?

I would be tempted to sell for a profit and just rent, but I really do like our location and home.. hmm what to do what to do.


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## londoncalling (Sep 17, 2011)

*what would happen?*

A recent issue of Canadian Business theorizes what would happen if the bubble burst. To sum up bad things across the country but esp. TO and Vancity. If interest rates rose dramatically causing a massive sell of and the value of your property to drop 20?30? 50? percent would you still be able to make the payments on your mortgage/HELOC? 

The article suggests a mortgage that is 3x annual income as the maximum affordability on a 25 year mortgage. If you are over that you should have serious cause for concern. Right now in TO and Vancouver the majority of purchasers are specuvestors. The problem with this is that they are buying these places on the assumption that prices will continue to rise the same amount at the same pace as they have recently. In order for this to happen it requires continued demand and currently the majority of buyers are other specuvestors either anxious to get in or first time buyers afraid they'll miss out. The problem with any bubble is that it takes a bigger sucker to pay you more than you paid for your overvalued good. What happens if rates rise or prices stall? there will be a rush of specuvestors trying to get out which will flood the all ready oversaturated housing market, especially condos in larger centers, causing prices to free fall. Banks will panic and start calling in credit on unsecured LOCs and HELOCs. If your mortgage balance was 2x the value of the property and the interest rate made the place unaffordable what would you do?

If you are planning on moving in the next while then yes you may have cause for concern. If you plan to be there for the next 20 years then you should be fine. People need to realize that a home is a place to live first. After that it becomes an overweighted asset in most of our portfolios. If people spent more time focusing on the first part then prices may not be so ridiculous to make the second or the above such a concern. 

Now, I am not saying that this will happen but it is a possibility. All one has to do is look at what happened in the South awhile back and ask yourself Why would this time be any different?

Cheers!


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## financialnoob (Feb 26, 2011)

People obsess over the values of their homes, but if it's more than a place to live, then it shouldn't matter. By that I mean it's your personal space, a place you raise a family, a place you love and feel grounded, then why would you move regardless of what the market says? 

By the same token, if you're totally unattached to it and just bought it to avoid paying rent, then perhaps it is worth considering.


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## HaroldCrump (Jun 10, 2009)

londoncalling said:


> If interest rates rose dramatically causing a massive sell of and the value of your property to drop 20?30? 50? percent would you still be able to make the payments on your mortgage/HELOC?


Interest rates will not rise.
At least, not rise enough to trigger a crash.
The central bank & the govt. has made the choice that it is better to bankrupt us with debt and inflation instead of risking a RE correction.

The crash, if/when it comes, will be triggered by some other factor.
Maybe unemployment, which is slowly creeping up, or an external factor like commodities correction, European crash, etc.

But not interest rates.


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## Sampson (Apr 3, 2009)

I have a problem with the hypothesis that the market will 'free fall', especially in markets like Vancouver and Toronto.

I'll state some assumptions first, job rates remain relatively constant. If jobs go out the window, then a different scenario would arise.

First condos, single family homes in Vancouver. How many people are at risk? We don't have teaser nor sub-prime loans. We can't walk away from mortgage debt as easily as Americans. There are tonnes of people in these markets that would love to buy but cannot at current prices. If specuvestors leave, housing would certainly drop, but many first time home owners would be able to come in. That single family home in Vancouver costing $750,000, suddenly costs $600,000, $500,000 and I guarantee there will be a new market of people now able to 'unafford' these houses.

Again, if employment rates stay good, there will be big cushions in many of these markets.


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## kcowan (Jul 1, 2010)

Plus the government and the BoC will do everything they can to ensure a soft landing. They cannot stop an equity meltdown so housing is less volatile than stocks.


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## andrewf (Mar 1, 2010)

Samson, you're quite right that Canada and the US have differences in how their mortgage markets work. But some people are using differences that don't exist. Some of the hardest hit markets in the US had recourse mortgages. Some of the hardest hit states had high population growth rates.

You say that there are tonnes of first-time buyers out there. Home ownership rates are higher in Canada than they were in the US, even at the peak. In otherwords, the pool of people who want to and can afford to own a home but do not is not obviously large by historical standards. It does not require a huge imbalance in supply and demand to have a significant correction in prices.

Now, I think it is possible that house prices will stay flat in real terms over the next ten years, but I have a hard time believing we will see another decade of 6% real price appreciation. Assuming muted wage growth over that period, that would make houseing 80% more unaffordable in price/income terms. That would make Vancouver the most expensive city in the world by a huge margin over Hong Kong. 

So I see the scenarios as potentially flat to modest decrease if everything goes well, and sharply negative if things don't go well. And seeing all the challenges faced by world economies, particularly our largest export market (which intends to cut economic activity through government austerity), I would not put too strong a bet on the optimistic scenario.


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## Sampson (Apr 3, 2009)

andrewf:

I agree with what you've written most of this thread. I also believe we are in for a long period of lateral movement in the Canadian housing market.

I've already seen this over the past few 3 years in Calgary. Things (prices, demand, supply) are cycling up and down +/- 5% but they really aren't moving anywhere. Despite strong growth in jobs and wages, and population growth in this City, there is not enough impetus to keep the market moving higher.

Stagnated markets are here for at least 5-10 years, and while I think, as Harold points out, another driving force could result in a decline, I think there is enough support even in the worst markets to prevent the carp from hitting the fan (i.e. > 25% corrections are unlikely).


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## Berubeland (Sep 6, 2009)

Let me draw a little picture of what a significant decline in RE would mean. 

First of all, a lot of our economic activity is connected in some way to RE. 

Here's a few...
Newspaper ads
Construction
Developers
Real Estate Agents
Banking
Building supply stores, Home Depot, Rona etc

So many people out of work or with cut hours.

Now with a declining market...no one wants to live in a big huge house with no curtains (because they can't afford them) or a 6000 square foot monster with heat on at 45 degrees because it costs a fortune. Without that "lottery win" capital appreciation just more debt (underwater) they just bail. There is no payoff for sacrifice for them. The specuvestors leave the market. 

In a flat market with 5% down by the time you calculate your CMHC fees you can hardly even afford to pay the realtor and break even after 5 years of paying the mortgage. Never mind the premium people pay over renting to own. 

The situation can turn ugly really fast, both for housing and the general economy. We fail to perceive just how pervasive that "big housing pay off" thinking is.


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## RichmondMan (Jan 31, 2011)

Bubbles will always be!


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## sags (May 15, 2010)

70% of Canadians already own homes.

Of the remaining 30%, I think it would be safe to assume that not all of them qualify for a mortgage or have any interest in purchasing a home.

We also know that a majority of prospective first time home buyers are not establishing their own homes..........but moving back in with mom and dad.

They are a key element to housing, as they allow the sellers to move up.

A recent picture of a grand opening of home sales in the GTA showed that it was all Asian buyers, probably speculators. The price of the homes were raised after the first 15 minutes of sales. People were signing for 600,000 homes after being inside the door for 2 minutes.

When you spend more time picking out bath towels than buying a home, something has come off the rails.


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## GoldStone (Mar 6, 2011)

> 70% of Canadians already own homes.


Yeahbut, immigration creates a steady stream of potential new home buyers.

Total number of admitted permanent residents:

2010: 280K
2011: 240-265K (projected range)
2012: 240-265K (projected range)

Total: *780K* (assuming 2011 and 2012 end up in the middle of projected range)

For the reference, 2011 population stats:

Edmonton: 812K
Mississauga: 713K
Winnipeg: 663K
Brampton: 524K
Hamilton: 520K

Immigration effectively creates a new Mississauga every 3 years. Or a new Hamilton every 2 years.


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## the-royal-mail (Dec 11, 2009)

I don't believe immigrants are contributing towards the house price bubble. But I do think they're contributing towards the shortage of available apartments. Many of them come here with not much money and are not immediately looking to sign to a house. The career and life transition for a lot of them is very difficult and many of them are not making the income needed to afford the kinds of house prices we're seeing today. So they're renting until they can get better established.


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## GoldStone (Mar 6, 2011)

It doesn't matter that immigrants don't enter the house market right away. The delay - from the moment they come to the country to the moment they enter the house market - doesn't matter either.

What matters is the fact that immigration creates a steady influx of new buyers who do buy, eventually. Immigrants who landed 5-7 years ago buy today. Immigrants who land this year will buy in 5-7 years. And so it goes.


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## NotMe (Jan 10, 2011)

GoldStone said:


> It doesn't matter that immigrants don't enter the house market right away. The delay - from the moment they come to the country to the moment they enter the house market - doesn't matter either.
> 
> What matters is the fact that immigration creates a steady influx of new buyers who do buy, eventually. Immigrants who landed 5-7 years ago buy today. Immigrants who land this year will buy in 5-7 years. And so it goes.


But if immigration is creating more of an influx of new buyers, than how come the US real estate market is in the tank? The United States has more immigrants than every other country on earth.. put together.

http://en.wikipedia.org/wiki/Immigration_to_the_United_States


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## GoldStone (Mar 6, 2011)

I'm not saying that immigration is the cause of the bubble. Or that immigration will support bubble prices going forward.

I responded to this point that someone made up thread:



> 70% of Canadians already own homes.


It may be true, but it doesn't take into account the steady influx of the immigrant buyers.

RE: immigration in the US

The absolute numbers don't matter (US is a much larger country). What matters is immigration per capita. Canadian immigration per capita is the highest in the developed world.

*EDIT:*

2011 stats

US

Population: 313 million
Legal permanent residents admitted: 1.1 million
Legal immigration per capita: *1 to 285*

Canada

Population: 33.5 million
Legal permanent residents admitted: 250K
Legal immigration per capita: *1 to 134*

Canadian per capita immigration rate is twice as high.


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## Potato (Apr 3, 2009)

Goldstone: you can't look at immigration in a vacuum. Population growth creates housing demand, doesn't matter whether that's from immigration or reproduction, and the 70% ownership figure does take that into account. The population growth rates in Canada and the US over the last decade are virtually identical.



Four Pillars said:


> I bought my first house 12 years ago and at that time, a lot of people thought real estate was too high in Toronto.


I pulled this from another thread that's gone quiet, seemed more appropriate to put in this one.

I have to ask: who were these people? As a bear, I've heard that type of criticism before, but never with any kind of details. Who said it, what was their reasoning and evidence? _I_ wasn't saying it back then. In 2003 the investors I know were still buying, and that petered out around 2006. I only got seriously bearish around late 2007. 

Sure, that's still a long time to be bearish, and if you want to poke fun feel free, but who was bearish in 2000?


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## Xoron (Jun 22, 2010)

GoldStone said:


> 2011 stats
> 
> US
> 
> ...


But don't forget the birth rate. The US is has 2.05 births / woman, where canada has 1.53 births / woman.

http://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependent_territories_by_fertility_rate


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## Four Pillars (Apr 5, 2009)

Potato said:


> I pulled this from another thread that's gone quiet, seemed more appropriate to put in this one.
> 
> 
> 
> ...


And here I was thinking nobody reads my comments. 

I should probably rewrite that quote to say "Several of my friends thought real estate was over-valued at the end of 1999.".

I don't recall whether there were any Garth Turners etc around back then - as you say, probably not.

I did the house search in the fall of 1999. As I recall, at that time real estate prices had gone up quite a bit for several years. 

Rational or not, it seems to be human nature to assume that if house prices have gone up a lot, there is a larger chance of a crash. In fact I know one couple who sold their house in early 2000s (2001 maybe) so that they could take advantage of the impending crash. Ooops.

I had two other friends who looked for houses starting around 1997? but they concluded that houses were too expensive at that time and decided to wait. One ended up buying in 2003 and the other finally bought a house two years ago.

Bottom line is that real estate is hard to predict, but whether you can predict it or not is usually irrelevant because the cycles are so long and the timing is impossible to predict.


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## andrewf (Mar 1, 2010)

Back in 1999/2001, price/rent ratios and price/income ratios were still near historical levels. There was an inflection point just after that point where house prices broke from their trend and went on to rise to nearly double the trend level.


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## dogcom (May 23, 2009)

I think a lot of the stuff you say Four Pillars is common sense stuff that we really can't argue over or isn't of the short term stuff we like to have fun with. But again I agree with what you are saying and in fact have heard this to expensive argument many times over decades. In fact I honestly thought the game was over in 2007 like many others who did sell and are now kicking themselves but I hung on because of my simple rule of no games with my principal residence. I did however sell to take advantage of the hot market last year but bought something better newer and bigger in a great area for less money to go mortgage free.

You might think I played games but my other house needed to be expanded and it would have cost me a lot of money so this opportunity fixed the problem and the old house still would have been knocked over when I sold it. I did pay to much I believe for this new house but someone paid to much for my old house and life goes on and I am still not paying someone else a lot of money to rent.


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