# Townhouse vs Semi Detached



## kaswardy (Feb 18, 2016)

I am in the market to buy a property in Mississauga and was contemplating either a Townhouse or a Semi Detached.

With the market going up every year and GTA being an area for new immigrants, I was wondering if a town house will be a better value to purchase. A few years from now when Semi Detached prices reach 700k+ range it won't be feasible for new immigrants/home buyers to purchase these and they might be looking for cheaper options. Townhouses will potentially be in the 550k-600k range, so won't a Townhouse which is going for 450k right now go more up in price than a 600k Semi Detached. And to play the devil's advocate here, even in the case of a real estate downturn the more expensive places will devalue further.

I plan to rent out the basement in both cases and with Townhouse maintenance fee of $300 odd the monthly payments will be around the same mark.

Any feedback on the theory?


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## carverman (Nov 8, 2010)

kaswardy said:


> I am in the market to buy a property in Mississauga and was contemplating either a Townhouse or a Semi Detached.
> 
> With the market going up every year and GTA being an area for new immigrants, I was wondering if a town house will be a better value to purchase. A few years from now when Semi Detached prices reach 700k+ range it won't be feasible for new immigrants/home buyers to purchase these and they might be looking for cheaper options. Townhouses will potentially be in the 550k-600k range, so won't a Townhouse which is going for 450k right now go more up in price than a 600k Semi Detached. And to play the devil's advocate here, even in the case of a real estate downturn the more expensive places will devalue further.
> 
> ...


Pretty naive to think this way. There are a lot of pros and cons about buying either. Also a warning about renting out basements.
Here are a few points:

1. Basements for tenants have to have separate ingress/egress to the outside in case of fire.

2. Most town houses are part of a Condominium Corporation and as such you are NOT allowed to rent to anyone (even to relatives), without full approval of the Condominium board.

3. Even if you ( by some stroke of luck) get approval by the board, there is the fire insurance hurdle you as owner have to jump through , and that may be very difficult and expensive. Most fire insurance underwriters may not want to take the risk.
Even if you manage to find a fire insurance company willing to give you fire insurance on a rental unit, most fiire insurance companies will insist on a full inspection for: smoke detector, fire extinguishers, stairways and heating safety. Carbon Monoxide detectors on every level are compulsory now.<
After all, it is YOUR Heating equipment and you can be* held legally responsible *for any :<
Burns, CO poisioning, etc, inside the basement apartment you are trying to rent.

4. Conversion costs of a ordinary basement for extra electrical-heating appliances.

5.city bylaws which may prohibit renting basements out to strangers. Plus property tax implications as the city MAY see this as COMMERCIAL vs residential housing. Your are renting for a profit after all.

6. Registering with the fire dept that another family or unrelated individual is living at the same address. 

7. And..many other pitfalls as a result of renting out...


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## Just a Guy (Mar 27, 2012)

Aside from the stuff carver an pointed out about your basement plans (which always require proper zoning and permits). 

I wanted to comment on people who complain about the condo fees. Condo fees are mandatory maintenance costs which you should always factor into your ownership. People think they "save money" by buying a single detached because they don't need to pay condo fees. 

Wake up people. Your single detached still has a roof, siding, furnace, Windows, etc. All of which will eventually need repairs and/or replacement. None of these things are cheap to do. If you put aside $300 or so a month, you would save up enough money to do these repairs as required...just like the condo forces you to do, so that they can replace/repair the major things (roof, Windows, siding, boilers, etc.) that they call the common area.

When calculating maintenance on a home vs. a condo, these numbers should work out to be virtually the same but, with a condo you subtract part of the condo fees from your number. I say "part" because some condos also include some utilities in them. For this, you can add this to the rent you charge as the tenant gets the benefits of it which they wouldn't in a single family home.

Basically, if you know what you are doing, you should realize that condo fees are a wash when it comes to your calculations.

As a final thought, it's silly to buy properties at a high point in the market thinking that they'll always continue to rise because they have in the past...life doesn't work that way.


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## rl1983 (Jun 17, 2015)

Just a Guy said:


> As a final thought, it's silly to buy properties at a high point in the market thinking that they'll always continue to rise because they have in the past...life doesn't work that way.


Do you think the market will cool eventually?

I'm in Vancouver area and it's completely out of control. A two-bedroom condo in an area just east of Vancouver are getting bids over and above $420,000 now.


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## Just a Guy (Mar 27, 2012)

I know the market will correct when interest rates rise and houses are no longer affordable. I don't know when that will happen, but interest rates can't and won't remain near 0% forever.

Go play with a mortgage calculator and see what happens to the monthly payments when interest rates go up...the historical average rate for mortgages is 8% for reference. Most people have no idea how fast that payment goes up for each 1% rate increase.


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## Berubeland (Sep 6, 2009)

Before buying a property in Mississauga, look into city licensing for basement suites, how much it costs and the bullshit you have to go through, the fees you have to pay before contemplating this purchase. 

http://www.mississauga.ca/portal/residents/housingchoicessecondunits 

So goddamn annoying and so much BS.


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## Mukhang pera (Feb 26, 2016)

Just a Guy said:


> Windows, etc. All of which will eventually need repairs and/or replacement. None of these things are cheap to do. If you put aside $300 or so a month, you would save up enough money to do these repairs as required...just like the condo forces you to do, so that they can replace/repair the major things (roof, Windows, siding, boilers, etc.) that they call the common area.


As for major-type items to which JAG refers not being cheap to do, if buying a condo or any strata-titled property, be sure to obtain and read the minutes of all strata council meetings for at least a year previous. It will let you know if there has been concern expressed about common property issues. 

For example, Vancouver has become famous (or infamous) for its "leaky condo" issues. In many instances, 5, 10 or 15 years after construction, whole buildings have started the leak and have required complete replacement of building exteriors and "rain screen" protection, which gets VERY expensive and cannot be covered by regular strata fees. In many cases, the council considers the matter, then calls in an "expert" to opine as to remedy and cost. The expert will usually recommend a second expert - an engineering firm with related expertise. Oft times, the engineers will recommend very extensive and expensive rehabilitation. When the report goes before council, everyone is shocked. Sometimes the response is to go with a relatively inexpensive patch job. A few years later, problems show up again. In fact, the initial problem was only covered up and now there is more damage. Another costly engineer's report (plus one for a second opinion) follows. The costs have skyrocketed and options are few. Every owner is then faced with a "special levy", in the tens of thousands of dollars, to solve the problem. I have not been there for awhile, but not long ago a walk through Vancouver's West End would reveal many buildings surrounded with scaffolding, screening, etc., remaining in place for many months, while repairs were carried out. 

A West End condo owner I know received a special levy in 2008 to repair problems, including water ingress, in an underground parking lot. Her condo was about 480 square feet and, at the time, worth about $180,000. Her levy was $14,000. At that time, rentals were permitted in her building and going rent for the space alone was about $900/mo. at the time. She rented her place furnished, with cable tv and phone (injuncted from long distance) included. She provided cookware, linens, etc. She charged $1,200/mo. That levy wiped out about one year's rent. Of course she still had to pay her monthly regular strata fees, property tax, etc. 

Another thing to keep in mind about the monster costs that can arise with condo/townhouse ownership is the mechanism by which a special levy can, in fact, be levied. Usually they cannot be decided upon by the strata council acting on its own. Council has to call a meeting of all owners and it is usual for any large expenditure to require approval by "special resolution", which may require something like a 75% majority vote. If the resolution fails, the problem goes unsolved and gets worse. If the resolution does pass, the minority feel they are victims to the tyranny of the majority and they resent being told they have to come up with big bucks and, if they don't, the strata corporation will file a lien against their title and, ultimately, seek an order for sale to enforce the lien. Ah, the joys of strata ownership.


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## AltaRed (Jun 8, 2009)

FWIW, I would rather live in a strata arrangement than a freehold community where some owners are highly negligent of the maintenance of their properties. A close friend of mine lived in a freehold townhouse (actually rowhouse) development of 5 units. There were no 'rules' other than the party wall agreement so any one or more of the 5 owners could do as much or as little as they liked to their 'houses'. Imagine living with a derelict attached unit on one side and a flourescent pink unit on the other side. Semi-detached houses fit into this latter category. IF one buys a semi-detached, I would suggest it is better to buy new, or quite new, to avoid issues with negligent attached owners....and sell and get out before a degrading property next door affects you. 

I would also pick a semi-detached that does not have a continuous roofline across both units, or even exterior walls. That way, a responsible owner can maintain his/her roof rather independent of the jerk next door. Similarly with paint colour and/or maintenance. I have owned 2 semis at different times in my lifetime. Both times I was in new construction and got out within 10 years before the poo started to hit the fan.

Lots of pros and cons to consider in both instancs.


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## rl1983 (Jun 17, 2015)

Just a Guy said:


> I know the market will correct when interest rates rise and houses are no longer affordable. I don't know when that will happen, but interest rates can't and won't remain near 0% forever.
> 
> Go play with a mortgage calculator and see what happens to the monthly payments when interest rates go up...the historical average rate for mortgages is 8% for reference. Most people have no idea how fast that payment goes up for each 1% rate increase.


That's what I figured. I'm wondering what my plan of action is. I can't afford to do what I want currently, so should I just focus on paying off my condo? Or start stockpiling cash for the purchase of The Next Step? That's the current big dilemma. 

If the interest rates do rise, cash is king and having it on hand will be beneficial. 

But if the interest rates do rise ( and you're right, they will eventually ), I think the market will go flat, and there will be very few sales. That's what happened in 2011 when there was a slight correction. No one, unless they are forced to, will sell at a loss.


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## Newby1983 (Apr 9, 2015)

I lived in a townhouse condo for over 6 years and sat on the board the entire time. I would not buy another one to personally live in. There's alot of overhead especially paying the property manager in my case $70-80 per month per unit. That's alot of dough over the course of 6 years to simply arrange for contracting of work especially if you have the slightest capability to do this. Also others' problems often becomes the problem of everyone in the complex. You also are restricted in what you can do eg can't just build a fence without board approval. in my case there were several rentals and the board approved all of them as it was out understanding the board needed a good reason to deny an owner the ability to rent out. My neighbour did put in a basement apartment and got a permit and board approval. I. Our case our board was easy going but I've heard some boards are quite strict and like to show their power.


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## Just a Guy (Mar 27, 2012)

The difference between the interest rate rising and 2011 is that an interest rate rise will affect every mortgage holder at renewal time. A rough rule of thumb is for every 1% rise in interest, your monthly payment will increase $100 for every $100k borrowed. 

You have a $500k mortgage and the interest rates rise a measly 2%, at renewal time can you afford an extra $1000/month to keep your home? Not sure that most people could, so it goes into foreclosure and gets sold for whatever the bank can get. Of course, the new buyers also can't afford the extra $1000/month,,so the price has to drop to the selling point where the mortgage is $1000/month cheaper, which means a big drop in the price.

So, you can wish that housing prices will remain flat, or that you can wait out the decline but, the truth is, you probably won't be able to afford to wait out the correction that an interest rate rise will force.

This is the main reason why I only buy properties that have sale prices well below market already, I build in the correction because, with the amount I own, I couldn't afford an interest rate rise if I didn't.


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## AlMansur (Jan 25, 2016)

The chances of the interest rates increasing drastically is remote. They will rise eventually and at a pace that most people with mortgages can afford to pay.
House prices are rising in double digits in the GTA, due to low interest rates, slow increase in immigration and financial innovations. The average home ownership in ON is 70% and rising, why, because we like to own a home (physical, freedom, enjoyment, etc). There are some European countries that actually rent, about 70%.

There's too much volatility in investing in shares/equities, whereas I find the Real Estate over the long term is stable and steadily increasing.
Even if you don't invest in RE, I always find more joy in having my own home, rather than renting (and paying someone else's mortgage).
The average home in the GTA is rising by about $50k every year, so why wait till next year? 

Rather than paying the condo fee, there's also the option of buying a Freehold Townhouse, where you are responsible for everything, similar to owning a Semi.


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## Just a Guy (Mar 27, 2012)

It doesn't take a drastic increase to hurt...let's say they do .25% a year...in a typical 5 year mortgage, the rate has jumped 1.25%. If it jumps a modest .5%/ year it's now up 2.5% at renewal...

For reference, the rate used to jump .25-.5% each quarter. 

People need to understand the implications of basic math and stop fooling themselves. 

As for owning your own home, when you factor in your interest payments, your maintenance, and the fact that the average person moves every 7 years in Canada, you'll find the average Canadian homeowner is doing nothing more than renting from the bank while agreeing to take on all the costs and risk. The "paying someone else's mortgage" argument shows, once again, people don't understand the basic math involved. In 7 years, when you factor in all costs and appreciation, most homes barely break even if they don't in fact lose money...so you're actually no further ahead financially. Your "equity" is all eaten up, just as if you'd paid rent.


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## rl1983 (Jun 17, 2015)

Just a Guy said:


> So, you can wish that housing prices will remain flat, or that you can wait out the decline but, the truth is, you probably won't be able to afford to wait out the correction that an interest rate rise will force.
> 
> .


So I'm stuck here?


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## Just a Guy (Mar 27, 2012)

I've got no idea what's going to happen or when. All I can say is that, when interest rates do rise, real estate is going to get very interesting. I never expected interest rates to get this low, I don't think anyone did. I can't see them going much lower, and the Feds have hinted they'd like to raise them for years...but still haven't. 

I'm sure I'm not the only one who realizes what'll happen if rates go up...then again, the government may decide to just blow things up quickly, something like what happened in the states, hurt one generation and get things reset... Governments have done some pretty stupid things in the past, and there's no good way out of this mess that I can see. 

Best to pay down your mortgages to a level that's sustainable. Even if nothing happens, you won't be worse off. Renting may be the best option unless you find a deal but, as I said, this my continue for years.

Personally, I buy well under market value or not at all.


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## Ruski (Feb 21, 2014)

Just a Guy said:


> I've got no idea what's going to happen or when. All I can say is that, when interest rates do rise, real estate is going to get very interesting. I never expected interest rates to get this low, I don't think anyone did. I can't see them going much lower, and the Feds have hinted they'd like to raise them for years...but still haven't.
> 
> I'm sure I'm not the only one who realizes what'll happen if rates go up...then again, the government may decide to just blow things up quickly, something like what happened in the states, hurt one generation and get things reset... Governments have done some pretty stupid things in the past, and there's no good way out of this mess that I can see.
> 
> ...


Home ownership is an emotional decision for many people so if it was just down to simple math, i would agree with you fully but it's more than that.

I spent a good 7 years on the sidelines waiting for a market correction in Toronto and it never happened. Now, i totally agree with you that those people who think that a rise in interest rates isn't going to impact the market are just fooling themselves. Or folks who believe is neverending growth!

For the past year and a bit i was lurking around the market looking for a bargain and what i realized is its so easy to get itchy/antsy/emotional when you see something you like or you viewed 30+ places and just want to get it over with. I finally bought a 2bed/2bath 2-story loft in downtown toronto at a price that was $150-$200 per sq. ft. lower that all comparable units in the area. Main reason for such a discount? Condo fees are high and roughly $170 more than market avg per month. Which isn't nothing, that's roughly $10k extra condo fees over a 5 year term. 

HOWEVER, for me the deciding factor was to buy a unit at a significant discount to market comparables ($150+k) and pay the higher condo fees for now. It is not simple but if you are proactive and get on the board of your condo, there are opportunities to lower fees. Obviously places where fees are high due to with massive lawsuits or serious repairs are going to be a tough sell no matter what (stay away from that!!!), in some cases its the fat contracts that someone negotiated or expenses that some condos do not need which can really change the situation over a few years.

Interest rates will rise but with a relatively flat economic outlook in Canada for the next few years, it's unlikely to be a drastic increase.

So to end my personal rant:
1. Budget accordingly and anticipate an increase in interest rates over the next 5 years.
2. Don't buy at the top end of market value hoping for crazy returns.
3. Finally, minimize emotions where possible


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## rl1983 (Jun 17, 2015)

Just a Guy said:


> I've got no idea what's going to happen or when. All I can say is that, when interest rates do rise, real estate is going to get very interesting. I never expected interest rates to get this low, I don't think anyone did. I can't see them going much lower, and the Feds have hinted they'd like to raise them for years...but still haven't.
> 
> I'm sure I'm not the only one who realizes what'll happen if rates go up...then again, the government may decide to just blow things up quickly, something like what happened in the states, hurt one generation and get things reset... Governments have done some pretty stupid things in the past, and there's no good way out of this mess that I can see.
> 
> ...



Much like investments, I'm in it for the long haul. But being near Vancouver, the only detached homes for a reasonable amount of money are 1.5 hrs out of downtown. My mortgage is very reasonable, it's the amount of rent in the area. The thought of paying someone else's mortgage bugs me, and that's why I own. 

The area I would like to buy, the condos ( 2bed, 2bath 850-900sq feet ) are selling for $450,000. Insane. I think I'd be doing myself a major disservice by moving there in this market.


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## Just a Guy (Mar 27, 2012)

rl1983 said:


> My mortgage is very reasonable, it's the amount of rent in the area. The thought of paying someone else's mortgage bugs me, and that's why I own.


I always like this arguement...

Okay, think of this scenario...you buy a place that is overpriced. You pay your mortgage, then the market corrects so your equity has decreased (in reality you're renting from the bank, and not really building up anything). Even if the prices don't decrease, factor in how much the house costs when you factor in all the interest on top of the original price, and you're really doing very well. The bank is your landlord and you are responsible for all repairs and maintenance.


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## andrewf (Mar 1, 2010)

Yeah, you go from renting a dwelling to renting a few hundred thousand dollars, and taking on a lot more financial risk. Not to say that owning is never a good idea, just that it is not always a slam dunk to own vs rent.


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## Mukhang pera (Feb 26, 2016)

andrewf said:


> Not to say that owning is never a good idea, just that it is not always a slam dunk to own vs rent.


Probably owning in Toronto or Vancouver is a slam dunk, over the long haul, which should always apply to real estate. Yes, I have done a few "flips", but always recognizing that the market can turn on a dime and one should be prepared to hold said flip for years, so it should also be able to support itself as a rental.

Looking at Toronto and Vancouver over the long term, i'll offer a couple of examples. In 1945, my parents bought their West Vancouver house, on a large corner lot, with views to downtown, the west side, UBC, etc. They paid $8,500 and sold for $11,500 in 1950. The house was a heritage house, moved from the lot in the 1980s. The lot was then subdivided into 3 lots, each with a current BC assessed value of about $1.5 million. That’s just for the land. My parents took their $11,500 and bought a house in Lawrence Park in Toronto for $20,000. It too has appreciated nicely. Some ups and downs, yes, but somewhat more up than down. 

For those who suggest that owning is unwise and simply a matter of replacing renting a house with renting money from the bank, let me observe that there are few landlords who hand over the keys to the house after 20 years or so, saying you have paid enough, and the house is now yours. But bank mortgages tend to get paid off, and the house becomes yours, whether you like it or not. Moreover, unlike rent, which tends to rise with inflation, the principal secured by a mortgage tends to be paid down instead of increasing. It does not get adjusted upwards to keep pace with inflation.

Take my folks’ Lawrence Park house. Their 5% mortgage was paid off in the 1950s, but let’s say it wasn’t. Let’s say they paid $5,000 down on the house and negotiated a mortgage of $15,000. Hell, let’s go wild and say they obtained an interest-only mortgage and, to this day, in 2016, they still have never paid off a dime. So what? How much of a struggle would it be to make the monthly interest payments today on a $15,000 note at 5%? Paying rent on that same house would be a tad more. I recently did a bit of online nosing around and found a house on Cheltenham Ave., not far from their place, said to be currently under a one-year lease for $8,500 a month. Hmmmm.

Then we have the oft-repeated admonition that the present low interest climate cannot endure for long. It is subject to climate change and a warming in interest rates. We are supposed to be quivering in fear. It will bring about the denouement of the housing market and life as we know it. Baloney. 

I have owned a number of houses in Vancouver and lived in 3. One I bought as a home in 1979 for $110,000, assuming a B of M first mortgage of about $60k with 3.5 years left on it at 10.25% interest - a very good rate at the time. Real estate was booming, despite interest rates in the 11% range. Soon the place was worth well over $200,000 so I borrowed $120,000 from the Bank of BC, granting a second mortgage to secure a revolving line of credit at prime + 1.75%. I used the money to buy other houses in Vancouver. Soon the prime rate started to rise. The rate was always set on Thursday. Every Thursday it would go up by a quarter point, often a half or three quarters. In my home we started calling Thursdays “Black Thursday”. In no time the prime reached an astonishing 22.75%! Anyone here old enuff to remember that? 

At that time, an investment property I owned with a partner had a Fidelity Trust $20,000 first mortgage at 10% and the rest was borrowed on our revolving lines of credit. I was paying prime plus 1.75%, so my rate was 24.5% - about $25,000 a year on a mortgage of $100,000. The CA who worked for me was from Israel. He said that in Israel there is no such thing as a mortgage because inflation is always rampant. He said the interest rate would be out of sight if one could borrow. He was convinced that was occurring in Canada. He predicted the prime would hit about 40%. There were dire warnings to that effect…that the rate would just keep rising. My partner and I were delighted to replace our line of credit with a mortgage on our shared investment house from Household Realty Finance at 23.99%. Yippee! We locked in at a low rate!

So yes kids, there was lots of pain felt back in them days. Many, many were crying the blues, saying that was it for the housing market forever. Prices would never get back to those early 80s prices. Only a fool would ever buy even a personal residence or any other real estate again, blah, blah. 

I saw my own house go from $110,000 in 1979 to about $275,000 in 1981 and down to about $140,000 by late 1983. Easily cut in half. But, I decided against suicide. Could not think of a nice, clean, painless way. Interest rates dropped to a very reasonable 12% or so over the rest of the decade. I sold in that climate in 1989 for $525,000 - almost a five-fold increase in just 10 years, despite all the interest rate bloodletting and attendant gnashing of teeth. That $525,000 was land value at the time. The house was a tear down and is now long gone. I checked with BC Assessment online a few minutes ago. The assessment? Land $2,994,000 and buildings $1,803,000. for a total of $4.8 million. I know, not an “investment”, but a fair rate of return whatever you care to call it. Tax-free to boot if a principal residence. 

As a corollary to the exciting times precipitated by a surging prime rate, it was a good time to be a Vancouver real estate lawyer, not just conveyancing. When prices were on the rapid rise, it was not unusual to see an interim agreement signed for a sale, say at $100,000, with a closing 90 or 120 days hence. Well, come closing, the property was now worth $125,000 and suddenly the vendor becomes decidedly reluctant to sell and give away $25,000. Time for a specific performance lawsuit! The flipside was a couple of years later when prices were on the downhill. With a deal signed at $250,000 today, the value might be $190,000 come closing. Few people feel really good about honoring a commitment to pay $60,000 over market. So, again, all kinds of machinations would go on over forfeiture of deposits, more actions for specific performance, damages, etc. All good clean fun.

So, back to my original point, cities like Vancouver and Toronto, and perhaps half a dozen others in North America, can be pretty safe bets over the long term. I am not sure I'd want to be a first time buyer in either Vancouver or Toronto today and I think sitting on the sidelines a bit won't hurt. Regardless, however, of any coming "correction", I think today's prices in both cities will come to look cheap in another 25 years or so.

The quote below raises a valid point.


Just a Guy said:


> You have a $500k mortgage and the interest rates rise a measly 2%, at renewal time can you afford an extra $1000/month to keep your home? Not sure that most people could,...
> 
> This is the main reason why I only buy properties that have sale prices well below market already, I build in the correction because, with the amount I own, I couldn't afford an interest rate rise if I didn't.


That should be basic lore to getting into real estate. Envision an absolute worst case scenario and ask yourself if you can weather it. If yes, then go for it. When in doubt, stay out. 

There are no doubt still living many Vancouver real estate "investors" from the 1980s who lacked either the intestinal fortitude or the financial capacity to get through the tumultuous times and either lost or gave up Vancouver houses. They find themselves living in a mobile home park in the hinterland, looking up the BC assessment values on what was lost. That would not feel good.


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## Just a Guy (Mar 27, 2012)

While your arguement is good, there are a couple of points you may not have thought about.

First, in regard to renting, the average Canadian moves every 7 years according to stats Canada. True, if you stay in the same house until it's paid off and beyond, ownership is better. The truth however, is most people don't. Moving within 7 years I'd barely the break even price (without interest, upgrades and other costs) on home ownership. As I pointed out before, it makes home ownership a wash, if not a loss, so no better than renting.

As for prices going up, generally they do in the long run as you pointed out. However, in a dropping interest rate environment, they tend to appreciate at a great amount, and in a high interest rate they tend to drop a lot, even you pointed that out.

In your example, interest rates went from 20+% down to under 3%... What do you think will happen when interest rates go from under 3% back up to the mean of 8%? Prices will drop, just like they did when interest went from 12-20%. The historical has been 8% for a long time, I think we've swung from one extreme to another, but the rate average has still stayed pretty close to 8%. We're due to return back to the mean soon to keep the average the same.

I don't think Toronto and Vancouver will be immune to a correction, but they may not correct as much as other places...then again, they may correct even more due to some outside influence (remember what happened to major commercial real estate, mostly owned by the Japanese in the 80's, in the USA when the Japanese market collapsed).


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## Mukhang pera (Feb 26, 2016)

Just a Guy said:


> While your arguement is good, there are a couple of points you may not have thought about.
> 
> First, in regard to renting, the average Canadian moves every 7 years according to stats Canada.
> I


Well, I think I thought of those things, such as the regular moves most folks make. If you are in that camp, probably best to rent your principal residence. That's why I spoke of the long haul. If you are like me and tend to stay put for decades, things generally favor owning. Certainly for periods of 7 years or less, the chances of taking a loss increase. If you buy at a high point, not necessarily a peak, and prices drop, even if you don't sell at the bottom, you can still fare poorly, particularly when the costs of getting in and getting out are accounted for.

I fully expect to see mortgage interest rates go back to about 10% or so and yes, prices will drop, significantly, everywhere. Vancouver and TO won't be immune. In fact, I would expect those markets to take the biggest hit. In the backwaters where a house and lot can today be purchased for far less than the cost of the raw materials needed to build the house, the decrease might not be so great. A 2000-square foot house in good condition on a half acre lot that today sells for $70,000 can only drop so much. 

But, my point remains that we'll adjust to the "new" reality, which will just be a return to the old, with interest rates running around 10%. When rates took off in the 80s, Vancouver house prices dropped by a full 50%. That might just happen again. In that case, as happened then, in time, people will get used to the new regime, go back to buying, and prices will recover. I still believe that prices will be higher in Vancouver and Toronto 25 years down the road than they are today, 10% mortgages notwithstanding. I'll report back here in 25 years and let ya' know if I was right.


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## Just a Guy (Mar 27, 2012)

The difference is, when the interest rates went up in the 80s, they were destined to go back down to return to the mean so prices could be expected to recover.

This time, the interest rates will increase, and shouldn't be expected to return to these lows, so prices will take a lot longer to recover (as recovery will be based on inflation, not cheap money). Then, even though the prices have recovered, the buying power of that recovery will also need to be restored...

Cheap money allowed people to pay more for the same house because they could afford to pay more for it, expensive money will make the affordability of the house disappear, so I'm not sure prices could recover in the buyer's lifetime if they bought at the peak.

Then, the government may decide to just blow it up, jack up interest rates, force homeowners to take the hit today so that houses will be affordable for the future generations...sort of what happened down south. One generation lost their houses, but the prices corrected for a short period.


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## Mukhang pera (Feb 26, 2016)

Just a Guy said:


> Then, the government may decide to just blow it up, jack up interest rates, force homeowners to take the hit today so that houses will be affordable for the future generations...sort of what happened down south. One generation lost their houses, but the prices corrected for a short period.


Maybe I'll put myself in a good liquid position so that, when the prime next ranges above 20%, I get me some of those Canada Savings Bonds at 19.5% that were available last time.


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## Just a Guy (Mar 27, 2012)

I think you could be waiting a long time...but then again I never thought we'd get there originally,,nor to the lows of today, so what do I know. I took my crystal ball into the shop to get it fixed, but I haven't got it back yet.

Until then, I continue to buy stuff which meets my rather strict criteria knowing that the downside is usually built in already. I fear more for those who refuse to look forward.


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## Mukhang pera (Feb 26, 2016)

Just a Guy said:


> The difference is, when the interest rates went up in the 80s, they were destined to go back down to return to the mean so prices could be expected to recover.
> 
> This time, the interest rates will increase, and shouldn't be expected to return to these lows, so prices will take a lot longer to recover (as recovery will be based on inflation, not cheap money). Then, even though the prices have recovered, the buying power of that recovery will also need to be restored...
> 
> Cheap money allowed people to pay more for the same house because they could afford to pay more for it, expensive money will make the affordability of the house disappear, so I'm not sure prices could recover in the buyer's lifetime if they bought at the peak.


I have considered this further. In the example I outlined, I referred to a Vancouver house purchased in 1979 when mortgage rates were in the 10% bracket. Over the next few years, they went to over 20% and then receded to about 11% or so and remained there for some years. The price of the house halved at some point and in the 1979-89 period, then recovered, to be sold at about 5 times the initial price after 10 years. Was that recovery a byproduct of cheap money? Was 11-12% then cheap, but now, 8-10% won’t be? Are all the multi-million dollar houses in Vancouver today a byproduct of cheap money? Does the typical $5 million house there today have registered against it a $4 million mortgage, perhaps at 2.5% interest and that homeowner will feel the lash when rates go to 10%?

JAG, when you get your crystal ball back from the shop, have a gaze into it and share what you see.


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## Just a Guy (Mar 27, 2012)

I think our main disagreement is stemming from the fact that I'm speaking in general terms, you're applying it to specifics. I'm talking houses that are affordable to people, you're talking multi million dollar properties. There are people who live in Vancouver who are working and paying a mortgage...not everyone there is rich.

However, expensive properties tend to remain expensive relative to affordable homes, so they'll probably drop in price if the average home drops too... Though, people with lots of money don't always care what they pay.


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## Mukhang pera (Feb 26, 2016)

You're probably right about the source of disagreement. Anyway, I see it as a friendly disagreement, unlike some others here to which I have been privy of late.

I appreciate your even-handed, thoughtful replies JAG and regard you as one of the more valuable contributors here.


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## rl1983 (Jun 17, 2015)

What are your thoughts on the average Vancouver wage cannot support a million + dollar mortgage, Mukhang?


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## Mukhang pera (Feb 26, 2016)

rl1983 said:


> What are your thoughts on the average Vancouver wage cannot support a million + dollar mortgage, Mukhang?


I would call that a correct observation. For sure, there are a goodly number of individuals in Vancouver with very substantial incomes who would not strain to make the payments on a million-dollar mortgage, I think the "average" Vancouver wage earner falls well short of the mark. 

Earlier in this thread, I referred to a house I purchased as a residence in Vancouver in 1979. I paid $110,000 and that was just about land value. Even with 10% mortgage money, that was easily affordable on my entry-level income of about $25,000 at the time. My wife had an income a bit less, but it was not really required to buy that house. We bought oceanfront land in the gulf islands at about the same time and her income was used to pay for the land and the cost of building a house on that land. So, my wages supported the Vancouver house, easily. 

I just had a look at the Bank of Canada inflation calculator and it says that $25,000 in 1979 equates to about $82,300 today. $110,000 in 1979 dollars is today $362,000. So, assuming a 20-something person starting off today with an income of $83,000, that person can in no way afford that same house that I bought, which now has a BC assessed value (which is probably conservative, if anything) of almost $3 million just for the land. 

For many years I had little pity for those who complained about Vancouver house prices. I always said they could do what we did. Give up your car. Eat lots of peanut butter and Kraft dinner. Even if you can't abide having others close by, put up with it and buy a triplex in Kitsilano, rent 2 units and live in one, and build up some equity, earnings, and eventually buy the single-family home you want. I used to get annoyed with those who said to my wife and I things like "You guys are lucky, you're rich, you have a house on Vancouver west side, a waterfront home in the gulf islands, and on and on." I always came back and said we worked hard, sacrificed, made the decision to have no kids, both have professions, drive only one car, an old beater, for years; did not eat out, take vacations, etc. I pointed out that they had just returned from dinner at Bishop's, driving their nice BMW, discussing their next trip to Europe, etc., while renting a high-end apartment.

I do not sing that song now. Even that Kits triplex, on a 33 x 110-foot lot, built in 1912, is assessed at $1.5 million. We were still students when we bought. Used student loans for a down payment and found a vendor who would finance (at 11%) the bulk of the $70,000 purchase price, since of course no bank would have taken us seriously. I accept that, today, no one could start out in Vancouver as we did. 

Today I marvel at the street after street after street with homes all well over $1 million. Many, many, over $5 million. Someone tore down our house they we acquired for $110,000 and put a new house on it, with the land and building now assessed at close to $5 million. It's a nice house, but not a palace. A nice street with mostly 60 x 130 foot lots. Not estates. No views to speak of. Fairly mundane, in fact. I am not sure what is sustaining the present prices. Some say it's offshore money. Probably a factor.

When we moved from the house I just described in 1989, we bought another house for $770,000. The house next door was sold, torn down and a new house put up. It sold for $1.6 million in 1990. We lived next to it for 3 years and it was never occupied. For all I know, it's still vacant. There were always lights on, inside and out, at night. There was regular garden service. Every month or so a big Mercedes would pull up and a few Asian-looking folks would alight and walk about the place for about 20 minutes or so, then drive off. Even then I marvelled that anyone could have a house worth that much and just let it lie fallow. 

Maybe JAG has some further insight into how all of this has come about. But, rl1983, unless entry-level jobs in Vancouver are now paying at least $200,000 a year, Vancouver is no longer place for young folks to start out.

I am not sure that rather prolix commentary helps answer your question. Come back at me again if I shot wide.


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## Mortgage u/w (Feb 6, 2014)

I think Mukhang has brought up a key point - <I always came back and said we worked hard, sacrificed, made the decision to have no kids, both have professions, drive only one car, an old beater, for years; did not eat out, take vacations, etc. I pointed out that they had just returned from dinner at Bishop's, driving their nice BMW, discussing their next trip to Europe, etc., while renting a high-end apartment>

This is what most of society and especially the new generation are not willing to acknowledge - sacrifice. Unfortunately, the banks have catered to this generation of 'wanting it all and wanting it now'. So car loans have been extended beyond 5 years, swimming pools can be financed over 25 years, time shares, buy now pay later, low interest loans, etc, etc, etc,. We have become accustomed to this and people feel that they need to follow. Everyone wants the CEO salaries along with the high end cars, houses, vacations, BUT, only a very small percentage land a CEO salary, yet, a very large percentage pursue the high end cars, houses and vacations - just because it's somewhat attainable. Until people don't change their ways and views on finances, I'm afraid society will keep digging themselves deep into debt, just to keep up.


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## Berubeland (Sep 6, 2009)

I agree with Mukhang here. The economy and companies have changed drastically since we were in the job market. I'm 43 so I'm actually right on the verge of when it started to change. 

1. Workers today compete in a global economy. 

2. Robots in industry

3. Workers as a commodity

It's not a question of sacrifice, it's a question of math. If you make $10-$15 per hour you can't afford a million$ house. You can't save the down payment, you can't afford the payments and no one will give you a mortgage. 

**** has changed a lot and those who deny it are out of touch.


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## Mortgage u/w (Feb 6, 2014)

Berubeland said:


> I agree with Mukhang here. The economy and companies have changed drastically since we were in the job market. I'm 43 so I'm actually right on the verge of when it started to change.
> 
> 1. Workers today compete in a global economy.
> 
> ...


**** has definately changed since - there is no denying it. At the same time, someone making $10-$15 per hour is delusional if trying to purchase a million dollar home. They have alternatives and here is where 'sacrifice' comes in. Why does that person need to purchase a million dollar home? I am sure 40 years ago they encountered the same situations - not all properties were attainable and/or in the same range vs income. And I'm sure another 40 years prior to that, society faced similar challenges. We can't just blame inflation all the time. We have to make the best of what we have and be logical about it.

My parents purchased a three unit home in the early 70s for $26,000. Today its worth 25 times more and incomes did not follow. I can't say my parents had a lavish lifestyle. They sacrificed by living a while in the smaller unit to maximize their revenu, they never ate out, had no washing machine or dishwasher, had no car for several years, and were very frugal in their spending. Even if they were making minimum wage back then, sacrifices were needed to make ends meet. I'm sorry but I'll have to disagree if you believe its not a question about sacrifice. Each individual is responsible for the choices they make in life.


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## Earl (Apr 5, 2016)

Mortgage u/w said:


> **** has definately changed since - there is no denying it. At the same time, someone making $10-$15 per hour is delusional if trying to purchase a million dollar home. They have alternatives and here is where 'sacrifice' comes in. Why does that person need to purchase a million dollar home? I am sure 40 years ago they encountered the same situations - not all properties were attainable and/or in the same range vs income. And I'm sure another 40 years prior to that, society faced similar challenges. We can't just blame inflation all the time. We have to make the best of what we have and be logical about it.


I disagree, 40 years ago average people could afford an average home. That's no longer the case, even in most mid-sized towns, forget about the GTA. Things are definitely different now as far as home affordability is concerned.

40 years ago dad worked at the factory while mom stayed home with the kids, and dad's salary alone was enough to buy an average house. Today, it's too hard to buy a house on a single average income. We're not talking about mansions or houses in downtown Toronto, just an average bungalow in an average suburb.

Hamilton, KW, Barrie, Oshawa, all average mid-sized towns yet average detached houses there cost in the 400-700k range. That's beyond the means of an average person to afford. Median income in Canada is something like 70k, that's household income not personal income. Sooner or later something has got to give. I think the people who will be hurt the most are those who bought real estate at the very limit of what they could afford, and there are a lot of them.

At least Windsor is still affordable, seems 250k will buy you an average house there.


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## AltaRed (Jun 8, 2009)

Prices went up disproportionately because buyers bid them up, and why did they bid them up? Second income earners, relaxed mortgage rules, low interest rates. I'd suggest THEY came first, not high prices. Posts above should not use price multipliers without providing the rest of the story.

FWIW, I was totally tapped out buying my first house in 1974 @ $49k in the GTA. First mortgage, second mortgage, personal loan. Think I was making in the order of $12-15k/yr then and 5 year mortgage rate was circa 12%.

http://www.ratehub.ca/5-year-fixed-mortgage-rate-history

Imagine how house prices today would crash if we had a 12% mortgage rate? Maybe fall by 50% due to all those foreclosures, etc.


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## Pluto (Sep 12, 2013)

Berubeland said:


> It's not a question of sacrifice, it's a question of math. If you make $10-$15 per hour you can't afford a million$ house. You can't save the down payment, you can't afford the payments and no one will give you a mortgage.
> 
> **** has changed a lot and those who deny it are out of touch.


I'm not convinced that **** has changed that much.....It is true that Vancouver is priced out of the range of the average earner. But that just means one has to go to where they can afford, which was always the case. In late 60's minimum wage was about $1.00 an hour. Now it is, what, 10 x's higher? There wasn't anytime where one could buy a house on minimum wage, that I know of. And according to the BOC inflation calculator $1.00 in 1970 is 6.29 now. So minimum wage has outstripped the claimed inflation. I think it is the same now as then for those not born on third base. If you save and sacrifice, you can do what Mukhang did --- But I have to concede, you can't do it in downtown Vancouver. I guess my point is, it isn't valid to take what has become one of the most expensive cites in the world as a benchmark for what young people can buy.


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## Berubeland (Sep 6, 2009)

I'm sorry but a lot has changed in the last 25 years. When I was in high school they were still teaching us how to type fast and well. I remember when they came out with a typewriter that had a strip with liquid paper on it, so you could overstrike and erase mistakes. I remember when the microwave came out. I remember when they started having robots in car manufacturing plants. All of this eliminated tons of jobs. 

My poor nephew was trying to get on and work full time at Giant Tiger and they wouldn't give him more than 20 hours per week. So he had to get another job and he ended up losing both jobs because of scheduling conflicts. When he went to his boss to discuss the scheduling they were shocked that he would dare have a job that conflicted with his Giant Tiger career. OMG I never had to deal with crap like that. It's pretty much the same at any entry level job. 

There is a change of attitude by employers and it's legal but predatory IMHO. 

Even in IT I have a friend that's worked for IBM on contract for like 5 damn years. Every 6 months she has to freak out because she has 0 job security. Not only that but she has a hard time getting approved for a mortgage, no benefits and so on. 

20 years ago it just wasn't possible to order most of what you need from Alibaba. A few months ago I ordered 5000 key tags from China for like $20. At Home Depot they are $1 each or more. There was no ebay, no kijiji, no craigslist.

I was going to goddamn Blockbusters. Actually I remember when they came out and poof they're gone. 

I guess what I'm trying to say is a lot of older people who already have theirs look at the younger generations and say do what I did when it just isn't possible. The circumstances that existed when you "sacrificed" no longer exist. This is a new world with new challenges.


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## Mortgage u/w (Feb 6, 2014)

We shouldn't be mixing evolution with inflation here. The wheel keeps turning whether one wants it too or not. We think our kids are crazy, our parents think we are crazy, their parents thought the same and so on. Evolution of jobs existed since the beginning of time. Yes robots replaced people but you still need people to maintain robots. Its just a shift in job market. As AltaRed mentioned, WE (society) drove the house prices up. WE made it more affordable with lower interest rates. And its by choice it happened, not by obligation. So until people take control of their finances and understand it, we will continue to evolve and drive prices even further. Why is no one complaining about the inflation on the cost of a pint of milk or a can of coke? I'm sure its also disproportionate to incomes. I can bet everyone reading this forum owns a cell phone, pays a premium, yet can surely live without one.....but won't ever consider getting rid of it. Choices. Sacrifice. Call it what you want.


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## Just a Guy (Mar 27, 2012)

Yes the world is different today than it was when we were younger, but the same could be said for our parents who started out life before electricity was common, lived through a world war, maybe even the Great Depression, saw the birth of computers, tv, etc. Then there are our grandparents who lived through two world wars, saw the dawn of electricity, world empires collapse, cars, roads, commercial flight, the invention of social security, minimum wage, radio, running water, etc.

Personally, I think those born at the turn of the last century lived through way more social change and upheaval than I ever will.

Life changes, we need to change with it. When I graduated school, there were no jobs available, so I started my own company, a few years later, employees were interviewing companies to see if they wanted to work for them, then the pendulum swung back and forth a few more times.

At a personal level, I was injured and nearly lost everything, I could have given up like many, instead I adapted, learned investing, modified my company, started new ones, etc. I've passed on what I've learned (but not the money) to my kids with a goal that they should never have to work in their lives (I still expect them to work, just not become victims of the golden handcuffs). 

I never really got support from parents or grandparents for my life choices, they were too foreign to them, to different from what they experienced and know...but my world was different from theirs and, while I understand theirs in concept, I can never really understand living in a war zone, or without hot water, showers, electricity etc. So I guess we are kind of even. 

I'm sure, since I've got smart kids, that they will go and do things differently than I did (who really understood teenaged Internet billionaires in our generation), but I'm sure they'll figure out how to get what they want. I didn't raise them to expect things to be given to them like so many others, I taught them to figure out a solution to the problem. I'm not worried about them, other people's children however...hopefully mine won't be stuck supporting them all, because I don't think that would be possible even for them.


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