# When does RE let off?



## Chris L

When, why (or never)? Is this the year? How much? 

Make your predictions!

I say this year things start to soften despite no rise in interest rates due to sheer buyers fatigue. This will shift emotions.


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## OurBigFatWallet

Chris L said:


> When, why (or never)? Is this the year? How much?
> 
> Make your predictions!
> 
> I say this year things start to soften despite no rise in interest rates due to sheer buyers fatigue. This will shift emotions.


This is a complete guess but I'm thinking prices will level off this year. No significant gains but also no big drops either. Of course I could be completely wrong.


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## andrewf

A few markets have negative y/y price changes. Does that count?


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## My Own Advisor

I say home prices continue to rise, by year end, because people continue to drive up the prices with rates remaining dirt low. Is that specific enough?


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## Mortgage u/w

Never.
Prices will keep going up. Worse case they will level off for a while.....but never drop. Canada RE is well regulated so gov't will not let a drop happen. Rates are the biggest savior these days...keeping the wheel turning. Yes they may eventually go up......but would you increase interest rates if you believe RE is letting off? When rates go up, you should sleep better knowing the economy is getting stronger. Lets just say I am more worried about rates being low, rather than RE going up or down.


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## Chris L

andrewf said:


> A few markets have negative y/y price changes. Does that count?


Yeah, I'd say that qualifies. A average y/y price declines has to be the benchmark index.

Many say that RE trends with the rate of inflation. For the last 5 years or more we've had double digit y/y increases, yet the rate of inflation has been extremely low. The only way to get back to the trendline is with 10-20 of price stagnation or else a price drop.....unless of course, we've reached a new normal. This would really, really surprise me.

At some point people are going to get tired of sacrificing their quality of life for their houses. I mean, in my city, you can rent a 2 bed apartment for $900 and houses trade for $350k+ on average. That's about $2k a month outlay. Are these people unstable? You can do a lot of extra living on $1,100 a month. But yeah, I know people will make these 25 year sacrifices because our culture says you can't really be living until you do it from a house  That's a cultural change brought about through a drop in prices....hand-in-hand. Who knows....it's certainly been long enough, you'd think.


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## sags

Interest rates do have a big effect on housing.........as long as the range of payments is within the ability to pay.

If home prices keep rising faster than wages, it won't matter if interest rates are 0%..........if people can't afford the payments.

I think home prices have topped out in some areas........but in other areas home prices haven't yet recovered from previous declines and are very affordable.

The cost of housing depends on what a person does for a living and where they want to live.


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## Just a Guy

In some ways, I think it's already happened. 5 years ago, I wasn't buying, prices were too expensive, there was nothing listed below $100k (except small towns and trailers), and no foreclosures.

In the last year, I've picked up 5 doors (and made offers on dozens more), listings are starting to appear in the lower range, foreclosures are starting to appear with some regularity, and prices seem to have levelled off...

Then again, I think the real crash will occur a few years after interest rates rise more than 1% as mortgages come up for renewal and payments go up substantially making all these homes suddenly unaffordable. Imagine one month your making your payments fine, then the mortgage comes up for renewal and payments increase $100/month on each $100k borrowed for each 1% increase.... On a 500k mortgage, that would be $500 more per month on a 1% increase, $1000 for 2%, $1500 for 3%...I don't know too many families who can weather such a storm.

Remember this you variable rate fans, cause it would hit you sooner...


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## Charlie

where are you at, JAG?

I'm in Vancouver, and am not seeing a decline. Even in the 'oversold' condo market, prices are holding their own. In the single family home market they're up. I know it can't continue -- but I knew that three - four -- five years ago, and was wrong.

My guess (and that's all it is) is that prices will stagnate for the next decade or so. Some declines, perhaps, but no crash. I cannot justify how this is sustainable...I agree with most of the things the bears are saying...but they've been so wrong before. I suppose it's tough to time the market.


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## Just a Guy

Home ownership is not investing, so I don't understand you'd try to time the market. When it comes to investing, you should buy if you can make money and that's a simple business calculation (it should either make money or it won't)...true you can make more money if you wait and prices fall more, but you don't make any money if you're not in the market.

To misquote Yoda..."buy or buy not, there is no wait"


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## marina628

Condo markets may see some correction but with people building income suites and family/friends buying homes and sharing I doubt much change will occur in the 'house 'markets. In Whitby area 70% of the homes sold are on multiple offers and above asking ,Canada is a big country I am sure some areas may go down but where we are living I am not seeing it.I have been watching for almost a year to find another investment property to buy in Whitby and can't even get a viewing before it is sold.


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## andrewf

Marina, I don't think the east end has run up as much as the rest of the GTA, but this time is not different. House prices can't rise in a straight line at mid to high single digits percentage increase in value per year. From the sounds of things, you keep low leverage and buy properties that have reasonable rental yields, so you'll probably be okay. Rents for single bedroom condos in Toronto are down year over year, on top of their already low yield.


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## marina628

Andrew I have about 40% appreciation in 4 years on the homes I bought in 2009 /2010 in Whitby/Courtice/Oshawa.We did buy some years ago with 5-10% down but last 5 years at least 35% down ,we have never refinanced any of them and it was part of our retirement plan to live on the rental income when we started purchasing them.Our US portfolio we paid all cash for them but obviously makes sense for us to get mortgages down the road on them to offset income.


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## marina628

I choose to rent for our daughter over purchasing one ,For $350,000 I want land , garage and at least 4 bedrooms


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## Arshes76

I say we see the bubble pop this year. When spring comes everyone's going to relist/list their re, but the sales won't be there. People will try to wait it out ie. Spring is slow, but summer will be better etc... But then fall will come where people will be going back to work and school and people will see the bubble pop. Then for the next few years prices will fall again and again as people try to wait for a correction and relist the next year and the year after that. The bottom will take a few years and then flat prices for a decade or so.

I think people are going to see about 10 years of home equity disappear.


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## sags

Garth Turner had a couple of graphs on his website today, that give a visual of what has happened.

http://www.greaterfool.ca/

Since the 1970s, income as a share of GDP has been declining. 

The price of homes has risen continually over the same years.

The two graphs have been going in the opposite direction for decades.

The advent of two or more income families and higher debt levels have allowed this to occur and continue.

It can't continue forever.............and an earlier realignment would have been preferable to what is destined to happen now.

The longer the trend continues..............the worse the economic damage is going to be when the situation corrects itself.

It isn't surprising that Finance Minister Flaherty has tried various methods to ease the trend in the opposite direction.......but thus far it hasn't worked to a noticeable degree.

There is no way to know the exact reason or time when it starts to unravel..............but with home construction such a large part of the Canadian economy.........we will know when it is in full force.


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## RBull

I wonder as well how long it will go on. As prices soar higher and debt levels rise in this low interest environment it does seem very likely to be an ugly outcome.


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## DayTek

2016. The government will pull the trigger in 2015 and start creeping interest rates. They will have no other option but to increase slowly and I don't think the market will feel it until the next year. We will be getting a fixed mortgage rate upon renewal next year...On a 5-year, variable right now and just been chipping at the mortgage hardcore the last 4 years. 

Don't know about a crash, but after working in banking for 9 years, all I can say is if increasing mortgage rates don't screw people, their maxed out Home Line of Credits will.


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## sags

I think new housing will get hit first and hardest in a downturn.

A lot of people have a home where they raised kids, who are now gone..........and they would like to sell and downsize.

My sister is in that position now. They own a big home with an eat in kitchen, separate dining room, living room, main floor family room, and main floor den.......on the main floor. There are 4 bedrooms and a full bath on the second floor and a completely finished basement with a bar, recreation room and 3 piece bathroom in the basement.

There is just the two of them living there now in all that space.

They would like to sell and buy a smaller place that is easier to maintain...........but my sister says they would have to pay significantly more to buy a "new" but smaller townhome condo than they would get for their home.

Their home is paid for........and they have some retirement savings, which won't replace their income, but they had always planned to sell their home, downsize and pocket some cash......not dig into their retirement savings to come up with more money.

So they are basically stuck where they are.

I guess what I am saying is perhaps the price spread between new and older will have to shrink to be attractive to downsizers.


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## sags

DayTek said:


> 2016.
> Don't know about a crash, but after working in banking for 9 years, all I can say is if increasing mortgage rates don't screw people, their maxed out Home Line of Credits will.


I remember some people telling me they had their homes paid for.........and then later revealed they had a large line of credit.

For some reason, people separate the two and don't consider their HELOC a mortgage.


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## Just a Guy

Depends what the heloc is used for. If it's used for investment purposes, it's tax deductible. If the investment return is higher than the interest rate, it generates cash flow. Those are two ways a heloc can be different than a mortgage.

Of course, if it was used to pay off their credit cards, buy toys, etc. then it's also different than a mortgage in that it bought crap...very expensive crap when you factor in interest.


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## sags

That's what I mean.

On this forum, most people would consider a HELOC as a revenue generating option.........whereas in the general public it is mostly used for debt transfer.

It has been noted by Equifax, that there is a discernible cycle of.......credit card debt.......paid off by HELOC.......paid off by re-mortgage.

I suppose that is why so many people are now entering retirement age still owe on a mortgage, that should have been paid off years prior.

Either way though, if the house is sold the HELOC has to be paid off.


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## RBull

sags said:


> I think new housing will get hit first and hardest in a downturn.
> 
> A lot of people have a home where they raised kids, who are now gone..........and they would like to sell and downsize.
> 
> My sister is in that position now. They own a big home with an eat in kitchen, separate dining room, living room, main floor family room, and main floor den.......on the main floor. There are 4 bedrooms and a full bath on the second floor and a completely finished basement with a bar, recreation room and 3 piece bathroom in the basement.
> 
> There is just the two of them living there now in all that space.
> 
> They would like to sell and buy a smaller place that is easier to maintain...........but my sister says they would have to pay significantly more to buy a "new" but smaller townhome condo than they would get for their home.
> 
> Their home is paid for........and they have some retirement savings, which won't replace their income, but they had always planned to sell their home, downsize and pocket some cash......not dig into their retirement savings to come up with more money.
> 
> So they are basically stuck where they are.
> 
> I guess what I am saying is perhaps the price spread between new and older will have to shrink to be attractive to downsizers.


It is not uncommon for "downsizers" to spend more for their retirement home, whether it be a smaller 1 level home or a condo. This may be an eye opener for some that haven't followed real estate and thought they would have a ton of equity to pull out of their place for savings. I doubt this gap is going to shrink. Many of our previous neighbours just chose to stay in their larger place since they like the area, their home and financially it made just as much sense. I'm a little more doubtful all these baby boomers really want to move and downsize after considering all factors. We wouldn't have other than wanting a waterfront place. I guess time will tell. We came from a home like you described or probably bigger to a much smaller place and spent 50% more on this retirement spot.


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## andrewf

My parents bought their retirement home recently. It ended up being a raised bungalow with a finished basement that netted out to be about 2600 sqft and more bedrooms than their previous house. The reason they picked it was it was in town, recently and well-built, and was cheaper and in better condition than some of the other houses they looked at. But they feel a little ridiculous with a 5 or 6 bedroom house. The three downstairs bedrooms are now an office, a den and a storage room (since the whole basement is finished).


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## seankearns

It's true. Even for the boomers I see moving out to less expensive areas seem to spend as much on their new bungalow.... with all the upgrades they never justified in their 'family home' and even then 'downsizing' is still the hardest move I see people make.


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## Canadian

I think this type of conversation is better had about specific cities. Like andrewf mentioned, some _have_ gone down year over year. Some seem to keep defying gravity. There are _a lot_ of condo/strata pre-sales in Toronto and Vancouver and they are going like hotcakes. $400-$500+ per square foot for a 550 square foot unit that hasn't even been built yet sounds ridiculous to me. I think an interesting question is how many _individuals_ are purchasing such properties at present prices for living and how many corporations/shell companies are buying them up to lower cash levels.


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## Rusty O'Toole

House prices will drop when the following take place:

The federal government stops borrowing money and printing money, and the Canadian dollar becomes the highest priced currency on earth.

Provincial and local governments repeal all taxes on building materials and labor, and repeal all zoning laws and building codes.

Construction workers decide to take a cut in pay

The population drops drastically

Everyone loses their taste for houses and decide to live in tents and sleep in ditches.


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## Nemo2

^ So, umm......can we put you down for a week Thursday? :wink:


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## emperor

There is many things that will drive down house prices. Making banks shoulder the burden of risk instead of tax payers, increasing interest rates, loss of jobs etc.

I think what will cause a decline is people realizing housing is not really worth it. When you spent 2.5X your net income on a house you still had money to live your life. A lot of people now a days are paying 4-5X their net income for a place, it's not worth it. Your giving up to much of your life for a roof. I think an attitude change is what will bring the market down and I'm seeing it already. Borrowing beyond your means and living pay check to pay check does not mean your successful, it means quiet the opposite.


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## Just a Guy

I think you're forgetting, when house prices were cheaper and interest rates were higher, people were still paying 4-5x their net incomes for properties...the difference was more of that money was hidden interest payments. In the 80's some people were paying many more times their net income for a property, but then interest rates hit 21% on a mortgage. There was more than a decade of double digit mortgage interest...


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## nobleea

emperor said:


> When you spent 2.5X your net income on a house you still had money to live your life. A lot of people now a days are paying 4-5X their net income for a place, it's not worth it.


I believe the metric was always income to house price, not net income.

Did see the first foreclosure in our neighbourhood this week. $283K for a 3BR, 1100 sq ft bungalow on 7000sq ft lot. Seems like a pretty good deal given the location. Probably already sold.


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## emperor

Ya, I guess it all depends how important a house is to you. I've been looking at condos which I'll be pay cash for but I still feel guilty, I could do a lot of things with 200K. I saw a 1/4 section of land nearby for 225K. To me having a 1/4 section of farm land would be much better than just a condo but I guess not. To me houses are like that rare art worth millions, my brain can't understand it, I know people want it so that's the value but I really don't get why.


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## Just a Guy

Depends on what you do with it...

1/4 section doesn't usually generate much cash flow unless you farm it yourself, which is not easy money. If I rent the land, I could probably cover costs. Of course the capital gains may be good in the long term...or not.

225k in a house/condo would cost me property taxes, maintenance and utilities but provide a roof over my head, and prevent me from spending the 225k on something else.

225k in housing would get me 3 rentals in a major city generating probably around 3k/month.

225k in a house/condo with a heloc, on it could get me 2 rentals in a major city and generate 2k/month, interest on 150k being deductible...

Like fine art, it's what you see in the picture that gives it value to people...


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## andrewf

I wonder where these 15% cap rate properties are.


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## Berubeland

You and me both, we need to start looking for them Andrew. Let's start by buying the fast easy money book as a guideline and call a realtor right now before the deals disappear.


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## Just a Guy

No don't call a realtor, sit back and just criticize others...seems more your style. The book I recommend doesn't tell you how to find them, but then you don't read, you just sit back and criticize, it talks about how you can buy stuff and finance it using a heloc/mortgage Combo as well as well as other things a beginner may experience. 

I can't say there are any places in GTA right now, but then some people think that represents all of Canada. Have you pulled any listing for Manitoba? Saskatchewan? Alberta? How about places like Vancouver island or central BC. No, wait you work for the type of people who do...you just criticize and say it can't possibly exist...

How many properties do you own Rube? When's the last time you ever contact a realtor and even asked?

Stick to managing companies that other people buy...employees often think they know more than the owners.

Simple idea to find proof...call a realtor, ask them to pull up a list of properties sold in cities across Canada under $100k that aren't trailers for the past year, two years, or three. According to the doubters, the list should be blank. Any realtor in any province (except maybe Quebec) should be able to prove the point. I say there are multiple properties in multiple cities because I, and people I know have bought them...I haven't been saying they don't exist. 

I'm willing to shut up if I'm proven wrong, are you?

P.S. I agree it's a bad name for his website, but since I didn't write the book, I've got no control over that...but a bad URL, doesn't mean the information is bad...then again, I actually read stuff before I criticize...


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## Siwash

sags said:


> Garth Turner had a couple of graphs on his website today, that give a visual of what has happened.
> 
> http://www.greaterfool.ca/
> 
> Since the 1970s, income as a share of GDP has been declining.
> 
> The price of homes has risen continually over the same years.
> 
> The two graphs have been going in the opposite direction for decades.
> 
> The advent of two or more income families and higher debt levels have allowed this to occur and continue.
> 
> It can't continue forever.............and an earlier realignment would have been preferable to what is destined to happen now.
> 
> The longer the trend continues..............the worse the economic damage is going to be when the situation corrects itself.
> 
> It isn't surprising that Finance Minister Flaherty has tried various methods to ease the trend in the opposite direction.......but thus far it hasn't worked to a noticeable degree.
> 
> There is no way to know the exact reason or time when it starts to unravel..............but with home construction such a large part of the Canadian economy.........we will know when it is in full force.



Agreed…

Some of you ae posting that sales are brisk in your neck of the woods… I am not seeing that however and I live in a desirable part of the GTA. Many homes where I live sat for for many months this past year (as in 8 or 9) then were finally taken off the market in Dec. Perhaps they're asking too much… but either way, this is evidence that the market isn't as hot as the real estate industry wants you to believe. Bottom line is that it is in their interest to keep this going.. and Sags is right; the longer this continues, the harder it will drop. People are exhausting their income on huge mortgages… going further into debt...have we had wage increase that have even kept up with inflation? Barely… I think Garth Turner's on to something and he isn't the only one. I think debt is the biggest threat… People owe huge amounts of money.

check out this site...http://www.rosskay.com


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## sags

Just a Guy said:


> I think you're forgetting, when house prices were cheaper and interest rates were higher, people were still paying 4-5x their net incomes for properties...the difference was more of that money was hidden interest payments. In the 80's some people were paying many more times their net income for a property, but then interest rates hit 21% on a mortgage. There was more than a decade of double digit mortgage interest...


True......and some of us remember those days.

But there was an important difference between then and now.

In those days, inflation was rampant and interest rates were driven up................but so were wages.

My wages went from $8.00 per hour in 1978 to $20.00 per hour in the 1980s........due to a 3% annual wage increase and quarterly cost of living raises. From 1977 to 2007........30 years, my wages went from $5.00 per hour to $36.00 per hour........a 7 fold increase. 

It wasn't unusual for us to receive a COLA increase of $1.50 per hour every 3 months.

Inflation was so bad in the late 1970s that Pierre Trudeau enacted the Anti-Inflation Act and introduced wage and price controls.

The goal was to keep wages "down" to a 6% a year increase.

http://www.historymuseum.ca/cmc/exhibitions/hist/medicare/medic-6c05e.shtml

Today, people are lucky if their wages remain constant over 10 years and certainly aren't keeping up with inflation.

When I was first buying homes, we took on the mortgage payment but as time went by the payments were an ever smaller % of our wages.

I remember starting out where all of my wife's income plus part of mine would pay the mortgage.

After a few years, her income would pay the whole payment...........and awhile later she would have money left over.

We also started with high interest rates, so when they dropped down from 19% to a more normal level of 8%......we had much lower payments at renewal time. 

I don't see that happening for people........when wages are stagnant and interest rates have nowhere to go but up.

If interest rates go up, I see the reverse happening....with the cost of the mortgage gradually eating into a larger % of their joint incomes.

That is a much different dynamic that has developed for this generation of home buyers.


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## Siwash

Could you imagine the slaughter if rates went to 6%? Even 5% would put huge pressure on a lot of people… 

I have no doubt it will soon correct… as I think international economic pressure/events will makes rates return to more typical levels… I just don't know if this will be a biggy like 1989-1995 or a more gradual decline..

One thing RE boosters sometimes forget or purposely omit from their argument; it took more than 15 years for the RE market to recover last time it crashed (factoring inflation). Not until about 2003-2004 did the values return to pre-crash level. My dad got badly burned in 1989 buying two "investment" condos… he is STILL paying for that mistake as their retirement has been a little challenging to say the least… that money; had it been invested more wisely in 1989 it would have made things a lot easier on them today.. I would't touch RE today with a 12 foot pole… I'm renting a great bungalow on a big lot in a great neighbourhood and it's costing me a lot less to live in that than to buy… meanwhile my cash is invested and we save a lot (thanks to cheaper living!)

Renting is a great option for many.. if you are thinking about jumping in to the market now (especially the Van, Calgary, T.O. markets), you'd be well-advised to change that plan today… rent something for a few years… even indefinitely. It's still a home for us. Don't get caught up in the emotional investment of "owning"


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## Just a Guy

I think many people confuse buying a home with investing. They are not the same thing and shouldn't be thought of the same way. I also think many real estate "investors" aren't really investors. 

Real estate has to be properly thought out. If you buy it, just to buy something, there's a good chance you'll lose money, but the same is true of any investment. If you bought bre-x, Nortel, world com, etc. you would have lost everything too, does that mean all stocks are bad? 

You have to buy good properties, properly priced, and not get caught up in the mania. You can't make a good investment in some areas (Vancouver, Toronto, Calgary) just because you live there and you want to invest there. If that's where you live, you need to look for investments elsewhere. No amount of wanting could make bre-x or Nortel a good investment either, unless you screwed someone else.

Real estate, more than any other form of investing except maybe starting a business, has to take a long term view. There is no easy exit plan when things go south for you, even if the market is good. Your costs can change dramatically upon mortgage renewals (something many people forget), there are potentially huge unexpected expenses that can occur and even just to play. You need to plan 20 years down the road when you buy, you need to factor in rate increases, maintenance, etc. Most novice investors don't. How many postings are on here...

"I see a 350-400k place that will generate 1,500/month I want to buy..."

They are doomed to fail, no chance in hell to make money. It makes me want to slap them. These are the people who later come on and slam real estate as a bad investment...

If you're smart, and you think about all these factors at the beginning, real estate can be very profitable...the problem is, most first time investors treat it like buying a house, emotional rather than business...treated wrong, real estate can burn you faster and harder than bre-x, Nortel, or any other stock.

Many people fear the upcoming crash, the truth is, like most investments, there's a lot of money to be made from the coming crash. Not only will prices adjust to money making levels, but there are entire generations of people who will be scared out of home ownership and become permanent renters.

As in any bull market, finding value is difficult, so many "Rubes" think there isn't any, or they buy stuff they shouldn't because they are lazy. In a bear market they'll say don't buy because the sky is falling...it's the same as any other investments...which is why only a few people are successful at it, why the majority do okay, and a bunch fail spectacularly.


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## Karlhungus

Siwash said:


> Could you imagine the slaughter if rates went to 6%? Even 5% would put huge pressure on a lot of people…
> 
> I have no doubt it will soon correct… as I think international economic pressure/events will makes rates return to more typical levels… I just don't know if this will be a biggy like 1989-1995 or a more gradual decline..
> 
> One thing RE boosters sometimes forget or purposely omit from their argument; it took more than 15 years for the RE market to recover last time it crashed (factoring inflation). Not until about 2003-2004 did the values return to pre-crash level. My dad got badly burned in 1989 buying two "investment" condos… he is STILL paying for that mistake as their retirement has been a little challenging to say the least… that money; had it been invested more wisely in 1989 it would have made things a lot easier on them today.. I would't touch RE today with a 12 foot pole… I'm renting a great bungalow on a big lot in a great neighbourhood and it's costing me a lot less to live in that than to buy… meanwhile my cash is invested and we save a lot (thanks to cheaper living!)
> 
> Renting is a great option for many.. if you are thinking about jumping in to the market now (especially the Van, Calgary, T.O. markets), you'd be well-advised to change that plan today… rent something for a few years… even indefinitely. It's still a home for us. Don't get caught up in the emotional investment of "owning"


He bought 2 condos in 1989 and they havent increased past the purchasing point? I highly doubt that.


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## Karlhungus

I dont see RE dropping in Edmonton any time soon. I think its gonna be a big spring. Prices either dropped or were stagnant for a few years after the '08 crash unlike the other big markets.


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## sags

Just A Guy, 

US hedge funds swept into the US housing market when home prices fell. They bought homes for big discounts, rented them out and are now in a position to sell them for a tidy profit.

I agree.........that people with money and smarts.........often benefit from downturns.

One of the reasons the "asset wealth" keeps growing for the already wealthy. They have the money to make more money.


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## richard

Siwash said:


> I have no doubt it will soon correct… as I think international economic pressure/events will makes rates return to more typical levels… I just don't know if this will be a biggy like 1989-1995 or a more gradual decline..


It will be gradual, until it's sudden.


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## Nemo2

richard said:


> It will be gradual, until it's sudden.


Ernest? Ernest Hemingway, is that really you? :wink:


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## Siwash

Karlhungus said:


> He bought 2 condos in 1989 and they havent increased past the purchasing point? I highly doubt that.


he had to sell in 2003. At that point he lost money when u factor his A) lost opportunity costs B) ancillary cost


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## marina628

We bought a house in 1991 and sold it in 2001 for a 20% profit in Brampton which was not really great but it was our home.Not sure where he bought but hard to believe he kept it these particular 12 years and lost money.


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## james4beach

I'm not saying this is imminent, but when interest rates _do_ rise, housing will tank, stocks will tank (especially dividend stocks and REITs) and bankruptcies will spike.

Or interest rate could just stay low for a very long time, who knows.

Either way, I'm renting. Let someone else take the capital risk... I'm not about to leverage myself like that in such an uncertain economy where layoffs are rampant.


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## marina628

My friend and her husband bought their first house in June 2012 for $400,000 with 20% down(mortgage $320,000) and took out a 25 year mortgage.They have already reduced their Mortgage down to $270,000 in under 2 years and on track to pay the house off in 12 years,they earn $80,000 gross between them .I think maybe all you guys talking about interest rates going up have never owed a home before because my first mortgage was at 9.75% interest and 5-6% was/is a normal interest rate for a mortgage.People who are buying have less than 40% debt ratio and have to qualify for the posted 5 year rate.Heating costs and insurance costs ,condo fees credit cards , loans and the mortgage are considered when being qualified.


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## james4beach

And how stable was your job back then?

I earn high income but there's nothing stable about my job. Same with my friends, except those who work for government/crown.

I'm not buying ANYTHING until the economy stabilizes and I have confidence that my employment will be stable. A couple years ago Scotia was trying to get me into a $1 million home. LOL. A few months later, I was laid off.

*That's* why I don't buy a house.


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## james4beach

Marina, yes by historical standards even 5% interest rates would be nothing.

But you have to consider peoples' leverage and debt burden these days. People today can not tolerate even a small increase in interest rates. A one or two percent rise in bond yields will be catastrophic, and that's because of the debt burden that people carry.

You also have to factor in how real wages have been stagnant for many years. People are carrying more debt, without the ability to service the interest burden. This means that a small increase in the interest expenses (i.e. interest rates) will wipe people out


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## marina628

James if you are referring to me we had zero job stability and not very high incomes about $44000 my guess for BOTH of us but I got pregnant with our daughter and we wanted a backyard for her to play in and did what we had to do to make it happen.Our first mortgage was $110,000 or something like that and scared the crap out of us but best decision we made.


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## james4beach

It was only a good decision because you had the good fortune of a real estate market that went in your favour.

Imagine instead you had done the same thing in the USA in 2006; or in Spain in 2003; or in Japan in 1989 (you get the idea). I'm just saying that it's not intrinsically a good idea.

It's only a good idea in hind sight because interest rates and the real estate market cooperated


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## marina628

James we bought what we could afford ,that is the key .If that house went down 50% we would have still paid the bills and raised our family in it.


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## sags

To me it's a problem waiting to happen, when the lenders hand out huge mortgages to people who couldn't even manage to save a down payment.

Broke.........couldn't save anything..........that's okay........here take $500,000.

Don't worry ...........CMHC insures us.

CMHC was a good idea............but reducing the down payment required to 5% or 0% wasn't wise.

With the CMHC fee piled on top of the mortgage, and land transfer fees......people are paying the first few years just to pay them.

I think people will struggle on though. That is the nature of our love of home and hearth. People will forsake a lot of things, before giving up their home. The rest of the economy will take the brunt........as discretionary income dries up.

I can't fault them. It is all based on emotion. But emotion isn't a good thing in the financial world.

Where the rubber meets the road is the lenders.

Interest rates rise..........interest in buying wanes..........home prices come down.........renewal time and a new appraisal.........sorry, we need a big cheque to renew your mortgage.

Then what do people do? I read stories of it already happening in Windsor, Ontario when home prices got decimated during the last recession. People had paid their mortgage payments diligently.......but the value of their home plummeted and the bank wouldn't renew without the cash difference. No other lenders would touch them and they had to let the house go.

I seem to recall a discussion on this forum regarding smaller lenders who suddenly left Canada when things got rocky. They wouldn't renew any mortgages and it made life difficult for people to secure financing.

Maybe the government would step in and legislate that lenders can't demand the difference between the mortgage and home value, but that would not only put a big chill on lending..........but drive up the credit risk on mortgage bonds.


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## Siwash

sags said:


> To me it's a problem waiting to happen, when the lenders hand out huge mortgages to people who couldn't even manage to save a down payment.
> 
> Broke.........couldn't save anything..........that's okay........here take $500,000.
> 
> Don't worry ...........CMHC insures us.
> 
> CMHC was a good idea............but reducing the down payment required to 5% or 0% wasn't wise.
> 
> With the CMHC fee piled on top of the mortgage, and land transfer fees......people are paying the first few years just to pay them.
> 
> I think people will struggle on though. That is the nature of our love of home and hearth. People will forsake a lot of things, before giving up their home. The rest of the economy will take the brunt........as discretionary income dries up.
> 
> I can't fault them. It is all based on emotion. But emotion isn't a good thing in the financial world.
> 
> Where the rubber meets the road is the lenders.
> 
> Interest rates rise..........interest in buying wanes..........home prices come down.........renewal time and a new appraisal.........sorry, we need a big cheque to renew your mortgage.
> 
> Then what do people do? I read stories of it already happening in Windsor, Ontario when home prices got decimated during the last recession. People had paid their mortgage payments diligently.......but the value of their home plummeted and the bank wouldn't renew without the cash difference. No other lenders would touch them and they had to let the house go.
> 
> I seem to recall a discussion on this forum regarding smaller lenders who suddenly left Canada when things got rocky. They wouldn't renew any mortgages and it made life difficult for people to secure financing.
> 
> Maybe the government would step in and legislate that lenders can't demand the difference between the mortgage and home value, but that would not only put a big chill on lending..........but drive up the credit risk on mortgage bonds.


"That is the nature of our love of home and hearth. People will forsake a lot of things, before giving up their home. The rest of the economy will take the brunt........as discretionary income dries up."

ANd when this happens it will accelerate the housing market decline… job loses, defaults, etc…. vicious circle

Without question there is significant risk right now. Many are over-leveraged. People are afraid to "gamble" in the stock market but they'll risk everything for a house.


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## Chris L

marina628 said:


> James we bought what we could afford ,that is the key .If that house went down 50% we would have still paid the bills and raised our family in it.


Yes, but only if you didn't lose your job and need to relocate. James is making an excellent point. What matters isn't today's values so much as what the future brings - in the short and long term.

You'll look like a genius if house prices double and employment income doubles, but if your employment halves and your house value halves, you'll look foolish. Not only this, but you'll be stuck, in one place. If you move, you'll be saddled with debt which will prevent you from buying anything else. You'll need to write a check to close. This will be crippling. The economy depends on having a good proportion of people willing to rent and relocate to suit job markets worldwide. With a 70% homeownership rate, that's a far less flexible workforce which is bad news for all workers. It forces the locals to compete with other locals for whatever jobs are local. The transient workers will benefit the most - the renters.

What can we expect moving forward? That's what really matters, not what people did 20 years ago to look smart today. When you buy at the peak, yeah, everything is fine, until they aren't.


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## MoreMiles

Chris L said:


> Yes, but only if you didn't lose your job and need to relocate. James is making an excellent point. What matters isn't today's values so much as what the future brings - in the short and long term.
> 
> You'll look like a genius if house prices double and employment income doubles, but if your employment halves and your house value halves, you'll look foolish. Not only this, but you'll be stuck, in one place. If you move, you'll be saddled with debt which will prevent you from buying anything else. You'll need to write a check to close. This will be crippling. The economy depends on having a good proportion of people willing to rent and relocate to suit job markets worldwide. With a 70% homeownership rate, that's a far less flexible workforce which is bad news for all workers. It forces the locals to compete with other locals for whatever jobs are local. The transient workers will benefit the most - the renters.
> 
> What can we expect moving forward? That's what really matters, not what people did 20 years ago to look smart today. When you buy at the peak, yeah, everything is fine, until they aren't.


With a socialist government providing rising minimum wages, mandatory CPP, free healthcare, union participation, bailout... workers incomes won't be halved. Look at Canadapost domestic stamp in 1990, 30 something cents, 2014...$1. I have only heard of things getting more and more expensive.


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## Chris L

MoreMiles said:


> With a socialist government providing rising minimum wages, mandatory CPP, free healthcare, union participation, bailout... workers incomes won't be halved. Look at Canadapost domestic stamp in 1990, 30 something cents, 2014...$1. I have only heard of things getting more and more expensive.


Within the context of massive layoffs and elimination of door-to-door delivery? Your example doesn't provide merit against my point, it solidifies it. 

Even socialism has upper limits.


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## hboy43

Hi:

In all my time of hanging around financial sites, about 8 years, I have never made a prediction that had a time attached to it. In years past I have described some of my holdings and why I liked them, but never said anything like stock x will be price y by time z.

Do I think RE in general is overvalued. Yes, very much so given all the various and sundry metrics one can look at. When will this state change? No idea when or if. 

So I just play with my financial marbles in different games that don't have a look of insanity about them, and watch RE from the sidelines.

hboy43


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## marina628

We went through worst than job loss I was permanently disabled in a car accident .But just so we are clear I love renters , we own 11 rental properties and counting but I do not have any condos in Toronto for almost 10 years.I rent a place in Toronto for my daughter who is attending school there because I have better options elsewhere.I realize that somebody in the market for 20+ years will have more tolerance and passion for real estate than somebody who is new to the game or waiting to get in.My first million dollars profit was in real estate so I have a big cushion and we built for long term holding.Maybe professional landlords like myself should just shut up in these threads.


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## Chris L

marina628 said:


> We went through worst than job loss I was permanently disabled in a car accident .But just so we are clear I love renters , we own 11 rental properties and counting but I do not have any condos in Toronto for almost 10 years.I rent a place in Toronto for my daughter who is attending school there because I have better options elsewhere.I realize that somebody in the market for 20+ years will have more tolerance and passion for real estate than somebody who is new to the game or waiting to get in.My first million dollars profit was in real estate so I have a big cushion and we built for long term holding.Maybe professional landlords like myself should just shut up in these threads.


So if I had 5.5 million dollars you think I should go out and buy 11 places today....like you did? That's what you're saying.


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## Just a Guy

If you found the right properties, at the right price (which marina also said), then you would probably be very happy with your investment...plus you'd still have a significant amount of money leftover...as spending 500k/property would not be the right price. I doubt marina paid that, though they may be worth that today...but she appears to be a real estate investor, unlike all those real estate critics on this board.

Marina, I find it interesting that your story being injured, turning to real estate, buying cost effective places, etc. is close to my own, as well as William's (the guy who's book I recommend)... I wonder how many others who do real estate are similar...

Then again, maybe we're all the same person according to some Rubes out there...


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## blin10

james4beach said:


> I'm not saying this is imminent, but when interest rates _do_ rise, housing will tank, stocks will tank (especially dividend stocks and REITs) and bankruptcies will spike.
> 
> Or interest rate could just stay low for a very long time, who knows.
> 
> Either way, I'm renting. Let someone else take the capital risk... I'm not about to leverage myself like that in such an uncertain economy where layoffs are rampant.


you really think Canadian government is going to shoot itself in the foot? you really thing they will keep raising rates while housing is tanking and bankruptcies spike? and when they do raise them, it will be based on how Canadian economy is doing as a whole, therefore higher rates will mean economy is stronger and those people who are shaky with mortgage payments will have better work opportunities (on average)...


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## blin10

james4beach said:


> I'm not buying ANYTHING until the economy stabilizes and I have confidence that my employment will be stable. A couple years ago Scotia was trying to get me into a $1 million home. LOL. A few months later, I was laid off.
> 
> *That's* why I don't buy a house.


more and more I think you're 18 year old teenager with that logic... when economy fully stabilizes, that 1mill house will be 1.5mill


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## andrewf

blin10 said:


> you really think Canadian government is going to shoot itself in the foot? you really thing they will keep raising rates while housing is tanking and bankruptcies spike? and when they do raise them, it will be based on how Canadian economy is doing as a whole, therefore higher rates will mean economy is stronger and those people who are shaky with mortgage payments will have better work opportunities (on average)...


BoC has an inflation mandate, not a house price mandate. If inflation starts to rise they have to raise rates in response to keep it in check.


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## kcowan

And fortunately, house prices are not included in inflation calculations. Just "imputed" rentals.


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## Just a Guy

If the housing market tanks, there's a good chance inflation will be affected. Either people will demand higher wages to keep paying for their mortgage (inflation) or demand for things will drop because no one can afford anything (deflation).


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## wert

Just a Guy said:


> If the housing market tanks, there's a good chance inflation will be affected. Either people will demand higher wages to keep paying for their mortgage (inflation) or demand for things will drop because no one can afford anything (deflation).


Mortgage payments have nothing to do with equity in the house. They are based on a person's prevailing wage. It makes no logical sense that they would need extra income to pay a mortgage for a depreciating home. In fact, new buyers would need LESS income to buy the same house.

Inflation usually occurs in an improving economy. Why would it signal doom?


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## Pluto

I think real estate prices have pretty much topped out for the next 5 - 10 years. 
For example, In Toronto average prices in the 1980's topped out in 89. Then prices through the 90's eased down to the mid 90's and started appreciating. If someone paid an average price in 89, it took to about 2000 to break even. A similar pattern developed in Vancouver over that time period. 

From 2000 to the present there has been a terrific run up in prices. I think it is topped out. I think it will take about 5 - 10 years before there are any significant price increases over current levels. So, I think that those looking to buy for the first time have a few years to get a down payment together with out getting left behind. Those who have recently bought for the first time have a long way to go to get equity from price increases. But don't get discouraged. Make sure you are in before the next bull run in 5 - 10 years, other wise you can get left behind.


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## marina628

My 11 rentals took about 15 years to accumulate ,we purchased 7 of them in past 3 years but 5 are in USA and we paid 40k -80k for them.


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## Just a Guy

wert said:


> Mortgage payments have nothing to do with equity in the house. They are based on a person's prevailing wage. It makes no logical sense that they would need extra income to pay a mortgage for a depreciating home. In fact, new buyers would need LESS income to buy the same house.
> 
> Inflation usually occurs in an improving economy. Why would it signal doom?


I was talking more about mortgage renewals...when the home you already bought costs you much more than you were just paying...remember mortgage payments aren't constant over the life of the loan...many homeowners forget that fact.


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## Cal

I can only see the market tapering, but can't see anything happen unit at least 6 months after rates start to rise, at least another 1%. Assuming the US recovery continues as it has slowly been going along, perhaps a rise to 1% fed lending rate by the end of 2015. I don't think we will see the effects of that until mid 2016. However rising rates may affect the bond markets in 2015, causing mortgage rates to rise prematurely, in comparison of the actual effects of the fed rate on borrowers or the economy.

Rates have nowhere to go but up, we will never again see them at these rates in our lifetimes. At least I hope we never do, that would mean widespread hardship for our economies again. but the US unemployment numbers were at 6.6% which was closer to the 6.5% target sooner than expected, so once tapering is complete I am sure the US fed will give us some better indicators to their intentions.

I do hope when the US fed begins to raise there rates that our Canadian economy can handle it, as we have not added many jobs in comparison to the US, and our unemployment numbers remain higher.


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## Siwash

Tapering, which is well underway and expected to continue this year, was supposed to result in higher interest rates but we haven't seen that yet.. At least this is what I read...


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## richard

'tis a funny thing to watch the markets... the prices can precede the news.


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## sags

Just a Guy said:


> I was talking more about mortgage renewals...when the home you already bought costs you much more than you were just paying...remember mortgage payments aren't constant over the life of the loan...many homeowners forget that fact.


It baffles me why our home prices would be so much more than in the US.

They earn more money, have more savings, deduct their mortgage interest and have 30 year fixed low interest rates.

They also have choices to live in nicer climates than Canadians.

How does our real estate remain higher than US prices?


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## sags

marina628 said:


> My 11 rentals took about 15 years to accumulate ,we purchased 7 of them in past 3 years but 5 are in USA and we paid 40k -80k for them.


You built your business and the rentals from the ground up...........and deserve all the kudos for that accomplishment, but would you not agree that once you established yourself and had some capital to employ and a good credit history background.............it was easier to acquire more wealth........when you already had some to build upon?

Your success, is an example of why assets flow to the wealthy. It takes money to make money.

You did it.......everyone could do it.......if they were given a chance at the lower rungs of the ladder to get started.......and of course, had the required diligence and dedication that you did.

I think though..........when a young person is struggling and the banks won't even talk to them, they are forced to visit the friendly payday loan company down on the corner and borrow small amounts of money at 1000% a year interest rates......because our banks aren't interested in lending to them.

There are just too many payday loan offices around every city in Canada.....to believe they aren't a visual clue that there is a problem.


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## RBull

^Yes that is right. When you have more wealth and established credit history it is easier to get more money and build more wealth. This is a principle of capitalism and what people who want to get ahead would strive for. Many people who become "wealthy" did not start with lots of money. They made their own chances. They started with a dollar and turned it into 2 dollars. I did and so did many others on this board and around the country. 

Not everyone could or will do it. You have to make your own chances. You have to make sacrifices. You have to made mistakes and learn from them. You have to stay focused and have a plan. These are things some folks just aren't going to do and all of us do them to varying degrees of success. No one is going to look after you or hand it to you. 

Who is forcing the young person forced to visit the payday loan? I didn't do this when I was young and I doubt I am unique. The number of these centers is based on demand. If more people would live within their means and take the time to learn more about finances there wouldn't be as much need for them. And just use some common sense. I have personally seen too many occasions where this was not the case. And despite all the help I offered they went back to the same hopeless routine. You can lead a horse to water back you cannot make them drink.


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## Just a Guy

Sags, I can't speak for marina, but my story seems very similar to hers (minus the poker). When I was young, I focused on only buying what I needed and getting rid of debt. Now, that doesn't mean I lived off TV trays eating kraft dinner...I had a plan to move out starting at 16. So, instead of buying drugs, alcohol and smokes like my friends, I bought dishes, pots and pans, and furniture when it came on sale cheap. When I was ready to move out 2.5 years later, I had accumulated a pretty fine household, all paid for. Time table, 2.5 years into the future from initial thoughts.

When I going to school, there were no jobs...out of my class of 650+ I was the only one I knew who got a summer position. While there, I managed to turn that summer position into a full time contract making good money. Again, I didn't party, drink, smoke, etc. I saved up a down payment and had my parents co-sign a mortgage for me. I had two friends move in to pay rent and put as much money as I could towards a mortgage, it also built up my credit rating. Timeline about 2-3 years.

Then my contract was suddenly terminated due to cutbacks, so I used the contacts I'd made at work to start my own company...had very few clients in the first few years, but built them up through word of mouth until I was easily making six figures...managed to pay off my house. Timeline 3-4 years.

Then I got injured and couldn't work, had just upgraded my house to a bigger one, had a mortgage and my first rental...but no other income my wife was also injured and we had two kids. No social safety nets for the self employed (no ei, no welfare, no nothing). So, first thing I did, before the banks could realize I wasn't working, was go out and buy a second rental, putting myself further into debt. I invested a portion of my savings into the stock market as well... It was a rough couple of years, slowly getting further and further into debt, in chronic pain, not wanting to cash in the investments for short term gain...timeline 2-3 years.

Then I took a contract that was more a job...hated it, but needed the money. Worked there for nearly 2 years, but also worked on my company in the evenings...reviving it. One day, near the end of the contract, I did something I don't normally do, I pulled up my portfolio and realized those early investments and my rentals were starting to make me pretty good money...but it still didn't touch them much, I put as much income as I could to getting off of things like credit card debt (used for food and clothing, not toys). Lending was easier back then, so I bought another rental, leveraging the first two...timeframe 2-3 years.

Since then, I've added places, added to my investments, worked on my business, started new ones...always with an eye to the long term, and knowing that it can all disappear in an instant. I've often endured short term pain for long term gain. I've been in debt up to my ears, but I always looked for ways to change the situation if I didn't like it, and realized that change wouldn't come overnight.

Even today, I think years into the future when it comes to investing, but in don't plan my life further than a week in advance.

I should also mention that, even today, the banks have always rejected lending me money when I first ask...I just keep asking until I find someone who says yes.


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## sags

JustAGuy.......

Adversity and experience makes the best teacher..........no?

It sounds like you had great parents, who trusted your ability.

I know lots of young people my son's age, who have no parental support at all.

We know one kid who owed a small amount of money..........less than $5,000 to payday loan companies for repairs to his rusty old truck.

We were shocked to learn his parents let him declare bankruptcy.............as a life lesson for him.

Not all young people have a support system and payday loans are their "bank" when in need. Sometimes they just need a little credit to repair a vehicle so they can go to work. Sometimes they need a little credit to get their teeth fixed so they can look presentable..........or buy some decent clothes.

The theory that all young people are frivolously wasting their money on IPads and big screen televisions is somewhat overstated, in my opinion.


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## hboy43

sags said:


> if they were given a chance at the lower rungs of the ladder to get started


So true. The $2/day I used to earn when I was 9 delivering the morning paper is no longer available to modern kids. Everyone is now doomed to a life of poverty due to circumstances entirely outside their control.

On a less sarcastic note people need to learn to deal with the world as it actually is, not how it used to be or how they wish it was. There is always an opportunity to advance your life, it just might not be the one you want it to be.

Back in the day of 19% interest rates, you might have wanted really badly to be a stock owner, but the more sensible thing might have been to load up on long term bonds.

Back in 08/09 you might have wished you had not purchased stock in your favourite company at $100 only to see it plummet to $25, but the sensible thing might have been to back up the truck and buy more.

RE in Toronto now might average $550K or whatever the number is. A sensible path now might be to rent. Or relocate. Or maybe even change careers say to a teacher or police officer, some career that pays the same within 10% anywhere in the province and then choose to buy a house near me at $200K instead of looking at TO at $550K.

You really might want to buy long term bonds now. All things the same, it might fit your risk tolerance, or your age, or plans to buy a house 5 years out. If only it were 1981 again and the yield was 19%. But the sensible thing now given the world as it exists just might be to ... not.

If you are a young person staring down miserable job prospects and debt at the end of 4 years of schooling, then maybe the way forward is to go cycling/camping for a year or two and wait to see how the world develops. Maybe it will develop to a situation of reality that better matches with your vision of your life than the current one does. Even if you borrow the $5000 it would take to do this, it would still be less that the debt of going to school for a year. You might learn something about yourself. It might be the evidence of stamina and fortitude that gets you the job at $20/hr instead of $12/hr when you get back.

Every point in time as circumstances such that if you insist of taking a direction, you find yourself going against the tide. Other circumstances you find yourself going in the direction of the out going tide. Many people insist on doing certain things at certain times regardless of the fact they are going against the tide. You are of course free to do this, just don't expect sympathy from me and others when it proves difficult and leads to hardship or failure.

I would suggest that insisting on buying RE in Toronto or Vancouver now given current conditions is going against the tide. There are likely other things you can and should be doing that would be taking action with the tide.

I suspect that the people who are financially successful have a compass, chronometer, charts, and the knowledge of how to use them. They know where they want to go. They have the wisdom to accept that they cannot necessarily go now, or in the straight line smallest distance path. These people succeed whether they are travelling in a 22 footer or a large yacht. It isn't the size of the initial capital that determines if you get ahead, it is your financial seamanship that counts.

hboy43


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## marina628

sags said:


> You built your business and the rentals from the ground up...........and deserve all the kudos for that accomplishment, but would you not agree that once you established yourself and had some capital to employ and a good credit history background.............it was easier to acquire more wealth........when you already had some to build upon?
> 
> Your success, is an example of why assets flow to the wealthy. It takes money to make money.
> 
> You did it.......everyone could do it.......if they were given a chance at the lower rungs of the ladder to get started.......and of course, had the required diligence and dedication that you did.
> 
> I think though..........when a young person is struggling and the banks won't even talk to them, they are forced to visit the friendly payday loan company down on the corner and borrow small amounts of money at 1000% a year interest rates......because our banks aren't interested in lending to them.
> 
> There are just too many payday loan offices around every city in Canada.....to believe they aren't a visual clue that there is a problem.


We were 31 years old when we bought our second home and back then we could buy with 5% down ,I believe our strong point back then was we had a mortgage no car payments and no credit card debts.We likely had 1 card with a 3000 limit.People these days have $100,000 worth of credit lines and at least 1 if not two $400+ car payments.The second house was $172,000 house 3 was $167,000 .I will agree you cannot build a good portfolio when you have to pay $300,000+ for each unit which is why in 2013 we looked outside of Canada.


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## Just a Guy

sags said:


> JustAGuy.......
> 
> Adversity and experience makes the best teacher..........no?
> 
> It sounds like you had great parents, who trusted your ability.
> 
> I know lots of young people my son's age, who have no parental support at all.


Adversity isn't a great teacher, but it is a good motivator in my case...in others, it's an excuse to give up.

My mother wanted to be quite supportive, but she was a single parent, not financially savy, and died in my early 20's. She did give me a signature on the first place I bought though, but I came up with all the money and a plan to make the payments.

As for my in-laws, they never approved of me since I was self employed...

The one thing I learned very early was that a million dollars isn't a lot of money. What the heck is anyone declaring bankruptcy over $5000 for? There is no excuse, in my opinion, why he couldn't have found some way to pay that off. Even when I was dead broke and couldn't work I found a way to pay for good food for my family. It may take a bit, but you could always find some extra, probably not glamorous, work that would allow you to make and pay off $5000 extra a year even with the high interest rates.

I'll admit I was lucky in my investments, but I also had to be in the game to take advantage of the luck. I took very calculated risks, after a lot of self study, and bucked the advice of others who said it was too risky (paycheque people).

I've often said I've lived my life doing what I wanted...but it hasn't always been done the way I wanted. I'm willing to adapt to situations, change the path to the goal, accept limitations that prevent me from the exact goal...but I won't sit back, complain, or wait for someone to do something for me. 

I also won't take no for an answer. My last house, every bank and trust company rejected me for a mortgage, despite my net worth, I'm still self employed. I hit every bank a second time...my realtor found me a loan at 10% which was just plain stupid. Eventually, on my third round, I got my mortgage, at my bank, for the lowest rate available. I didn't take the 10% that was offered because it didn't make sense, even though at the time it was the only option. I was willing to walk away from my want if it didn't meet my terms.


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## wert

Just a Guy said:


> I was talking more about mortgage renewals...when the home you already bought costs you much more than you were just paying...remember mortgage payments aren't constant over the life of the loan...many homeowners forget that fact.


In general, interest rates will rise with a growing economy, and growing wages and investments.


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## Just a Guy

Yes, but leverage works both ways in real estate. A 1% raise in interest means about $100/month/100k of loan. If the typical mortgage is 350k, that's $4200 more after tax dollars you need for every 1% increase. At 2-3% interest rate increases, the numbers become unsustainable...even with 5% pay increases.

This isn't doom and gloom, or wishful thinking...this is the reality of math.


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## OurBigFatWallet

marina628 said:


> We were 31 years old when we bought our second home and back then we could buy with 5% down ,I believe our strong point back then was we had a mortgage no car payments and no credit card debts.We likely had 1 card with a 3000 limit.People these days have $100,000 worth of credit lines and at least 1 if not two $400+ car payments.The second house was $172,000 house 3 was $167,000 .I will agree you cannot build a good portfolio when you have to pay $300,000+ for each unit which is why in 2013 we looked outside of Canada.


Congrats on the big portfolio. Where in the US are your rentals? Do you look after them yourself or do you have a property mgt company handle it?


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## MoreMiles

We are 45% richer than less than 10 years ago.

http://ca.finance.yahoo.com/news/statistics-canada-says-family-net-worth-243-800-143512697.html

More money to spend on real estate!


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## Just a Guy

Here's the beginning...unless they change their mind (they dropped rates last month).

http://www.cbc.ca/m/news/#!/content/1.2550370


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## Siwash

Just a Guy said:


> Here's the beginning...unless they change their mind (they dropped rates last month).
> 
> http://www.cbc.ca/m/news/#!/content/1.2550370


I honestly think the banks release these statements/reports to kickstart housing sales… The spring season is upon us and the "house hornies" are garth Turner likes to call them will be champing at the bit to secure the rates "before they go up"

Banks have nothing to lose - CHMC has their back. Pretty sickening


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## Siwash

I liked this article that was attached to the "related" articles 

http://www.cbc.ca/m/news/#!/content/1.2519201/


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## NotMe

Back to the original posting: RE will let off November 21, 2015 @ 8:56pm. (The real truth is that it's hard to predict the future, so I instead prefer to make the best choices I can today using the information I have available to myself today.)


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## Rusty O'Toole

marina628 said:


> My 11 rentals took about 15 years to accumulate ,we purchased 7 of them in past 3 years but 5 are in USA and we paid 40k -80k for them.


How do you manage rentals from this distance?


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## marina628

We have property managers who collect rent take their fee and deposit balance into our account .


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## sags

NotMe said:


> Back to the original posting: RE will let off November 21, 2015 @ 8:56pm. (The real truth is that it's hard to predict the future, so I instead prefer to make the best choices I can today using the information I have available to myself today.)


When the skies of November turn gloomy.

T'was the witch of November come stealin'.


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## martin15

sags said:


> When the skies of November turn gloomy.
> 
> T'was the witch of November come stealin'.



Awww thanks, now I will have him on the brain all day. 

CMHC will have a news conference later, could be interesting.


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## sags

Just from anecdotal evidence........but I have heard some different things lately.

A few years ago, my niece got her first job and within a year, she and her boyfriend applied for a mortgage and were given $300,000.

They bought a home.........later split up..........and the boyfriend's mom bought the house from them.

A little while ago.......the same niece is still working and earns more money, has a new boyfriend who earns more, and they applied for a mortgage.

It was denied.

My sister's friend is a bank manager and she says a lot of people are being denied at her branch, that she thought should qualify. 

I wonder...........and it is just a theory..........since the CMHC capped the limit for individual banks to 350 million each........is it possible that if one bank reaches their limit they have to deny mortgages for awhile, but other banks still have room under their own cap?

I wonder because you hear stories of people being denied at one bank............and approved at another.

As long as a person is approved for CMHC at one bank...........you would think they should be approved at any bank.

Does the CMHC reveal how much insurance each bank has used?


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## NotMe

I don't know the answer to your question, but I do think someone should tell your niece to stop buying property with guys


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## richard

Here's a new one: http://cjme.com/story/regina-residents-outraged-about-high-price-sidewalk-repair/264172

Isn't it fun to own your own home


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## nobleea

I see that CMHC increased their premiums today for borrowers with less than 20% down.
http://www.cbc.ca/news/business/cmhc-hikes-mortgage-insurance-premiums-1.2555076

I would think decreasing the downpayment at which CMHC is required (for example 20% down to 15%) might be a better way to manage things. Banks are very good at managing and controlling risk. They will charge appropriately. Plus it removes the onus on the tax payer.


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## kubatron

Here's the problem with this theory: It'll never ever happen for two reasons.

First, there are many lenders that offload risk to cmhc regardless of down payment.
Second, The market does not want to encourage people to put down 15% and thus be able to avoid 25-yr amortization (and get 30 or 35 which you can still get), not to mention make it easier to qualify.

Today's changes will have no impact on the market.

The only thing that will cool things off is higher rates.


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## kubatron

sags said:


> Just from anecdotal evidence........but I have heard some different things lately.
> 
> A few years ago, my niece got her first job and within a year, she and her boyfriend applied for a mortgage and were given $300,000.
> 
> They bought a home.........later split up..........and the boyfriend's mom bought the house from them.
> 
> A little while ago.......the same niece is still working and earns more money, has a new boyfriend who earns more, and they applied for a mortgage.
> 
> It was denied.
> 
> My sister's friend is a bank manager and she says a lot of people are being denied at her branch, that she thought should qualify.
> 
> I wonder...........and it is just a theory..........since the CMHC capped the limit for individual banks to 350 million each........is it possible that if one bank reaches their limit they have to deny mortgages for awhile, but other banks still have room under their own cap?
> 
> I wonder because you hear stories of people being denied at one bank............and approved at another.
> 
> As long as a person is approved for CMHC at one bank...........you would think they should be approved at any bank.
> 
> Does the CMHC reveal how much insurance each bank has used?


CMHC does not reveal how much insurance was used per bank but remember, that cap is fluid. As CMHC loans are paid off then the cap keeps going down and up and down and up etc. Your niece was probably denied for a myriad of other reasons, 1 being incompetence of most bank employees (I'm serious). There are three mortgage insurance cos you can go to, cmhc/genworth/canada guaranty, so if that banker had any brains, she could've done the deal.


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## andrewf

nobleea said:


> I see that CMHC increased their premiums today for borrowers with less than 20% down.
> http://www.cbc.ca/news/business/cmhc-hikes-mortgage-insurance-premiums-1.2555076
> 
> I would think decreasing the downpayment at which CMHC is required (for example 20% down to 15%) might be a better way to manage things. Banks are very good at managing and controlling risk. They will charge appropriately. Plus it removes the onus on the tax payer.


Nope. The banks tend to buy bulk portfolio insurance on uninsured mortgages.


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## Potato

nobleea said:


> Banks are very good at managing and controlling risk.


This was the thinking behind non-recourse loans.


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## bmoney

This is a difficult question to answer. Real estate _value_ has different meaning to different people. I am convinced less than before that affordability is the primary factor for the consumer so much as is the availability of credit. We all know people in over their head on real estate; for how many did affordability play a factor? How many people can truly quantity what they can afford? The Great Recession after all is oft referred to as the "Credit Crises", we like to think humans are rational actors, then we forget people can rationalize decisions in ways that are not quantifiable on a balance sheet - those are emotions. 

The banks will eventually determine when houses are no longer affordable and scale back lending. I suppose I should include CMHC & the Federal Government since they are relevant counter-parties that drive credit and therefore demand. 

If I had to make a call, I would say the risks are stacked in favour of a levelling off, and eventual price decline. It could be interest rate hikes, the bond market, recession, inflation/deflation, change in policy that drives a sudden change. I work in finance as a consultant and work directly with employers on benefit/incentive strategies and employee severance. With some of the recent lays off/downsizing my business is booming. On the other hand, if the US is truly in recovery, we could be pulled up through the current softening and come out the other end just fine, especially with a lower loonie.

Personally, I am a renter with lots of cash in the bank, while my friends have lavish houses with lots of equity. A part of me is uncomfortable that I do not own, but those are emotions. I could trade my cash for a home with equity but I would trade financial security with more risk. It will be interesting to see who in the end is right. 

Tonight, I am going out for a nice expensive dinner because I can afford to. And to justify why renting with a lower cost of living is the right thing to do as opposed to owning. My friends are staying home.


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## wert

bmoney said:


> ...Tonight, I am going out for a nice expensive dinner because I can afford to. And to justify why renting with a lower cost of living is the right thing to do as opposed to owning. My friends are staying home.


So your friends are more frugal with a forced savings programme, and will have more to show for it in the future (except maybe clotted arteries from rich living  )

...I am half joking. Have fun!


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## MoreMiles

Let's fast forward 20 years, you will see the difference... like grasshopper and the ants.


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## richard

wert said:


> So your friends are more frugal with a forced savings programme, and will have more to show for it in the future (except maybe clotted arteries from rich living  )
> 
> ...I am half joking. Have fun!


A forced savings program that pays barely more than inflation on your savings... and also comes with forced spending and forced labor included. No, I'm still not seeing it  I'll take my chances on not needing to be threatened into taking care of myself.


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## bmoney

MoreMiles said:


> Let's fast forward 20 years, you will see the difference... like grasshopper and the ants.


In markets like Toronto, it can be cheaper to rent than own. My savings go into my investment account, but I understand the argument for forced savings, some people require the restraint. By my model it will be a close race. I'll admit there is a strong pull to buy, but I may be more pragmatic financially than others. Maybe it is my European roots that harken back romantic notions of ownership equating to freedom, a road away from serfdom. The cynic in me can't help but equate some aspects of the real estate mania as just plain consumerism. As a renter, I have excess cash not only because my landlord is so kind to trade cash flow for equity, but because I do not obsess over German made stainless steel appliances, a new deck or replacing the roof. I suppose if I did, I do not have the option, I suppose there's restraint after all. If there was an honest account of ones "investment/spending" into home ownership vs renting, how many people would be truly ahead?

At some point the market will give, and it is much to difficult to know for certain when. I would look to unemployment figures, housing starts and permits as leading indicators. And at some point after decline housing will bounce back, it did not take the US too long for things to turn up. Memory is short, longing is not.


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## bmoney

In 2008, I was looking to buy. I was a bachelor looking for my first place. I was making 45k/yr first job out of university. 1 bedroom condos then were about 200k, the house down from where I lived was selling for just under 400k, a bungalow in the right part of town. If I had the money and certainty at the time I would have pulled the trigger, I made one offer on a property and lost out. At the time I had no idea where I would land, whom I would be with and where my career might take me. Since that time my income has more than doubled, then again so has the price of the bungalow. I did not expect either, both gains were exceptional. The part that kills me is that I am in no better a position to purchase a 800k bungalow now than I was 6 years ago, despite the rise in my income. If this were 30 years ago steady wage inflation would surely erode my debt and the sacrifice would be simple. I played it safe, did the right thing, focused on education and career, and now ownership requires me to take on nearly the equivalent risk as when I was half as deserving. Call me stupid, I call it unlucky timing.


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## peterk

^ Just because waiting was wrong 6 years ago doesn't mean waiting is wrong today! 

Trust your gut and the numbers and don't let fear and uncertainty make the decision for you, whatever that may be.


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