# A good buying opportunity



## none (Jan 15, 2013)

So I'm new to investing and today kind of hurt. I invested most of the Canadian equity side of my couch potato (including my bond component which helps) so today hit the potato pretty hard. 

On the plus side, my dividends get reinvested tomorrow so I guess that just means I get a couple more shares. It's kind of a weird mind-set to look at the bright side of a market correction as a buying opportunity....

Any suggestions? I have $3000 of play cash and thought it would possible to grab some RPL on the cheap. We'll see.


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## webber22 (Mar 6, 2011)

I would read through the *'Was it just me that got smoked in the market"* thread first before carrying on.

http://canadianmoneyforum.com/showt...d-in-the-market-today?highlight=smoked+market


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## Barwelle (Feb 23, 2011)

none said:


> So I'm new to investing and today kind of hurt.


pain is good :tongue-new:

this is barely down... by my rough calculations, my couch potato (US, Cdn, & Int'l equity, no bonds) is only down about 1% today, and about 2% since the highs of mid-March. 

I'd rather see 20%! I've got some cash set aside for rebalancing (Now about 30% of my couch potato) that I've been procrastinating using because my couch potato is so high right now relative to the past couple of years...


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## Ihatetaxes (May 5, 2010)

Just bought $20k of XIU this afternoon and happy to be buying at a 4 month low.


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## none (Jan 15, 2013)

webber22 said:


> I would read through the *'Was it just me that got smoked in the market"* thread first before carrying on.
> 
> http://canadianmoneyforum.com/showt...d-in-the-market-today?highlight=smoked+market


Good thread - I can see how this would be considered a 'blip' in the grand scheme of things. I'm still getting used to the volatility. I just wish it was the S&P hitting a bump and not the Can market!


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## the_apprentice (Jan 31, 2013)

Depending on your perspective. As a buyer its good; As a seller you're hoping for gains. Since your dividends get reinvested tomorrow I would probably add to that, assuming your in it for the long term. Aside from that, I'd rather hold cash as things are looking bearish IMO.


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## KaeJS (Sep 28, 2010)

none said:


> I'm still getting used to the volatility.


Volatility is what allows you to make money.

You are reinvesting tomorrow, no?

This is a good thing for you.


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## none (Jan 15, 2013)

I don't think so. Basically I had it all in ZCN & ZDV. The former has taken a 3% hit since I bought it but I bought so much of it that any extra $$ I have around wouldn't make much of a dent in how much I already own. If it dropped another 3% I may chance my mind though


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## webber22 (Mar 6, 2011)

Don't listen to KaeJS :chuncky: He sold everything and bought a house instead


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## none (Jan 15, 2013)

webber22 said:


> Don't listen to KaeJS :chuncky: He sold everything and bought a house instead


He bought a house??? Yikes, remind me to not take investing tips from that guy  (I'm kidding... mostly)


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## jcgd (Oct 30, 2011)

Put it out of your mind. If you are couch potatoe investing reinvest according to your plan or buy dips. Nothing is for sure but there is no denying today's price is a better value than yesterday's. 

Not many people can time the markets effectively. At least the pros can't, and they know it, hence why they do well. Buy if you can find deals, don't buy if you can't. Value investors looked like fools for 4 or more years during the tech boom until the wiped the floor after the crash. 

The key is to stay fully invested all the time and simply don't buy anything if you can't find a deal. Even the best don't know when to move into cash. They just know when they can't find any new deals to hold onto their cash instead of chasing money. 

Heck, if the market tanks tomorrow you already have your buy list. Just load up on more of all your existing holdings. 

If you move to cash now, keep in mind that the market can move against you for years or more. Just look at all the peoe still holding cash from 2009. Those of us that had the guts have made a killing the last four years. Even newbies like me could throw darts and make money. It's nice to have cash for the next crash, but you might lose out even more
While you wait for it. Better off buying when you see deals and doing nothing when you can't find any.


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## none (Jan 15, 2013)

That sounds like wisdom there.

Yeah, I've ben holding back jumping into the S&P & Int funds because the CAN$ has dipped a good amount and the recent run up has been pretty crazy. I was hoping to hold off and hope for the S&P to fall to around 1500. With the recent run up I don't think that's unreasonable.

At this point I just don't know how to evaluate things properly. Gold seems 'cheap' by recent prices but historically gold is still crazy expensive -- I have a hard time identifying what a 'deal' would be. Thanks for your comments.


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## none (Jan 15, 2013)

Cheers to diversification - although my equities took a hit today my bonds took a decent sting out of it.


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## Ihatetaxes (May 5, 2010)

I bought some VTI as well late afternoon, about 1/8 of what I really need to buy. I'm hoping for a 5-10% correction over the summer.


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## none (Jan 15, 2013)

Ihatetaxes said:


> I bought some VTI as well late afternoon, about 1/8 of what I really need to buy. I'm hoping for a 5-10% correction over the summer.


Maybe I should buy in stages too - I hope that VTI will fall back down to around 77 or so. Really, maybe I'm quibbling about pennies in the grand scheme of things. That, and I'm hoping the CAN$ will bounce back up to par.


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## KaeJS (Sep 28, 2010)

webber22 said:


> Don't listen to KaeJS :chuncky: He sold everything and bought a house instead


It was either buy a house or rent.

My house brings in $1500/month in income.

What would you have done? Pissed away money renting from someone else?


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## none (Jan 15, 2013)

Let's not get into this conversation... I save about $1500 a month by renting over owning an overpriced house even in this low rate environment. It's nice having a landlord supplement my rent and further I don't have to worry the housing correction that is undoubtedly about to happen (Toronto sales down 17% this month) . By my calculations I've saved over $80,000 by not buying last year.

Good luck!


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## KaeJS (Sep 28, 2010)

Do you know what happens when you assume, none?

Because really - that's all you are doing.


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## none (Jan 15, 2013)

About what? The eventual housing correction?


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## KaeJS (Sep 28, 2010)

Yes.

You are making an assumption. It has not happened yet. How can you guarantee?

Listen - I thought there was going to be a housing bubble burst in 2010.

3 years later, we are still here.


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## none (Jan 15, 2013)

KaeJS said:


> Yes.
> You are making an assumption. It has not happened yet. How can you guarantee?
> Listen - I thought there was going to be a housing bubble burst in 2010.
> 3 years later, we are still here.


It has started - just like it did in 2009 - but the government stepped in and boosted it even crazier. The government has said it will not do that again. Sales drop - prices follow about 12-18 months later. It has been a pattern in the US, Ireland, Spain etc etc - Canada is not different.

I'm actually not what I would call a housing bear at all - Simply a realist, housing has to, and will come down in the next 2 years. I have no idea how much your house cost you but if it's 300K then I wouldn't be at all surprised if in 2-3 years it's worth 240K. Good news is is that it sounds like your rent money will insulate you from the loss (minus gains). Bad news is the compensation for dealing with roomates for 4 years will be 0%. No thanks - i'd rather live alone and put my cash in a GIC thanks (not that I'm doing that).

On a positive note, the $100 wager we have is in your favour, house prices in TO have actually one up in the last month.


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## andrewf (Mar 1, 2010)

KaeJS said:


> Yes.
> 
> You are making an assumption. It has not happened yet. How can you guarantee?
> 
> ...


Housing staying at elevated valuations is like expecting the dotcom bubble to be the new normal, with P/Es staying at 40 forever.


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## KaeJS (Sep 28, 2010)

I do not disagree that the pricing for real estate in certain areas has become overvalued.

I do think, however, that the demand for living in Canada and purchasing homes is still high enough, with interest rates low enough, that a correction will not come.

andrew, the dotcom bubble is not the same. Housing is housing. People still want to live in Canada.

Of course, RE is not untouchable. Only a fool would say that. I just think that a correction is not the right word.

I would replace "correction" with "stagnation".


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## none (Jan 15, 2013)

Semantics. We're not calling it a crash, isn't that enough for you? 

What I think is going to really crush things is that people really underestimate how different a housing market looks going up compared to going down. i think we can all relate to this a little bit with stock. Stock go up 10% in a day - yay! that's nice - drop 10% in a day OUCH!!!! You can only buy into the paper loses idea so much.

When people realize that they are spending a half year salary for just buying a house and it not getting washed away due to appreciation people will come to realize how stupidly expensive houses are.

Renting versus buying right now is an absolute no brainer. I wouldn't touch a house right now with a 2% mortgage rate.
_*
"andrew, the dotcom bubble is not the same. Housing is housing. People still want to live in Canada."*_

And people still want computers and ipods and look what happened to the dot-com. They are more similar than you think


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## Ihatetaxes (May 5, 2010)

My wife wants to go see a house that is listed at $1.7m. When I stopped laughing I told her that house will likely be worth $1.3m in 2 years and I sure as hell won't be the guy crying the blues about the $400k drop in value. Bad enough I own an $800k house mortgage free but I wouldn't lose too much sleep if it dropped to $600k.


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## none (Jan 15, 2013)

This comes to mind....


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## Ihatetaxes (May 5, 2010)

Lol I am showing her that right now! :biggrin:


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## none (Jan 15, 2013)

Ihatetaxes said:


> Lol I am showing her that right now! :biggrin:


You know what you could do? Sell you place now and rent a place for $5000 a month (that's probably about what you are paying in opportunity costs and home maintenance fees) and sit it out for 3 years - then buy that 1.7 million house for 1.2 in 3 years. With some exceptional gains, who knows, that 800K may hit 1.3 million....


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## KaeJS (Sep 28, 2010)

In any scenario, I guess we will all find out what happens in the future.

I, personally, did not feel comfortable with renting OR with buying a house.

However, at least in my house, I am the boss and I don't have to spend $500 for a single room and live with other people.

You are right, though. I am going to cry if the value of my house drops by even 10%.

I purchased my house for $235k, FYI.


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## fatcat (Nov 11, 2009)

KaeJS said:


> In any scenario, I guess we will all find out what happens in the future.
> 
> I, personally, did not feel comfortable with renting OR with buying a house.
> 
> ...


i don't think there is anywhere in canada that you can build a new house on freehold land for 235K ... you pretty much paid at replacement value levels, i can't imagine much room underneath you for a loss of value ...


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## Jon_Snow (May 20, 2009)

None, are you becoming one of Garth Turner's disciples?  

I see you have even posted comments on his site - I think you were asking Garth for some investing advice. :cower: 

I happen to agree that a real estate correction is coming...


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## none (Jan 15, 2013)

Not really, I have gotten fairly bored of Garth's posts. They're always the same. He gets far too much credit for 'predicting the housing crisis'. He did nothing of the sort. All you need to do is look at historical prices corrected for inflation, price vs rent, fairly recent history (Toronto in 1990 anyone?).

Yes, he has never answered my questions - except the time I corrected his grammar - oh well.

The person I have greatest issue with is Romana King - the RE shill for moneysense magazine. Her math makes no sense and what irritates me the most is I gave her the idea for the column, she doesn't even say thank you, and she screws it all up and does the math wrong. At least the readers and commenters recognize this - I am 26 upvotes above her!! http://www.moneysense.ca/2013/03/28/real-estate-vs-the-stock-market/

That's what I don't get about it all - the housing correction to me (and many) is a complete no brainer - anyone who bought in the last 2 years and loses 20%+ of their principle gets what they deserve. If you're going to dump that kind of cash you should at least do due diligence.

And as a taxpayer, anyone who put 20% down at purchase date to avoid CMHC insurance should have to pony up the cost of the insurance when they renew - why wouldn't they? Why should I, as a taxpayer, take on the risk burden for their poor financial decisions?


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## Hawkdog (Oct 26, 2012)

KaeJS said:


> It was either buy a house or rent.
> 
> My house brings in $1500/month in income.
> 
> What would you have done? Pissed away money renting from someone else?


100% with ya. But its not really black and white now is? renting vs owning - its more case by case depending on where you live and what your lifestyle is.

If there is a housing correction, which in BC is possible with the NDP likely to win, I will buy a second house.


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## none (Jan 15, 2013)

Hawkdog said:


> 100% with ya. But its not really black and white now is? renting vs owning - its more case by case depending on where you live and what your lifestyle is.
> 
> If there is a housing correction, which in BC is possible with the NDP likely to win, I will buy a second house.


The housing correction is already happening in Vancouver and Victoria and has nothing to do with the NDP.


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## KaeJS (Sep 28, 2010)

fatcat said:


> i don't think there is anywhere in canada that you can build a new house on freehold land for 235K ... you pretty much paid at replacement value levels, i can't imagine much room underneath you for a loss of value ...


Well, it is not freehold.

It is a townhouse built in 2005. 1330sq ft. $125/month maintenance fees.


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## Hawkdog (Oct 26, 2012)

none said:


> The housing correction is already happening in Vancouver and Victoria and has nothing to do with the NDP.


I predict the Vancouver dip will be short lived, same with Victoria as for Northern BC its going to plummet as soon the NDP get in.


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## none (Jan 15, 2013)

Well victoria has already gone down 10% in the last year and sales are worse now than during the 2009 mini-correction. Things will be much worse and it has nothing to do with which provincial political party is governing.


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## doctrine (Sep 30, 2011)

Yes, this is a buying opportunity, but there's no guarantee it won't be a better buying opportunity tomorrow. Investing is long term. This is one down day. Can you handle 10 down days in a row like this? Or 20? If not, you might want to get out now.


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## My Own Advisor (Sep 24, 2012)

Good point doctrine. I would be happy to see a 10 or 20% market dip. Better prices


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## uptoolate (Oct 9, 2011)

I was due to buy a few things anyway so it was nice to see a little dip. Got some VBR on the US side and almost got to my limit on VCE so hopefully will pick that up in the next few days. These are long term holds so at the end of the day it doesn't really matter.


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## Jon_Snow (May 20, 2009)

I'm rooting for a 20% correction. :biggrin:

Yes, I have alot of cash ready to deploy. And yes, I am trying to time the market. :stupid:


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## thenegotiator (May 23, 2012)

be carefull with what you wish.
you might get it.


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## Barwelle (Feb 23, 2011)

it would make him (and others) happy if he got what he is wishing for!


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## jcgd (Oct 30, 2011)

Jon_Snow said:


> Yes, I have alot of cash ready to deploy. And yes, I am trying to time the market. :stupid:


The difference is hindsight. All else being equal, 20% off is better than the previous price. Just trying to time that 20% correction is unlikely.


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## Barwelle (Feb 23, 2011)

jcgd said:


> The difference is hindsight. All else being equal, 20% off is better than the previous price. Just trying to time that 20% correction is unlikely.


I've been trying to figure out a system to "time" the market with my rebalancing money.

What if... say, you have X dollars to reinvest but you've been watching the market climb higher and higher. You could decide on a system where you would invest 1/3 of X for every 10% correction. 

So say X was $30,000, if the market drops 10%, you'd put in $10,000. If the market goes up past that high water mark, then the peak is reset. In the meantime, you might have added money to X for whatever reason. But if it drops 20%, and you haven't added to X yet, you put in the next $10,000. If the markets drop 30%, you invest the last third of your dry powder.

I can't lay claim to this idea... I know I've seen it somewhere else in some form... maybe it's a better way to time than relying on your gut feeling or emotions though.


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## none (Jan 15, 2013)

I think the mistake I made is that I didn't keep back a cash reserve - I pretty much put in all of our investment money in at once (at least the Canadian portion - still not invested in the US & international). At this point, not much harm done. Interesting to think about.

From the Turner blog comments: "As Garth says buying risk is lowered as prices fall. " That makes sense.


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## thenegotiator (May 23, 2012)

jcgd said:


> The difference is hindsight. All else being equal, 20% off is better than the previous price. Just trying to time that 20% correction is unlikely.


timing is a daunting task as i said.
it takes patience and virtually a strong belief in ur thesis.... when u really have one.
i have been absent from the board due to personal issues.
nevertheless my positions in the mkt remained untouched ... excepr my short in FB which was already pocketed.
i bought the dollar index at 70 9 mentioned wayyyyyyyyyyy back) .
it met neavy resistance at around 83 bux area.
.... still is.

we entered what we call a squeeze channel which makes myself unsure of the real direction of the USD .
therefore i sold half a position already.
timing ..... daunting task.
ur 20% corrrection may turn into something much different.
but .... it will take time.
the indexes are a different animal completely when compared to stocks or even commodditys.
GL with...... timing


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## Hawkdog (Oct 26, 2012)

It will pick back up in Victoria. Without a doubt.

But I do hope your right, It will make my second home cheaper to buy.


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## blin10 (Jun 27, 2011)

this is nothing, try to sit through 50-70% stock declines in 2007...



none said:


> So I'm new to investing and today kind of hurt. I invested most of the Canadian equity side of my couch potato (including my bond component which helps) so today hit the potato pretty hard.
> 
> On the plus side, my dividends get reinvested tomorrow so I guess that just means I get a couple more shares. It's kind of a weird mind-set to look at the bright side of a market correction as a buying opportunity....
> 
> Any suggestions? I have $3000 of play cash and thought it would possible to grab some RPL on the cheap. We'll see.


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## none (Jan 15, 2013)

Hawkdog said:


> It will pick back up in Victoria. Without a doubt.
> 
> But I do hope your right, It will make my second home cheaper to buy.


Do you honestly think that? I.e that Victoria is going back up?


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## fatcat (Nov 11, 2009)

none said:


> Do you honestly think that? I.e that Victoria is going back up?


didn't we just go through the same winter without any snow at all ? ....


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## none (Jan 15, 2013)

not sure if you Victoria folks are aware of this blog: http://househuntvictoria.blogspot.ca/


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## andrewf (Mar 1, 2010)

A balanced portfolio didn't see 50-70% declines, though.


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## none (Jan 15, 2013)

andrewf said:


> A balanced portfolio didn't see 50-70% declines, though.


The whole balanced portfolio thing really hit home with me in practice with this minor correction - although my TSX equity index funds got nailed, my RR bonds and RE did quite well so my loses are fairly minimal. It actually works!


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## KaeJS (Sep 28, 2010)

^ Still, though.

Keep in mind equities always do better over the long term.

If you can handle it, you shouldn't have any bonds depending on your age and such.

Look at one of those Andex Charts to see what I mean.

http://corporate.morningstar.com/ca/asp/subject.aspx?xmlfile=6775.xml

I would never buy a bond in my life. Maybe if I was 70...


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## none (Jan 15, 2013)

KaeJS said:


> ^ Still, though.
> Keep in mind equities always do better over the long term.
> If you can handle it, you shouldn't have any bonds depending on your age and such.
> Look at one of those Andex Charts to see what I mean.
> ...


That approach makes sense when the horizons are far enough off but bonds make sense closer to the withdraw dates. I have a good chunk of bonds as I may withdraw a substantial portion of the money out of investing in another 5 years after housing has gotten cheap again.


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## jcgd (Oct 30, 2011)

I'd buy distressed debt if I was knowledgable about it. I wouldn't be buying bonds at all right now, however. Well, that's a lie. My company rrsp contributions gets averaged into the market every two weeks and it's a couch potato type portfolio. That amount never gets to be much before it's pulled to my brokerage account.


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## KaeJS (Sep 28, 2010)

none said:


> after housing has gotten cheap again.


... so you hope!

I really think you are talking about the wrong country.

Have you ever drove over the border to the US?

Once you come back to Canada, you can see why people want to live here.
The US is a shthole compared to Canada.


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## none (Jan 15, 2013)

KaeJS said:


> ... so you hope!


we've gone over this, it's not hope, it's mathematical certainty.


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## andrewf (Mar 1, 2010)

Has Canada recently stopped being a shithole? Because our housing prices used to be closer to US values.

In other words, this is just another "this time is different" rationalization.


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## KaeJS (Sep 28, 2010)

none said:


> we've gone over this, it's not hope, it's mathematical certainty.


How is it mathematical certainty?

Homes are still affordable.

The problem isn't the house price, per se, but the inability for individuals/couples to save appropriately.


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## KaeJS (Sep 28, 2010)

andrewf said:


> Has Canada recently stopped being a shithole? Because our housing prices used to be closer to US values.
> 
> In other words, this is just another "this time is different" rationalization.


I think the US used to be better regarded.


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## HaroldCrump (Jun 10, 2009)

KaeJS said:


> The US is a shthole compared to Canada.


Now who is generalizing?
There are _parts_ and neighborhoods in many US cities that are not exactly desirable, but to characterize the entire country as a s*th-hole is unfair.
Last time I checked, many neighborhoods in our large cities are not exactly the last word in luxury and safety.

In most metro cities in the US, houses are in general larger and nicer than a similar priced house in our larger cities.
Therefore, US housing was/is better value, $ for $, even at the height of the bubble.
It is _our_ market that is over-priced and insane.


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## none (Jan 15, 2013)

This is the simple logic: House prices are only affordable because of the extremely low interest rates. If those move up at all, houses then become unaffordable and prices must decline.

Renting is far cheaper than owning - this is because rents cannot go up as fast as house prices as the former is based on incomes and the latter is based on speculation.

When things are held at the edge of affordability and are simply held up at those heights because of speculation this is the definition of a bubble.

This is a solid article discussing these issues. Seriously, give it a read and let me know where you disagree with it.

http://www.theeconomicanalyst.com/c...l-real-estate-markets-canada-really-different


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## Toronto.gal (Jan 8, 2010)

none said:


> it's mathematical certainty.


And what in your opinion, are the economic events [certainties], that will trigger the housing correction, which you believe are about to happen?

A key factor = interest rates, and those won't increase enough to make a big difference anytime soon.
Another factor = unemployment/fear if you will, which was higher obviously at the height of the financial crisis. I noted this since u mentioned the '09 correction'.

Sellers so far, seem not desperate enough nor willing to lower their prices; they simply are removing their listings if they don't get the price they want.

You are right that sales in Toronto declined 17% this month, but you left the part out about prices continuing to increase, so if this goes on, sure there will be a correction from the continued increases.
http://www.thestar.com/business/rea...nt_in_march_but_prices_continue_to_climb.html

There is more to Canada than just the key handful of hot places in the so called 'eye of the storm'.

I also don't think the comparison to the US & EU is fair for various reasons, banking sector being just one of them.

That's not to say, that patience, just like in stocks, does not pay off.

Anyway, time will tell, and that's a certainty.


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## none (Jan 15, 2013)

The reasons I consider it a mathematical certainty I described in my post above.

Other ideas:
- People have been insulated from the full costs of home ownership due to appreciation. When people can't make back even the purchase price the view of home ownership will vastly change.
- Interest rates haven't changed yet people are still buying less mainly because home ownership has never been higher and there are so few buyers left - also, as you state there is stickyness to prices - this is all consistent with previous examples in other countries, prices lag inventory by 12-18 months.
- the increase in prices is because they use a mean which results in higher priced homes pulling up the average.
- All places in Canada are related - if they weren't we'd see more uncorrelated increases and decreases in housing prices across the country - we haven't seen this meaning that the underlying mechanisms are the same (although expressed at different magnitudes)


As you say though, time will tell, to me it seems all the warning signs are there but I've ben wrong before....


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## Hawkdog (Oct 26, 2012)

I will read your article.

I would like to know however, how owning my own home outright would be more expensive than renting? Considering I wouldn't rent my house out for less than $1500/month?



none said:


> Renting is far cheaper than owning - this is because rents cannot go up as fast as house prices as the former is based on incomes and the latter is based on speculation.
> 
> 
> This is a solid article discussing these issues. Seriously, give it a read and let me know where you disagree with it.
> ...


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## KaeJS (Sep 28, 2010)

*none,*

I just don't see the catalyst.

The fact is that even if home prices are high - WHO is going to sell for a lower price?

I can think of only two things:

*Interest Rates: *This is not yet happening, probably not going to happen for a few years. Also, this is not a certainty, either. Just because interest rates rise does not mean people will "not be able to afford" their homes. Some might have to sell, but you cannot say for sure how many people are going to be in financial trouble with a rise in interest rates.

*Baby Boomers*: Sure, when the BB's start to sell property, that could put some downward pressure, but in most cases, BB's are not quick to sell. They are dying/retiring anyway. Why are they concerned about selling out quickly? Who says they are even going to sell at all?

I just don't see the catalyst that will bring this whole thing down. There are no big factors causing the crash or prices to fall.

On the flip side, there are factors (such as current interest rates, immigration, new couples/family demand) that are going to help keep the prices afloat.

If you ask me, there is no mathematic certainty. Right now, houses are affordable for people who aren't foolish.

Consider as well that people may have more money than others, and some house prices may not even be expensive to those part of the "more elite".

For all we know, you can have a Vancouver style GTA in the future where most people are renters and tycoons own the property due to extreme valuation.

BC managed to get to those high levels. Who says ON cannot?


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## none (Jan 15, 2013)

I'll take one point:

1) interest rates. Even though interest rates have not gone up we are still seeing across the board sale declines which is a precursor to price declines - when sales fall motivated sellers (divorce, moving, death) will sell and undercut everyone else. People have sold at losses. You act as if house prices have never decline before - look at the attached plot - thousands of people sold at losses because they had to - people got creamed. It's about to happen again.

Anyway, even though prices have fallen (or at least sales have dramatically fallen which is a precursor to prices falling) interest rates will go up eventually meaning that at best, people are surviving on borrowed time. They MUST come up eventually and at that point unless wages have substantially increased then houses will be even less affordable then they are now.


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## KaeJS (Sep 28, 2010)

OK.

So assume that you are correct and that interest rates rise and people sell until the market drops 20-30%.

How does this help people?

I don't see price declines. I see people who are overleveraged just buying "less" house.

example: Family sells $400k home and buys $250k townhouse.

This just means the upper end gets creamed, not the lower end of housing.


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## none (Jan 15, 2013)

That's the thing, it helps no one - that's what pisses me off so much.

I have a couple friends who have bought at peak in the least two years. I think it's pretty safe to project that they are going to lose a couple hundred thousand dollars which is BRUTAL especially considering there is no capital loss component. This whole bubble was manufactured by the Conservative government, they're fiscal idiots and they are going to end up hurting a lot of young (and not so young people)

I'm not one of those people who is hoping the market crashes to swoop in and get a house on the cheap - I just don't plan to buy until houses returns to fair value (based on rent / cost ratios) and there is far less down side risk. I currently see zero benefits to owning - something breaks, I call my landlord plus a save 12K a year by renting and don't have to take any risk of market declines (as there is a low probability of further price increases)

The problem with your example is a family tries to sell their 400K home which they paid 600K for. Even though they put 120K down (which is now gone) they also have to come up with an additional 80K to just sell the house. I really can't see a family like that even wanting to buy into housing again.


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## andrewf (Mar 1, 2010)

Kae, a lot of specuvestors have condos that are cash flow negative, even at low interest rates. They will want to unload these condos, especially once the price environment is showing stagnation or declines. There is a glut of condo supply in most markets, with inventories running very high. Once the bottom falls out on condo prices, the detached home market will be impacted due to reduced buying power among those trading up and substitution by first time buyers (who would buy a condo instead of a relatively expensive house).


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## Hawkdog (Oct 26, 2012)

none said:


> That's the thing, it helps no one - that's what pisses me off so much.
> 
> I have a couple friends who have bought at peak in the least two years. I think it's pretty safe to project that they are going to lose a couple hundred thousand dollars which is BRUTAL especially considering there is no capital loss component. This whole bubble was manufactured by the Conservative government, they're fiscal idiots and they are going to end up hurting a lot of young (and not so young people)
> 
> ...


your friends are not going to lose money unless they sell. So unless they have a short time frame in mind for owner ship the price will go back up.
The long term trend will be up due to population increase and the cost of building new houses.

The projected population growth and 
age of household maintainers 
indicates that Metro Vancouver will 
require an additional 574,000 
housing units between 2006 and 
2041. This would increase the 
region’s housing stock from about 
850,000 occupied dwellings in 2006 
to about 1.42 million units in 2041. 

http://www.metrovancouver.org/plann...roundersNew/RGSMetro2040ResidentialGrowth.pdf


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## none (Jan 15, 2013)

Link for a link: http://www.theeconomicanalyst.com/c...ves-house-prices-argument-still-leaking-sieve


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## Hawkdog (Oct 26, 2012)

andrewf said:


> Kae, a lot of specuvestors have condos that are cash flow negative, even at low interest rates. They will want to unload these condos, especially once the price environment is showing stagnation or declines. There is a glut of condo supply in most markets, with inventories running very high. Once the bottom falls out on condo prices, the detached home market will be impacted due to reduced buying power among those trading up and substitution by first time buyers (who would buy a condo instead of a relatively expensive house).


Its possible that the glut will be picked up by investors, its estimated up to 50% of condo's in Hong Kong sit empty because they are owned for foreign investors. That and people that are renting and waiting like none. 

My Sister and Law and her husband are renting on Vancouver Island having sold their house - they are waiting for correction in the housing market. But they have been waiting for like 5 years, so did they lose a 100,000 by not selling in the peak? maybe?


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## RBull (Jan 20, 2013)

I can understand why those in BC can see it coming. Prices were ridiculous on the West Coast anything else but a correction makes no sense. For the most of Canada there will be declines but not likely the levels of Vancouver. 



Jon_Snow said:


> None, are you becoming one of Garth Turner's disciples?
> 
> I see you have even posted comments on his site - I think you were asking Garth for some investing advice. :cower:
> 
> I happen to agree that a real estate correction is coming...


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## jcgd (Oct 30, 2011)

This is what I'm saying with the whole timing thing. Getting out early can be just as bad as getting out late. Do what makes the most sense for you financially as well as your situation (I don't buy because I'm likely moving in a few years, and again a few years after that) and be ready to pounce when you find deals again.

I don't buy a house because it is actually cheaper for me to keep renting. The risk vs reward is better for me as a renter... save money now and POSSIBLY get a cheaper house price in the future.

Same goes for the stock market. If you can't justify the prices then don't buy. Sit on the cash. Cash is valuable. It assures you opportunity. If things are very expensive you can sell, but selling to wait for the correction is a risky proposition. Chances are you won't be exact in your timing (like those who sold houses in VanC in 2009) and by the time the correction that IS going to happen actually happens, the new lows could be higher than the price at which you sold out. Also, if you are a prudent investor, you likely won't be invested in the speculative booms so you are less likely to get burned, unless you capitulate and buy at the peak.


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## Hawkdog (Oct 26, 2012)

none said:


> Link for a link: http://www.theeconomicanalyst.com/c...ves-house-prices-argument-still-leaking-sieve


Thanks for the link, it delves into the population growth/housing price thing for sure. But what about the cost of building? The price of wood is not going to get cheaper.

I bought my house two years ago, but I also sold a house i renovated at a significant profit.


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## none (Jan 15, 2013)

I did the same. I sold for a 100K profit with not a ton of work. Ridiculous really to make that much tax free for doing nothing. And HawkD: you're OK becuase you have some suvessful house sales under your belt it's the 5% down first time homebuyers that are really going to be screwed.

I think jcgd has some good points!


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## Hawkdog (Oct 26, 2012)

jcgd said:


> This is what I'm saying with the whole timing thing. Getting out early can be just as bad as getting out late. Do what makes the most sense for you financially as well as your situation (I don't buy because I'm likely moving in a few years, and again a few years after that) and be ready to pounce when you find deals again.
> 
> I don't buy a house because it is actually cheaper for me to keep renting. The risk vs reward is better for me as a renter... save money now and POSSIBLY get a cheaper house price in the future.
> 
> Same goes for the stock market. If you can't justify the prices then don't buy. Sit on the cash. Cash is valuable. It assures you opportunity. If things are very expensive you can sell, but selling to wait for the correction is a risky proposition. Chances are you won't be exact in your timing (like those who sold houses in VanC in 2009) and by the time the correction that IS going to happen actually happens, the new lows could be higher than the price at which you sold out. Also, if you are a prudent investor, you likely won't be invested in the speculative booms so you are less likely to get burned, unless you capitulate and buy at the peak.


This makes good sense. Thanks.

I buy because I have dogs/cats, like to garden and I like my privacy.


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## Hawkdog (Oct 26, 2012)

none said:


> I did the same. I sold for a 100K profit with not a ton of work. Ridiculous really to make that much tax free for doing nothing. And HawkD: you're OK becuase you have some suvessful house sales under your belt it's the 5% down first time homebuyers that are really going to be screwed.
> 
> I think jcgd has some good points!


Fair enough, the first timers are at risk for sure.


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## fatcat (Nov 11, 2009)

kae just bought a single family home for 235K ... you can buy a modest condo in victoria for 200K

you have to measure price and value against what it would cost to build and you can't even replace real-estate at these prices

the frothy toronto and vancouver (and victoria to some extent as well in the upper end of the price range) prices have gotten so out of hand (though nothing like london and moscow and sydney for example) that a correction is a necessary and good thing

the leading edge of the boomers (1946-1960) are only about 7 years away from moving into retirement homes which are rentals and many of us are probably counting on using our homes to pay for the rent on our retirement homes so i would look for a big wave of selling starting in 2020


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## none (Jan 15, 2013)

Good for whom? I'm sure those that bought recently? Near retirees who were counting on these houses for retirement funds? It's not good but it should never have happened in the first place.

Like I said before, I'm not happy at all about this. A lot of families are going to be really hurt by this and it was completely foreseeable but manufactured by those fiscal morons currently in government.


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## andrewf (Mar 1, 2010)

That milk is already spilt.


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## fatcat (Nov 11, 2009)

none said:


> Good for whom? I'm sure those that bought recently? Near retirees who were counting on these houses for retirement funds? It's not good but it should never have happened in the first place.
> 
> Like I said before, I'm not happy at all about this. A lot of families are going to be really hurt by this and it was completely foreseeable but manufactured by those fiscal morons currently in government.


but most "near retirees" have already bought their houses ... people don't buy for the first time as they approach retirement .. they buy "across" and usually down if they go in any direction

the market is the market, you can't guarantee any price appreciation to anyone and this isn't the first time canada or the usa has experienced real estate corrections, they have happened before

you shouldn't buy unless you have your mortgage covered and have played out various personal scenarios that can withstand different outcomes

the world has created a lot of wealth (or excess credit, depending on your point of view) in the last 20 years and that has found it's way into real estate ... for better or worse


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## jcgd (Oct 30, 2011)

How's today feeling, None?


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## none (Jan 15, 2013)

jcgd said:


> How's today feeling, None?


Not that great really, I'm just glad 40% of my portfolio is in AX.UN (up 1%) and XRB (up 3%) in the last week. That at least takes some of the sting out of it.

This was a good lesson in the value of diversification. This lesson could have been worse.


So my ZCN is down 4% since i bought it - I was thinking of just leaving it unless it drop another 6% and then I'll buy some more.

Anyway, Half of my porfolio is still cash so I think I'm in OK shape for now - I just wish i didn't miss the new year run up - but perhaps I'll get a do-over, we'll have to wait and see. 

One silver lining is all my losses are in my taxable and all my gains in my TFSA - anyway, short term stuff I should be focused on.


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## Hawkdog (Oct 26, 2012)

none said:


> Good for whom? I'm sure those that bought recently? Near retirees who were counting on these houses for retirement funds? It's not good but it should never have happened in the first place.
> 
> Like I said before, I'm not happy at all about this. A lot of families are going to be really hurt by this and it was completely foreseeable but manufactured by those fiscal morons currently in government.


well its kinda relative isn't it? If a retiree sells a house to buy a condo - if the house price is down won't the condo price be down as well? so you sell cheaper but you also buy cheaper?

its all going to all apart in BC in a couple years anyway when the NDP bring the economy to a halt.


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## none (Jan 15, 2013)

I'm starting to think that you're not a big fan of the BC provincial NDP.... 

Anyway, it's already happening and has nothing to do with the BC NDP and all to do with the Federal conservatives who pumped up the bubble to where it is.

The job numbers coming out now are just one more nail in the coffin. The catalyst to the deflation is simply a stop to the appreciation which is due to houses becoming unaffordable due to job losses and/or prices*interest rate.


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## andrewf (Mar 1, 2010)

Hawkdog said:


> well its kinda relative isn't it? If a retiree sells a house to buy a condo - if the house price is down won't the condo price be down as well? so you sell cheaper but you also buy cheaper?
> 
> its all going to all apart in BC in a couple years anyway when the NDP bring the economy to a halt.


So if prices decline by 20%, someone selling their $1 million house for a $300k condo would go from pocketing $700k to pocketing $560k. So you tell me if they should care about that or not.


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## KaeJS (Sep 28, 2010)

*none*

can I change my opinion?

I think the housing market will drop in Vancouver, but nowhere else in Canada.

Why? Because there is no catalyst or reason for prices to fall anywhere else in Canada.

Vancouver is no longer affordable. However, housing is affordable everywhere else.

For that reason, Vancouver will fall only.

The GTA is too popular, there are too many jobs, and the prices are not high enough to just "fall" for no reason.

Unless interest rates fly through the roof (not going to happen) and people start selling in a panic (not going to happen), then we should be fine over here in the other big provinces, namely, ON, MB, SK, AB, QC.

Sorry about your luck in BC, though. :biggrin:


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## none (Jan 15, 2013)

I disagree - do you still want to stick to our bet?


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## andrewf (Mar 1, 2010)

Kae, I think you're basing your assessment of the Ontario market on gut rather than evidence. Houses have doubled in real value over the past 20 years. Shiller's work has shown that over the past 130+ years, house prices in the US have returned just slightly above inflation. The biggest deviation was their most recent housing bubble. And our housing has deviated further from the long term trend...


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## Cal (Jun 17, 2009)

I only wish my pay cheque had deviated above the normal range as well....


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## Hawkdog (Oct 26, 2012)

none said:


> I'm starting to think that you're not a big fan of the BC provincial NDP....
> 
> Anyway, it's already happening and has nothing to do with the BC NDP and all to do with the Federal conservatives who pumped up the bubble to where it is.
> 
> The job numbers coming out now are just one more nail in the coffin. The catalyst to the deflation is simply a stop to the appreciation which is due to houses becoming unaffordable due to job losses and/or prices*interest rate.


I live in a resource based town, I work in Mining and My wife works in Forestry. Ya I am not a fan of the provincial NDP. Last time they were in power the majority of mining shifted to south america. Currently in the north we have natural gas plants going, a hydro line extention towards Dease Lake, several mines coming on line, and the price of lumber is sky rocketing. This will likely all slow down when the NDP get in resulting in a loss of jobs and slow down in the real estate market. The market is very localized and I don't think its affected by the Conservatives as much as Victoria. 
There are roughly 7 diamond drilling companies in Smithers, the average diamond drillers makes 100,000 - 160,000 per year.


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