# Why would ANYONE buy a House NOW?



## thecomingdepression (Apr 8, 2009)

Since I am the bearer of bad news, I was just wondering why on earth would anyone buy a house/condo NOW? Has anyone looked and shiller's graph? We are heading for a collapse in Real Estate in CANADA. We are NO different than the USA. We actually have higher unemployment per capita than the US! We have just started and will be spiraling down along with the economy for a couple of years REGARDLESS of what anyone says. Read up: http://www.thecomingdepression.blogspot.com
You may want to view Garth Turners Blog Real Estate stats and the comments


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## CJB (Apr 4, 2009)

Not sure if this is just annoying spam, a forum troll or serious discussion?

I think the question should be, "why on earth did anybody by a house/condo 2 years ago at the peak?". To be honest, I am shopping for my first mortgage and first condo. I am employed, prices are down, and rates are at all time lows. In 30 years I may be asking "Why DIDN'T I decide to buy?" 

Also, keep in mind that unemployment data is calculated differently in the USA vs Canada, don't just take the government's figures at face value while doing a direct comparison. It's not all apples out there.


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## mfd (Apr 3, 2009)

He probably has an alternate site at http ://www.thecomingrecovery.blogspot.com

That way he'll always be right.


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## thecomingdepression (Apr 8, 2009)

CJB said:


> Not sure if this is just annoying spam, a forum troll or serious discussion?
> 
> I think the question should be, "why on earth did anybody by a house/condo 2 years ago at the peak?". To be honest, I am shopping for my first mortgage and first condo. I am employed, prices are down, and rates are at all time lows. In 30 years I may be asking "Why DIDN'T I decide to buy?"
> 
> Also, keep in mind that unemployment data is calculated differently in the USA vs Canada, don't just take the government's figures at face value while doing a direct comparison. It's not all apples out there.


You're not serious are you? The unemployment rate is applied "differently"?? Do you honestly believe we are better off because the Gov't stated we are? "This is Different here".. YOU seriously believe that this is a recovery? Thats FUNNY. Like everything goes up and never goes DOWN? Are you living on MARS? Prices aren't down. They are COMING DOWN. They will be down 50% from the price you are buying today. You may want to do some massive research on the economy and whats coming. You can start with our banks, The derivative exposures of *each one is an EXCESSIVE of ONE TRILLION DOLLARS. * You have been programed to believe that this downturn has an upturn. It does NOT. It will take YEARS-10-15 years before we see the values of today.


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## mfd (Apr 3, 2009)

wow, might want to simmer down a bit chicken little. If the entire system crumbles then the money you're making off those depression survival kits will be worthless. Good luck with that.


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## Bullseye (Apr 5, 2009)

Hmm, actually a pretty good idea this guy has! He fans the flames of fear, drawing readers to his chicken little site, where he probably gets lots of people buying this 'survival kit' (that probably costs him nothing, or next to it). The more he spreads fear, the more sales he probably gets, so he has a vested interest in stoking that fire. A nice opportunistic play on current times.

I'm a bit jealous, wish I'd thought of it!


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## CJB (Apr 4, 2009)

thecomingdepression said:


> You're not serious are you? The unemployment rate is applied "differently"?? Do you honestly believe we are better off because the Gov't stated we are? "This is Different here".. YOU seriously believe that this is a recovery? Thats FUNNY. Like everything goes up and never goes DOWN? Are you living on MARS? Prices aren't down. They are COMING DOWN. They will be down 50% from the price you are buying today. You may want to do some massive research on the economy and whats coming. You can start with our banks, The derivative exposures of *each one is an EXCESSIVE of ONE TRILLION DOLLARS. * You have been programed to believe that this downturn has an upturn. It does NOT. It will take YEARS-10-15 years before we see the values of today.


1. I do not believe any government simply because they tell me some information. It is a good starting point but in order to get the full story you have to look deeper into the data. Anyone can make a chart look any way they wish, and simply yelling that it will continue this way forever makes you no better than those who thought +30% returns would happen ad infinitum.

2. I suggest you take some critical thinking courses and learn more concise methods of argumentation. A good start for you would be "Appeals to the Extreme".

3. Do I believe this is a recovery? No. That may not even happen for 5 or 10 years as you said. Being 25, I have no reason to panic. In the same respect, If prices drop another 50%, it will simply be another great opportunity to buy, even more so than today.

4. Studying the economy? The parchment on my wall gives me some confidence that I have this one covered. So check.

5. Bank exposure? Fine. CDIC FDIC etc tells me no need to run to my bank. Unless you have dropped the dollar as currency altogether and are now accepting canned food as legal tender in which case I have a can of beans here that would like 5 of your kits.

See you in 15 years.

Cheers.


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## thecomingdepression (Apr 8, 2009)

CJB said:


> 1. I do not believe any government simply because they tell me some information. It is a good starting point but in order to get the full story you have to look deeper into the data. Anyone can make a chart look any way they wish, and simply yelling that it will continue this way forever makes you no better than those who thought +30% returns would happen ad infinitum.
> 
> 2. I suggest you take some critical thinking courses and learn more concise methods of argumentation. A good start for you would be "Appeals to the Extreme".
> 
> ...


So your 25 years old. I am 49 have owned multiple businesses, travelled the world, met and talked with multi billionaires, owned 52 houses, lived in Mexico, USA and 7 cities in Canada. I am related to an individual with close ties to an Ex President of the US ( they are best friends). *This person explains the economic situation that cannot and will not be written about on this blog or any blog. I would be flung into a river, I think, if I did.*

I only set up this website so "KIDS" like yourself can learn something. The "little kits" are something I offer to the public to get a small token for keeping people informed. I make NO MONEY on this site WHATSOEVER. 
Your parchment on the wall is just that, a piece of paper learned at school by a professor rather than the REAL WORLD. Go read the book "When Giants Fall" this will give your "parchment paper" credibility. I don't care if you people believe a word of anything that is stated here, as this will be my LAST POST. Good luck with your "dreams".


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## Rickson9 (Apr 9, 2009)

The only reason to buy home now is:
1. You discover a great cash-flow positive deal
2. You want to live in the home for a long long time

My wife and I are wrestling with both...


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## Hodge (Apr 4, 2009)

Hey, ...depression, I share some of your pessimism about RE and I, too, read Garth Turner, but I don't think you're really helping your case with all the heavy breathing and hyperbole. Even Turner, who's so bearish I'm surprised he doesn't hibernate during winter, isn't making the catastrophic claims that you are.

That said, I do agree that the uptick in RE sales this spring is probably a false dawn and that house prices are likely to remain depressed for several years to come.


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## OnlineHarvest (Apr 6, 2009)

I guess 'the sky is falling' is the general sum of these statements.


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## stephenheath (Apr 3, 2009)

This is one of the funniest things I have read on the net in a week. With much love for Monty Python and Douglas Adams (R.I.P.)...



> So your 25 years old. I am 49 have owned multiple businesses, travelled the world, met and talked with multi billionaires, owned 52 houses, lived in Mexico, USA and 7 cities in Canada. I am related to an individual with close ties to an Ex President of the US ( they are best friends). This person explains the economic situation that cannot and will not be written about on this blog or any blog. I would be flung into a river, I think, if I did.


Bah, that's nothing. I'm 285 years old, I've owned hundreds of businesses, travelled the galaxy, and met and talked with every person, living or dead, who had ever had a billion dollars or more. I own 87 houses (or maybe 88, I'm not entirely sure how many houses I have), lived on every continent on the planet, including a year in the arctic at the North Pole after saving Christmas from the Grinch. I am related to God, and a cousin who's a transvestite hooker in Los Angeles, but we don't talk about him. I know the secret to life, the universe, and everything, but if I even consciously think about it everything we know would cease to exist and it would all start over again.

But try and tell that to the kids these days and they don't believe you.


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## mfd (Apr 3, 2009)

I wonder if the kit includes the rules and a how-to on surviving battle in the thunderdome. Break the DEAL, Face the Wheel!!!!

Oh!!!...maybe the kits also come with their very own Master blaster with knowledge on how to utilize methane gas.


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## stephenheath (Apr 3, 2009)

PS: With much respect for Garth Turner, who I enjoyed having as an MP and I honestly feel mostly believes his warnings (he does get carried away a bit with hype and quickly explains away any of his actions which don't match his words... such as not resigning before joining the liberals, or buying a foreclosed investment property that is a good deal while warning everyone else to sell and rent because there are no good deals out there)... I always remember this particular exchange when I think of him providing bankable advice, from Rick Mercer's blog:

“If you own Nortel, or a mutual fund holding it, don’t bail out now… If you do not own Nortel, then this is the time to start accumulating it.”

- Garth Turner, Conservative candidate (Halton) November 27th 2000 at the start of the stock's plummet from $50 to pennies a share

“I am constantly amazed at the assumption people make that they can manage their own finances… most people can’t. They don’t have a clue how to pick stocks.”

- Garth Turner in a 2002 personal investment column regarding those unfortunate enough to have lost on Nortel


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## Fraserrc (Apr 6, 2009)

*Funny*

Stephen Heath,
This is the best response I have heard in a long time. I laughed and laughed and laughed. Nice one



stephenheath said:


> This is one of the funniest things I have read on the net in a week. With much love for Monty Python and Douglas Adams (R.I.P.)...
> 
> 
> 
> ...


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## CanadianCapitalist (Mar 31, 2009)

Not to pick on Garth Turner but I wrote a post in 2006 with snippets from his past columns:

*
Why You Shouldn’t Listen to Media Gurus*


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## fishnguy (Apr 5, 2009)

Comindepression....can you source your information? You state that each of our banks has exposure to one trillion dollars worth of derivatives. Do you have any idea how big a trillion is. And EACH of our banks has exposure to a TRILLION dollars worth of derivatives? 
Perhaps you are right. I'd just like to see it from a credible source, and not one of your fellow bunker-dwellers. If you are right (and I doubt it), that would be down right terrifying.....

As far as Garth Turner goes, I would say don't attack the man, attack the message. He may have been very wrong in the past, but I do believe that he is right about the coming (ongoing) real estate decline. I would love to hear someone present a realistic scenario that outlines how real estate will go anywhere but down over the next few years.

The only factor that drives SUSTAINABLE growth in real estate value is wage price inflation. PERIOD! Someone please outline how we will see aggregate wage price inflation in the coming years, barring a massive episode of hyperinflation.
And even if hyperinflation hit, what would that do to interest rates? They would shoot higher to protect the value of the dollar, crushing RE values further.

I think Turner is right on this one. Wait until August when supply again massively outstrips demand and we will see more significant price declines in RE values.


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## lazy cdn (Apr 3, 2009)

stephenheath said:


> This is one of the funniest things I have read on the net in a week. With much love for Monty Python and Douglas Adams (R.I.P.)...
> 
> 
> 
> ...


Please keep this a secret, but it was I alone who created all. Amen


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## stephenheath (Apr 3, 2009)

> As far as Garth Turner goes, I would say don't attack the man, attack the message. He may have been very wrong in the past, but I do believe that he is right about the coming (ongoing) real estate decline. I would love to hear someone present a realistic scenario that outlines how real estate will go anywhere but down over the next few years.


To be fair, you are talking about a prediction, and like it or not, the success of past predictions IS a statistical indicator of the likelihood of current predictions being accurate. 

As for a realistic scenario, let's use Garth's prediction that to return to the historical mean, another 10-15% drop is required. IF that were 100% accurate and IF that were to happen this year, then the exact same model that is predicting this drop is predicting subsequent years of price increases and the best time to buy would be as soon as the bottom was hit.

Also, don't forget a prediction has to be useful to have any meaning. His warning to sellers was useful in it's day, now it is buyers that need him to give them a heads up... but Garth is an incredibly entertaining writer and has committed to writing daily, whether there is something new to write about or not. Thus, in a sense, he's the opposite side of the coin of HGTV in the boom haydays... if they were real estate porn, he's apocolypse porn. And I think it's very telling that he is still telling people to stay away from real estate, period, even though he himself picked up an investment property that was a power of sale bargain... why isn't he telling people that most real estate is still overpriced but the odd gems are out there? Is it because that message wouldn't play to the audience he has built up that are 100% negative, and that his real purpose is to preach to his flock?

Don't get me wrong, I actually visit greaterfool and read the comments almost daily, although part of the reason is to enjoy how condescending and insulting he can be at the people that ask stupid questions (something I have to put up with while wearing a smile at work), and if I were buying or selling, I would definately think hard about some of the things said there, but I would also do other research... see what is actually moving in my neighborhood and why, look at my budget, etc. After all, if my house today could sell for $300,000, and a dream house in the perfect location were available for $400,000, then waiting for the bottom to hit would save me at most $15,000 (assuming both my current and new house went down that 15%), but that house might not be available then... or alternately, if I miss the bottom, it may actually cost me more to move to my dream location in the long run. Much like some people will pay a premium to have fixed rate security instead of going with a variable rate, others might be willing to pay a premium for a very specific property. I just don't believe there is a single hard and fast rule like Garth does, and while listening to his advice might be the right thing for many people, it also might be the wrong thing for some. We are not all the average, and anyone that tells you he has the solution for everybody is guaranteed to be wrong, because if everyone is a seller, then noone is a buyer, and you need both for a transaction.


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## fishnguy (Apr 5, 2009)

stephenheath said:


> As for a realistic scenario, let's use Garth's prediction that to return to the historical mean, another 10-15% drop is required. IF that were 100% accurate and IF that were to happen this year, then the exact same model that is predicting this drop is predicting subsequent years of price increases



Wrong. You are assuming that we are currently at fair market value and that the massive price appreciation of the past 10 years was justified based on wage inflation. If this was the case, then yes, any significant decline would be followed by a reversion upwards back to the mean. However, when average price to average income is currently over 4 (while historical average is slightly over 3), prices are clearly NOT justified and the downward pressure we will continue to see on RE prices is a reversion BACK to the mean, not an over-correction.

Garth is not the only one predicting significant price declines. As far as basing current predictions on past record, that's like saying that guys who have been absolutely bang-on so far are most likely to be right going forward. So you must be worshiping a guy like Peter Schiff, who has been amazingly accurate and also continues to push gold. Is your portfolio 100% gold???? I would doubt that. The point is that it doesn't matter someone's past record. Can they justify their position based on current research? If so, they are worth listening to. If not, who cares about them.

So again, I restate my question: Provide a realistic scenario that has house prices rising in the next few years. Really....think about it. Not gonna happen.


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## CanadianCapitalist (Mar 31, 2009)

fishnguy said:


> So again, I restate my question: Provide a realistic scenario that has house prices rising in the next few years. Really....think about it. Not gonna happen.


I don't know and I don't care. You may well be right that prices are headed for a drastic fall. I just don't know. Note that price decrease or price increase aren't necessarily the only two scenarios. Prices could be stagnant over many years resulting in a correction in inflation-adjusted prices. I've been reading about an impending correction in housing prices since 2005. Maybe it will finally happen in 2009. Who knows?


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## Genius Boy (Apr 3, 2009)

*Why should we invest in real estate?*

I think it's absolutely stupid not to look at investments on a one-to-one basis. If a house is massively undervalued, such that it's 50% below where it was one or two years ago, in a blue-chip neighbourhood, then why wouldn't you buy it?

Purchasing houses like stocks isn't looking at the generalized landscape and saying, ohhh ... the housing market is going down, let's not buy houses. Rather, it's an individual house/condo evaluated within a neighbourhood looking at the fair market value of the property.

We recently bought a commercial condo that was privately sold and was significantly (i.e. hundreds of thousands) under market value. We've rented it out, at a 12% starting capitalization rate. As the mortgage goes down and the property appreciates, that capitalization rate is going to grow over time. Do we think it's a stupid investment? Hell, no. My rent is going to pay off my place in 10 years, unless I use the money to leverage off buying other investments.

If you can pick the cherries in this fruity market, you're going to make money ... but it takes time to research and identify appropriately good properties. Blanket statements of panic are geared towards the stupid.

This is also the time to negotiate. If you can get a 10-20% buyer's premium, then you should do so. Just remember 40% of the market has to move on an annual basis (due to new jobs in other cities, or the need to upgrade/downgrade their home) ... so you have the power to negotiate.


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## stephenheath (Apr 3, 2009)

> Wrong. You are assuming that we are currently at fair market value and that the massive price appreciation of the past 10 years was justified based on wage inflation. If this was the case, then yes, any significant decline would be followed by a reversion upwards back to the mean. However, when average price to average income is currently over 4 ...


Maybe you aren't understanding the model that has frequently been used on Garth's site regarding historical price appreciation. The point is that historically, over time, a certain pattern has been followed, and currently, prices are well above where that pattern says they would be. If, however, this year, prices drop to where the pattern indicates they should be, then according to the VERY SAME model, subsequent years would see small price appreciation. Now, the MODEL may very well be wrong, but you cannot simultaneously argue that the model is correct and prices are too high, and the model is wrong so it's prediction of what will happen when prices return to the trend... take your pick.

Now, if you want to talk average prices to average income, you are talking a different model, and one that, in my opinion, is even more broken. Not only has average income been calculated differently historically, but currently it is calculated by including the income of everyone over 18. In other words, you and I have an income of $50,000... the average is $50,000. We include our wives who are stay at home spouses. Now the average is $25,000. We include our 18 year old kids who are living at home because they are pursuing higher education and now using that methodology, average income is $16,600... and we still haven't thrown in our retired parents and grandparents whose income is growing inside RRSP's and TFSA's and therefore is not counted either. And let's talk average house prices. This number comes from all of the real estate transactions in a year. Let's say there are two houses for sale, both $200,000. With our $50,000 income looks like the pattern is holding up well. Ohoh.... one of the big wigs down in Oakville just sold his $7 million dollar house. Normally it would be drowned out by the large number of other sales, but because of the current RE decline, and you and I are the only ones buying, it's just changed the average house price from $200,000 to $2,466,000. But wait... we're ALSO forgetting that the most desirable locations can command a premium as well, and many people will willingly choose to pay more than 3 times their yearly income if they feel they can afford it to get a home in the right place, near a good school district, etc. If those are a higher proportion than normal, again, it will throw off your model.

And stepping away from "models", which to be honest are next to useless if they're simple enough that we can calculate them in 30 seconds, let's look at what else drives cost. Obviously, the cost of raw materials, land, permits and labour has an effect as well. If a starter house cannot be made for less than $200,000, then there will be very few houses sold for less than that, mostly those requiring work or forced sale. It won't matter if average income is $30,000, that's the price and it might just mean a lot fewer people own homes and must rent instead. This to me is what causes me to agree the most with you that prices will come down. With the market currently crashed, depending on where government stimulus money is spent, lumber and construction labour may go down. Even land may go down in price, although I'm less confident of that happening, after all, as the adage goes, "they aren't making any more of it".



> Garth is not the only one predicting significant price declines. As far as basing current predictions on past record, that's like saying that guys who have been absolutely bang-on so far are most likely to be right going forward. [...] Can they justify their position based on current research? If so, they are worth listening to. If not, who cares about them.


Has Peter Schiff been amazingly accurate? He did predict the subprime collapse, but not the most accurate timing of it, and as part of his prediction he predicted that the USD would fall against world currencies, and instead it rose tremendously, and in the process of following his advice, lost people that invested with him a LOT of money... I wouldn't call that amazingly accurate personally. But lets replace Peter Schiff with Warren Buffet, George Soros, or some of the other people that not only have made predictions, but have made lots of money following through on their predictions. If Warren Buffet happened to be interested in Canadian Real Estate and he were calling a bottom right now, while Garth was still suggesting another 10-15% to drop, you can bet I would assume Warren is right and do my own, personal, research to confirm that. Does that mean I would skip what I feel is the most crucial step, doing my own, personal research, because I am that confident in WB? HELL No! We're talking about MY money now, and NONE of these guys cares 2 figs about my money, they're busy caring about their own, and the money that is entrusted to them.

The point that I am trying to make that I'm obviously not making too clear is that you and I have a limited amount of time to spend actually researching a prospective transaction (as opposed to what we are basically doing now, reading it because we're interested in general, and shooting the **** about it)... but if you had a 24 hour option on buying a house tomorrow, you'd have a tight window of figuring out what you wanted to do, and a good chunk of that would be crunching your numbers. There are hundreds of real estate pundits, and you feel getting a sampling of what they are saying might be worthwhile, but which ones do you hit? The ones with the fanciest web pages? The ones most likely to reinforce your own beliefs? Or the ones most likely to have useful insights? And while I will grant you that doesn't necessarily have to be the one with the most impressive track record, I do believe it is most likely... after all, fool me once, shame on you, fool me twice...



> So again, I restate my question: Provide a realistic scenario that has house prices rising in the next few years. Really....think about it. Not gonna happen.


I've already provided you one using the very same model that Garth is using to come up with the 10-15% figure but you didn't like it. In fact, forget the model, the simple phrase "hits bottom this year, next four years show small growth coinciding with inflation" covers it. So let's look at the realistic part, shall we? I doubt growing with inflation would strike anyone as unrealistic, we all know prices rise, so it must be the "hits bottom this year" part. 

Let's see why hitting bottom this year COULD happen. It is doubtful that flippers are buying in this market, and any that are dumping extra units will probably have done so by the end of the year, so that downward pressure will drop. In addition, anyone who is in a position NOT to sell will likely wait until a better time for sellers, which will leave only those who have to sell, and thus, are most prepared to take lower prices. Once the floor has been reached, it will become the norm that is used for comparables for future sales. Finally, this year will have a very large number of job losses and people may feel it is best to sell early if they get a pink slip.

On the flip side, we might not reach the bottom this year because even though there are lots of people losing their job, they get almost a year of EI which they might use to stall a bit before selling the house, and of course, there are some predictions that the job losses will continue into 2010. If new home prices are also a driver, then it will be hard to say a bottom is reached until a bottom is reached in commodities and labour, which may or may not happen this year depending on how quickly countries with savings deploy them into restoring their domestic economy, which would in turn increase the price of commodities.

And what does this all come down to? A guess. Garth is guessing it has 10-15% to go without a specific time frame. I'll go one better. For my local market, which is Halton/Peel, I think we've had our first big drop as the flippers and forced sales have already cleared out and less properties are going up for sale. There will be another big drop sometime before next spring as the automakers go bankrupt or restructure and make a large number of people redundant, which will result in a bad spring sales season that hits bottom. During the summer next year we'll finally see some trickle down effects of stimulus spending and economic realignment in other countries, and the pace of job losses will slow (although we'll still be losing some jobs each year through to at least the fall of 2010), which will slowly improve customer confidence. During this time, a lot of real estate agents, unable to make sales, will leave the field, which will make spring of 2011 a very good time for the agents that remain as sales pick up. The agents remaining are so busy that they give an impression of urgency to buyers and we start seeing some fast sales on the best properties, with prices increasing only on the gems. The media switches from full on doom and gloom to full on cheerleading and the impression, true or not, of a bottom having been passed is latched on to, and it becomes another self-fulfilling prophecy, as so many emotional ones are when your currency is fiat. So there you go, bottom in the summer of 2010, prices going up on the best properties spring of 2011. That's my prediction, but I freely reserve the right to be completely wrong. We can touch base again in a couple years and see how well I did


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## CanadianCapitalist (Mar 31, 2009)

> And let's talk average house prices. This number comes from all of the real estate transactions in a year. Let's say there are two houses for sale, both $200,000. With our $50,000 income looks like the pattern is holding up well.


Larry MacDonald wrote about this problem many times in his blog and suggested that the Teranet National Bank Home Price Index adopts a far better methodology:

*House Price Index*


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## RetireIn10Years (Apr 4, 2009)

It really depends on where you are. If you're in Vancouver, yes absolutely there is little debate that prices are heading down, and buying now - unless you're getting it 20 to 35% below the lowest sold similar place (ie: below current market value) - would be ill advised. The affordability with rates being down is a bit of a misconception - these rates won't stay, and the people buying now with 35 year mortgages will not be able to afford much when they have to renew at 7 or 8%. The bubble is slowly bursting, and as the olympics wrap up, and the 1000's of condos continue to hit the market, the condo flippers will continue to try to give* their condos away. (*In fact what there are many instances of right now is people offering to give you their deposit if you just assume the overpriced contract). 
Some good blogs (yes, they're bearish but they offer hard data to back up the claims and dig through the RE bs that real estate agents would like you to believe
http://housing-analysis.blogspot.com/
http://vancouvercondo.info/


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## Germack (Apr 4, 2009)

The real estate boom we have been seeing for the last several years worldwide is just not sustainable. We need to live somewhere and this is going to cost us money. If we rent a place or buy a place it does not matter. It will cost us money in the long term. Most people just do not realize how much money a house is really going to cost them and especially how much more it is going to cost them due to the recent run up of prices. 

Lets assume person A bought a house before the real estate boom for $200K and person B bought the same house a few years later for $400K. Both person live in the house for 40 years. 

The cost of ownership for person A is X. The cost of ownership for person B is x+ $1,471,684 assuming a mortgage interest rate/opportunity cost of 5%.

It will cost person B close to 1.5 million dollar more to live in this house as compared to person A.


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## frdsmth9 (May 24, 2009)

Now is the time to buy if you need a home and your job is reasonably secure. It is time to go back to the way things used to be - a hone purchase is supposed to be for years to come, otherwise it would be called a lease.


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## Brad911 (Apr 19, 2009)

I am in the camp that believes home prices will fall and need to fall. To me it's the simple math of affordability. Over the past eight years housing prices have outpaced real income growth (growth of incomes after inflation) of nearly 2-3x. That is not sustainable and only supported by low interest rates, 40 year mortgages and heavily discounted variable mortgages (vs. prime).

That sets up a very unforgiving scenerio for most Canadians as incomes will not rise fast enough to meet current housing prices even if they stagnate.

I'm purchasing my first home for a few reasons:
- The purchase price is at a 20% discount to the replacement value of the property (if it burned to the ground, what it would cost me to rebuild)
- The home is in an area that I see myself, future wife and family remaining in
- Location, location, location: I'm in the heart of a city with a 1/2 acre lot and a 5 min walk to work
- I've known the house my entire life (elderly neighbour growing up) and it's in original condition: I know what is behind every wall, under every floor and the house is rock solid. No reno surprises
- My capital position is sufficient that I can place almost 50% down onto the price of the home if I wished to.


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## seven3 (Apr 4, 2009)

How much impact do people anticipate from foreign investment $ in Vancouver real estate. I agree that the price of a house in Vancouver, relative to the average incomes seems outrageous (a couple with income of $170k probably can't afford a house here)...

So, yeah, I'm in the camp "hoping" that prices will come down more; but if there's continuous influx of foreign $ ...will we ever see a drop?

Maybe the mkt is not supported by domestic buyers...


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## takingprofits (Apr 13, 2009)

This same discussion comes up with every market cycle and 100% of the time the house prices are way higher by the time the next cycle arrives.

A friend of mine in Toronto used the excuse that the bottom had not yet come to put off buying a home in the '80's and then again in the '90's. By the time he got around to purchasing last year he paid double what he would have paid if he would have not been waiting for the housing market to bottom. He also could no longer afford to buy in the area he preferred - prices had risen far to high.

He probably paid the equivalent of a house in rental payments while waiting for the housing market to bottom.

One thing about buying a house - when you look back after 20 years of mortgage paying - your monthly payments are rarely higher than they were to begin with - and are usually inconsequential compared to your income which has gone way up in that time.

If you are renting however you can be assured that the rent you are paying is substantially higher than it was 20 years ago and will continue to go higher.

It is always a good time to buy a house if you plan on remaining a homeowner for the long term.


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## Ben (Apr 3, 2009)

takingprofits said:


> It is always a good time to buy a house if you plan on remaining a homeowner for the long term.


All good points. 

Markets go up and down, and it can be difficult to pick the bottom for house prices. No one should sit on the fence forever. 

I would emphasize that it is not the market price that is most important, but your own ability to afford that price, subject to your own risk factors. For example, one has to have sufficient liquidity (emerg. fund, etc) when buying a house, to mitigage the risks of certain events that can and do happen. From this point of view, it is not always a good time for ALL people to buy a house.


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## robert99a (May 23, 2009)

If house prices drop further, I will probably kill myself because it will be the last straw.

This economy sucks. I wish I would have been born in 1950.


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## Mike H. (Apr 15, 2009)

House prices will always be a function of supply and demand; with demand driven by ability to pay. Ability to pay will be a function of incomes and mortgage rates. Long term, the average family home must be affordable for the average family. By affordable, I mean that housing costs (mortgage, property taxes, heat) should be about 32% of before-tax income. 

If house prices get too much above that number, they should come down. Too much below, vice versa. So let's look at what the average house should cost in a few places; assuming a 20% down payment and 3.89% mortgage interest; versus actual sale prices:

Statscan reported median family incomes for 2006, my calculated house prices, April 2009 MLS reported actual sale prices:
............* income *..*calculated*...*actual*
Alberta...$78,400 - $446,010 - $329,328
B. C. .....$62,700 - $344,742 - $449,371
Ontario...$66,600 - $370,378 - $311,065
*Canada*..$63,600 - $351,151 - *$306,366*

Based on current mortgage rates and house sale prices, and 2006 incomes, it looks to me like prices have room to go up, everywhere in Canada except B.C.. There is also an argument that British Columbia supports higher prices than my simple calculation indicates because people retire there from all across Canada. These retired folks have more purchasing power than their income indicates, due to a lifetime of accumulated net worth. Immigration is also a peculiar factor in BC. Many immigrants come with a bucket load of cash; or will pool several families' incomes together to buy a giant house. Supply through new construction is also somewhat restricted in the Lower Mainland by the ocean, mountains, and agricultural reserves.

If a person believes that incomes are currently lower than they were in 2006, or will be in the future, maybe house prices should be lower. Higher real interest rates in the future could also drive down home prices; but increases in nominal interest rates driven by inflation; shouldn't.

Interestingly, if I look at what mortgage rates were in 2006, the median house price in Alberta should have been $385,000 but was actually around $450,000. 

If a person needs a place to live, and is faced with the buying versus renting dilemma; it looks to me like buying now will turn out to be very smart over the long term. Purchasing for investment isn't as clear.


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## Mike H. (Apr 15, 2009)

The Economist magazine likes to use an even simpler model. If you can rent a house for less than the mortgage interest would cost you for the same house; you should rent. If rents are more than the mortgage interest; you should buy.

The sum of millions of people making this rational choice should bring both rents and prices into a reasonable balance.

I think a pretty robust model could be made for estimating what the current price of a house *should* be, using rents, incomes, and mortgage rates. Any prediction of what prices *should* be in the future requires a reliable prediction of rents, incomes, mortgage rates, inflation, demographics, etc. etc. So it would just be elegant guessing.

I read something interesting the other day about US new home construction, and car sales. The current rate of new home construction would require 400 years to replace the current housing stock. If you don't believe the average home lasts 400 years, construction must pick up. Likewise, the current pace of new car sales infers that cars will last 80 years.


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## brad (May 22, 2009)

Mike H. said:


> The Economist magazine likes to use an even simpler model. If you can rent a house for less than the mortgage interest would cost you for the same house; you should rent. If rents are more than the mortgage interest; you should buy.


I like that, but it's a little hard to implement in practice because you can't always know what a given house might rent for. A three-bedroom house in one neighbourhood can go for vastly more than a three-bedroom house in a different neighbourhood a few streets away.

My rule of thumb has always been that you probably shouldn't buy if you're not planning to stay in the house for at least five years, because it can take that long to build up any appreciable equity if you have a long-term mortgage. A lot of people argue that renting is "throwing money away," but paying interest to a bank falls into that same category. If you buy a place with a tiny downpayment and a 30-year mortgage, and move out in two or three years, you'll get back your downpayment and not much else unless you were lucky enough to buy in an area where house prices are going up. If you can afford a shorter-term mortgage and/or an accelerated payment scheudle, you'll build up equity quicker and pay less interest. With our 15-year mortgage with accelerated payments, the portion going to the principal was higher than the portion going to interest right from the very first payment. I like that


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## Mike H. (Apr 15, 2009)

brad said:


> If you can afford a shorter-term mortgage and/or an accelerated payment scheudle, you'll build up equity quicker and pay less interest. With our 15-year mortgage with accelerated payments, the portion going to the principal was higher than the portion going to interest right from the very first payment. I like that


I was smart or lucky enough to get a below-prime variable mortgage at my last renewal. I'm paying $1,934 a month. $234 interest, $1,700 principal.

The same house would rent for about $2,200 a month; so $234 in interest is pretty easy to take. Even though the house has dropped about $90,000 in market value in the last 2 years, it's still worth much more than I paid for it. No plans to sell and move anytime soon.


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## OhGreatGuru (May 24, 2009)

thecomingdepression said:


> .... I was just wondering why on earth would anyone buy a house/condo NOW?


1. Because everyone needs food, shelter, and clothing.
2. Because housing prices have dropped 10-15% in some markets.
3. Because most of the scare stories on your web site are about the US, where real estate, financial institutions, government debt, and the economy generally are in much worse shape than in Canada.


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## Canadian Finance (Apr 3, 2009)

I just moved into a bigger house last week, I went into detail on a few of the financial incentives for buying the house, like lower prices, locking in a good 5 year rate and clearing up our outstanding debt.


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## thecomingdepression (Apr 8, 2009)

*Wow*

****** sheep ever below:


OhGreatGuru said:


> 1. Because everyone needs food, shelter, and clothing.
> *Food and clothing have nothing to do with a losing "investment". Would you put 100,000 into GM today? Housing =same thing*
> 2. Because housing prices have dropped 10-15% in some markets.
> *And another 50% to go, you just don't know any better. You think things go up forever. This is year 1 of a 4 year drop..MINIMUM*
> ...


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## thecomingdepression (Apr 8, 2009)

Canadian Finance said:


> I just moved into a bigger house last week, I went into detail on a few of the financial incentives for buying the house, like lower prices, locking in a good 5 year rate and clearing up our outstanding debt.


Poor sheep you will be paying debt for 25 yrs to life. As your house goes down 50% in value


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## thecomingdepression (Apr 8, 2009)

Mike H. said:


> I was smart or lucky enough to get a below-prime variable mortgage at my last renewal. I'm paying $1,934 a month. $234 interest, $1,700 principal.
> 
> The same house would rent for about $2,200 a month; so $234 in interest is pretty easy to take. Even though the house has dropped about $90,000 in market value in the last 2 years, it's still worth much more than I paid for it. No plans to sell and move anytime soon.


worth more than you paid for it? Wait until next yr, another 90,000 hit..to funny. People love losing everything..


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## takingprofits (Apr 13, 2009)

Belittling other members will not attract them to join you in following you and your prophets of doom - quite the opposite I would think as it reveals a lot about the intelligence of someone who believes what you do.


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## Canadian Finance (Apr 3, 2009)

thecomingdepression said:


> Poor sheep you will be paying debt for 25 yrs to life. As your house goes down 50% in value


Your right, through the Smith Manoeuvre I will be paying debt my whole life, but as long as the dividends coming in are higher than the interest, what's wrong with that?

So you're predicting that my $365,000 house in Edmonton will go down to $182,500? I better sell now and live out of my car!


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## CanadianCapitalist (Mar 31, 2009)

thecomingdepression said:


> Food and clothing have nothing to do with a losing "investment". Would you put 100,000 into GM today? Housing =same thing


A home is not just an investment. It is, first and foremost, a place to live. As long as you can easily carry the mortgage payments and can tide over any unfortunate situations, a home will be an excellent investment for most people. After all, you have to live someplace and the forced savings due to equity build up serves most people well. 



> And another 50% to go, you just don't know any better. You think things go up forever. This is year 1 of a 4 year drop..MINIMUM


And you know this how? First off, real estate is very local. Calgary might correct, Ottawa might not or vice versa. I've been hearing about a real estate correction since 2003 and home prices are up sharply since then. A correction may eventually arrive. Or it may not. A very plausible scenario could see housing prices stagnate. It is never a good idea to talk about the future in absolute terms.



> Dumbest quote ever. Like Canada is immune from this GLOBAL Event? We are 6-8 months behind as you can see by unemployment levels, real estate levels, retail collapse and soon the banks, (that have 1.2 trillion in derivative holdings EACH, Commercial real estate collapse coming, Canadian Debt is 13,000 per person this year and expected to D O U B L E next year..the list goes on. Stupid people here I'll tell you.
> Like every up lasts forever? We need a down it will take 20 years, just like the 20 years of UP we just had. Read Austrian Economics yu will truly understand how economics work, until then, your just a naive little sheep


There is now widespread evidence that the worst may be behind us. We just saw GDP numbers for 1Q-2009 that were better than expected. I don't know if you are an economist but I don't of any that doesn't qualify their statements. They do this for a very good reason: it is hard and almost impossible to consistently forecast macro-economic events.

We've already had a very poor 10-year stretch in the stock markets, so I'm not sure what you mean by 20 up years. Simply belittling the intelligence of others doesn't make your arguments any more convincing. It simply makes you look like a jerk.


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## Four Pillars (Apr 5, 2009)

Interesting discussion.

I agree with Brad that you shouldn't buy if you aren't going to own for 5 years or more - it's just not worth it.

As for real estate valuation - I don't think anyone knows where real estate values are going. I'm a big believer in the affordability of housing (which you can control) rather than trying to buy at the right time (which is guess work).

In this post I talk about the affordability of a house being more important than the downpayment (and I'm not saying you shouldn't have a downpayment).

Zero downpayment on a house is just fine.


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## FrugalTrader (Oct 13, 2008)

CanadianCapitalist said:


> Simply belittling the intelligence of others doesn't make your arguments any more convincing. It simply makes you look like a jerk.


Amen to that.


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## FinancialJungle (Apr 22, 2009)

The question of whether a house is an investment never gets old, eh?

My view is that the question lacks perspective and clarity at many levels. I think we're *way* beyond calling a house a shelter. Most of us likely fall within the top 3% weathest people on Earth. To decide between a bungalow and a townhouse is like choosing between a lobster and a ribeye steak dinner, while an ethiopian would slave for a tuna sandwich. For most in this forum, choosing a house is a matter of the degree of luxury rather than satisfing an essential need. 

I think "home" is very vague in the question. Are you refering to home as the physical or the financial structure? Physically, a home isn't an investment; but the financing is, in my opinion. I can live in my current downdown condo, own or rent. It's doesn't matter. 

Homeownership is a financial decision. If it is cheaper to rent a waterheater, then rent. If it is cheaper after-tax to lease a car than to own, then lease. If it's cheaper to rent than to own a home, then rent. It doesn't matter what you decide, because at the end of the day, you have your waterheater, car and home.


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## dogcom (May 23, 2009)

As much as we dislike the comments of thecomingdepression, these people do bring out a little emotion in the debate and make it interesting.

Having said that I agree that buying a house that is affordable even if interest rates did climb is the way to go. As mentioned if you wait until the stars are aligned and the force is with you then you will probably never own a home, pay to much rent and miss out in the long run.

In the end making a deal that makes sense to you in a good area and is affordable is far more important then where you might think the market is heading. If you are not desperate and find a great affordable deal usually you will have bought near a low in the market naturally.


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## FinancialJungle (Apr 22, 2009)

Just because a house is affordable doesn't necessary mean it makes sense to buy. If a house's asking price is $1 million, but another identical house in the neighbourhood is renting for $2000/month, then rent. This has nothing to do with predicting where the market is headed.


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## dogcom (May 23, 2009)

Financialjungle affordability makes sure you can hang on to the property that you purchase and I might add for the long term. Making a good deal that makes sense to you is then the most important thing once you know you can hold on to it.


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## FinancialJungle (Apr 22, 2009)

dogcom said:


> Financialjungle affordability makes sure you can hang on to the property that you purchase and I might add for the long term.


Not denying that, but I'm saying just because something is affordable doesn't necessary make it a good deal to you.

And something can be a good deal in general even if you can't afford it.


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