# When to give up on the correction?



## emperor (Jul 24, 2011)

I've had a downpayment for a house for over 10 years but have continued to wait because I always felt houses were over priced. In my area they all trippled in price while wages remained flat, a house that was 90 K is now 270K. I don't see the cost of ownership going down or peoples wages going up so I always thought they would come back in line with inflation. I'm starting to get pretty tired of waiting though, seems like they are just going to keep interest rates super low and keep lending.

If a correction is going to happen how long do you think it will take. If it's a year or two I could wait but if it might be 10-15 years I might as well just bite the bullet.


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## Potato (Apr 3, 2009)

When to give up? When it's no longer cheaper to rent than to buy, or when the pricetag on "pride of ownership" is worth it to you. How long a correction depends on the type, but it's almost certainly going to take longer than two years even in a crash. If it's a soft landing, it could be closer to a decade, depending on how far off the fundamentals prices are in your area.

In my area, pride of ownership is about a $10k/year expense and my pride just isn't worth that much. While I expect a correction in the form of a crash over the next 5 years, that's not the basis for choosing my housing arrangement -- even if there is a soft landing, it would still make sense to rent.


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## Chris L (Nov 16, 2011)

Once things start it would take about 5 years to come down to the new low. Most will happen in the first 2, slowing down to 5 then a slow recovery accelerated. The question is when does it start? My best guess would be right now. Expect things to pick up on the first interest rate hike. Right now they are just stale and laggard. That will signal a recovering in the overall market and a switch out of RE as THE investment vehicle. Right now, there is zero growth, but people moved into "secure" assets, hence the low performing TSX. This is going to change from RE to stocks. Watch and see. Now is the time to be in stock, not RE. It's underperforming, but this will change. Hang on for 2 years after you see declines and you'll be fine. It wont be the bottom, but you'll gain 2 years of house anyway and the deals will be plentiful. Those are my 2 cents. I feel like you do, but eventually things return to the norm. There are just so many outside strings that can be pulled in concert to maintain the status quo and they have all be used. There's nothing left to be done to keep people happy and prices stable and high. I think as a bear, it's important to realize that there are many, many, many people working really hard to keep things going strong and stable. But eventually it breaks down and there is nothing left to do. Imagine many people blowing into a balloon. Everyone has a shot at blowing, and when no one is left, the air comes out.


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## Four Pillars (Apr 5, 2009)

emperor said:


> If a correction is going to happen how long do you think it will take.


Nobody knows - that's the problem. You can listen to Garth & Ben until you (and they) turn blue in the face, but unless someone can predict a market drop and give an idea of the timing and the severity - the words are just wind.


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## NotMe (Jan 10, 2011)

Four Pillars said:


> Nobody knows - that's the problem. You can listen to Garth & Ben until you (and they) turn blue in the face, but unless someone can predict a market drop and give an idea of the timing and the severity - the words are just wind.


+1.

I think trying to time the market is really hard; if not impossible. So instead I prefer to time myself and my family. We could have rented in 2007 when our son was born but preferred to buy, and bought a house that was 3.5x our income. Do what you think is right, and prepare yourself for consequences if things don't work out the way you think they will.


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## sags (May 15, 2010)

A significant home price decline would have a severe impact on the economy.........so the first thing to consider is your household employment. How secure would it be if the economy is hard hit by mass layoffs?

Second.............find a home that is easily affordable on your income. Don't stretch yourself and hope for the best. It is far more devastating to a family to be forced out of a treasured family home........than never to have bought one.

Lock in for the longest period available. Nobody knows where interest rates are heading........but they are currently at record low interest rates. Paying a couple % points more to lock in for 10 years helps with the anxiety levels.

Lastly, if you have considered the above.........relax and enjoy the home. Don't stress over prices going up or down. If you aren't selling it doesn't matter.

Consider a home as the cost of shelter............the same as a vehicle is a cost of transportation.


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## Just a Guy (Mar 27, 2012)

I think it depends on where you are looking too. If your in the west, especially Alberta, I think the chances of a correction are slim even though I think Alberta is generally overpriced. 

In the east, I think the chances of a correction are better, but I don't know if we'll see a large one as the impact on the economy would be bad. 

All that being said, there is always someone who may need to sell quickly for some reason, so there are deals appearing all the time. Why not hire a realtor to put you on a watch list for houses that match what you are willing to pay, in the areas you want to live in. You never know, something may turn up. 

I've been on multiple lists for years, which has allowed me to buy what I want even in a boom. Sometimes the list isn't very active, but I'm not looking for hundreds of properties.


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## none (Jan 15, 2013)

Whether there is going to be a correction is not a question but if but of when. As I mentioned in a previous thread, a significant housing market correction in Canada will not be a black swan but simply addressing the elephant in the room (paraphrased from Krugman).

What I would suggest is do a truly full cost accounting of home ownership - and simply rent a place of equivalent cost.

I saw a not terrible full cost accounting of a toronto home of $750K really costs about $5000 per month. You can rent a great place in toronto for $5000 a month (I'm not sure if that includes a 2% correction per year to account for a soft landing scenario).

Whether you continue to rent or buy there is some risk. The thing is if you rent, there is a small probability you may miss out on small gains but if you buy there is substantial probability of losing a lot.

If you look at the NASDAQ speculation drove it beyond ridiculous and burned some people shorting it simply because it continued to go up past anywhere anyone thought it could. It did, however, come down eventually and it did come down hard. Roar.


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## blin10 (Jun 27, 2011)

two real estate specialists lol... 



Chris L said:


> Once things start it would take about 5 years to come down to the new low. Most will happen in the first 2, slowing down to 5 then a slow recovery accelerated. The question is when does it start? My best guess would be right now. Expect things to pick up on the first interest rate hike. Right now they are just stale and laggard. That will signal a recovering in the overall market and a switch out of RE as THE investment vehicle. Right now, there is zero growth, but people moved into "secure" assets, hence the low performing TSX. This is going to change from RE to stocks. Watch and see. Now is the time to be in stock, not RE. It's underperforming, but this will change. Hang on for 2 years after you see declines and you'll be fine. It wont be the bottom, but you'll gain 2 years of house anyway and the deals will be plentiful. Those are my 2 cents. I feel like you do, but eventually things return to the norm. There are just so many outside strings that can be pulled in concert to maintain the status quo and they have all be used. There's nothing left to be done to keep people happy and prices stable and high. I think as a bear, it's important to realize that there are many, many, many people working really hard to keep things going strong and stable. But eventually it breaks down and there is nothing left to do. Imagine many people blowing into a balloon. Everyone has a shot at blowing, and when no one is left, the air comes out.





none said:


> Whether there is going to be a correction is not a question but if but of when. As I mentioned in a previous thread, a significant housing market correction in Canada will not be a black swan but simply addressing the elephant in the room (paraphrased from Krugman).
> 
> What I would suggest is do a truly full cost accounting of home ownership - and simply rent a place of equivalent cost.
> 
> ...


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## Jungle (Feb 17, 2010)

You should buy when you're ready, but don't over leverage. Too hard to time the market. Challenging part is finding the 3.5X income, when prices have gone up faster than wages.


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## donald (Apr 18, 2011)

I'm struggling with this issue also about getting back into real estate(i've been out of re for 2 yrs)I can not find value at all or at least it feels that way,5 yrs from now looking back i might be kicking myself thinking this way thoughif prices keep rising) i can't see myself renting for to much longer(maybe 1 more full yr)
I will say this(money aside)renting imo is the shits!Case in point--my upstairs neighbor just moved in(it has been vacant since i moved in)last sunday she was power vacing her room @ 730 am(above my head),the sat before that she had what sounded like a high heel party over my head(she wears her spikes inside and it fing drives me nuts(vinyl hardwoods) and last night her 8 yr old boy was i think jumping off the couch and shaking my family room light.I couldn't take it anymore and laid a solid pounding on the ceiling(she knows who i am and i got one hell of a evil eye this morn but it worked)
The other neighbor beside me is a 23 yr old pot head and the **** wafts into my place every other day and to top those my building has the token ''old guy" with nothing better to do than complaining when i use visitor parking(have no idea what the problem is)
What you don't get from garth/ben ect is how shitty life is as a renter(i have more than enough for down payment,sometimes i wonder why i am ''roughing'' it.
I wish i knew the answer(things are softer but i don't see this 20% correction ''yet'' at least)


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## none (Jan 15, 2013)

We have very different rental experiences - my rental is great - sure I pay $2000 a month for a 3 bedroom house plus den in a good location but it's a $650K house so I'm actually making money renting the place.

A weird thing about rental to house comparisons is people compare totally unrealistic rental prices to houses now. $750K house - fair rental price is probably $3500+ a month (but usually is not). Anything less than that you're getting a deal.


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## donald (Apr 18, 2011)

I'm not in low end or high end(middle)1300.00 a mth(new apartment building,1 yr old)broad street properties group,wpg.House rental might be a lot better than apartment.It's the ''apartment'' culture for a lack of a better word that is not up my ''ally''.I don't know if 1300 hundred is that ''cheap'' but i swear it has a ''public'' housing feel at times(i sold a new house in a quite mature area so it has been a life style downgrade and the rental before that was also a nightmare lol)My point is-you can't by logic say renting on odds is better in the ''lifestyle'' enjoyment sphere,it not,that is all.


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## none (Jan 15, 2013)

I agree about apartment living. I went back to school for a while and had to move to an apartment from my house. It certainly was different (in a bad way). Thats why now we like renting the house we are in.

part of my bearishness is that I just really like renting. I totally renovated our old house and it took a couple years and I saw every small mistake (something like a not absolutely perfect paint line or something else no one else would notice) but in a rental all that stuff doesn't bother me. Our dishwasher broke in our current rental - if I owned the house I would have put in all this work to put in a new washer myself, find the best deal etc but I didn't have to -- one phone all - free new dishwasher.

I just like the hassle free life style of it all. I'm not stressed about housing at all, I don't talk about trips to the home depot and meaningly kitchen reno boring stuff. I'm done with all that - it's great.

Would I buy the house I live in now? Sure, maybe for 60% of what it is currently priced at. I'm happy renting it so I'm not willing to pay any 'home ownership' premium on it at all (quite the opposite actually).


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## donald (Apr 18, 2011)

I understand what you are saying none.
My favorites areroperty tax(mine use to be 4600.00/yr)no snow shoveling/grass(love that)But for some reason i just don't ''feel'' good about renting.I did have pride when i did have my own home.
Getting back in and when is my problem(i want to be a home owner again)I hedged my bets that prices would come down when is sold and i might have got that wrong,though i do believe they have by about 5%(or they are just not outpacing inflation anymore.I have this feeling it is just going to be flat for a long time.


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## none (Jan 15, 2013)

In your defence: some people get lucky and win for all the wrong reasons: welcome to the canadian home owner post 2008.

You did the right thing, it was difficult to foresee the massive intervention the Canadian government had into ballooning the Res RE market post 2009. You did the right thing at the time with the information that was available.

Anyway, it's not going to happen again. All the low interest rate money that has flowed into the Canadian economy has gone almost no where but to balloon up mortgages. It's been a waste. Although I give the current government very little credit on fiscal issues I think they have finally gotten through their skulls that massively inflated real estate is not a good thing for long term economic health.


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## Berubeland (Sep 6, 2009)

I'm pretty sure that I mentioned before that one thing I liked about my house when I bought it was that if was backing onto a ravine. I loved it and there was even some cattails growing in my private little swamp.  

Anyways fast forward 15 years and... there is 76 townhouses that were built on my private swamp a few years ago. I could never have imagined anyone digging foundations there but before the houses were sold all of them had the drywall stripped out and sump pumps put in. They houses have been occupied for 2-3 years now and I've noticed something very strange. There are a few houses for sale and they are always FSBO because there is no money for real estate agents. 

It's a little funny to me that the demise of real estate agent stranglehold may well be the stagnant real estate market. In a flat market, after 5 years there is hardly enough equity to pay the real estate agent's commission. 

http://comfree.com/3-storey-for-sale-scarborough-ontario-422744


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