# Another negative RE piece�



## Siwash

*Another negative RE piece…*

http://www.acting-man.com/?p=28004

Thoughts?


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## Just a Guy

Rents are based on the supply/demand of renters and inflation. Housing prices are based on tithe "affordability" of homes. There is no relation I've seen between the two.

Low interest rates made homes more "affordable" and thus drove up prices. Interest rates have no effect on how much I can pay for rent.

If I can pay $1000/month that's all you can charge me for rent. But $1000 can buy a more expensive house if the interest rates are 3% rather than 8%. That's why rents are basically the same in vanacouver today as they were a decade ago, maybe even less once you count inflation.

Are we in a housing bubble? No doubt. Check out:

http://www.easysafemoney.com/the-bottom-is-slipping/

I agree with William that once interest rates rise, we'll see some real problems...


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## Hawkdog

Just a Guy said:


> Rents are based on the supply/demand of renters and inflation. Housing prices are based on tithe "affordability" of homes. There is no relation I've seen between the two."
> 
> Housing prices are based on affordability of homes? that seems a bit simplistic doesn't it? pretty sure supply and demand plays a big role, and interest rates would part of what's driving the demand.
> Are houses selling in Vancouver because they are affordable? I don't care what the interest rates are, a million dollar tear down is not what i would call affordable housing, there has to be more to it than that.
> Just my thoughts.
> 
> choose your bubble, real estate or stock market.


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## Just a Guy

My original posting got cut in a glitch, I had put in supply and demand of homebuyers plus affordability...as opposed to supply and demand of renters plus inflation...I see I left that out when I retyped.


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## andrewf

I don't disagree that there's a housing bubble in Canada. I don't think Carney deserves much blame for that. Carney only had a blunt tool at his disposal with interest rates. His mandate was to keep inflation on target, and he achieved it. He did try chiding Canadians not to lever up so much (preferring that low rates induce business investment). The bubble is more due to poor macroprudential management by the fed government, who left the foxes in charge of the hen house by filling the CMHC board with real estate industry types and giving them a blank cheque to increase mortgage insurance in force. In addition to significantly loosening lending standards with zero down (cash back, really) 40 year mortgages.


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## Siwash

So it seems that you feel a correction may be coming. I believe this will happen.. I just don't know to what extent it'll correct. I think we've carefully avoided a crash/correction by stimulating the housing market with spur cheap money and our banks have lent a little more prudently… but I have heard of people getting sub-prime mortgages in Canada too…

I am renting right now b/c I see too much risk in entering this market. I sold a condo in the spring and I now see the prices coming down in that building and units taking some time to sell… as long as we are saving/investing prudently, I feel that this is the right track.. if they don't correct, we'll still have saved.. people get such a hard-on for "owning" a home in Canada.. sure it makes sense if the market is sane, but if your'e dumping only $20,000 down, yikes, I think you're over-leveraged now…


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## andrewf

I don't feel any pressure to buy. Worst case for me, house prices continue to rise. They can't rise very quickly though, because valuations are already stretched. So worst case for me is low single digit price increases for houses. I feel like my capital can more efficiently be deployed elsewhere.


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## Chris L

There is a RE conference in my city coming up soon. They'll say, prices will go up with the rate of inflation, things are stable, this will continue. No surprises. Will report the actual findings. More up, up and away.

Any idiot can run current trends forward, but what and when the inflection point is, no one knows.

I call BLACK SWAN event. That covers a lot of factors! 

War, political instability in some crazy nation, oil shortage somehow, pandemic, and on and on.


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## Just a Guy

Of course, there will also be regional discrepancies. While interest rates would severally hurt some places like Ontario, I can see parts of Alberta and saskatchewan protected more by the high paying jobs in the oil industry and the demands that come from the people moving there for them...also places like Vancouver have their own drivers, and being a limited land mass (mountains on 3 sides, an ocean on the other)...


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## andrewf

Believe it or not, but AB and SK are not particularly bubbly.


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## Just a Guy

Have you looked at prices in ft. Mcmurry? Even Edmonton and Calgary prices have tripled over the past 10-15 years...not exactly inflationary...

Saskatchewan is lagging a bit, probably only 2-2.5 times the prices of a decade ago...


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## sags

If Canadian home prices don't fall............there are going to be a lot of outside "experts" with egg on their collective faces.


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## hystat

not really sure what Ft. McMurray has to do with a bubble. That's a supply and demand issue that happens in every mining town. 

When is a bubble no longer a bubble? 10 years? Is that how long I've been hearing about this one? My dog grew old and died in it. I changed wives. My hair turned grey and fell out. If we all die in it, is it still a bubble?


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## Hawkdog

Just a Guy said:


> My original posting got cut in a glitch, I had put in supply and demand of homebuyers plus affordability...as opposed to supply and demand of renters plus inflation...I see I left that out when I retyped.


ahh, makes more sense then, cheers


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## Siwash

andrewf said:


> I don't feel any pressure to buy. Worst case for me, house prices continue to rise. They can't rise very quickly though, because valuations are already stretched. So worst case for me is low single digit price increases for houses. I feel like my capital can more efficiently be deployed elsewhere.


Agreed!


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## none

Yeah that's the pragmatic way I look at it too. Res RE has little upside with a large potential downside so why bother?


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## Hawkdog

http://www.theglobeandmail.com/glob...-quietly-cuts-mortgage-rates/article16402627/


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## HaroldCrump

^ I am not surprised at all.
I was getting a feeling something like this will happen, even since Poloz has been jawboning about _lowering_ rates instead of _increasing_.
We have seen this movie before...with Carney (and Jim Flaherty).
Lowering rates and keeping lending rules very loose, expanding the balance sheet of CMHC, etc.

And then Jimbo publicly chiding Manulife for lowering rates.
Apparently, Jimbo's office _*called*_ Manulife on the phone to chide them.

Ha, what a charade....


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## none

The frustrating thing about all of this is that I think that the conservatives are simply trying to keep the boat afloat on the off-chance they lose the next election. The gas-bag will blow eventually but if they could delay it until they lose their majority (if that happens) then they can point the finger.

The government needs to keep rates low to help stimulate the lagging economy but will that really help if all the money just keeps going into overprices housing? I don't think so.


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## HaroldCrump

Pumping housing is the easiest way to create the illusion of economic growth.
We have seen that movie many times before, in many countries.


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## Hawkdog

none said:


> Yeah that's the pragmatic way I look at it too. Res RE has little upside with a large potential downside so why bother?


find a new place to rent yet?

When I first moved to Smithers i was looking for a rental, just out of school. Pick up the newspaper, which comes out every Wednesday, browse the 4 or 5 rental listings, call one. 
"Hi is your house still for rent? answer: I can put you on the waiting list, but you will be number 10.

that was in 97, its not much different today, except rents have gone up.

So renting is all good in the big city where it makes sense, but in small communities its not always easy to find a decent place to rent.


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## HaroldCrump

Hawkdog said:


> find a new place to rent yet?


Please let's not start _that_ again....


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## none

Hawkdog said:


> find a new place to rent yet?


Yup, great place. We're really happy in our new spot especially because out new landlord is awesome and professional and not a crazy crack pot like we had before.

You are right though, I just looked at Kijiji and there isn't much for smithers for sure. The houses seem relatively cheap too (<250K) until you remember that they are in smithers.....


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## Hawkdog

none said:


> Yup, great place. We're really happy in our new spot especially because out new landlord is awesome and professional and not a crazy crack pot like we had before.
> 
> You are right though, I just looked at Kijiji and there isn't much for smithers for sure. The houses seem relatively cheap too (<250K) until you remember that they are in smithers.....




Smithers is a hidden gem.


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## Siwash

hystat said:


> not really sure what Ft. McMurray has to do with a bubble. That's a supply and demand issue that happens in every mining town.
> 
> When is a bubble no longer a bubble? 10 years? Is that how long I've been hearing about this one? My dog grew old and died in it. I changed wives. My hair turned grey and fell out. If we all die in it, is it still a bubble?


So you think it'll go on indefinitely - increases 5 to 10 % per year?

Geez, if that's the case why would any of us invest in the stock market?!?!?!


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## Siwash

Hawkdog said:


> find a new place to rent yet?
> 
> When I first moved to Smithers i was looking for a rental, just out of school. Pick up the newspaper, which comes out every Wednesday, browse the 4 or 5 rental listings, call one.
> "Hi is your house still for rent? answer: I can put you on the waiting list, but you will be number 10.
> 
> that was in 97, its not much different today, except rents have gone up.
> 
> So renting is all good in the big city where it makes sense, but in small communities its not always easy to find a decent place to rent.


You right… we are in the GTA (northern reaches) and we found a great home on a big lot and the rent is half of mortgage, taxes and ancillary 

Owning doesn't make sense to me right now (at least if you're trying to get in now)


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## richard

sags said:


> If Canadian home prices don't fall............there are going to be a lot of outside "experts" with egg on their collective faces.


It's funny isn't it how some people are quick to point out that economists never manage to predict things accurately (when referring to main-stream sources based on large amounts of data) but point out one unknown blog that they think has it all nailed based on 3 charts that someone pulled together after reading a few economics books (when it supports their favorite theory) 

But if you want a conspiracy think about who votes for the government in large numbers... owns a lot of real estate that they probably bought at a far lower price... and have no retirement plan without selling it at or above current prices. It could be that simple!



Just a Guy said:


> Rents are based on the supply/demand of renters and inflation. Housing prices are based on tithe "affordability" of homes. There is no relation I've seen between the two.


Rents should be related to prices (along with a few other factors like interest rates) but we know that emotional decisions are much more common. I would guess it's mainly based on people who face a limitation. If they can't afford the more expensive option, or can't get approved for a mortgage, then they choose the cheaper option or they rent. That will affect the market a little, and investors will provide a further link. That doesn't mean that rents have to be based on inflation... if there's no demand to rent they would have to be lowered or the properties sold.



Siwash said:


> So you think it'll go on indefinitely - increases 5 to 10 % per year?
> 
> Geez, if that's the case why would any of us invest in the stock market?!?!?!


We have a bubble in bubbles now. It's true that there were a few unexpected events recently. Some people have taken that and run with it like a hyper-active kid. Calling everything a bubble is missing the real lessons of the bubbles and why so few people did anything about them. Hint: it's the reason that doesn't have to do with self-interest.

Best thing to do is be aware of what's happening and what could happen, and choose what works for you. I rent because I see an advantage there. Incidentally this comes after waiting, then buying, then selling a house. During that entire time there were warnings about rising interest rates. In the end they didn't and prices only rose modestly. If you can afford to pay the price of buying a house no matter what happens and you can't rent something similar then that's a good decision too.


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