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March 25th, 2009 at 2:05 am
Personally, I have a 2.5% interest rate on my 5 year fixed rate, closed term mortgage, so it is possible… but I didn’t just walk off the street and get that and understand that rate might not be possible for everyone.
My examples were over simplified. There are so many things to consider if it’s the right time to buy. Inflation and higher rates do put pressure on real estate prices, but after it normalizes, I think higher inflation and higher rates actually deliver a benefit to those who have mortgages since home prices catch up with the inflation (historically), but the amount you owe on your mortgage doesn’t.
Nobody can predict where prices will be exactly in 1, 5, or 10 years. If I had to guess, I’d say in 1 year they will be down. I wouldn’t even bother to guess about 5 years or 10 years.
You do have to look at real estate as an investment, but when stocks are down 50%, you have a 50% loss (on paper anyways). At least when/if your home goes down in value 50%, you still have a home to live in, not just a piece of paper saying you own a home.
I think this blog serves a useful purpose, but it isn’t really a great place to share different opinions. People who are real estate bears tend to flock here and support each other, and there will always be real estate bears, even at the very very bottom of the market (which we won’t know until we are looking back at it!)
March 24th, 2009 at 10:26 pm
If you pay $2100 per month for 5 years, what difference it makes whether you call $45K interest or $100K interest? The only thing matters is the outstanding balance of your mortgage after 5 years because you simply paid $2100X60=$126K. There is no way anyone can get a mortgage at 2.5%, even variable. The best 5 year rate you can get now is 3.7%. The best 10 year rate you can get is 5%.
March 24th, 2009 at 6:25 pm
I’m no goldbug, but I feel like one world currency is a TERRIBLE idea. Not that terrible ideas have been stopped before…
March 24th, 2009 at 5:23 pm
China calls for new reserve currency
http://tinyurl.com/ch4skl
March 24th, 2009 at 5:13 pm
China has put in a proposal to the IMF for a world currency?
China + Amero = Chimero
we are joined at the hip!
March 24th, 2009 at 4:15 pm
Is it only an internet rumour or is it true that China has put in a proposal to the IMF for a world currency?
!
March 24th, 2009 at 4:03 pm
It’s as elementary as not noticing a typo on my excel sheet. Guess you haven’t done that before.
Nope. When I accuse someone of being “way off” I make sure that I’m not wrong myself. I double check the numbers before posting them. It’s quite easy to notice something that is off by a factor of 5.
But hey, keep doing your thing, it makes us laugh.
March 24th, 2009 at 3:59 pm
“Yeah, mino3, you slickster. How dare you correct her. She’s always right!!!!”
YEAH! You tell him good.
March 24th, 2009 at 3:55 pm
“Retraction or not, it’s such an elementary mistake… wow.”
It’s as elementary as not noticing a typo on my excel sheet. Guess you haven’t done that before.
March 24th, 2009 at 3:29 pm
I don’t know where to put this bit of news, since the friday free for all is so full now.
I believe there was some discussion yesterday about silly pessimistic bears and the stock market? Remember the “pity party”.
Well, bears, looks like the chief investment strategist at Bank of America agrees with you:
“Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said….Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution”
More here:
http://www.bloomberg.com/apps/.....refer=home
Guess I should have called him the ex-chief investment strategist at Bank of America. Surprise, surprise, he got fired after saying that.
March 24th, 2009 at 2:38 pm
Yeah, I started replying, got distracted, then finished the reply and saw the ‘retraction’ after submitting my comment.
Retraction or not, it’s such an elementary mistake… wow.
March 24th, 2009 at 2:22 pm
“You think you’re so slick pointing out my error after I already caught it?”
Yeah, mino3, you slickster. How dare you correct her. She’s always right!!!!
“I guess you’re mostly here for comic relief…”
OK, this thread did make me laugh. How nerdy is it to laugh at a housing bubble blog? Quite nerdy, oh dear.
_____________
Raven, sometimes people post things before refreshing their page. Careful, your chip is showing.
March 24th, 2009 at 1:19 pm
Mino3, I already caught my mistake and issued a mea culpa to Dan & Patriotz one post before yours.
You think you’re so slick pointing out my error after I already caught it?
March 24th, 2009 at 1:14 pm
Raven, you’re obviously trolling.
Regardless of interest rates, $2100/month for 5 years amounts to $126,000 worth of payments. How do you figure having made $205,000 worth of payments? (196k principal and 9k interest)
Also, you’re reading the amortization schedule wrong. $8595 in interest is for the 5th year ONLY. Add up years 1-5 and you do get 45k. Same goes for Scenario 2, $19k is for 5th year ONLY, the actual 1-5 total is 100k. And you’re supposedly RE-savvy?
Dan’s math is correct. He said he was making $2100/mo payments into a 400k/25yr/2.5% mortgage, which means he’s paying $2100 to service a $1792 mortgage payment, basically making accelerated payments. That does work out to $318k/45k just like he said. His second scenario checks out too (this time $2100 is the full mortgage payment).
I guess you’re mostly here for comic relief…
March 24th, 2009 at 12:46 pm
Dan & Patriotz,
Oops! I mucked up on the calculations, caught the error. Dan’s calculation with 2.5% is correct.
Beg your pardon.
March 24th, 2009 at 12:40 pm
Patriotz:
“You forgot to complete Scenario 1:
After 5 years you have to renew at 7%. You now have 20 years to pay the balance of $318K. You will be paying more than Scenario 2 for the next 20 years, because he has a balance of only $273K at the same interest rate.”
Dan’s math skills is as bad as yours. Using his Scenario 1 calculated correctly, after 5 yrs his principal balance would be $204,530, about $68K less than Scenario 2.
March 24th, 2009 at 12:32 pm
“What factors will you use to figure out if you’re financially and emotionally ready to enter the market”
When spending 6 figures there is no room for emotion to enter the calculation. It is just shelter after all, and there are more important things in life to spend one’s money on…..so, on to the next part of the question.
Financially speaking, when I can amortize the entire purchase over 10 years to a zero balance and my total monthly expenditure (P+I payment, taxes, utilities, insurance, condo fees, etc) does not exceed $1,750 per month after a $50K down payment. So, that means either a $200K house or a $175K condo……..
Note to readers, I already own property out of the country, and have no plans on buying in Canada before retirement (I am 48 and outta here by 55).
March 24th, 2009 at 12:17 pm
Dan:
“Prices still have some room to fall. Weighing that against the low interest rates of today (eg. 2.5% is possible right now with excellent credit), a lot of people might see that it makes sense to buy.”
I’m a prime borrower and I can’t get that. The best they give is 1.40% off the posted 5yr, which is 4.15% right now. Most, if not all variable mortgages are prime plus X% so using 2.5% (which is currently prime) is not realistic for most people.
“3. Consider the following mortgages with the same monthly payment of $2100:
Scenario 1:
$400K 25 yr mortgage at 2.5% rate = $318K balance after 5 years and you will have paid $45K in interest.”
Your calculation is way off. A $400K mortgage 25 yr = $1792/month. If you’re paying $2100/month, your principle balance is $204,530 after 5 years and you will have paid $8,595 in interest.
“Scenario 2 (same house with 25% price drop, but higher interest rate):
$300K 25 yr mortgage at 7% rate = $273K balance after 5 years and you will have paid $100K in interest.”
Correction: You will have paid $19,078 in interest after 5 years, not $100K.
“A 25% drop in prices if interest rates are significantly higher doesn’t look like a great deal anymore! And you’re still paying rent while you wait.”
Using your interest rate assumptions, this is true. If we are using the prevailing best 5 yr fix interest rate of 4.15%, it is not. Waiting for the 25% drop will save you $76,000, assuming that the 25% drop does happen.
“Nobody can say for sure where prices or interest rates will go, but certainly home ownership now makes sense for some people given interest rates, their financial circumstances, life circumstances, etc. etc.”
Agreed.
March 24th, 2009 at 11:10 am
“Patriotz beat me to it WWII definately helped the US get out of depression but it won’t work thi time.”
Hopefully nobody took what I said to mean that I think going to war is a good or smart strategy. It’s a terrible idea.
I just noted that it’s being floated as a solution. And that’s scary!
March 24th, 2009 at 11:04 am
“But the US is an entirely different place today than it was in 1941, and so is the rest of the world. It was then the world’s biggest creditor, had a huge and underutilized industrial capacity, and was the world’s biggest producer and exporter of oil. All the complete opposite of today.”
Yes, you’re totally right. China is just very recently beginning to act like a creditor, publicly encouraging the US to make good on its debt. Whereas China used to encourage the US to keep borrowing, in order to keep buying Chinese imports. That’s such a shift in global power.
It’s all because China lost a ton in Fanny & Freddy last year.
I’m going to admit it: even though I’ve been following this housing bubble story for a few years, I still cannot believe how deep this housing bubble goes. Who would have guessed little houses could trip up a global economy.
**And how did we all think we were different (in Vancouver, Dublin, Sacramento, London etc.) when all we had to do was look at the internet to see it was happening everywhere else, too. It’s just so crazy. Like a heist we pulled on ourselves!
March 24th, 2009 at 10:55 am
Patriotz beat me to it WWII definately helped the US get out of depression but it won’t work thi time. I will add some points to this. After WWII the defeated country was Germany the most technologically advanced of its day. The allies carved up and looted Germany to pay for the war. I read in school that the USSR disassembled entire factories and took them back. What was not told was that the US and the UK did the same. Merk pharmaceutacils is a German company and a US company. Merk US was taken as compensation for the war. Patents that were German were taken over by the US. In some cases they had to get the german scientists to explain the patents. Just look up operation paper clip.
Today there isn’t a country that rich that they can divide up that way. And at the end of WWII Britain still had to lose their empire.
March 24th, 2009 at 10:54 am
“we need leadership almost desperately…..”
Yes!
If I’m feeling optimistic, I will say that we produce great leaders when we need them.
March 24th, 2009 at 10:51 am
“It shouldn’t be necessary to use guillotines in this age and day. ”
No, it shouldn’t. Ideally we’ll avoid angry mobs, but re-regulate and re-introduce transparency. Angry mobs tend not to get out their pitchforks when the sun is shining.
That’s the thing: I think FDR saved the markets from themselves, for all the grumbling of the business tycoons in the 30s. Is Obama really another FDR? We’ll see. This is going to be interesting.
March 24th, 2009 at 10:44 am
“Anyone who thinks that warfare is the answer to the US’s current economic problems need only note that the US has been fighting two wars for the last half-dozen years, longer than it fought in WWII.”
Patriotz, I agree with you of course. But you’re making a rational argument. My worry is stemming from the irrationality demonstrated in the last few years.
March 24th, 2009 at 10:13 am
which implies higher salary increases
WHAT!?!
March 24th, 2009 at 10:06 am
At the end of the day, solving this mess will mean facing up to our own actions (like not saving, overconsuming); letting go of the dream of easy money (like accepting that your home isn’t worth a million dollars ’cause you lived in it for 8 years); re-regulating the banking system (rather than just having a few trophy prosecutions) and coming up with a workable political agenda that most of us can get behind.
ella:
succinctly put!
we have a global credit bubble compounded by resource depletion and climate disruption
we need leadership almost desperately…..
March 24th, 2009 at 9:44 am
How do I feel about the current RE situation?
LONG ANSWER: Greed and scare tactics ruined our market to a level which was unimaginable. To say I am over-joyed at the prospect of our housing prices falling is an understatement.
Greed: Presales and Banks
Too many people were able to buy properties before the ground was even broken. The problem with this is that the majority of buyers had no intent on holding onto the property as an investment or “actually” living in the residence. Prices were forced upwards because these buyers had the sole intent of flipping the property for a ridiculous profit. While these greedy local and foreign investors are responsible for creating the bubble, our banking system shares the blame in giving out loans to these investors to purchase the presales as if they were candy. I do not feel any pity for those who bought presales at the height of the market and who are now trying to get out. My response: “shame on you for trying to bank on your greed and enjoy trying to get out of your presale contracts before you are called upon to purchase at a price you had no intention of paying and that you were never able to afford”.
The other problem is the 40 year/0 down mortgages which allowed unqualfied people to buy over-priced real estate in this city. How many people do you know who have a combined family income of 70-90k and who purchased a residence worth 400-500k with no down payment? How many of those people do you know looked down at those who rented as if they were of a different class to them? My response is “enjoy living from paycheque to paycheque as you pay 50-60% of your gross income towards your residence while its value continues to plummit to a point less than what you purchased it for”.
Scare Tactics: Media & Residents
How many times have we heard “you better get in the market before its too late”, “if you don’t buy now, you will be priced out forever” or “you are crazy to rent”? My response is “enjoy paying your monthly mortgage and strata fees which total 3x as much as I rent for the same unit”.
How often would you see open house signs with a number of realtors frothing at the mouth while pressuring buyers to make an offer worth more than the asking price? How often do you now see these same realtors scrambling to get anyone in to view a suite or do you hear them telling people “this is a buyers market, its a great time to buy” while quoting the total “monthly fees” at a price which conveniently excludes the strata and maintainance fees? My response: “realtors – better start looking for a second job because your time is up” and “potential ignorant buyers – enjoy your first ‘real’ payment which exceeds your budget on a property which will be worth less than what you purchased it for within a matter of months”.
SHORT ANSWER: I am enjoying every minute of this madness and I look forward to the day where prices are at a level where the “real” residents of this city are able to actually purchase a property to “live in”.
March 24th, 2009 at 9:44 am
observer:
Great, hopefully FTB’s with prudent financial positions can negotiate to get better financing terms. Otherwise, the cost of helping out the imprudent will simply shift to those who are prudent.
Actually according to the article, you will find that CMHC is not suggesting nor are the banks considering any arrangements that would lead to reduction in principal or the charging of interest rates below that offered to other customers, i.e concessions. Rather, they are talking about things like adding missed interest payments to the principal (negative amortization), refinancing to a longer amortization to lower monthly payments, or changing the mortgage to a term with more advantageous interest rates.
The banks are not going to give anything away to distressed borrowers. However, the fact that the mortgages are insured gives the banks the leeway to be more flexible with customers without putting their principal at risk. This is really a stopgap measure which will work only where borrowers are in trouble due to job losses, rather than buying at excessive prices. Any efforts to keep borrowers making payments out of whack with the true economic value, i.e. rental value, of the property will fail, just as they have failed in the US.
March 24th, 2009 at 9:35 am
Dan, you make some pretty strong points.
However, I don’t agree with your interest rate scenarios. I think fixed rate terms are more common than variable rate. Five year fixed rates are between 4 and 5% right now. It seems unlikely to me that five year fixed rates are going to jump up to 10% five years from now. I think it is more probable that long term fixed rates will be plus or minus 2-3% in five years. But that is all speculation.
I presume that the purpose of these scenarios is to predict personal affordability. Let’s look at it another way… Higher interest rates imply higher inflation which implies higher salary increases which balances affordability. And the opposite can be said for low interest rates. Either way, personal affordability is unlikely to change significantly over the medium term (say five years). If anything home owners generally achieve higher disposable income over time because inflation lowers the relative cost of a mortgage and income goes up.
We can all play with the numbers to present scenarios that favour our viewpoints, but that doesn’t reflect reality or the future. I think Dan’s other points are more relevant to consider.
March 24th, 2009 at 9:35 am
On the other hand, the French Revolution happened within a generation of the massive economic bubble in Louisiana shares that occurred when the Royal Treasury switched to fiat currency to finance its debt. Randomly attacking the upper classes is another place to take out frustration.
(If the robber baron types are long-sighted, they will give up some of their gains now, and let things rebalance.)
It shouldn’t be necessary to use guillotines in this age and day. A quick chop to some asset values and we’re done. Imprudent upper class becomes lower class, prudent lower class becomes upper class.
March 24th, 2009 at 9:24 am
ella:
Fox news is already banging the drums of war, saying that it wasn’t the New Deal that got America out of the Depression, it was World War II
In a way this is correct. But my point is the opposite to theirs – the entry of the US into WWII made it possible for FDR to increase government demand and borrowing to an extent that he would have been unable to achieve during peacetime. In other words the US war effort was really the Big New Deal, which completed the job that the peacetime Little New Deal started.
But the US is an entirely different place today than it was in 1941, and so is the rest of the world. It was then the world’s biggest creditor, had a huge and underutilized industrial capacity, and was the world’s biggest producer and exporter of oil. All the complete opposite of today.
Anyone who thinks that warfare is the answer to the US’s current economic problems need only note that the US has been fighting two wars for the last half-dozen years, longer than it fought in WWII. Hasn’t accomplished too much has it?
The US is now dependent on external suppliers of both credit and energy. History has shown that for a major power to engage in aggressive actions in the face of such vulnerability is a recipe for disaster.
March 24th, 2009 at 9:18 am
Consider the following mortgages with the same monthly payment of $2100…what?!!!
That has got to be the most brainless statement. It’s unfortunate that realtors are touting the same babble.
Affordability hasnt changed if your monthly pymt is still 2100! RE prices are falling even while mrtg rates are falling. What happens if rates double or triple?
Dont forget we’re in a recession people. The rest of the world is showing us today that the RE valuations of yesterday were never properly supported…Now consider a new world where aggregate incomes are shrinking. Even if rates hold at these lows, we all know prices have to fall. There is very little the govnts and the central banks can do to stop us from seeing 10%+ unemployment next year. There’s significant lags in all of their stimulus efforts. So where are Vancouver RE prices under 10%+ UE…california? Nevada? Where are RE prices under 10% UE and 7% mrtg rates?
Unless the economy turns around quickly (and Im talking about real incomes…not the price of citigroup’s share price) and real incomes actually increase from 2007…(returning to those levels will be hard enough)…house prices (particularly condo prices) are headed lower at “todays” mrtg rate until affordability improves. At 7%…run for the hills.
March 24th, 2009 at 9:05 am
“I think if you’re waiting on the sidelines, you can afford to wait a little bit longer.”
Really? Thanks, what a relief, phew. Did you think we were scared to be Priced Out Forever? hahahahaha.
“But remember, a good deal isn’t just the ticket price of the home and a lot of other factors (rent, interest rates, housing costs, pride of home ownership, security) come into play too.”
Great points, especially the Pride of Ownership. I rent for about 1/3 the cost of buying an equivalent space. But I don’t have that Pride. And everyone knows that Pride is something you buy. hahahahaha.
March 24th, 2009 at 8:52 am
“The true cause of the problem is the agenda of those who have been in charge of the financial system and government and benefiting from their actions and policies. Now those folks arent poor people, and they’re not Mexicans”
When people are frightened about lack of resources, they don’t always think rationally, and will let out their frustrations by scapegoating some group or other.
“Now who does that leave?”
You mean the rich? Taking on the rich and powerful is much harder and scarier, and complicated than taking it out on the local immigrants in your neighbourhood or blaming it on “other” people in the world who “took away our jobs”.
Populist rage and fear is a bomb that could go off in different directions. Mostly not good directions, unless you’ve got great people in charge who channel the rage into something constructive.
Fox news is already banging the drums of war, saying that it wasn’t the New Deal that got America out of the Depression, it was World War II (I saw the clips on John Stewart). They are offering “war” in the abstract, as a way out this economic mess. So that’s one place to channel that aggression.
On the other hand, the French Revolution happened within a generation of the massive economic bubble in Louisiana shares that occurred when the Royal Treasury switched to fiat currency to finance its debt. Randomly attacking the upper classes is another place to take out frustration.
(If the robber baron types are long-sighted, they will give up some of their gains now, and let things rebalance.)
At the end of the day, solving this mess will mean facing up to our own actions (like not saving, overconsuming); letting go of the dream of easy money (like accepting that your home isn’t worth a million dollars ’cause you lived in it for 8 years); re-regulating the banking system (rather than just having a few trophy prosecutions) and coming up with a workable political agenda that most of us can get behind.
That’s a tall order, and requires rational thought and sticking to long-term goals. After the watching this mania, I’ve lost some faith in our capacity manage those things. Maybe we’ll just go for the easy release of fighting with each other and following idealogues who promise to take us back to the good old days.
I sure hope not, though. But that’s what I was thinking, anyway.
March 24th, 2009 at 8:29 am
http://www.theglobeandmail.com...../Business/
Ottawa, banks take action to rescue mortgages
As banks adopt new flexibility, homeowners urged to approach them for help with loans
Great, hopefully FTB’s with prudent financial positions can negotiate to get better financing terms. Otherwise, the cost of helping out the imprudent will simply shift to those who are prudent. Banks are certainly not going to take the hit themselves, they will just charge customers more in aggregate. (No reductions in bonuses for sure.)
March 24th, 2009 at 8:28 am
Interesting article on CBC about amendments to the Strata Property Act regarding dispute resolution. Ah, the joys of condo-living!
http://www.cbc.ca/canada/briti.....trata.html
March 24th, 2009 at 8:18 am
dan: The thing that’s making scenario two more rosy for me right now is the fact that I’m saving more than a grand a month simply based on the price difference between owning and renting. We’ve got a long way to fall and I’m in no rush.
I’d rather have a bigger down payment in an era of high interest rates than a small down payment and risk rates jumping up in the next five years, particularly since Canadians can’t lock in for the life of the loan like Americans can.
March 24th, 2009 at 8:13 am
3. Consider the following mortgages with the same monthly payment of $2100:
Scenario 1:
$400K 25 yr mortgage at 2.5% rate = $318K balance after 5 years and you will have paid $45K in interest.
Scenario 2 (same house with 25% price drop, but higher interest rate):
$300K 25 yr mortgage at 7% rate = $273K balance after 5 years and you will have paid $100K in interest.
A 25% drop in prices if interest rates are significantly higher doesn’t look like a great deal anymore! And you’re still paying rent while you wait.
I didn’t understand your point. Are you saying Scenario 1 is better? After five years, in scenario 2, you still owe less (273K versus 318K in scenario 1), so your net worth is higher in scenario 2 than scenario 1. Yes, you paid more interest, but who cares, it is your net worth that counts.
This is like people who try to minimize the tax they pay by trying contrive losses to deduct. It doesn’t work (at least naively) because you have to realize real losses to get your tax paid to zero.
March 24th, 2009 at 4:31 am
dan:
Scenario 1:
$400K 25 yr mortgage at 2.5% rate = $318K balance after 5 years and you will have paid $45K in interest.
Scenario 2 (same house with 25% price drop, but higher interest rate):
$300K 25 yr mortgage at 7% rate = $273K balance after 5 years and you will have paid $100K in interest.
You forgot to complete Scenario 1:
After 5 years you have to renew at 7%. You now have 20 years to pay the balance of $318K. You will be paying more than Scenario 2 for the next 20 years, because he has a balance of only $273K at the same interest rate.
Oh one more thing – even if house prices dropped only 25%, and I think they’d drop a lot more if interest rates rose from 2.5% to 7%, your house would be underwater for some time, including the renewal date. Not too convenient.
Nice try but we’ve heard this one before.
March 24th, 2009 at 3:15 am
Most reading this blog I assume are interested in purchasing real estate in Vancouver. It’s very difficult to pick the bottom, so I’d say don’t worry about that! Just buy when it makes sense for your own idividual circumstances. Over the long term, if you can afford to live in your home and aren’t over extended, you will do just fine.
Just wanted to share some of my own observations here:
1. A lot of people reading this blog watched real estate go up over the past few years, will watch it go down over the next few, and then will watch it go back up again. Some people will always be waiting for the perfect time to buy.
2. Prices still have some room to fall. Weighing that against the low interest rates of today (eg. 2.5% is possible right now with excellent credit), a lot of people might see that it makes sense to buy. If interest rates were double or triple by the time prices start to go up or level off (not that unreasonable assumption if you buy into the idea of increased inflation after the economy starts to recover), that might cancel off a lot of the benefit of waiting on the sidelines while prices recovered. And remember, inflation is your friend when you have a large debt like a mortgage!
3. Consider the following mortgages with the same monthly payment of $2100:
Scenario 1:
$400K 25 yr mortgage at 2.5% rate = $318K balance after 5 years and you will have paid $45K in interest.
Scenario 2 (same house with 25% price drop, but higher interest rate):
$300K 25 yr mortgage at 7% rate = $273K balance after 5 years and you will have paid $100K in interest.
A 25% drop in prices if interest rates are significantly higher doesn’t look like a great deal anymore! And you’re still paying rent while you wait.
Nobody can say for sure where prices or interest rates will go, but certainly home ownership now makes sense for some people given interest rates, their financial circumstances, life circumstances, etc. etc.
I think if you’re waiting on the sidelines, you can afford to wait a little bit longer. But remember, a good deal isn’t just the ticket price of the home and a lot of other factors (rent, interest rates, housing costs, pride of home ownership, security) come into play too. You have to ask, what is that perfect time to buy for you, what are you waiting for (what is your buy signal), and what if it never happens?
You can always find a reason not to buy, just like you can always find a reason to buy.
March 24th, 2009 at 2:16 am
mino3:
Sounds just like me way back when. As Pierre Trudeau famously said, welcome to the 1980′s. Again.
March 24th, 2009 at 1:26 am
From my perspective, the RE bubble peaked at a pretty good time. I’m in my late 20s and only recently have I finished paying off student loans and started building up savings, which coincides with RE becoming reasonably affordable in the next few years. The timing is pretty good for responsible people my age, so I’m reasonably upbeat about the whole thing. As long as I don’t lose my job.
March 24th, 2009 at 1:03 am
15 times annual rent (?) is one rule of thumb I heard of once. Surprisingly not far off from historical p/e ratios, assuming interest rates and inflation are not extreme.
March 24th, 2009 at 1:03 am
ella:
I don’t know if I explained it. I mean that if people don’t face the true cause of the problem, they will assign blame to “other peopl”. Like getting mad at Mexicans, or getting mad at poor people, or rich people, or socialists, or…well, you get the picture.
Er, just a minute here. The true cause of the problem is the agenda of those who have been in charge of the financial system and government and benefiting from their actions and policies. Now those folks arent poor people, and they’re not Mexicans (except in Mexico of course, but I don’t think those are the Mexicans you have in mind), and they’re not socialists, except in Spain, and I don’t think most people here even know Spain has a socialist government, and I don’t think even the Tories in the UK consider Labour socialists any more.
Now who does that leave?
March 24th, 2009 at 12:53 am
A property should be viewed as an investment regardless if you are going to live there or not.
The property has to be cash flow positive right from the start, if it’s not then the market is still inflated.
I would expect the market in Vancouver to overshoot to the downside in the next 2-3 years making a lot of properties cash flow positive.
I think the Vancouver market is still overvalued from here by 30-50%, especially condos. After all this downturn mostly started last summer, so it’s only getting started in Vancouver. Big bubbles take a few years to deflate, look at U.S housing and U.S banks they kept falling for years. Also don’t rush to buy when a property is slightly cash flow positive, you need a margin of safety and historically the sectors the led the downturn (housing and financials this time) are the last to recover and usually remain in shambles for 5-10 years.
March 24th, 2009 at 12:28 am
When I said, “If enough of us don’t learn from this, I think there will be xenophobia, fighting, and nastiness. ” I don’t know if I explained it. I mean that if people don’t face the true cause of the problem, they will assign blame to “other peopl”. Like getting mad at Mexicans, or getting mad at poor people, or rich people, or socialists, or…well, you get the picture.
War between countries also becomes more possible. Thought let’s hope it doesn’t come to that.
Anyway, that’s putting a little cloud over my joy about the lower home prices.
March 24th, 2009 at 12:22 am
All the dumb, crazy responses to the unwinding so far are alarming to me. I don’t feel like the world is in good hands or that people are learning from this. They just act like the market is a force of nature, completely disconnected with real production or worth. Bank stocks are on sale, woohoo. Who cares if many are insolvent if they actually acknowledge the true value of their assets. Just don’t miss the next rally. The government will clean it up. Inflation will erase our debts. Ugh.
If enough of us don’t learn from this, I think there will be xenophobia, fighting, and nastiness. I am not a tinfoil hat wearer, but historically, we are much more vulnerable to war and to ideologues when financial markets get too volatile. Add in the environmental strain we have also been sweeping under the carpet…we’re going to have some serious growing pains.
The responses of the people at the top seem to be all about re-inflating the bubble as quickly as possible. And the people at the bottom seem to be counting on that. I believe most people are so used to a bubbly environment, that it is going to get worse before it gets better.
We have a gambling problem. And we haven’t hit bottom yet. At least, that’s how I feel in darker hours.
On the other hand, fortunes are made in volatile times.
March 23rd, 2009 at 11:46 pm
Suppose bank A has a toxic asset which they would like to get rid of in return for $100.
What’s to stop bank A from lending $7.69 to a private investor B who then uses the leveraged financing from the toxic asset plan to bid $107.69 for the toxic asset. The loans are non-recourse so when the dust settles, the private investor and hence the bank stands to lose at most $7.69. Hence, they have gained net $100 from the scheme, thereby achieving their goal.
Is it because bank A is in such bad shape it can’t even spare the $7.69 to make the scheme work?
March 23rd, 2009 at 10:45 pm
It’s time to buy when it’s cheaper to buy than to rent, given your circumstances. There’s a lot of variables (how much down payment you have, what return you’ll get on the money you save renting, property taxes, maintenance, etc.) but the math isn’t hard.
March 23rd, 2009 at 10:41 pm
Does the Vancouver real estate crash have you feeling down?
The exact opposite. I feel relieved and vindicated. It’s unfortunate that many people bought at inflated prices and have jeopardized their financial position for a long time, perhaps the rest of their lives, but that’s their own fault.
You cannot have a successful economy, or a healthy society, in a major city if it is not attractive to middle-class families. The early 80′s bust made Vancouver affordable again to the boomer generation, and attractive to educated people from outside the province. Such people were instrumental in the growth of high tech and other industries, which have withered in the last decade as Vancouver transitioned to a RE Ponzi economy. Their high disposable incomes, made possible by purchasing houses at reasonable prices, helped a wide range of secondary businesses.
High housing costs are bad for the general economy and bad for social harmony. Good riddance to them.
For those of you who are feeling sorry for people who will be unable to sell their residences for what they paid for them, I suggest you start up a charity to pay them more than market value. Put your money where your mouth is.