High cost of housing is bad for society. It made me think of fleeing, it made me not wanting to spend, it made me uncertain of the future. So what do one do? One gets into the prepare for disaster mode: spend as little as possible, get rid off stuff, be prepared to move on a short notice, and be very careful of whom you may trust.
Apparently I could not trust the media, the blingy realtors, the government, or banks.
So, being observant, making own sense out of the mess, I had to rely on my own gut, logic, thinking.
Nobody I knew had gotten any raises, so how can housing keep going up like this? The media did not say anything that would make the equation work, searched the internet – somebody, there must be somebody out there that must have felt something was out of kilter. Salvation: Vancouver Housing blog. Finally, I felt I was not some weird loner, an outcast that refused to follow the lemmels. I am a thinking human and happy to find other humans that questioned and think.

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I lost my own job in 1982, so I’ve never thought “it could never happen to me”.

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What you have is a piece of paper that says you “own” a house worth, say, 300K, and another piece of paper that says you owe the bank 600K on which you have to pay interest for decades.

To stay in that house, you have to pay the bank twice as much as to rent the same house.

You don’t really own anything. The bank owns you.

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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!)

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http://tinyurl.com/ch4skl

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China + Amero = Chimero

we are joined at the hip!

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!

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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.

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YEAH! You tell him good.

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It’s as elementary as not noticing a typo on my excel sheet. Guess you haven’t done that before.

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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.

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Retraction or not, it’s such an elementary mistake… wow.

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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.

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You think you’re so slick pointing out my error after I already caught it?

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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…

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Oops! I mucked up on the calculations, caught the error. Dan’s calculation with 2.5% is correct.

Beg your pardon.

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“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.

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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).

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“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.

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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!

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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!

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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.

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