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A strategy to beat rising interest rates

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RE/Max has released a report saying that the Metro Vancouver real estate market is being driven by first time buyers looking to avoid higher interest rates down the road.  Did we get US style mortgages where you can lock in low rates for the entire mortgage term?  Maybe I haven’t been paying enough attention.

Re/Max said the prospect of higher mortgage rates has prompted many of those determined to get into the market to act in the early part of this year.

It also noted the federal government’s newly implemented conditions for mortgages that reduced the maximum amortization period for government-insured mortgages to 30 from 35 years, and limited the amount people can borrow when refinancing their mortgages to 85 from 90 per cent of the value of their homes.

Led by the Bank of Canada’s relatively low benchmark rate of one per cent, homebuyers continue to enjoy mortgage rates that are low by historical standards. However, it’s not expected to last.

Just this week, most of Canada’s major banks hiked their mortgage rates, with standard five-year, fixed rates moving up 35 basis points to 5.69 percent a year.

Locking in for 5 years on 25-30 year debt because you expect interest rates to rise sounds like an interesting strategy.. Be sure to get as much as you can afford, because by the time you have to renew at a higher rate your income is sure to have risen tremendously right?

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[…] at vancouvercondo.info April 7th, 2011 at 2:46 am offers a position that applies as well to the Australian bubble as it does to ours – […]

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patriotz

@vangrl:

And WTF? are you serious when you say “it doesn’t matter what it would sell for in the future”??

Dead serious. If you buy an asset with good yield on the purchase price, it doesn't matter whether you sell it at all.

You need to learn something about value investing.

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Mansur al-Hallaj

@Dave: If people are going to be re-tested and forced to jump through hoops for years, what's the meaning of the point system that immigration is based on?

I had to fly 6 hours to get a copy of my diploma for an extra point (or two? don't remember) on my application. Inside Canada that diploma's value was zero.

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Mansur al-Hallaj

@Anonymouse: >> How do these people get in, then? << Here's a story: a couple, both MAs, both teachers of ESL in their old country. He has been working with computers for some 5-7 years prior to immigration. They got enough points only with her as a principal applicant. He did not qualify because of a mismatch between education and experience. Just think of it: a teacher of English as Second Language was granted an immigrant visa. No job offer, no family here, no millions in the luggage. Canada welcomed them as skilled worker category immigrants. Based on WHAT? The simplest explanation I have is that the ruling class in Canada love their pizza delivered by an MA or, ideally, a PhD (which may indeed raise the lower threshold of politeness and safety). Plus, every immigrant pays the gov a… Read more »

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Anonymous

@the R:

no it's like saying you kicked puppies off the lions gate,

then scooped the floating corpses out of the inlet,

brought them home,

skewered them over the fire,

and threw them in the garbage.

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Anonymous

@real_professional:

YOU ARE WINRAR

YOU ARE WINRAR

YOU ARE WINRAR

YOU ARE WINRAR

YOU ARE WINRAR

YOU ARE WINRAR

YOU ARE WINRAR

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real_professional

I took the chart from the article and put it on VCI forum…

BC housing price index growth vs. BC GDP!

http://vancouvercondo.info/forum/topic/tsx-vs-rea…

Stinks of bubble.

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VHB

April 2011 month-end projections

Days elapsed so far 5

Days missing 0

Days remaining 14

5 Day Moving Average: Sales 137

5 Day Moving Average: Listings 275

SALES

Sales so far 685

Projection for rest of month (using 5day MA) 1918

Projected month end total 2603 +/- 289

NEW LISTINGS

Listings so far 1375

Projection for rest of month (using 5day MA) 3850

Projected month end total 5225 +/- 550

Sell-list so far 49.8%

Projected month-end sell-list 49.8%

Sales on track to hit 2600. Ouch.

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lol cats

hey, any bear out there willing to lend me a few jars of pennies… i need something to put in my pockets when i jump

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lol cats

wow. just read the new rebgv stats package. looks like the bubble has popped! kudos to the bears socking away those pennies… looks like it's your time to shine.

i'm going to eat a crow… nom,nom,nom

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the R

@granite countertop:

Don't give your friends any advice on real estate. They will hate you.

In Vancouver, questioning the value of real estate is like saying you kick puppies.

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Some Guy

@McLovin: From the linked article, "Secondly, construction costs are at an all-time low. A year from now, prices will be up."

I guess we can file that under the 'non-sequiturs' category.

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granite countertop

@McLovin: I loved that article.

Developers: While prices in Kelowna have gone down, they're going to go up from here, BECAUSE WE SAY SO.

A friend recently posted a link to Crack Shack or Mansion, complaining about how hard it is for young couples to make downpayment nowadays. I replied something to the effect of, hey, it's a bubble, it will go away eventually. They replied that the prices are predicted to stay high. I guess I could have replied with links to VCI or something, didn't feel like getting into an online argument. The appeals to authority in Vancouver RE are so thin.

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real_professional

Canadian Real Estate – The Ignored Election Issue

http://bit.ly/Canadian_Housing_Crisis

Check out the chart of BC GDP growth rates and Personal Income versus Home prices…

"As the chart demonstrates, Vancouver home prices have surged far beyond total British Columbia GDP growth and personal income growth. In fact, for housing prices to revert back to the GDP growth rates by the end of 2011 (assuming the BC economy grows at 4% in 2011), we would require at least a 12% and up to a 31% correction in home prices. This of course assumes that BC’s GDP isn’t linked to a housing bubble bursting. In truth, the dependence on real estate to spur economic growth has been very apparent, especially in Vancouver, and therefore a deeper correction would actually be required to find a sustainable equilibrium."

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Bear Patrol

@Not much of a name…: numbers must be rong. Too low. April strong month.

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Best place on meth

Based on April sales numbers so far, we can project about 2800 sales for this month.

That would be the worst April in 10 years.

Or from my perspective, the best April in 10 years.

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pricedoutfornow

@McLovin:

“There's a lot of bank-forced sales there. There's terrific deals. And the market will come back.”

This sounds suspiciously like a line taken from Phoenix or California, oh circa 2006. And of course those markets have been booming since then!

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Best place on meth

@Not much of a name…:

Sales slowly sinking like the Titanic.

Hopefully we'll be in double digits shortly.

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Not much of a name..

Here you go folks…Getting close to the century mark for sales in a day…

Vancouver East & West*

New Listings – 59

Back On Market Listings – 1

Price Changes -25

Sold Listings – 37

Vancouver All Areas*

New Listings – 231

Back On Market Listings – 3

Price Changes – 73

Sold Listings – 109

*Attached & Detached – Date: 04/07/2011 Time:18:37 Pacific YatterMatters.com:Courtesy REBGV. Data believed to be accurate but is not guaranteed.

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McLovin

The Okanagan is saved!

http://www.vancouversun.com/business/Okanagan+mar…

At least that's what a developer says.

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Anonymous

@Another Anon

"If it makes sense for Garth to buy now, and not wait until the price declines that he mentions, why would he keep saying that people should hold off on buying until prices *inevitably* drop?"

Because for him it represents a small portion of his net worth, was purchased for income rather than appreciation, provides a yield similar to other investments, and he is likely not highly leveraged.

For people for whom that would not be the case, such as a 5/35 first time buyer or a boomer in debt to his/her eyeballs, his advice has been consistent.

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Another Anon

@Anonymous: You said "

Respectfully, I disagree. It is not hypocritical.

For an investor of sufficient means, purchasing a profitable investmment property now does not preclude purchasing a more profitable investment property later."

No it doesn't, but that's not the point. If it makes sense for Garth to buy now, and not wait until the price declines that he mentions, why would he keep saying that people should hold off on buying until prices *inevitably* drop?

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Anonymous

"are you of the same ilk as he is"

Rational?

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Aaron Chipman

Hey, Uncle Dave,

as you know most of us bears on this board aren't exactly rocket ship scientist like you, so we sometimes need a reminder on how things work.

Remember your PHD thesis on how there is no inflation and therefore no mortgage rate hikes on the horizon?

Could you go over the major points again?

I forgotted how dat works

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Anonymous

@ vangrl

"It is if he tells his readers not to do it."

Perhaps you and I read different blogs. He tells his readers no such thing. This is a commercial property, and a cash-flow positive rental.

He has consistently told his readers not to over leverage themselves on a principal residence, to buy investemnts for yield rather than to speculate on appreciation, not to buy when renting is cheaper and to only hold real estate as a lesser portion of a balanced portfolio. He has been open about his real estate holdings and has mentioned other offers made on properties (rejected) in other blog posts.

Please explain where the hypocricy rests.

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