Canada, economy, opinion, prices, rates

What first-time buyers really need

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Mortgage Brokers have come to the defense of first-time buyers and are asking Ottawa to bring back the good ol’ days of 30 year mortgages and extra ‘help’.

The Globe and Mail asked first time buyers what would help them, and oddly enough the overwhelming response wasn’t ’30 year mortgages!’.

It was:

Affordable houses.

It appears that the price of a home has an impact on first time buyers:

“The biggest challenge I face is affordability,” said Dustin Strong, a 34-year-old Vancouver renter looking for a home in the $500,000 range. “I have spent several years saving up enough for a reasonable down payment, but have now determined that in the current market, it just makes more sense to rent.”

Ok, so the price of the home and the fear of losing your down payment and more as prices decline:

Market uncertainty and bubble-talk are also holding buyers back, said James Ellis, a 26-year-old looking for a house in Kingston, Ont., with a $250,000 budget. His biggest challenge, he said, is “determining if the value of a house now is inflated or not, and whether resale value in a few years will reflect the current value once the housing market equalizes.”

“Our main challenge is beating the fear of home prices falling on us,” added Joseph, a 28-year-old looking for a detached house in Calgary. “That is what has kept us renting.”

Read the full article here.

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gokou3
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Ultimately, a FTB asks “How much mortgage payment can I afford?”, not how much the home sells for.

This means, by re-instituting 30-years mortgages, the mortgage payments will initially drop (vs 25-year), but in the medium-term the sellers will collectively realize that and up their asking prices so that the payments will rise back to the original.

This is why the 40-year mortgages and mortgage rate drops gave such a huge boost to home prices.

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5 years 10 months ago
patriotz
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“His biggest challenge, he said, is “determining if the value of a house now is inflated or not”

If the price exceeds 150x rent, or expenses exceed rental value at 6% interest rate (which is pretty much the same calculation), the price is inflated.

“whether resale value in a few years will reflect the current value once the housing market equalizes.”

Buying anything on expectation of future prices is speculation. Don’t speculate, look at what value you get for today’s price.

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5 years 10 months ago
Joe Q
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@Goku

Exactly. Re-setting the amortization window ultimately gets us to the same monthly price – Just through inflation of home prices. The FTB ends up with the same monthly payment – just more debt/leverage to close the gap between their meager down payment and the end cost of the property.

What gets lost on everyone in this industry is the concept of household balance sheet risk. First time buyers don’t need high house prices, they need reasonable leverage ratios and risk profiles. Currently the average First Time Buyer has a leverage ratio that would make even the s****iest hedge fund blush.

It’s a sad/laughable state of affairs depending on your outlook.

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5 years 10 months ago
patriotz
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” but in the medium-term the sellers will collectively realize that and up their asking prices ”

I don’t think the sellers collectively realize anything. Asking prices don’t determine selling prices – what buyers are willing to pay does. Which is what you correctly implied in the first sentence

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5 years 10 months ago
Short'em High
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Which numbers are correct?

Compare yesterday’s numbers from http://www.yattermatters.com/

Vancouver All Areas
Added 281 Deleted 186
Updated 877 Total 14476

Activities on yattermatters.com supplied by IDX from Tue Mar 12 02:20 AM to Wed Mar 13 02:22 AM

to paulb’s readings yesterday:

March 13th, 2013 at 4:57 pm

New Listings 213
Price Changes 99
Sold Listings 112
TI:16155

Do Vancouver realtors not get their numbers from the same source?

The inventory numbers differ by nearly 2000 listings and the updated listings number is nearly 9 times larger.

Why are the readings so different? Is there a third source of daily numbers for further comparisons?

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5 years 10 months ago
Short'em High
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FYI, YatterMatters’ new listings are bit closer to paulb’s number from two days ago, but the other numbers are still way out of whack.

March 12th, 2013 at 5:38 pm

New Listings 283
Price Changes 118
Sold Listings 140
TI:16106

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5 years 10 months ago
HAM
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Larry answered why his numbers are what they are. For some reason I can’t remember!!!!! I need a break from all of this!!!!!

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5 years 10 months ago
RaggedyRenter
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@Short’em High
There were four. Agent Will used to provide his number too. A user named HFHS used to provide numbers here too. Theirs are a bit different too from Larry/Paul. I think the difference is in the area they cover and the type of properties.
I don’t know the exact details (who is missing what). They are more useful as an indicator of market trend by themselves rather than truly 100% accurate #s.

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5 years 10 months ago
Pdub
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The industry is probably correct the return to 30 years would not just increase prices but bring in more buyers. We have just seen that work in reverse. But this is nothing more than a faint attempt to keep the ponzi scheme going. It is really disturbing so many mortgage dealers and FTBs are concerned about nothing more than the ability to make monthly payments. In a few years we will look upon many of today’s FTBs as indentured renters. They are purchasing at a secular low in interest rates and, not coincidentally, a secular high in asset prices. Whereas a few years ago I was able to sell my home and receive hundreds of thousands in unearned equity, many of today’s FTBs will have no, or negative, equity. Plus their payments will be increasing. Nominal rates are slowly starting… Read more »
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5 years 10 months ago
johnny_O
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@JoeyQ

Sad yes, laughable only to those that stand/want to profit and have no other interest in seeing our society progressing forward for both communities or the environment.

But sadly enough people don’t learn as they are too pre-occupied by the disinformation (?) from the MSM instead of trying to search for better sources of information such as these blogs or books.

That being said, common sense will not prevail and the majority will get burnt. Only then change will be demanded but the masses will get duped by something else.

Just simple human nature.

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5 years 10 months ago
Short'em High
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@RaggedyRenter. Yes, numbers from any one source appear to be self consistent. However, using @VHB’s data as a guide while digging through the archived postings I found periods of months without a specific inventory number ever being posted. Sometimes even the listings and sales are completely missing and are taken from Larry’s number rather than leaving a hole in the data. Nowadays Paul’s posts are timely and complete, but that was not always the case in early days and posts might be missed in future for unavoidable reasons. In all of those cases it would be helpful to know conversion factors between Paul and Larry and any other source. One very serious problem is the impact of expired/deleted listings on the projected inventory number. The projected number can quickly diverge from reality if comparable total inventory count is not available… Read more »
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5 years 10 months ago
Anonymous1
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Patriotz#2,

“if price is 150x rent”

It’s been like that for many decades in many parts of the world. Is Canada supposed to be different?

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5 years 10 months ago
Anonymous1
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PDub,

Rates are going nowhere for a very long time.

Finance Ministry Maths dictate they can’t rise in the USA or Canada.don’t be so gullible when Flaherty or Carney speaks. They’ve been told to do that.

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5 years 10 months ago
FleetwoodBoy
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@Goku, @Joe Q I think what the low costs of borrowing have done is help people to lose the sense of the value of something. Many buyers are focused on what something costs them each month (and whether they can afford it), rather than what is the total cost (+ interest) of the purchase. I see friends buying new 4 bedroom houses in Surrey, 3,400 sq ft on 4,500 sq ft lots for anything between 700,000 and 800,000 dollars. I am sure they don’t ask themselves…..is this house really worth over a million dollars by the time they have made all their payments???? I have a great job, household income etc., and could purchase one of these….but I don’t think I should be buying a half million dollar home, let alone a million dollar home. A million dollars, really…….for a… Read more »
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5 years 10 months ago
Wakeup call
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Anon….#13

Finance Ministry Maths are no less gullible than what Flaherty or Carney might be spouting.
The private sector is obviously not paying attention either as bond yields have been rising since August and prices of indexes and bond ETFs have dropped accordingly.

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5 years 10 months ago
Anonymous
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The cure for high prices is high prices.

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5 years 10 months ago
Best place on meth
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First time buyers must be smartening up if they’re actually thinking of practical scenarios like “what if prices fall and I lose my hard earned down payment?”.

That’s quite a change from the attitude that real estate only goes up and they need to get in before they’re priced out.

Another 12 months of price declines should lock in that new mentality.

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5 years 10 months ago
Not much of a name...
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Kimpton update. This is the condo development that was advertising the $100,000 price drop guarantee in North Vancouver in October. Apparently that pitch didn’t work so they changed their approach in November to “Final Blowout – Bring your best offer” for their final 5 units. Well, I only track 2 br units, and all four are still available. Looks like nobody has brought a “best offer” as 3 of the four units now show substantial price drops ($50k). This is only half way to the $100k price drop guarantee.

V989048 – Old price $699k – new price – $649k
V989078 – Old price $699k – new price – $649k
V989056 – Old price $689k – new price – $639k

I wonder where the final sales price will be?

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5 years 10 months ago
VMD
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Ongoing Poll(by buzzbuzzhomes): Who is the most trustworthy expert on Toronto’s real estate market?
Ben Rabidoux (4 votes)
George Carras (23 votes)
Ben Myers (12 votes)
Brad J. Lamb (1 votes)
Garth Turner (0 votes)
http://blog.buzzbuzzhome.com/2013/03/most-trustworthy-expert-toronto-real-estate-market.html

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5 years 10 months ago
good-format
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http://www.bcrea.bc.ca/news-and-publications/news-room/news-releases/2013-02-statistical-release

The British Columbia Real Estate Association (BCREA) reports that a total of 4,501 residential sales were recorded by the Multiple Listing Service® (MLS®) in BC during February, down 23.6 per cent compared to February 2012. Total sales dollar volume was down 29.9 per cent to $2.39 million. The average MLS® residential price in the province was $514,134, up 3.1 per cent from January, but down 8.1 per cent from a year ago.

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5 years 10 months ago
Best place on meth
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@Not much of a name

$600 per square foot in North Van?

My best offer to them would be “why don’t you go fuck yourselves?”.

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5 years 10 months ago
Best place on meth
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@VMD

Brad J. Lamb voted for himself.

Since you posted this Ben’s received 6 more votes including mine.

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5 years 10 months ago
b5baxter
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@RaggedyRenter.

In all of those cases it would be helpful to know conversion factors between Paul and Larry and any other source.

At one point someone posted the “official” (maybe the same as what Larry uses?) month-end inventory numbers for April from 1995 to 2011. When I compared those numbers to Paul’s, I found Paul’s to be on average 8% higher.

So that might be a useful conversion factor to use.

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5 years 10 months ago
Not much of a name...
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@BPOM

Yup, that is pretty standard for new concrete in NV. That is on the low side as much of the new inventory coming online is priced way above that. The sad part is when you have 25 year old units (woodframe) that have had “extensive renos” that are asking for $550-600 per square foot. You know you have a problem when…

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5 years 10 months ago
Devore
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“The industry is probably correct the return to 30 years would not just increase prices but bring in more buyers. We have just seen that work in reverse. But this is nothing more than a faint attempt to keep the ponzi scheme going.” It will only bring more buyers temporarily, because by increasing affordability more buyers qualify to enter the market. In other words, this just brings forward demand; people who might have bought after saving for another 1-2 years or increasing their income over the next 1-2 years, are able to do so immediately. 0/40 basically opened the floodgates. This new increase in number of buyers and market activity can only be sustained by continually increasing affordability, otherwise, once the new demand is satisfied, it will drop off to normal levels dictated by demographics and household formation. Conversely, clamping… Read more »
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5 years 10 months ago