Party like it’s 1981

Remember the 80’s?

Big hair, jelly bracelets and 20% interest rates.

Homebuyers back then had a tough time, they had to save up for a big down payment and the cost of holding a mortgage was high.  All that hard work and sacrifice was well rewarded though as Rob Carrick points out in the Globe and Mail:

The high interest rates of the early 1980s must have felt unbearable for all Canadians buying homes and arranging mortgages (it was heaven for savers, but never mind). The reward for perseverance was a 30-year run in which resale house prices on a national basis surged by an average annual 5 per cent and were up in 28 of 34 years.

This rally was fed by falling interest rates. After the visit to high-rate hell in the early 1980s, home owners benefited from a long decline in rates that continued into 2015. House prices haven’t gone up because homes are a great investment, because of immigration, because of foreign money or because home ownership is awesome. It’s because we’ve had a 30-year sale on the cost of financing a home purchase, with ever-increasing deep discounts.

That sale may be ending. There’s a growing sense that the U.S. economy is on the upswing, and interest rates in the bond market have already started to creep higher. Mortgage rates take their cue from rates in the bond market, so we could see lenders increase fixed-rate mortgage costs at some point this year or next.

For the historical perspective read the full article here.

The thing that may surprise you is that despite a housing market that has provided magical returns for older buyers and cheaper and cheaper debt seniors are still going bankrupt in record numbers.

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southseacompany
Member
southseacompany
“Pete McMartin: If Australia’s bubble bursts, is Vancouver’s far behind?” “Similarities to Oz’s deepening debt position have emerged here”, Vancouver Sun http://www.vancouversun.com/Pete+McMartin+Australia+bubble+bursts+Vancouver+behind/11180738/story.html “Soos lives in Melbourne, Australia. Melbourne’s housing prices have experienced the same alarming rise in value that Vancouver’s have, and, as in Vancouver, many in the public blame Chinese offshore buyers as the main cause.” “Soos is not among them. Soos and his co-author Paul Egan blame two decades of rampant domestic speculation as the reason for the rise in residential prices.” “Australians, they all said, see a better chance at a big payoff in housing than in more traditional equities. They don’t put their stock in stock. They put it in property.” “In a co-authored submission made last week to Australia’s ongoing parliamentary inquiry into housing, he and economist Lindsay David made a prediction of which Metro… Read more »
Corrupt in Canada
Guest
Corrupt in Canada

Wait how can Australians bubble burst???

They track and ban foreign investment.

UBC in crisis mode
Guest
UBC in crisis mode

People should wake up.
There is no housing bubble as long as no restriction on foreign buying. Canadian economy and job rate has nothing to do with housing price in Vancouver.

If you have money, rent.

trouble makers
Guest
trouble makers

Hey you realtors guess what my friends who have been outbid in 4 houses this year all listed by a couple well known agents who seem to frequent the news channels. … he tells me he is going to confront the sellers with what he was told in terms of how many competing bids just to rule out if these agents are telling the truth.He suspects in each and every case he was lied to and told there were way more bibs than actual. Best of all his wife is a cop. So ya let’s all try to eliminate the deceptive agent’s. They also have a interview with cbc marketplace who’s contacted them wanting to expose these scammy agent’s. Oh and Happy Canada Day eh

w
Guest
w

Here are immigration statistics Vancouver isn’t supposed to see. Why the secrecy?

http://www.scmp.com/comment/blogs/article/1830484/here-are-immigration-statistics-vancouver-isnt-supposed-see-why

Long Time Lurker
Guest
Long Time Lurker
Hey all, I am a LONG time lurker and occasional poster here since late 2007. Figured I’d use a recent post to share my real estate experiences during the past 7 years as a mostly bearish person. – In 2008, I convinced my folks to sell their home due to the recession and potential housing crash. They did make some good money but since then they have been renting a townhouse. The property today would be worth almost 80% more today. I was wrong and can now never bring up real estate with them. – 2011, I married and the wife forced me to buy a 2 bed condo instead of renting the 1 bed I was renting downtown. I was sure I was buying at the peak but she wanted a family so I obliged. Since then, we moved… Read more »
#zirp
Guest
#zirp

This is the era of ‘pump and jump’ .
https://www.youtube.com/watch?v=RykBsv19rUA

The solution for zirp is ZIRP.

patriotz
Member

@2: “They (Australia) track and ban foreign investment.”

Not sure how sarcastic you’re trying to be, but for the benefit of the wider audience, Oz does not ban foreign RE investment, but subjects it to meaningless “restrictions” that would not materially affect the kind of foreign investment currently going on in Vancouver.

history-hebdulah
Guest
history-hebdulah

Time keeps on slippin’ slippin’ slippin…. in to the future…

anywho

patriotz
Member

@6: “Since then, we moved overseas for a better job and rented the condo at a profit”

Sorry, I’m not going to accept this kind of claim without the numbers. No excuses, it’s your property.

Long Time Lurker
Guest
Long Time Lurker

@10

Don’t want to divulge too much cause I know internet sleuths can track everything down but our mortgage was 1450 a month. Property tax averaged $1300 a year. Strata was about $350 a month. Dunno exactly how much we were taxed on income but we still ended up getting a tax return. We rented it out for $2200 a month for 1 year and 9 months.

But I think I was off on the profit cause I didn’t count the 2 years we were living there before the move. We saved some of the cost then cause we had a roommate for a year and a half until the baby came. So I figure we actually profited 50k after the sale. Again, not great but better then nothing.

Long Time Lurker
Guest
Long Time Lurker

@10

By the way, Patirotz, you’ve been here as long as I can remember. It would be interesting to know what you’ve been up to these past 7 years if you don’t mind sharing. The last thing I remember is you moving east.

Royce McCutcheon
Member
Royce McCutcheon

Am I nuts for thinking that 1981 article is pretty incomplete in its analysis? I mean, there is no reference to relative wages between then and now, no reference to the amortizations behind those payment schedules, etc.?

Also, there’s no reference to the fact that using a simple savings account in the years preceding a purchase in 1981 or 2015 would lead vastly different results too. I mean, if you socked away 100k (inflation-adjusted) dollars at the interest rates back then, wouldn’t you have accumulated nearly twice the down payment in a little over 5 years?

These seem like pretty significant differences!

bullwhip29
Guest
bullwhip29
@ #4 in ontario they’re trying to crack down on all this bs, but here, i remain highly skeptical anything will actually happen. imho the powers that be will have a tough time proving many of the phantom bids are bogus. in reality, sellers have been doing the same thing by getting friends and associates to show up at open houses by the dozens posing as frantic buyers and interested parties. lineups and crowds seen at sales and other related events, it’s the oldest trick in the book. if only prospective buyers would spend more than a few minutes doing their homework before closing their eyes and jumping in head first, this sort of nonsense wouldn’t occur in the first place. people spend countless hours researching prices on cars, electronics, clothes, cell phone plans and even fixtures/hardware/accessories for the home… Read more »
bullwhip29
Guest
bullwhip29

for those watching the ongoing unraveling in shanghai, it closed at lowest level of the week while also failing to hold above the may low’s and its 100d MA (despite efforts from the govt to curb any sorts of “negative” press about the stock mkt). another 600 pt drop and we’re staring the 200d MA in the face. failure to hold there would take mkt into the red for year (who saw this coming?) and likely cause all sorts of panic and chaos on the streets. at some point along the lines, the rest of intl mkts will start tuning in to what all this means.

http://tinyurl.com/os4erxw

Shut It Down Already
Guest
Shut It Down Already

11, you only need to count the mortgage interest portion of your monthly payment – not the whole thing. Others will tell you a different story, of course, or insist you add some outrageously high “opportunity” cost on that (even though the stats tell us most people shove their cash in a HISA). Also, for the time you were living there you can consider that it paid you the equivalent of what it’d cost to rent the same place.

elvince
Guest
elvince

Heh, the 80’s. Robin Sparkle was singing “Let’s go to the mall.”

southseacompany
Member
southseacompany

“Why the Bank of Canada’s ’emergency surgery’ rate cut didn’t work”, Financial Post

http://business.financialpost.com/investing/why-the-bank-of-canadas-emergency-surgery-rate-cut-didnt-work?__lsa=ec41-06e7

“Yes, the first quarter stank, thanks to the oil price shock. But in the second quarter, the “insurance” the bank took out in January — a 0.25-per-cent rate cut — would have had time to work its magic”

“Well, now we know that’s pretty much a pipe dream.”

“The rebound didn’t happen. And it very well may not happen in May and/or June. If it doesn’t, then we’ll have two consecutive quarters of contraction. Which, technically, is a recession.”

“But one of the side effects of monetary easing is asset price inflation, about which the Bank has occasionally expressed concern. Despite all the warnings, Canadians still seem quite happy to buy houses and invest in the stock market.”

southseacompany
Member
southseacompany

In the US: ‘U.S. Mortgage Rates Rise With 30-Year at a 2015 High”, Bloomberg

http://www.bloomberg.com/news/articles/2015-07-02/u-s-mortgage-rates-rise-with-30-year-at-a-2015-high

“Mortgage rates in the U.S. rose, sending the average for 30-year loans to the highest since October.”

southseacompany
Member
southseacompany

Bond market: “Bond losses mount in ‘year of no return'”

http://www.cnbc.com/id/102805764

“Fixed income markets are nursing their worst losses in years, setting the tone for a poor performance that is expected to continue against a backdrop of a recovering U.S. economy and a pick-up in inflation expectations. ”

“And with the Fed tipped to soon deliver its first rate hike in nine years, while inflation expectations in the U.S. and Europe pick up, the tide appears to have turned against bond markets, where yields until recently were on a one-way track lower amid weak growth and easy monetary policy.”

southseacompany
Member
southseacompany
Again from the US:” The ‘hot’ housing market is about to experience a serious cool down” http://wolfstreet.com/2015/07/01/home-buying-panic-sets-in-housing-bubble-2-soars-industry-drools-but-its-doomed-says-zillow/#ixzz3ekTLgUfb ““For more than 30 years, consistently falling mortgage interest rates have helped spur more home sales. But in about a year’s time, that decades-long tailwind will likely shift to a housing headwind.” Sales will be hit hard, according to a worried analysis from Zillow.” “But not yet.” “The median home price had hit the all-time crazy peak of $230,000 in 2006, during the insane Housing Bubble that had such dramatic consequences when it imploded. So in May, the median price was almost back where it had been during that all-time crazy peak in 2006.” “And there’s a reason for this: mortgage rates have been near historic lows but are scheduled to rise, and now a buyer’s panic has broken out. People are desperately… Read more »
Mister Obvious
Guest
Mister Obvious
@6 Long Time Lurker All in all, what I learned in the past 7 years is that I know nothing. ———————— I’ve also learned something in the last 7 years. I’ve learned that what worked for me financially does not necessarily apply to someone else. That’s why long ago I stopped trying to give advice to friends and family. But fortunately, on a blog full of strangers like this one, the sky’s the limit. Here, I can become a fountain of wisdom. Some advice is universal: It’s always a poor idea to live beyond your means. One shouldn’t count on real estate agents to tell them when it’s a good time to buy. Don’t borrow a cartload of money just because a bank makes it available. Don’t get into a situation where you must borrow to meet day-to-day expenses. Avoid… Read more »
space889
Guest
space889

@trouble makers – If the sellers sold their hosues for higher than the prices they were expecting, or just higher than your friend’s bid, would they really give a damn about your friend’s feeling of injustice? Especially if the agent handled everything and they are probably in the dark?

As for fraud and your friend’s wife is a cop, good luck with it. I doubt the agent or the seller will be quaking in their boots in fear and starts telling the truth, assuming they even lied in the first place. There is no law preventing people from making a bid on a house that they have no intention of ever buying, even if the said people are friends of the realtor.

space889
Guest
space889

@w – what secrecy? The screen shot posted all have BC Stats logo which means that the data is public available for free or maybe a minimal charge. I doubt a freedom of information request is even required.

If the data is publically available but the average joe/journalist is too damn LAZY or UNINTERESTED to search and look it up, how do it mean the data is in secrecy? Secret stuff tend to be classified and have to be leaked by people like Snowden.

space889
Guest
space889

@Royce McCutcheon – You can’t look at price to income without referencing interest rate since 25% mortgage at 3X ratio is not that much difference from 5% mortgage at 5X ratio.

Hence why RBC’s last housing report focused on monthly cost rather than price/income ratio or interest rates alone. And frankly, monthly cost is what most people care most about anyways.

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