your take on current real estate trend
 

So when do you think prices will drop back down?

I know a lot of people from China are coming over and f*cking up the market for the locals.
But yet prices are still climbing.
Whats your take on the effect of HST and the increase on mortgage rates?
Will that ween out some from buying, therefore the actual price of housing will drop?

I know its always a good time to buy real estate, but why not buy at a lower price since it will drop.

So when do you think it will drop judging by this current trend?
Will it drop once the canadian dollar drops in value?

Perhaps 2011. There are going to be resistance from current sellers to sell at the current prices. Once they realize that the property aint moving, its going to come down!

HST I don't believe is going to be a huge factor on the whole of real estate. Maybe for the new developments in the iffy areas of town, but everywhere else will roll along.

Increase in mortgage rates will have an effect. In fact, we're already seeing lots of listings everywhere. People trying to dump properties they got in on at a bad time.

Pricing is dependent on what people out there are willing to pay for. Obviously some people are finally realizing spending 65% and more of your monthly income on just a mortgage is retarded and those people are starting to stay out. Hell, even in 2000, I thought spending 200K+ on a condo in downtown was kind of retarded and almost regretted my decision in buying a place...but alas, I didn't have a crystal ball, otherwise I would've bought a couple more.

Read all my other threads, then add this:

House prices lag the market. People will try to hold onto their property, draining their savings, stressing their lives, ... before packing it in. Some may successfully rent their places for a loss, and slowly let the loss become a drain on their pocketbook.

Bubbles usually end with a frenzy. We're seeing active listings outpacing 2008, while sales are setting records. Imagine how many more active listings there would be if sales were not on fire.

How, in a recession, with rising rates pending and increased taxes, are sales on fire? Yes there are rich foreign investors, yet they are not the majority of the market.

The market is a bunch of suckers who think beating rising rates is a good thing. Take for example the people buying my home. They are buying a $300K home (in Ottawa) on the salary of a Tim Hortons employee. I'll let you decide if that is a wise decision.

There are bad times to buy real estate. If you had bought in 1981 in Vancouver, you would have had to wait ~20 years for inflation adjusted prices to reach the same level.

How did they manage that? I thought banks are not lending money like candy anymore? Did they have substantial savings? How would a bank approve a mortgage on such a low salary?

Also, what are the possible scenarios of the people who bought your home.. such as.. best case scenario.. and worst case?

OP: "I know its always a good time to buy real estate, but why not buy at a lower price since it will drop."
- this statement is not true

AWD: you're right. I don't understand why people fret over HST. It only applies to new developments.

I'm going to make some assumptions, whether they are true or not I don't know, yet I'll show you how crazy getting a mortgage can be.

Lets assume this family has:
- 720 credit score (CS)
- $0 debt

This qualifies them for a 46% TDS (> 720 CS) and unlimited GDS (> 700 CS). Since they have no debt, their GDS can be as high as the TDS, or 46%. They are can spend 46% of their income on a mortgage.

Lets assume this family will put down 5% and take the 2.75% CMHC fee on a purchase price of $290K. That gives them a mortgage of ~$282K. Lets say they were pre-approved at 4% for 35yrs, that is a mortgage payment of $1250.

TDS must also include heat and taxes, on my place that is $75 and $250 monthly, for a total of $1575/mn.

$1575/mn == 46% of gross income, gross income == $3423/mn or $41K/yr or ~$21/hr (37.5hrs/wk)

$21/hr is pretty easy to make if both parents work.

---

Lets consider what happens if rates go up to 5% and 6% when they renew in 5 years. Lets face it, they are not getting substantial raises if any at all working those jobs, so assume their salary stays flat.

Mortgage @ 5% == $1410, costs == $1735, % of gross == 51%
Mortgage @ 6% == $1600, costs == $1925, % of gross == 56%

---

Taxes take 16% if they they split the income evenly, or 22% if only one earner.

Worst case, today they could be living off 100 - 46 - 22 == 32% of $41K, or $1100/mn. In 5 years that could be 100 - 56 - 22 == 22% of $41K, or $751/mn.

---

I have not considered:
- hydro (just heat)
- insurance
- cable/internet/phone
- car/gas/insurance/maintenance
- rainy day savings, retirement savings
- house maintenance

---

Is that not depressing to know that some people stretch themselves this thin and live this meagerly just to own 4 walls and a roof? :\

Taylor: That's amazing. The way society associates wealth with "owning" (as in owing the bank money) a home is getting ridiculous.

BTW, just want to get your thoughts on this. I have a rental condo in Kerrisdale, no mortgage, that I'm thinking of selling off, so I can bank the money and wait for prices to drop a bit in the next 5-10 years. Another reason is that it's getting older and the building itself will need new elevators in the next few years and other major repairs. Is this a wise move? I loved the monthly cash flow, but I'm thinking that I don't want to shell out 5 figures for repairs and I could invest the money in something better.

I just wish it was easier finding a place to rent when you have a couple of dogs, otherwise I would sell even my principal residence and just be a renter for the next while.

go and look at trends on a chart... history repeats

I'll give you the reasons I'm selling, and you can see if they make sense for you.

I have a rental property in Ottawa, worth $300K with ~$120K in equity. After closing costs, I'll end up with $100K in the bank.

That $100K can easily make 6% after taxes in safe investments, or $6K/yr.
My rental income was only making me $100/mn cash flow, and $300/mn paid down on the mortgage. Thus $400/mn or $4800yr which is taxable, so lets safely say $3K/yr.

I was happy to hold the property when housing was appreciating 5%/yr, cause I would be making ~$15K tax free. We both agree housing is going to slump, or at least flatline for 5-10 years, we we can nolonger count on this money.

I was also in the situation you were facing. My property had needed some repairs (washer, AC, fence) and some normal 10yr items will come during the next 5-10 years of flat prices, further eroding the $3K/yr profit.

Plus you have to consider vacancy rate. I searched and the number of similar rental properties in Ottawa scared me into selling. I would not want to compete with so many listings if my property was vacant. I would possibly have to lower my price and erode all my cash flow.

Thus I decided to sell.

For you the numbers are probably $400K in the bank earning 6% or $24K vs $1800 rent minus fees/taxes is $1500/mn or $18K/yr. Thus yes you could do better selling and investing, yet you could also hold and continue to make a fairly safe cash flow while waiting out the pending storm.

Alternatively:

You could take a Heloc against 80% of the rental and use that to invest, and then you'll have the best of both worlds.

You could sell and write the mortgage yourself to the new owners. My parents did this when rates were > 5%, they went slightly under posted rates @ 5% and have virtually a guaranteed investing paying them 5%. They required a significant downpayment (15%), so if the mortgage defaults they get the house back it is unlike it has decreased in value less than the downpayment and principal paid off the mortgage.

...

There are lots of options, pick which one is right for you. :thumbsup:

I'm going to address this one separately, and hopefully people of various cultures will chime in.

From what I know of Asian and Indian culture, it is even worse than our North American material culture. Owning a house is not even a question, it is a must, especially if you hope to marry (and especially for arranged marriages).

Can anyone explain why? other than the obvious "owning is a sign you're successful"?

^ It's a false belief that a house is the best asset

It is NOT when you need to borrow to own

playing the stock market and real estate is the best thing for your money if your will to do the research

Also, I read Rich Dad, Poor Dad many years ago, but wasn't this the main message:
owning properties and engaging in pyramid schemes are the ways to success?

Maybe I was too young when I read the book but that's the message I got and remembered from that...

Yes, because it is in a women's biological nature to nest/own rather than rent. So to shut them up, you buy a place, especially when the market/media is lying to your face on how "RE is always a good investment". As far as Asian goes, it is in their culture/tradition to buy rather than rent. So there is a lot of pressure and hence, you end up making bad financial decisions.

all i have to say is knowledge is key in everything

His message is that while his own father had lots of formal education (I think he was a university professor) he was poor cause he knew nothing of finances. His rich dad had owned businesses and was educated in finances.

The book focuses around real estate cause that's what his rich dad invested in - yet don't take that as the message. His rich dad could have been involved in any investment and done better, cause his poor dad was content with his current finances and didn't pursue ore.

Realistically if I was a university professor earning 6 figures, I would be content too. More would always be nice, yet the risk/knowledge/time isn't always worth it.

rich dad poor dad is nothing more than a biography for the author to brag about himself. I am pretty sure he is losing money right now with his investments in phoenix and w/e. The advice he gives are vague at best. The cash-flow examples he give are obvious, no shit you need to lower liabilities. Go read the critics analysis of his series.

Never trust a self-help finance book, theres a famous quote, "The only way i'll get rich from a self-help book is if I write one myself."

It's also old school thinking when a lot of the older generation didn't even trust banks and stuff their mattresses with money. So if they didn't invest anywhere else, then the house is their biggest and only investment.

after reading all of this im still confused on whether or not i should buy to rent.

assuming that in the current market of $800,000, would it be advisable to buy with $400,000 downpayment, rent it out to 2-3 separate tenants, and over time their rent would pay for the mortgage?

If you're still confused and have $400K, please go see an investment adviser and let them manage that money.

This type of thinking goes beyond a "home," in that having an apartment is not enough and most 'traditional' Chinese will do whatever it takes to own a 'house' as in land. The reason has a lot more to do with perceived security than for recognition (having face). I believe its a historical thing, and in the Chinese context it makes sense. For example, even in present day China, someone who loses their job but owns 'land' back home can always go home and farm the land. They will survive. Those who lose their jobs but have no 'land' starve and die, thus land = security.

There are other factors as well in that, most immigrant families simply do not understand how to invest, and they cannot think abstractly. So they think that if you buy something physical, something you can touch and feel, like a house, it's safe and won't just 'evaporate' like stocks.

My GF gives me the same reasons for keeping her condo. She thinks it is more "secure" for her daughter since she owns the condo and cannot be forced to move.

I think it is foolish. Renters rarely get forced to move, good landlords like good tenants. Moreso, she's paying $1000 more to own and living paycheque-to-paycheque to make ends meet. To me that's far less secure, cause if she loses her job she's SOL with no savings and high cost of living.

I think people need more education, in particular on the #2 and #4 economies of the world: Japan and German. Japanese prices have been deflating for 19 years, German prices flat for 15 years. Japanese prices went too high and are paying for it. German prices are flat cause they put in rules against speculating. Germans actually buy a house to live in it, not flip it! Imagine that.

Yo taylor192, this is off topic but thanks for all the advice you give. its practical, makes sense, enjoyable to read, and very worthwhile.

I wonder why Asian_XL failed your post?

Thanks! I hope my posts come across as "information" not advice. Everyone should make an informed decision that best suits them, my goal is to help inform everyone. :)