If they've got a mortgage then they can write off enough of the rental income that the diff is small enough that the CRA doesn't care. They're better off going after folks who take cash to avoid GST at that point.

In hindsight I would have taken cash for my suite. I think it’s worth the risk in the end

I remember many years back (probably 5-7 years I think) those protesting about how they don't got $1M for a home, and how they are educated working class in good jobs can't afford. I guess now $1M is considered a dream in the city lol :troll:

Guys, what is your take on this argument from a friend in terms of the Vancouver housing market?

Long story short, this friend is renting a two bedroom condo in the downtown west end for two grand per month. He is married and has two toddlers.

He figures that IF the Bank of Canada keeps raising the key interest rate this year in order to curb inflation, many homeowners with variable rate mortgages would face foreclosure. Some new homeowners are going to have to sell their houses.

-best chance for him to buy a house? He has a big income as an entrepreneur in his event marketing and film post production business. -would be able to save up for a big down payment even though he is paying rent now to a condo owner.

This in a nutshell is everything that is currently wrong with the current version of capitalism… your friend is waiting for a lot of other people to lose their life savings in order for him to jump in and get something.

Instead of ultra wealthy people just having some of their $$$ redistributed or the government hadn’t let this happen in the first place (too late for that I guess) and nobody at a “normal” level of income has to lose everything for someone else to succeed.

Doesn’t he feel just a little bit dirty even talking about that scenario?

Yes, he does that feel that way after talking to me about that hypothetical. :considered:

Basically this housing collapse is going to take out the entire middle class. The rich are going to stay rich because they can afford it and the middle class is fully maxed out their mortgages and it's going to put so many people into bankruptcy.

But yes your friend is going to save money on a real nice house and it will be sadly more then likely be because of someone lost everything.

I think most variable rate mortgages are fixed payment now so anyone getting boned right now doesn't have to deal with the problem till renewal (or has many years to figure it out). I suspect those who are in trouble when renewal comes will have escape valves that the gov't will put in place to ease the pain (eg. letting them extend the mortgage) - it won't save all of them but it's not going to be some major bloodletting.

I think the people who are really boned are the ones who want to buy a place right now - prices haven't really come down but interest rates mean the "price" has gone up in reality. Either they overpay b/c they need a place right now or they have to wait till the market cools.

I don't see rates staying high (relatively speaking) for that long - up another 1% this year, hold it for a year or two and then it'll come back down 1-1.5% in 2025 which, for most people, will be manageable.

There's nothing dirty about it, people should of over extended themselves and its the way life goes sadly. Everyone knew this was going to happen sooner or later and people should of seen it coming at least a year ago.

Speaking of which, a dated but interesting take:

https://www.straight.com/news/errors...g-crisis-story

As we have seen in this thread, many folks with variable mortgages are on fixed payments who won't see their payments rise until a trigger rate is reached. There will be folks on the margin that will be in a tough spot, but most households will do everything they can to keep their homes.

And those households will be cutting discretionary expenses, like entertainment, if the costs of shelter continues to have an impact on their bottom line. I don't see how your friend's business would be immune if things got really bad - it's not like he's a police officer, a doctor, or something else considered "essential".

It's pretty much what folks on Reddit and Facebook have been calling for - to scoop in and take advantage of someone else's misfortune and buy houses for cheap and become the very thing they so despise.

Yah fault people for putting a roof over their head at the wrong time.

Sounds like a great society man.

Here's my opinion about rising rates. Nobody wins.

Homeowners lose out with a devalued asset
New home buyers lose out by high borrowing costs
Cash rich people lose out to inflation
Investors lose out to market correction

I keep hearing celebrations from people who want to get into the real estate market. But unless they were very lucky and was able to time everything perfectly in the past 6 months, they likely got screwed too.

Most people on variable mortgages should have trigger rates protecting them. So the hurt won't come until renewal or rates higher than trigger rate, they will be on the same boat as fixed people. And yes it depends if you are maxed out on debt or you have money to cover the extra payments.

I'm sure there's gonna be some bail out, just like payment pauses during the pandemic, last thing the bank or the gov wants is a bunch of people foreclosing. Not good for business or votes.

And unless you bought in the peak last year I'm sure even after a bit of price drop you will still be ahead and end up with money when you sell. I doubt you will be homeless and cashless after selling.

I mean, if you can't afford to get into the market, just be homeless! Everybody wants their basic human needs met when they are only making upper middle class salaries. The entitlement!

Out of that entire list, the only one I don't sympathize with at all is this group. Unless it's their actual primary residence and home.

Maybe I should've been more clear. I meant investors in equities.

For people waiting to buy real estate, most would not have held cash this whole time. If they were in anyway exposed to the market (eg. index funds), the haircut they got in the past 6 months likely far exceeded what's going on with real estate. In the end, their down payment just evaporated.

Those same people will not buy if they market drops by 40% tomorrow

You joke, but the reality is that, if you smoke meth, don't have a job, and break into cars, you are eligible for the many shelters across GVRD, including blocks away from science world.
And I'm talking 10th floor views, studio, that's 10 years old.
Don't forget to pick up your cheque from daddy govt

Meanwhile the building next door, the rent is 2000$/mo, for someone who is contributing to society. Or 700k purchase for 500sqft 15 year old building.

As has been echoed here already, it seems like your friend doesn’t really understand how mortgages work.

The pain isn’t going to be this year, or even next. That “opportunity” that may or may not arise will be in 5 years upon renewal. And that’s assuming a lot in terms of inflation, interest rates, etc.

There must be a lot of people who locked in at 2.x% that in the next year or two will be forced to renew with rates in the 4-5% range which would be a pretty big increase in their payments.

I wonder if they'd actually get the chance to. Individuals still have to worry about not losing their own job, interest rates, qualifying, etc. The uber rich and super-mega-globo-corps don't, they can just grab everything with cash if the market tanks.

i mean do you really think people are looking out of their 10th floor SRO window are sucking on a meth pipe going "ahhhhh, this is the life"? their life is in no way better than the 'sucker' paying 2k a month

For every $100k they owe the monthly payment increases about $100 if the rate goes from 2.5% to 4.5% so $500k mortgage at renewal is an extra $500/mo.

Your "buddy" is going to be living on food stamps himself when his business is sewered if 40% of the city loses their houses or whatever he is expecting.

You think house prices are going to drop and thousands of people are going to foreclose on their places, and his event marketing business is going to be okay? Really? I dont think event marketing is going to be a booming business when we're living like the great depression. Nor is his post production company going to survive when nobody has money to spend on going to the movies.

Your buddy fundamentally misunderstands macro economics.

For the record I disagree with your friends understanding of what is about to happen the next couple years, there isn't a huge depression coming, yes we might see a correction in prices. but the majority of the city is not going to lose their homes. As always though, I eagerly await being proven wrong, cause i'm in the boat with all the people about to lose their shirts having bought a big new house in coquitlam last year.

RE is always slow to react because it's not a liquid asset and there's a ton of emotions tied into it. This crash has started but it'll take a long time to manifest, no one knows when it's going to end and where it's going to end. It depends a lot of when BoC (who is honestly reactionary) stops raising rates.

I said earlier that there are two major choke points coming up, whether if BoC sends everyone on closed variable mortgage hitting their trigger rates, or hold rates just below that but have it blow up on everyone renewing in 5 years when their 30yr mortgage is now taking 40yrs to amortize and their payments jump at renewal.
Obviously if BoC reduces rates before the majority starts hitting renewal in the next 3 years then crisis mostly averted. There would be a bump in payments but it won't be a 20% jump.

To put the 20% jump into perspective. I refinanced and started a 30yr var mortgage in Jan of this year. It was a 1.1% and it's now a 2.35%. My payments have not gone up but my amortization period has jumped to 38yrs. I did a quick exercise, to pull my amortization back in I would have to bump up my payments by 20% right now. Obviously if you've had the mortgage for awhile and paid some of it back the jump won't be as severe, but your cliff to renewal would be sooner.


For the ppl who are hoping that the market will tank and they can swoop in. Yes ideally you'd like a smaller principle and your down goes further, but when your income is going to be impacted but a down economy and therefore your ability to borrow, chances are you might still be priced out. Banks are going to tighten lending, this quick easy flow of money won't be so quick and easy.
Timing the bottom is also extremely hard going back to the first point where RE is slow and emotional. Those who do are just lucky.