Baby, we got a bubble!?

[Midtown Urbanist]

Why is a Richmond B.C. neighbourhood with many expensive mansions also one of the city’s ‘poorest’?

http://news.nationalpost.com/news/c...ensive-mansions-also-one-of-the-citys-poorest

This is really a major ongoing problem.

None of the parties seem to have a viable way of dealing with it either.

 

[nrb]

And the rebuttal:

http://urbanationinc.blogspot.ca/2015/06/no-condo-glut-data-is-wrong.html

Except that trend has been happening for three months. Not just May.

 

[rbt]

And the rebuttal:

http://urbanationinc.blogspot.ca/2015/06/no-condo-glut-data-is-wrong.html

Reads like some data entry clerk at CMHC hit the wrong key.

 

[Migos]

Yellen said that rates would be going up 1% per year. There are going to be some interesting mortgage renewals if that happens.

About 15 per cent of respondents to a survey done for Manulife Bank of Canada said they would have difficulty making payments if their mortgage payments went up.

Nearly half said they couldn't manage a 10 per cent increase in their mortgage payment.

"Having your payments go up 10 per cent sounds like a lot, but if you have a $200,000 mortgage and interest rates go up one per cent, that's a 10 per cent increase in your mortgage payments," said Manulife Bank CEO Rick Lunny said. "So there's not much room here for those people."

http://www.cbc.ca/news/business/rat...gage-holders-stretched-survey-finds-1.3115612

 

[TheKingEast]

This is not news. If the main breadwinner loses their job....there will be trouble no matter what the rates are at. 10% rise in payments can be managed. Losing a job would be disastrous.

 

[BMO]

I'm starting to lean more towards thinking people will just rent out their homes if mortgage prices go up and they can't manage them and just rent out something cheaper or move back home. Considering so much of the existing stock is getting bought up by new homebuyers.

 

[Migos]

This is not news. If the main breadwinner loses their job....there will be trouble no matter what the rates are at. 10% rise in payments can be managed. Losing a job would be disastrous.

The link I posted shows that a 10% rise in payments can't be managed by a significant portion of home owners. Considering that's only a 1% increase in rates (could easily happen within a year), there is cause for concern. I wouldn't be at all surprised to see people who have ~3% mortgages renew in a few years at ~6%. That is a big jump in payments for people that are already overleveraged.

 

[nrb]

I'm starting to lean more towards thinking people will just rent out their homes if mortgage prices go up and they can't manage them and just rent out something cheaper or move back home. Considering so much of the existing stock is getting bought up by new homebuyers.

It's a big assumption that the rental market could support bubble prices. Price-to-rent ratio already significantly favours renting. If a large section of people suddenly decided to rent their places out, prices will be driven down more.

 

[Migos]

Bruce Yaccato: You’d have to be crazy to buy real estate
http://news.nationalpost.com/full-comment/bruce-yaccato-youd-have-to-be-crazy-to-buy-real-estate

According to data from the TD Bank, housing prices in Canada from 1980 to 2012 increased at an annual rate of 5.4 per cent, Toronto and Vancouver a full point higher.

The Dow Jones Industrial Average calculates its average annual return for the same time period was 8.9 per cent.

The Toronto Real Estate Board says the average price of a house in 2014 was $566,726, an 8.4 per cent increase from 2013. It adds that “we should not expect current price increases to continue.”

TD concurs, forecasting that over the next couple of decades, real estate should grow three per cent annually, while stocks will grow seven per cent.


What should you invest in?

Duh.

THE END

The important thing is not to be critical of people for their investment decisions but rather to correct a dangerous economic distortion. Real estate is a huge business, bigger even than oil and gas. Do we want a significant portion of our GDP dependent on fundamentals that a Nobel laureate has called “illusory?”

Have you ever heard a bank manager or real estate agent say, “You know at these prices, you may want to hold off and rent til you grow your down payment?” Not bloody likely. They make billions selling people mortgages and products they would be better off without. They are no better than Big Pharma or Big Tobacco. Call them Big Mortgage. They are enabling addictions that, left uncorrected, are well known for leading to catastrophic outcomes.

 

[James]

Amidst this whole real estate vs. stock market debate, as to which one is "better", it's noteworthy that most people who have the financial means will have significant investments in both. The "issue" only arises when one has to choose. It's understandable that most people will want to purchase a primary residence first before purchasing stocks since you will need to pay for accommodations in one way, shape or form anyway. Despite both "investments" (real estate and stock market) yielding largely decent returns, I think in a fair evaluation, one would have to incorporate the costs of renting to the equation when making a true comparison between real estate and stocks.

 

[TOphotog]

So true, James, and one would also have to take into account that the gains of one would be taxable, and the gains of the other wouldn't. That's a good chunk o' change when we're talking hundreds of thousands of dollars.

Another thought: the bank will loan me $700,000 to 'invest' in real estate, they won't loan me $700,000 to invest in stocks, and even if I found one which would, the rate certainly wouldn't be less than 3%! LOL

I was on a CBC talk show a number of years back about this very 'argument' of renting/stock investing vs real estate.. Vice Pres of financial firm was on the panel. He was arguing pro-stock investing, needless to say, whereas I was arguing pro-real estate investing instead of renting. I then stumped him: Do you own or do you rent? (I already knew the answer LOL). He chuckled, and then quietly admitted he owns his own house. That's when I said "So, you believe that investing in stocks is a good thing to do AFTER you've bought your own home?" Answer: "You've got me there...". I don't know many smart, successful investment people who rent instead of owning.

 

[Migos]

Owning a primary residence is very different from owning investment properties. I am not arguing for or against owning vs. renting, I'm arguing that buying investment properties in this climate is foolish.

 

[TheKingEast]

Owning a primary residence is very different from owning investment properties. I am not arguing for or against owning vs. renting, I'm arguing that buying investment properties in this climate is foolish.

I'd have to agree. It's been so for a while now. I have 0 interest in purchasing income property. The numbers do not work.

 

[KA1]

Owning a primary residence is very different from owning investment properties. I am not arguing for or against owning vs. renting, I'm arguing that buying investment properties in this climate is foolish.

I have been reading this type of 'sage' advice on this thread since 2008.

 

[TheKingEast]

I have been reading this type of 'sage' advice on this thread since 2008.

You're right. But would you seriously buy a property now for investment purposes? I wouldn't...and it goes beyond the posibility of a bubble. The expense is just too great for me.