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08-22-2012, 10:53 AM
  #226
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Originally Posted by craigcaulks View Post
I am interested in seeing your calculations on your 2x number.

And I'd love to see your reasoning for a crash "like we saw in the US" happening here. Not just headline reasoning to get attention, but real information.
I think the 2 times is based on the price trend.

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08-22-2012, 03:45 PM
  #227
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Originally Posted by craigcaulks View Post
I am interested in seeing your calculations on your 2x number.
Just look at rentals and compare them to selling prices in the same buildings/neighborhoods. I mentioned earlier a friend who rents for $2500 while basically identical houses on her street have sold for $1+ million. Assuming a $900K mortgage, that's about $4500 a month plus $350 a month in property tax and another couple hundred on insurance. So that's easily 2X.

More generally, the average price to yearly rent ratio in various Vancouver neighborhoods currently ranges from about 25:1 to 60:1 depending on the location (so 25-60 years of rent to match the purchase price of the residence). Here's an article from the Province discussing this:

http://www.theprovince.com/news/Wher...302/story.html

I think their numbers overstate the case a bit, as they have it at about 35:1 to 70:1 depending on the area. Though I may be understating it as the IMF recently pegged Vancouver's overall price to rent ratio at 58:1.

Under current interest and property tax rates 15:1 is considered about equivalent in terms of monthly costs. A place that rents for $2K a month ($24K a year) would cost roughly the same month to month as a $360K place. At 25:1 (which is arguably the low point of any average location in metro Vancouver), a $2K a month place is going to cost about $3500 a month in mortgage, taxes, etc to own. So that's nearly 2X at the absolute low end. At 58:1 which is the IMF's number for the city overall, you're seeing a $2000 a month residence cost about $1.15 million to buy and $6500 a month to own. And those figures are under current record low interest rates. Under a more reasonable interest rate, then the spread becomes even greater.


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And I'd love to see your reasoning for a crash "like we saw in the US" happening here. Not just headline reasoning to get attention, but real information.
It's happened before under fundamentals way less out of whack than we have right now. The question in my mind isn't why Vancouver would have a price crash, but why wouldn't it? Why is Vancouver different? We saw a 20% correction in 2008 before interest rates fell through the floor, so why is a slightly bigger drop out of the question? I doubt we'll see prices cut in half like some of the hardest hit US markets, but 30% from the peak is a perfectly reasonable scenario.

And really, even if you ignore pretty much every other factor, interest rates alone are going to see Canadian real estate taking a hit. Here's what $4K a month on a 25 year mortgage gets you under various interest rate scenarios:

3%: $850K
4%: $750K
5%: $685K
6%: $620K

So that's a 27% drop in buying power simply due to interest rates returning to their 2007 levels. Even if you accept that real estate isn't overvalued by a single cent right now, there's going to have to be a correction from the return to more normal interest rates given the levels of debt and low equity we're seeing right now.

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08-22-2012, 04:11 PM
  #228
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Originally Posted by opendoor View Post
So that's a 27% drop in buying power simply due to interest rates returning to their 2007 levels. Even if you accept that real estate isn't overvalued by a single cent right now, there's going to have to be a correction from the return to more normal interest rates given the levels of debt and low equity we're seeing right now.
Great post, you explain yourself very well A correction is definitely in order, though comparing it to what happened in the States is a big exaggeration. It'll be a slow correction as economies recover and interest rates rise, housing prices will stagnate or drop slightly. We aren't likely to see interest rates rise quickly, so it won't be anywhere near as drastic as it was in the States imo. We also have much tighter mortgage rules etc.

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08-22-2012, 04:43 PM
  #229
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Originally Posted by opendoor View Post
Under current interest and property tax rates 15:1 is considered about equivalent in terms of monthly costs. A place that rents for $2K a month ($24K a year) would cost roughly the same month to month as a $360K place. At 25:1 (which is arguably the low point of any average location in metro Vancouver), a $2K a month place is going to cost about $3500 a month in mortgage, taxes, etc to own. So that's nearly 2X at the absolute low end. At 58:1 which is the IMF's number for the city overall, you're seeing a $2000 a month residence cost about $1.15 million to buy and $6500 a month
.
I guess I look at these numbers and think the people at the IMF spent too much time partaking in the herb.

I own a house just off the Drive. (Lakewood and 5th) When I bought the house, it came with a suite that was already rented for $1200 a month. My neighbour rents out a suite for a little less than that, but it is smaller. If I was to rent out the rest of the house to a family, I'd get between 2500-2800 and get the choice of my tenant. My neighbour would likely get more.

My mortgage is about 800K, payments with taxes are about 3800, and the current market value is likely close to $1M. Of course there may be a correction, then there'll be another upward trend. Then a stall. Then a drop. Then a continuing growth. Then a crisis. That's life. Some people will spend most of their lives waiting to get started, some won't.

I guess I am bored of the constant barrage of first year ECON students (and their equally as inept Profs) and journalists opining on the topic. I think it is now year 10 of the great bubble. OMG, what if rates go up! What if I get cancer. What if I....

It's old, but sooner or later it'll be right for a while. Then wrong. Then right again.


Quote:
And really, even if you ignore pretty much every other factor, interest rates alone are going to see Canadian real estate taking a hit. Here's what $4K a month on a 25 year mortgage gets you under various interest rate scenarios:

3%: $850K
4%: $750K
5%: $685K
6%: $620K
Simply another part of the cycle. Up and down. Sit and watch.

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08-22-2012, 04:46 PM
  #230
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Great post, you explain yourself very well A correction is definitely in order, though comparing it to what happened in the States is a big exaggeration. It'll be a slow correction as economies recover and interest rates rise, housing prices will stagnate or drop slightly. We aren't likely to see interest rates rise quickly, so it won't be anywhere near as drastic as it was in the States imo. We also have much tighter mortgage rules etc.
The first time I heard the term "sub prime", I thought it referred to the mortgage rate and not the borrower.

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08-22-2012, 07:00 PM
  #231
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Originally Posted by craigcaulks View Post
I guess I look at these numbers and think the people at the IMF spent too much time partaking in the herb.

I own a house just off the Drive. (Lakewood and 5th) When I bought the house, it came with a suite that was already rented for $1200 a month. My neighbour rents out a suite for a little less than that, but it is smaller. If I was to rent out the rest of the house to a family, I'd get between 2500-2800 and get the choice of my tenant. My neighbour would likely get more.
As far as neighborhoods go, that's probably one of the most reasonable in metro Vancouver with regards to price to rent ratio. I have relatives that own in that area and I'm continually surprised at how much farther your money goes there compared to other areas of Vancouver in terms of ownership.

But then you have a place like West Vancouver where you can rent an older house worth $2 million for $3500-4000 despite a mortgage and taxes for that house getting up near $10K a month.

Quote:
My mortgage is about 800K, payments with taxes are about 3800, and the current market value is likely close to $1M. Of course there may be a correction, then there'll be another upward trend. Then a stall. Then a drop. Then a continuing growth. Then a crisis. That's life. Some people will spend most of their lives waiting to get started, some won't.
Like I said, buying a house in Vancouver can still make sense if you think you'll be in it for the long haul and are willing to ride out the fluctuations. But I also think it's pretty clear that the value isn't really there at this point in time in Vancouver real estate. Ultimately there's only so much price a population with a median household income of $67K can support long term and IMO it's a lot less than houses are currently selling for.

Quote:
Simply another part of the cycle. Up and down. Sit and watch.
I'd argue 2.25% prime rates like we had a couple of years ago are not part of a normal up and down cycle. It was an extraordinary situation that produced extraordinary results.

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08-22-2012, 07:00 PM
  #232
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Originally Posted by Scurr View Post
Great post, you explain yourself very well A correction is definitely in order, though comparing it to what happened in the States is a big exaggeration. It'll be a slow correction as economies recover and interest rates rise, housing prices will stagnate or drop slightly. We aren't likely to see interest rates rise quickly, so it won't be anywhere near as drastic as it was in the States imo. We also have much tighter mortgage rules etc.
I guess it depends on what you're defining "US style" crash as. Will there be people defaulting on mortgages en masse? No, I really doubt that'll happen. But nationwide US prices dropped about 30% from their peak and the construction industry tanked. I don't see those as unrealistic scenarios for Vancouver. Average prices for detached houses have already dropped about 10-15% from their February peak. Fairly drastic drops have happened in Vancouver and they'll happen again.

People like to make fun of the US sub prime loans and pump up the Canadian system, but I think in the near future we're going to look back at some of the moves the Conservative government made when they came into power (changing lending rules to allow government insured 0% down 40 year mortgages) and shake our heads in disbelief.

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08-22-2012, 07:10 PM
  #233
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This thread has gone from comparing cities to being an economics lesson. Zzzzz

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08-22-2012, 07:24 PM
  #234
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Originally Posted by Scurr View Post
We also have much tighter mortgage rules etc.
You mean those 0% 40year mortgages (LOL) that the BoC allowed into effect in 2003 and decided to eliminate just a few months ago?

We have some dodgy mortgages on the books, especially in Vancouver where average household income is $70k.

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08-22-2012, 07:35 PM
  #235
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Originally Posted by craigcaulks View Post
I guess I look at these numbers and think the people at the IMF spent too much time partaking in the herb.

I own a house just off the Drive. (Lakewood and 5th) When I bought the house, it came with a suite that was already rented for $1200 a month. My neighbour rents out a suite for a little less than that, but it is smaller. If I was to rent out the rest of the house to a family, I'd get between 2500-2800 and get the choice of my tenant. My neighbour would likely get more.

My mortgage is about 800K, payments with taxes are about 3800, and the current market value is likely close to $1M. Of course there may be a correction, then there'll be another upward trend. Then a stall. Then a drop. Then a continuing growth. Then a crisis. That's life. Some people will spend most of their lives waiting to get started, some won't.

I guess I am bored of the constant barrage of first year ECON students (and their equally as inept Profs) and journalists opining on the topic. I think it is now year 10 of the great bubble. OMG, what if rates go up! What if I get cancer. What if I....

It's old, but sooner or later it'll be right for a while. Then wrong. Then right again.
If you really didn't care you wouldn't be so defensive about the subject to resort to denigrating economics.

$800k at 3800/m is a 3.2% interest rate (25y amt). Care to shed any light on your debt service percentage of income and what industry you work in? Curious, because home maintenance is about another ~$500 a month especially if your home is $800k (~$3200 p taxes in assessment.) With all that into account, at $4.5k a month you would need to earn $54k net which looks like $90k+ gross and puts you into the upper percentiles of income earners in Vancouver.

In which case, yes, property values and affordability don't matter to you because you earn enough money that cost of living is an afterthought. And, yes, real estate talk would "bore" you. Which is an odd thing to say as other high net worth people still care about what the market is like and how their properties (which are assets nonetheless) are doing.

However if you do fall within the averages of household income being $70k. You're in a very tight spot as is, and just a one point bump in interest rates is going to put you in a situation where that mortgage becomes very hard to service.

Great choice to live by the drive though. I love the area. Although it is strange because I know nobody who earns six figures gross who lives in East Vancouver so close to Commercial. Those people I do know who earn that much live downtown or in West Van or in the Oakridge / Shaughnessy / Kits areas ...


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Old
08-22-2012, 08:32 PM
  #236
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Originally Posted by Hyack57 View Post
This thread has gone from comparing cities to being an economics lesson. Zzzzz
And this is the attitude i dont understand.

Its ok to compare cities when vancouvers "on top".

Me thinks its time for vancouverites to stop living in la la land and join the real world.

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08-22-2012, 08:59 PM
  #237
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You mean those 0% 40year mortgages (LOL) that the BoC allowed into effect in 2003 and decided to eliminate just a few months ago?

We have some dodgy mortgages on the books, especially in Vancouver where average household income is $70k.
Good old cash back mortgages to.

In top of this we have record high personal debt levels. People have been financing their lifestyles through things like home equity loans.

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08-22-2012, 09:14 PM
  #238
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Originally Posted by opendoor View Post
It happened in Vancouver only 30 years ago. There was a huge spike in the late '70s to early '80s where housing prices doubled in a short span before losing half their value just as quickly. There were also a couple of 25% drops in the '90s, so to suggest that it can't happen again is foolhardy. Even in 2008 homes lost nearly 20% of their value before they were propped back up with emergency level interest rates which made money basically free to borrow.

I doubt we'll see a massive US style crash either, but a 25-35% drop is a very distinct possibility, which is several hundred thousand dollars of value for the average house in Vancouver.
The housing crash in the US had more to due with the banks giving people mortgages who couldn't afford them. Banks in Canada are equipped to do this and it won't crash nearly as much as the US market did. Markets tend to crash but the dollar wasn't strong then, banks weren't nearly as prepared. Banks control the prices by how much they give people to buy homes and how much people can afford.

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08-22-2012, 09:18 PM
  #239
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Originally Posted by opendoor View Post
Just look at rentals and compare them to selling prices in the same buildings/neighborhoods. I mentioned earlier a friend who rents for $2500 while basically identical houses on her street have sold for $1+ million. Assuming a $900K mortgage, that's about $4500 a month plus $350 a month in property tax and another couple hundred on insurance. So that's easily 2X.

More generally, the average price to yearly rent ratio in various Vancouver neighborhoods currently ranges from about 25:1 to 60:1 depending on the location (so 25-60 years of rent to match the purchase price of the residence). Here's an article from the Province discussing this:

http://www.theprovince.com/news/Wher...302/story.html

I think their numbers overstate the case a bit, as they have it at about 35:1 to 70:1 depending on the area. Though I may be understating it as the IMF recently pegged Vancouver's overall price to rent ratio at 58:1.

Under current interest and property tax rates 15:1 is considered about equivalent in terms of monthly costs. A place that rents for $2K a month ($24K a year) would cost roughly the same month to month as a $360K place. At 25:1 (which is arguably the low point of any average location in metro Vancouver), a $2K a month place is going to cost about $3500 a month in mortgage, taxes, etc to own. So that's nearly 2X at the absolute low end. At 58:1 which is the IMF's number for the city overall, you're seeing a $2000 a month residence cost about $1.15 million to buy and $6500 a month to own. And those figures are under current record low interest rates. Under a more reasonable interest rate, then the spread becomes even greater.




It's happened before under fundamentals way less out of whack than we have right now. The question in my mind isn't why Vancouver would have a price crash, but why wouldn't it? Why is Vancouver different? We saw a 20% correction in 2008 before interest rates fell through the floor, so why is a slightly bigger drop out of the question? I doubt we'll see prices cut in half like some of the hardest hit US markets, but 30% from the peak is a perfectly reasonable scenario.

And really, even if you ignore pretty much every other factor, interest rates alone are going to see Canadian real estate taking a hit. Here's what $4K a month on a 25 year mortgage gets you under various interest rate scenarios:

3%: $850K
4%: $750K
5%: $685K
6%: $620K

So that's a 27% drop in buying power simply due to interest rates returning to their 2007 levels. Even if you accept that real estate isn't overvalued by a single cent right now, there's going to have to be a correction from the return to more normal interest rates given the levels of debt and low equity we're seeing right now.
Considering

- personal debt levels are higher
- the US crash came at a time when "things were good" (none of this Europe is failing, US is bust news)
- low savings levels CIBC (?) reporting that ~50% of 50-59 year olds canadians have less than $100,000 saved up and a good portion are "planning" to work through "retirement". Many had their retirement tired up in home equity.
- vancouver has seen the most speculation.
- any foreign investment is likely on the hot seat especially from china as china is now dealing with their own issues, plus the govnt has put the serious brakes on foreign investment in ream estate.
- ~25% the number ive come across of jobs related to real estate (construction etc)
- Vancouvers job market over all is service orientated and likely more prone to the effects of a downturn.
- the govnt cant lower interest rates any lower to stimulate.
- the govnt already "bailed out" the banks who consequently have a ton of exposure to risk with these mortagages as do taxpayers.

I personally dont see why it cant get as bad as the US. Maybe worse.

Massive sell off as people try to protect their retirement "savings", as foreign investors pull out their "cash", people cant afford the mortgage, followed by a shedding of R/E related jobs, less economic activity as people try to "save" etc etc

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08-22-2012, 09:21 PM
  #240
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Originally Posted by CanucksnWpg View Post
The housing crash in the US had more to due with the banks giving people mortgages who couldn't afford them. Banks in Canada are equipped to do this and it won't crash nearly as much as the US market did. Markets tend to crash but the dollar wasn't strong then, banks weren't nearly as prepared. Banks control the prices by how much they give people to buy homes and how much people can afford.
????

Canadian banks have been giving out loans people cant afford not to mention loans people may not be able to afford if interest rates start to climb.

Same as the US just different names like cash back mortgages.

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08-22-2012, 09:21 PM
  #241
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I personally dont see why it cant get as bad as the US.
As long as oil stays high, and we remain net exporters, and they remain net importers, we'll likely be in good shape.

There are advantages to being a geographically giant country with a small population base...

 
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08-22-2012, 09:32 PM
  #242
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As long as oil stays high, and we remain net exporters, and they remain net importers, we'll likely be in good shape.

There are advantages to being a geographically giant country with a small population base...
Like i said before i have no doubt its one of the reasons why the govnt is pushing the oilsands and pipelines so hard.

Oil price is great but you need to have the capacity.

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08-22-2012, 10:08 PM
  #243
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????

Canadian banks have been giving out loans people cant afford not to mention loans people may not be able to afford if interest rates start to climb.

Same as the US just different names like cash back mortgages.
Canadians have CMHC. There are more guidelines and requirements in this country. You cannot borrow your down payment from the bank anymore. You have to have 20% down. The CMHC will provide 10% and you have to provide 10%. The housing market will never crash like it did in the US. Maybe if you got your mortgage in 1990 but by now you should have it almost paid off. For people looking for houses right now you have to earn a certain amount regardless of what your budget is. The Canadian banks had regulations long before the US housing market crash because they're government regulated unlike the US which are mostly privately owned. Our banks never got a bailout. I don't know any bank that offers a cash back mortgage. After the US crash our banks and the CMHC got even stricter.

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08-22-2012, 10:33 PM
  #244
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Our banks never got a bailout.
That's not exactly true:

http://www.policyalternatives.ca/sit...g%20Secret.pdf

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08-22-2012, 10:39 PM
  #245
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Canadians have CMHC. There are more guidelines and requirements in this country. You cannot borrow your down payment from the bank anymore. You have to have 20% down. The CMHC will provide 10% and you have to provide 10%. The housing market will never crash like it did in the US. Maybe if you got your mortgage in 1990 but by now you should have it almost paid off. For people looking for houses right now you have to earn a certain amount regardless of what your budget is. The Canadian banks had regulations long before the US housing market crash because they're government regulated unlike the US which are mostly privately owned. Our banks never got a bailout. I don't know any bank that offers a cash back mortgage. After the US crash our banks and the CMHC got even stricter.
So much wrong with this post.

CMCH is owned by who?

And yes many people put 100% debt into their house not to mention the use of home equity loans to fund other housing ventures.

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08-22-2012, 10:42 PM
  #246
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There's a Politics Board to discuss economics, bailouts, etc.

Closed.

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