Drive behing the Market? Status Fad?

[MadMax]

MadMax below are your points:

1) Strong emigration compared to other cities (invalid , immigration can't fuel
prices of RE)
2) Strong Banking System (wrong , I explained it earlier)
3) Relatively Low Unemployment (Low was 1.5 years ago, not anymore)
4) Steady RE appreciation (lol, RE doesn't go down because of "Steady RE appreciation, very much valid point)
5) Low interest rates ( finally you arrived to the ONLY reason why RE prices haven't tanked , yet)
Of course for audience to whom cater Mass Street Media ( who in turn heavily dependent from RE and auto advertisers) the soup of your points is very much valid.

I didn't say immigration fuels prices of re, rather that it has sustained it thus far.
Our banking system was voted number one in the world and other countries are currently analysing and perhaps looking to implement some of our policies in their own countries.
I stated that we have relatively low unemployment and Ontario has been hit hard lately because our economy is heavily based on the manufacturing industry.
As someone stated earlier, our re appreciation has been a steady and continued curve whereas other countries have experienced sharper and quicker movements.
As long as the government doesn't suddenly inflate interest rates as they have in the past, re values should remain steady as people who go to re-new after their fixed term are not shocked and awed when they go to re-finance.

Shtopor....you should love your country as I do and be thankful that you live in a place that is able to withstand the current economic downturn better than most other countries throught the world. Rather you choose to only focus on the negatives. We're not perfect and we have much to improve, but slowly and surely we'll get there. I guess we are just two different people....I like to focus on the positives while some people only dole out negatives regardless of what is really happening around them!

 

[safeashouses]

There's your smoking gun son! Get your head outta your bu** and realize that this real estate "recovery" is nothing but a state sponsored bailout to the tune of $127 billion! The question is what happens when a big chunk of those 2% variable rate mortgages reset and default? You can bet that the MBS buyers will come running to CMHC and the Feds to cash in those markers!

 

[MadMax]

There's your smoking gun son! Get your head outta your bu** and realize that this real estate "recovery" is nothing but a state sponsored bailout to the tune of $127 billion! The question is what happens when a big chunk of those 2% variable rate mortgages reset and default? You can bet that the MBS buyers will come running to CMHC and the Feds to cash in those markers!

This country was built on credit son! Always has and always will....that's how a democratic free world economy works. People say cash is king....I say credit is king, get it while you can son , but all joking aside some people come out rich, some even, and some in the gutter. It all depends on how much leverage one can sustain and where and how one invests their money, how they handle risk management. You can quote all the statistics you'd like, but people like yourself have been quoting numbers like this and predicting collapses that have happened, are happening, and will happen many times over.....nothin' new here, we've heard it all before! I'll sit back and enjoy paying my 1.8% $700.00 dollar a month variable mortgage now, and take my chances on defaulting in the future.

 

[cdr108]

I'll sit back and enjoy paying my 1.8% $700.00 dollar a month variable mortgage now, and take my chances on defaulting in the future.

assuming that you're on a 5/25 yr term/amortization, that's only a $180,000 mortgage, which is nothing compared to the stuff i've seen where ppl are mortgaged up to 4x that !

if your annual income is ~$50K, then $180K is acceptable.

 

[MadMax]

assuming that you're on a 5/25 yr term/amortization, that's only a $180,000 mortgage, which is nothing compared to the stuff i've seen where ppl are mortgaged up to 4x that !

if your annual income is ~$50K, then $180K is acceptable.

Good call cdr108...my mortgage is $174k and annual income is $94K. I think I know a little something about real estate and have positioned myself where I have and will have many options for the future....all the haters can keep hatin' if they like!

 

[rbt]

Lets assume there is a crash. Can you predict when and by how much? Timing is everything.

1 year, 2 years, 5 years, or 10 years makes a huge difference; and a 15% dip means nothing if it is 5 years out.

 

[daveto]

Mad Max, the topic of this thread doesn't really relate to your situation. Since you have a "prime minus" variable mortgage, then you bought at least 12 months ago. Based upon your mortgage amount outstanding I'm guessing it was probably a couple of years earlier.

The thread is about the present market, not the market of 2-4 years ago.

In your case I would agree that since you are already an owner, and furthermore you have a great mortgage rate that is no longer available in the market, and since you have significant equity and a solid income, well then no harm in enjoying your life and no reason to sell. At least not so long as you are psychologically comfortable with a 20% decrease in the resale value of your property.

Lets assume there is a crash. Can you predict when and by how much? Timing is everything.

1 year, 2 years, 5 years, or 10 years makes a huge difference; and a 15% dip means nothing if it is 5 years out.

RBT, there is a difference between a "crash" and a "correction". I'm going to be rude, and answer a question with some questions.

***

What do you think is an appropriate multiple between rental prices and the cost of purchasing and owning the same property?

What do you think is an appropriate multiple between the cost of purchasing and one's family income?

What do you think are the structural differences between the RE markets in the US/Ireland/UK/Spain/most of the world/etc vs Canada?

Do you believe the present central bank rates, and market bond yields are sustainable long term at their present lowest in history levels? If not, what do you think will be the effect on RE when they increase and take mortgage rates higher?

***

I think if someone can answer these questions intelligently and objectively, and remain confident that RE prices in Canada/Toronto/etc are sustainable at their present levels, well perhaps they are right and I am wrong. I'm certainly always willing to learn from others. Truly.

My guess is that most people will start to dig deeper into those questions above, become very concerned, and then retreat into willful ignorance.

RBT, in answer to your question, I don't think it will be a sudden and overnight crash but rather it will be a gradual decrease. You suggested 15% down in real terms over the next five years? Yes, I believe there is a very, very high probability that will happen.

Further, I disagree that would be of little consequence. To the contrary, including 10% transaction costs, that will put many recent buyers with 10% or less down payments into negative equity (even after 5 years of paying down principle)

 

[TrickyRicky]

rbt, I think almost by definition virtually no one can predict the timing of a crash. I think a keen mind can identify what the major issues are, the cause and consequences. However, if prices hypothetically need to change up or down based on known forces it is hard to tell if this will happen rapidly in 6 months or over many many years.

Daveto, It is my general opinion that there is something seriously imbalanced in the local real estate market here and in the rest of Canada. History tends to repeat itself and Canada has always been a kind of meat and potatoes pragmatic marketplace. The one thing where I may drop my guard and ask the famous last words "is this time different" is with respect to how several markets like here in Toronto are maturing? Canada on a relative scale is becoming more and more economically and politically irrelevent with each passing day. However we occupy and will likely always occupy the top tier of standard of living in the world. My question is to what degree are we becoming a capital (money) dumping ground for foreign nationals and how is that impacting markets in Toronto and Vancouver etc. in the long-term? So what I mean is that even if the Canadian middle-class is going no where, even falling behind that doesn't mean that there isn't an exponential increase in foreign interests plunking money in the market.

 

[nfitz]

I'm trying to find the drive behind this insanely inflated Toronto Real estate market.

I went to see an open house on Galt ave. (Jones and gerrard). Detached, possibly 1200 sqft 'duplex' with a lipstic paint job. (older appliances, no nice finishes). listed at 419k, it sold for 475!!!! - the only thing it had going for it was the fact that it was detached.

475k for a 1,200 sq ft detached in that area seems reasonable. That's a relatively big house! I can't imagine paint colour, and age of the applicances has much to do with house price. I'm surprised it would have been listed for 419k ... must have been an attempt to get a bidders war. What was the 2008 assessment value?

 

[Roy G Biv]

If others want to pay silly money for housing, I'm happy to let them and I'll be waiting cash in hand when the market rebalances.

Wasn't that supposed to have happened already?

hmmm

 

[w.ll.am]

How much of a correction are we talking here? The reality is the housing market is correcting itself from correcting too much from the mid 80s (?) . Someone posted a graph in one of these threads that showed a median and the huge drop in prices of homes made it so people never even broke even till about '99 or later.

According to the averages of housing increases over the last 50years we are pretty close target.

Original post by Eug...
http://www.urbantoronto.ca/showpost.php?p=276894&postcount=127

The driving force is that in reality realty prices were below market value. Now they may be a little about value but there certainly won't be a drastic drop in price. Plus many higher end homes have already dropped in price significantly. I don't think starter homes will drop at all.

The correction may have already happened if you average out the prices.

 

[Torontotony]

There are some compelling arguements being made about this subject. I financed my way through this boom, and was fortunate to have been financing through the boom and bust of the late 80's - early 90's, so I feel I am fairly qualified to comment about this. There are a few reasons why the demand for real estate has been as strong as it has.

1. 30/35/40 year amortizations made the unattainable affordable;
2. mortgages have been made readily available to individuals who up to about 10 years ago were unable to obtain/qualify for a mortgage. I am referring to those self-employed individuals who do not always declare their true incomes or utilize write-offs to greatly reduce their taxable income (which lenders traditionally used to qualify a borrower);
3. programs such as zero downpayment and 5% downpayment, combined with the previous two points, together with loosenning of debt service ratio guidelines have opened many doors to buyers with limited starting capital.
4. a long period of low interest rates also speaks to affordability.

In essence, market value (a term being used in this thread), is not what the property is actually worth or selling for; rather, it is determined by the monthly carrying costs. This also explains why so many "investors" are scooping up rental properties. Simply put, rental income reduces the overall carrying charges related to real estate ownership. Housing prices IMHO will only begin to stabilize/decline when the monthly product cost becomes prohibitive, even with these financing options in place.

Tony

 

[lordmandeep]

it will very strange for a housing market to go bust when the economy starts to recover.

If housing prices crash it will be next year which will likely be a strong year for the Canadian economy.

I can't recall that happening ever before...


Also many of you make incorrect calculations that you need 50k income to support a 180k mortgage.

I know people who make far less and somehow, god knows how, pay much larger mortgages.

 

[cdr108]

Also many of you make incorrect calculations that you need 50k income to support a 180k mortgage.

I know people who make far less and somehow, god knows how, pay much larger mortgages.

yet that is/was the standard most banks used for mortgage approval ... 3.5x income.

the main difference though has to do with current mortgage rates vs. the past ... long-term historical 5-year rate has been 8.0%, and we are around 5.0-5.5% now;

and extended amortizations of 30-, 35- and the short-lived 40-year make monthly payments more 'affordable', yet many forget or don't realize they will be adding $100,000's in interest during that time.

 

[lordmandeep]

Yeah I know some people who have been in their house like 10 years and thier mortgage has been only paid down like 30% at most.


They though have paid back line of credit amounts just as large as their mortgage in that time.


I think its because the mortgage payments the banks give try to drag on your payments as long as possibile paying the most interest while paying down your principle at a very slow rate.

With a Line of Credit you get a statement every month at how much it is and you are charged only interest. Some go, I have some extra cash, lets put down 1000-2000 dollars a month on this Line of Credit. Then get encouraged as they see it getting paid down rather quickly and continue paying it down.