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Baby, we got a bubble!?

^^^
Kenny is right.
Back to fundamentals.
Also, if interest rates rise enough, investors now dump and ruins the market for all.

Interestingly, I saw only the beginning of Brian Persaud's TV show. Only first 10 minutes can be streamed. I do not get Rogers.
They had Brad Lamb on and when he was asked about assignments for investment condos, he thinks this is terrible and should be outlawed.

Once could view this 2 ways. He appreciates it ends up having speculators drive up prices or alternatively in his self serving role as a developer, he would rather end up with end users and investors who want to keep. I say this as theoretically, in my view at least, if prices drop and you have alot of speculator investor/flippers if prices drop enough, they may just walk away even though they would held accountable but if they are foreign investors, good luck chasing them, and developers would get back properties worth less than they were originally sold for.


The other interesting thing is both he and a "top agent" who was on the show said investment at $400-450 /sq.ft. approx. in the core they thought was OK but stay away from higher priced product. Well, most of the core is $550-600 so is this saying they even agree that investment real estate no longer makes sense in the core?
Perhaps more detail came out later but it was interesting none the less.
 
cdr108 said:
i hear that alot, yet i don't know why people think we need to see double-digit interest rates before anything bad could happen ?!?

interest rates have been at historical 'emergency' lows in the past several years, during which time many new large mortgages with low DP and longer amortizations than 25 years were taken out.

for every 100 basis point (ie. 1.00% rate) rise in rates will result in 8-10% higher mortgage payments ! ! !
a full 1.00% rate increase for 2011 isn't impossible, let alone in 3-5 years when many mortgages come due for renewal.
the principal will be barely affected at that time since the majority of the mortgage payment was towards interest.

we are currently ~400 basis points below the historical long-term average of 8%.
so that 4.00% increase would result in 32% increase in monthly mortgage !

if the economy does get better as many predict, why wouldn't there be a corresponding rise in rates since the 'emergency' would be over and to temper inflation from cheap money QE1 and QE2 ?
Click to expand...
That summary fails to consider a number of important real-world caveats that mitigate the above.

1) If interest rates increase, as many have said it is likely because the economy is improving, and pay increases.
2) Even if pay doesn't increase significantly, many still jobs include basic COLA increases. Over 5 years that's roughly 10%.
3) At renewal, those with 5-year fixed mortgages have no requirement to get another 5-year fixed. They could get a 2 or 3-year fixed at a much lower rate.
4) At renewal, one can play with amortization periods. At this point with the law change, some may not be able to take advantage of this, but many will. For example, someone getting a 30-year amortization today for a 5-year term can get another 30-year amortization 5-years from now.
 
^^^
Eug,
Your arguments make sense but I believe what cdr, you, others and me are all concluding is that people are stretched, will be potentially stretched more, and at some point, even applying all the remedies you suggest above, there are those who are not going to be able to accomodate. Again the question will be; working on the assumption interest rates rise more than say 1 or 2 % and let's say for argument, to historical norms, are there enough people at the margin to commence a downward spiral in prices. This will depend on other factors clearly. The economy as a whole; wage increases; investor and end user sentiment; world events eg. gasoline prices, political instability, wealth effect that people feel, etc.
None the less, while you correctly point out the caveats, rising interest rates will be a stress on a system surviving presently on record low mortgage rates.
 
I've gone through some of the numbers already (based on some of those assumptions above) and personally believe that if interest rates rise 2.5 - 3% over the next few years, it will mean a significant hit for the real-estate market, but IMO it won't represent a death-blow to create a US-style meltdown.

However, if rates do rise 4% quickly, we'll start to see much more severe effects. ie. I think we'll have to see real-world 5-year rates over 7% in the relative near-term before we see the beginnings of a meltdown. OTOH, if we see a more gradual increase to 7%+ over a more extended period, it's quite possible we'd just see price stagnation, or modest price declines.
 
Heh. Yeah, back in spring 2010 I was thinking spring & summer 2013 might be a good time to re-evaluate the market, in light of the various short-term predictions around the web about the Canadian real estate market. (This thread started just a few months before the 2010 spring thaw, and I think a 3-year time frame is a reasonable period to assess such short-term predictions. After that, all bets are off...)
 
Great discussion last two pages.
I believe in some simple rules. Buy low, sell high. Leverage is the mother of all evil.
Prices are high, people borrowed heavily. You do the math.
 
redfirm said:
I believe in some simple rules. Buy low, sell high. Leverage is the mother of all evil.
Prices are high, people borrowed heavily. You do the math.
Click to expand...
The key here is anyone can say there will eventually be a pullback, or at least a normalization to the normal trend. That in itself is not a brilliant prediction. The prediction that will impress me is the one that actually predicts the time frame and the amount correctly.
 
^^^
UD, are you giving odds?
I agree with a decrease in 2012. Not sure it will be quite that far down, at least not yet. So I say from present values as of March 2011, decrease will be around 7.5% in 2012. I am not giving any odds.
I assume UD you are basing this on your figuring that the year following the Year of the Rabbit and given that the 3rd year of a US presidency is a good year for the stock market that we will wait to next year or 2012 for a correction or is this prediction based on the expected rise in interest rates.
 
I was just going to post that.

There are 2 comments which are worth reading which are posted with the article:

mapleinsights wrote: We know perceptions can change rather fast. Currently there is no concern due to housing affordability being near all time highs. That will quickly change once the bank of Canada starts to raise rates. It then won't take long for sentiment to shift. However, it is highly unlikely for the Canadian housing market to experience the level of price declines as in the US. See more related to Canada housing at http://mapleinsights.com/Rates--Housing---Savings.html

Www.mapleinsights.com

don't believe the hype wrote:

Really?! This kind of thing reinforces my notion that we are headed for a significant correction. I continually see middle class folks like myself living way above my standard of living which tells me they must have a lot of debt to support the lifestyle they have chosen. I think there's a big difference between asking how people "feel" about whether they can handle a real estate correction versus whether the math actually works.

Perhaps these comments are food for thought.


ARTICLE from Globe and Mail:

Canadians are not only confident that they are assiduously paying down their mortgages, but they also believe they have the means necessary to weather a drop in house prices, contrary to worries that household debt is out of control, a poll showed on Wednesday.

Almost three-quarters of Canadians, or 73 per cent, believe that they or their families are well-positioned in the event of tumbling home prices, according to the annual RBC Homeownership Study undertaken by Royal Bank of Canada .

The poll found that 85 per cent of respondents feel that they are doing a good or excellent job of paying down their mortgage, while 90 per cent of Canadians are confident that real estate in Canada is a good investment.

“There’s been a lot of noise around debt-to-income ratios,” said Marcia Moffat, RBC head of home equity financing, noting that she found it comforting that such a large segment of Canadians said they were able to handle what is typically the biggest purchase of an individual’s life.

She said confidence was drawn from stable employment and rising incomes.

The survey was released a week after the Bank of Canada left its benchmark interest rate unchanged at a low 1 per cent.

The central bank and other policymakers have flagged personal debt as a danger to the economy, although the Bank of Canada last week said household debt was less of a concern than it has been in past months. Consumer spending remains strong but is easing to levels more in line with incomes, the bank said.

Worries about personal debt have twice prompted the government to introduce stricter mortgage rules to prevent overheating in the housing market.

The survey showed that Canadians, supported by a strong banking system, still have a strong interest in purchasing a home over the next two years. Interest declined slightly in the quarter, but remains high overall with 29 per cent saying it’s likely they will buy.

That was down two points from 2010 but is higher than any other year since 2006, the report said. Compared with last year, however, fewer Canadians said it was better to buy now than wait.

Rising home prices were the No. 1 concern about purchasing a home followed by rising mortgage rates, the poll showed.

The poll found that 40 per cent of Canadians feel the current housing market is balanced equally between buyers and sellers, a rise of five points over 2010.

The survey of 2,103 people is considered accurate to within plus or minus 2.2 percentage points, 19 times out of 20
 
interested said:
There are 2 comments which are worth reading which are posted with the article:

mapleinsights wrote: We know perceptions can change rather fast. Currently there is no concern due to housing affordability being near all time highs.
Click to expand...
Huh?

There is a LOT of concern about housing affordability, esp. in markets such as Vancouver. My acquaintances there complain about it all the time. I don't know what this person is smoking.
 
To answer Eug's question: I already provided my prediction (post # 2860) - slide to start in 18-24 months, total damage 25%.
Of course, nobody has a crystal ball - all these numbers are just our educated guesses ... but I guess that's the point of this thread: provide some some views, opinions, analysis and, of course, predictions.
What I'm sure of is the following: it won't be a "soft landing", many people (those fully leveraged) will be hurt.
 
QUOTE from the article: "Almost three-quarters of Canadians, or 73 per cent, believe that they or their families are well-positioned in the event of tumbling home prices..."

So what's with the other 27%? Did they answer that they are not well positioned, or did they not answer this question? That group is the key. If we have a quarter of our society who cannot weather decrease in home prices than the effect may be quite severe actually.

Also, here's a link for another similar RBC poll - quite interesting when compared to this one: www.newswire.ca/en/releases/archive/October2010/13/c9968.html
 
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