KA1
Senior Member
Do I need to add anything more? Nah, now I laugh with you. If this trend continues for a short while, then, I like you, will be the owner of a $ 1m condo. I will be in the company of a wise man.
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Baby, we got a bubble!?
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Do I need to add anything more? Nah, now I laugh with you. If this trend continues for a short while, then, I like you, will be the owner of a $ 1m condo. I will be in the company of a wise man.
KA1
Senior Member
This has been my position all along to which not too many -- definitely, not Interested -- agreed with.
KA1
Senior Member
As an afterthought, I would like to add a few more comments to my earlier post about 'skewed' sandwich' market.
For those old enough to remember, in 1967, after the mid-East war, Arab countries placed an embargo on oil export to Western countries including Canada. Prime Minister Trudeau's government had a tentative plan to impose gas rationing. Every adult Canadian will be given a gas coupon good for a certain number of gallons of gas and they were free to do what they wanted to do with the coupon -- use it or sell it to othes. Believe me, 4 cylinder cars were being sold at prices higher than the suggested retail prices.
In that environment, a businessman, that I knew, bought an 8 cylinder Cadillac. His reasoning was that since the Cadillace will be used for business purpose and claimed as a business expense, he, in effect, will be paying only for 4 cylinders. He has money enough to buy gas coupons from the others. As far as gas rationing is concerned, it will not affect him.
This is the kind of reasoning individuals going after high end condo market employ. This is the kind of market Interested has been treading in for quite a while. And Interested is still worried. To re-phrase Scotia Bank commercial, Interested, you are a lot smarter and wiser than you think. Relax and enjoy the world unfold as it should.
For those old enough to remember, in 1967, after the mid-East war, Arab countries placed an embargo on oil export to Western countries including Canada. Prime Minister Trudeau's government had a tentative plan to impose gas rationing. Every adult Canadian will be given a gas coupon good for a certain number of gallons of gas and they were free to do what they wanted to do with the coupon -- use it or sell it to othes. Believe me, 4 cylinder cars were being sold at prices higher than the suggested retail prices.
In that environment, a businessman, that I knew, bought an 8 cylinder Cadillac. His reasoning was that since the Cadillace will be used for business purpose and claimed as a business expense, he, in effect, will be paying only for 4 cylinders. He has money enough to buy gas coupons from the others. As far as gas rationing is concerned, it will not affect him.
This is the kind of reasoning individuals going after high end condo market employ. This is the kind of market Interested has been treading in for quite a while. And Interested is still worried. To re-phrase Scotia Bank commercial, Interested, you are a lot smarter and wiser than you think. Relax and enjoy the world unfold as it should.
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cdr108
Senior Member
Why home ownership may just be a pipe dream
http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/why-home-ownership-may-just-be-a-pipe-dream/article1990160/
ROB CARRICK
From Tuesday's Globe and Mail
Published Monday, Apr. 18, 2011 5:58PM EDT
Last updated Monday, Apr. 18, 2011 6:20PM EDT
The housing market has entered a period of stability – those who think the market will fall and those who think everything’s fine have neutralized each other.
And so we have a resale home market that is headed more or less sideways in terms of sales activity and showing only mild price increases. At least, that’s with the crazy Vancouver market set aside.
You’ll find no predictions here about whether or not a serious correction is ahead for housing prices. But I do have a question. Why are so many people still rushing to buy homes in an environment where the average price across the country is a little more than $371,000, with average prices in Vancouver at $786,311, Toronto at $456,147 and Calgary at $398,836?
Combine these high prices with the years of rising interest rates that lie ahead and you have a situation where affordability is declining and will continue to do so.
Some say there’s a bubble in home prices. It’s easier to make a case that we’re in a home-buying bubble where people are purchasing homes at a rate that exceeds what could be considered sensible or rational.
Here are a few ways to tell whether a home purchase makes sense in today’s market:
* The monthly cost of carrying your mortgage and other debts plus your monthly share of property taxes and heating is markedly lower than the maximum 40 per cent of gross monthly household income permitted by lenders.
* You have discussed with your lender how much your payments would be if interest rates rise either a little or a lot in the next several years, and you are comfortable with the results.
* You’ve got a good start on saving for retirement and can foresee being able to make at least modest contributions in your early years as a homeowner.
* If you have kids, you’re able to regularly put money away in a registered education savings plan.
* You have a plan for finding the money to furnish your new home, take family trips and cover emergency expenses without going into debt.
Do not base your thinking about your ability to afford a house strictly on what lenders or real estate agents tell you. They may have useful guidance, but their goal is to sell mortgages and houses. That’s why the affordability measures they use pretend you live a world where there are no claims on your household cash flow other than those related to your home and other debts.
Being able to amass the minimum 5-per-cent down payment on a house does not mean you’re ready to buy, either. In the real world of home ownership, 5 per cent is peanuts. By some estimates, the costs of buying a home – mover, property taxes and utility bill adjustments, legal fees and repeated trips to Canadian Tire or Rona could cost an additional 2 to 4 per cent of the value of your home.
Technically, being able to afford payments over a 30-year amortization gets you into the home-buying club. But a sensible, rational home purchase would be done with a 25-year amortization.
Let’s say you’re 30 and buying a home (people are doing everything later these days, which seems reasonable because they’ll live longer). With a 30-year amortization, you’ll be mortgage-free in a little less than 26 years if you pay on an accelerated biweekly schedule and don’t make any lump-sum payments. That gives you just nine mortgage-free years before retirement to help your kids pay for college or university and top up your savings.
Now, about those lump-sum payments. Most mortgages give you some latitude to pay down your principal, but don’t base your should-I-buy-a-house analysis on doing this. Life has a way of soaking up the extra money you imagine you’ll use in the years ahead to make prepayments.
A final consideration in a rational analysis of whether to buy now is how long you’ll stay in your home. The right answer: A long time. By moving out in, say, five years you could rack up moving costs that offset your gains in home equity.
Are you hung up on the idea that renting is bad and owning a home is good? The new rule is that renting makes a heck of a lot more sense than buying a house you can’t really afford.
http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/why-home-ownership-may-just-be-a-pipe-dream/article1990160/
ROB CARRICK
From Tuesday's Globe and Mail
Published Monday, Apr. 18, 2011 5:58PM EDT
Last updated Monday, Apr. 18, 2011 6:20PM EDT
The housing market has entered a period of stability – those who think the market will fall and those who think everything’s fine have neutralized each other.
And so we have a resale home market that is headed more or less sideways in terms of sales activity and showing only mild price increases. At least, that’s with the crazy Vancouver market set aside.
You’ll find no predictions here about whether or not a serious correction is ahead for housing prices. But I do have a question. Why are so many people still rushing to buy homes in an environment where the average price across the country is a little more than $371,000, with average prices in Vancouver at $786,311, Toronto at $456,147 and Calgary at $398,836?
Combine these high prices with the years of rising interest rates that lie ahead and you have a situation where affordability is declining and will continue to do so.
Some say there’s a bubble in home prices. It’s easier to make a case that we’re in a home-buying bubble where people are purchasing homes at a rate that exceeds what could be considered sensible or rational.
Here are a few ways to tell whether a home purchase makes sense in today’s market:
* The monthly cost of carrying your mortgage and other debts plus your monthly share of property taxes and heating is markedly lower than the maximum 40 per cent of gross monthly household income permitted by lenders.
* You have discussed with your lender how much your payments would be if interest rates rise either a little or a lot in the next several years, and you are comfortable with the results.
* You’ve got a good start on saving for retirement and can foresee being able to make at least modest contributions in your early years as a homeowner.
* If you have kids, you’re able to regularly put money away in a registered education savings plan.
* You have a plan for finding the money to furnish your new home, take family trips and cover emergency expenses without going into debt.
Do not base your thinking about your ability to afford a house strictly on what lenders or real estate agents tell you. They may have useful guidance, but their goal is to sell mortgages and houses. That’s why the affordability measures they use pretend you live a world where there are no claims on your household cash flow other than those related to your home and other debts.
Being able to amass the minimum 5-per-cent down payment on a house does not mean you’re ready to buy, either. In the real world of home ownership, 5 per cent is peanuts. By some estimates, the costs of buying a home – mover, property taxes and utility bill adjustments, legal fees and repeated trips to Canadian Tire or Rona could cost an additional 2 to 4 per cent of the value of your home.
Technically, being able to afford payments over a 30-year amortization gets you into the home-buying club. But a sensible, rational home purchase would be done with a 25-year amortization.
Let’s say you’re 30 and buying a home (people are doing everything later these days, which seems reasonable because they’ll live longer). With a 30-year amortization, you’ll be mortgage-free in a little less than 26 years if you pay on an accelerated biweekly schedule and don’t make any lump-sum payments. That gives you just nine mortgage-free years before retirement to help your kids pay for college or university and top up your savings.
Now, about those lump-sum payments. Most mortgages give you some latitude to pay down your principal, but don’t base your should-I-buy-a-house analysis on doing this. Life has a way of soaking up the extra money you imagine you’ll use in the years ahead to make prepayments.
A final consideration in a rational analysis of whether to buy now is how long you’ll stay in your home. The right answer: A long time. By moving out in, say, five years you could rack up moving costs that offset your gains in home equity.
Are you hung up on the idea that renting is bad and owning a home is good? The new rule is that renting makes a heck of a lot more sense than buying a house you can’t really afford.
Eug
Senior Member
That's not an accurate description of the map. For example, while Moore Park has gone up 19%, Rosedale has dropped 42%, and Forest Hill has dropped 7%.
interested
Senior Member
interested
Senior Member
Yes Eug, but look at Bridle Path; homes up 182% from $1.8 mill to over $5 mill. Depending on how many have been sold, it could explain things. As well, what is the mix of condos. While I appreciate the 3 areas you quote are mainly single family residential, there have been some condos built in the past few years and sale of these is presumably below the sale price of the single family homes they may be replacing in the calculations. I don't know this for fact, just speculating.
Eug
Senior Member
I'm just saying it's difficult to assess "value market" vs middle vs. upper end just by looking at that map over just a few months. For Bridle Path I wouldn't be surprised if only a couple of houses sold during that period, and the reason Rosedale dropped was because of new condo units.
In my area home prices jumped 20-30% but part of the reason there I'd guess is tear downs and rebuilds. Actual land prices have gone up, but not by 30%.
In my area home prices jumped 20-30% but part of the reason there I'd guess is tear downs and rebuilds. Actual land prices have gone up, but not by 30%.
interested
Senior Member
I agree Eug.
Anyhow, presumably if it is an aberrant result, it will correct itself towards the end of the month and over the next few months.
Anyhow, presumably if it is an aberrant result, it will correct itself towards the end of the month and over the next few months.
TCW
New Member
Canada’s annual inflation rate shot to a 30-month high in March, with data showing rising prices are seeping past typically volatile items like food and gasoline and stoking talk about an interest rate hike from the Bank of Canada.
Statistics Canada released data on Tuesday that showed annual inflation was 3.3% in March, while core inflation, which factors out volatile items such as energy and food prices, was 1.7%. Economists had been expecting an annual inflation number of 2.8%, and for a core rate of 1.2%.
http://business.financialpost.com/2011/04/19/inflation-surges-higher-than-expected/
Why renting is beginning to look like a great deal
http://www.theglobeandmail.com/glob...ing-to-look-like-a-great-deal/article1990160/
Statistics Canada released data on Tuesday that showed annual inflation was 3.3% in March, while core inflation, which factors out volatile items such as energy and food prices, was 1.7%. Economists had been expecting an annual inflation number of 2.8%, and for a core rate of 1.2%.
http://business.financialpost.com/2011/04/19/inflation-surges-higher-than-expected/
Why renting is beginning to look like a great deal
http://www.theglobeandmail.com/glob...ing-to-look-like-a-great-deal/article1990160/
interested
Senior Member
The inflation figures are no suprise at all.
It is ridiculous anyhow that food and gas, for myself at least the 2 largest purchases are stripped out of the "core rate". Also, the CPI basket of goods while being an average for anyone of us is not relevant. Personally, I would say that cars and food represent at least 1/3 of total expense if not 1/2 so to me at least, inflation feels much closer to 10-15%.
Whether the rise is a one off event or not, these articles point out what most of us have been saying all along. If the only way one can manage to buy is with rock bottom interest rates and 5 or even 10% down, then one is playing with fire because a change in any single variable; lay off from work, unexpected illness or medical expense, unexpected other expense, minimal rise in interest rate or minimal drop in price pushes the marginal player over the edge.
Tying these articles together with the 12% year on year "average" increase according to TREB (allowing that it may in fact be much less if Median or Resales are considered) one can quickly see why the trend would be worrisome at least for locals if not for all the "foreign investors".
It is ridiculous anyhow that food and gas, for myself at least the 2 largest purchases are stripped out of the "core rate". Also, the CPI basket of goods while being an average for anyone of us is not relevant. Personally, I would say that cars and food represent at least 1/3 of total expense if not 1/2 so to me at least, inflation feels much closer to 10-15%.
Whether the rise is a one off event or not, these articles point out what most of us have been saying all along. If the only way one can manage to buy is with rock bottom interest rates and 5 or even 10% down, then one is playing with fire because a change in any single variable; lay off from work, unexpected illness or medical expense, unexpected other expense, minimal rise in interest rate or minimal drop in price pushes the marginal player over the edge.
Tying these articles together with the 12% year on year "average" increase according to TREB (allowing that it may in fact be much less if Median or Resales are considered) one can quickly see why the trend would be worrisome at least for locals if not for all the "foreign investors".
Eug
Senior Member
It's not ridiculous at all. There are multiple different rate numbers that are reported. The core rate has these stripped out to minimize changes due to the volatility of commodities. However, if you want them included, you can just look at the also widely reported rate that includes fuel and food.
BTW, for me, gasoline is not a major expense. I drive a Prius.
interested
Senior Member
It's not ridiculous at all. There are multiple different rate numbers that are reported. The core rate has these stripped out to minimize changes due to the volatility of commodities. However, if you want them included, you can just look at the also widely reported rate that includes fuel and food.
BTW, for me, gasoline is not a major expense. I drive a Prius.
My point Eug was that the CPI, even the overall number, is very much an average and probably in no way represents the majority of people's expenses. I appreciate the core strips out volatility. Goldman Sach's came out with another metric because they felt the CPI did not reflect what is truly going on.
I believe most would agree that inflation is not 3% but much closer to 5-7%.
I would bet that food however is a major expense for you and that is up by 5%. I don't care that flat screen TV's go down in price. How many of those do you buy a year vs. bread. So the basket as you can see needs to be personalized.
Thank you for rubbing in the fact that you have a Prius at this time of $1.32 or so gas. (LOL). My next car will be a bicycle.
daveto
Active Member
I work for a very large company, and we've had consistently strong earnings throughout the ups and downs of the last few years. Nonetheless, despite our strong performance, our company wide salary increase limit last year was 2.5%.
Personally, I was fortunate to get slightly above avg at 2.9%. But on the flip side, I'm in the top marginal tax bracket, and thus on a net basis my post tax income was up only 1.9%, and my own recent salary increase experience is mirrored by most people I know.
Meanwhile, even as incomes are stagnant, asset prices (stocks, commodities, real estate) continue to skyrocket.
It seems difficult to not draw a correlation between this current situation, and the recent and unprecedented global monetary policy (deficits, quantitative easing, etc)
Two years ago, a lot of people were saying "we've never tried this before - we don't know how it will work out". I think there is an increasing body of evidence which shows that the emergency policies of the last couple of years have enriched those with assets by propping up those prices, while having a relatively small trickle down affect to those with incomes. In effect, we propped up the balance sheets, and did little for the income statement.
What comes next?
I think that if the balance sheet does not does not sustainably derive from the income statement, then one or both must change. Thus, I figure that either incomes will move substantially higher (presumably due to inflation), or assets will revisit the 2009 lows. I just don't see how else our current situation is sustainable.
Personally, I was fortunate to get slightly above avg at 2.9%. But on the flip side, I'm in the top marginal tax bracket, and thus on a net basis my post tax income was up only 1.9%, and my own recent salary increase experience is mirrored by most people I know.
Meanwhile, even as incomes are stagnant, asset prices (stocks, commodities, real estate) continue to skyrocket.
It seems difficult to not draw a correlation between this current situation, and the recent and unprecedented global monetary policy (deficits, quantitative easing, etc)
Two years ago, a lot of people were saying "we've never tried this before - we don't know how it will work out". I think there is an increasing body of evidence which shows that the emergency policies of the last couple of years have enriched those with assets by propping up those prices, while having a relatively small trickle down affect to those with incomes. In effect, we propped up the balance sheets, and did little for the income statement.
What comes next?
I think that if the balance sheet does not does not sustainably derive from the income statement, then one or both must change. Thus, I figure that either incomes will move substantially higher (presumably due to inflation), or assets will revisit the 2009 lows. I just don't see how else our current situation is sustainable.
interested
Senior Member
Well thought out Daveto.
This in another way echos that there has been a wealth transfer again form the working class to the rich as afterall, who has more assets, poor people or rich people. At the same time, income, which most depend upon has not risen even at inflationary rates. By the way, 2.5% and you are lucky. Other big organizations are giving 2% and even less. As you point out, take off taxes and you are closer to 1.2% and that is not inflation which means falling behind.
By the way, without revealing too much Dave, do you honestly feel that the CPI represents what your "basket of goods" expenses are or do you find that you are spending more than last year by more than 3%?
This in another way echos that there has been a wealth transfer again form the working class to the rich as afterall, who has more assets, poor people or rich people. At the same time, income, which most depend upon has not risen even at inflationary rates. By the way, 2.5% and you are lucky. Other big organizations are giving 2% and even less. As you point out, take off taxes and you are closer to 1.2% and that is not inflation which means falling behind.
By the way, without revealing too much Dave, do you honestly feel that the CPI represents what your "basket of goods" expenses are or do you find that you are spending more than last year by more than 3%?