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Baby, we got a bubble!?

Admiral Beez

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And kill the rest of the economy? I'd prefer other tools. How about CMHC only cover entry level homes ie. less than 500 sq ft per person in a family. And they should stop their securitization of housing debt. Let the banks fully guaranteed their mortgage bonds. Watch what happens to housing, with just those two policy changes. Would do more than any interest rate change.
Modest interest rates do not have to kill the economy. What we have now with essentially zero borrowing costs is the appearance of economic success, but with a foundation of sand, unable to weather a modest rate hike due to massive increases in soon to be serviceable household debt.

What I hate is how low interest rates punish folks like myself. Worked and fought hard to pay off the house, spend only what we can afford on what's necessary, never carry credit card debt, and save as much as possible. Instead the system is rewarding those who do the opposite; buy more house than they can afford, carry credit card debt, save little to nothing. I'm not suggesting a return to double digit rates of the 1980s nor calling for Depression-era policies intended to reduce spending, and I'm no economist, but a return to the rates of 2o11-2014 would be a good start in bringing some balance back between savers and spenders.

 

TheKingEast

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Modest interest rates do not have to kill the economy. What we have now with essentially zero borrowing costs is the appearance of economic success, but with a foundation of sand, unable to weather a modest rate hike due to massive increases in soon to be serviceable household debt.

What I hate is how low interest rates punish folks like myself. Worked and fought hard to pay off the house, spend only what we can afford on what's necessary, never carry credit card debt, and save as much as possible. Instead the system is rewarding those who do the opposite; buy more house than they can afford, carry credit card debt, save little to nothing. I'm not suggesting a return to double digit rates of the 1980s nor calling for Depression-era policies intended to reduce spending, and I'm no economist, but a return to the rates of 2o11-2014 would be a good start in bringing some balance back between savers and spenders.

Banks make much less money off of "savers". Banks want spenders, period.

You should have been investing, though. If you were, you should have invested more. You'd probably be singing a different tune.
 

interested

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I am going to guess that Admiral Beez is older than you...possibly retired. If so, preservation of capital often is more important than return on capital.
The Admiral sounds like he has been very responsible and will not be dependent upon others to fund his "risk taking" if/when there is a serious connection.

Let's recall, people buying with 20 or 33% down are in fact leveraging anywhere from 5 to 3x their money. On the way up, one is a genius. On the way down, one gets
eradicated quite quickly.

Let's also remember that the stock market is up exactly because interest rates are so low...not so much due to great performance but financial engineering by companies
to borrow (companies have high debts just like consumers) so they could buy back stock and increase dividends while financing it with cheap debt and appear to be doing better
than they were.

I share the Admiral's concerns that "reasonable interest" should be in place to avoid the moral hazard which much of the country (including the government) now faces...
where a minor increase in bond rates can spell virtual disaster for a large swath of the population.
 

TheKingEast

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I am going to guess that Admiral Beez is older than you...possibly retired. If so, preservation of capital often is more important than return on capital.
The Admiral sounds like he has been very responsible and will not be dependent upon others to fund his "risk taking" if/when there is a serious connection.

Let's recall, people buying with 20 or 33% down are in fact leveraging anywhere from 5 to 3x their money. On the way up, one is a genius. On the way down, one gets
eradicated quite quickly.

Let's also remember that the stock market is up exactly because interest rates are so low...not so much due to great performance but financial engineering by companies
to borrow (companies have high debts just like consumers) so they could buy back stock and increase dividends while financing it with cheap debt and appear to be doing better
than they were.

I share the Admiral's concerns that "reasonable interest" should be in place to avoid the moral hazard which much of the country (including the government) now faces...
where a minor increase in bond rates can spell virtual disaster for a large swath of the population.
What I'm saying is we have passed the point of no return. We are living a new reality. The old days aint coming back. The future may be hell though...we'll see.
 

Admiral Beez

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Banks make much less money off of "savers". Banks want spenders, period.

You should have been investing, though. If you were, you should have invested more. You'd probably be singing a different tune.
I was and am investing, usually in stocks and US ETFs. That's what saving means, the term isn't reserved for your bank's savings accounts.

But I never invest with borrowed money, that's gambling imo
 
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Eug

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Yes, the fees are a problem but I wonder how much of that is attributed to amenities. Used to think fees were directly tied to amenities but they don't seem to be. I've lived in buildings with no amenities yet the fees were sky high. You would think the newer builds need the high fees mainly due to the lack of quality construction. My building is 7 years old and already suing the developer over shoddy construction. You'll see the same situation with other condos too. But fees are a big barrier for those who refuse to down-size. Picture being 70 with a house fully paid off. Why would you down-size to a 900 soft condo? Pay land tax, pay the same amount in property tax and then tack on a $800 maintenance fee that will go up with no cap?

Condos aren't desirable enough so boomers stay in their 4 bedroom houses until they kick the bucket or have to go into a nursing home.

Factor in the fees I should easily be in a vey nice house. But I'm in a box
I wish I could pay condo fees to get condo type upkeep for my detached home. It was so good being able to leave at 7 am and already having the driveway plowed, and also it was great never having to do the gardening, when I lived in my condo townhouse. My neighbour hired a company to do winter driveway shoveling for his detached home, and they'd show up later in the day after everyone had already left for work, and occasionally would miss the job completely, yet my neighbour was still paying many hundreds of $$$ per winter.

Instead, it's a mishmash of myself, my wife, and some third party help to get all this done, and that ain't cheap either. Gardening help for example costs between $15-$35 per hour per person, for example, and I pay retail pricing for gardening supplies. I've gotten people to help cut my grass, but outside a company, often the only grown adults willing to do this are ex-druggies who will then show up at your door 1 month later asking for money for their sick aunt or whatever. If you don't have an industrious young kid in the neighbourhood then the other main option is paying either a crappy landscaping company for moderate prices or a higher end landscaping company for high prices. And most won't weed the lawn.

As they say, the grass is always greener... And I know this as I've lived in owned both condos and freehold.

Also, I recently had to get my roof redone. I contacted 4 companies. One just flat out refused because he was honest and said the roof wasn't simple enough. He had been in the business long enough that now gets a ton of referrals, so he just does the easiest jobs (like square bungalows) for easy money. Anything more complicated gets declined. So I hired one of the three remaining companies, and then the crew showed up and mutinied and refused the job because it was not as easy as they had hoped. What a frickin' waste of time for me. The next company came in and did the job professionally, but by this time it was already several months later.

Actually, my intention is that when I hit 70ish, I will move into a condo. My kids will have moved out, and I will have no desire to maintain the property. I'll capture the equity in the home before I die, and someone else can move into the home. My sister agrees with this. She's in her 50s now and loves her 2 bedroom condo on the waterfront. Pays her condo fees and her housekeeper, and doesn't have to worry about anything regarding her home besides her utility bills. My wife may not agree though. She is a Gen Xer that fits into your caricature of boomers. She wants to stay in the home until she kicks the bucket. So, every person is different.

But the good news is that I am nearing the end of my mortgage era. I have just signed probably last mortgage agreement for my primary home, at a nice low 2.29% for a 2-year fixed. After that 2-year term is up, I will only have a few months of payments left. :)

Is it because of my awesome financial management skills? I wish I could say that, but nope, it's because I'm one of those Gen Xers that bought in right at the right time. As mentioned previously in this thread, I bought pre-construction in the late 90s, moved into my condo townhouse in the early 2000s, and then upgraded to a detached home a decade ago... and managed to luck into one of the greatest rises in real estate prices of all time in Canada. I feel sorry for my Millenial relatives though, because it is going to be hard enough for them to afford a condo in Toronto, much less a detached single family home.
 

PinkLucy

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I lived in a condo for the better part of the last decade (well, two different ones actually) and have just returned to a detached house. I wanted my own front door back and I was sick of elevators, and I missed my garden. I didn't mind paying the condo fees because I know exactly what it got me, and all things considered, my carrying costs will end up being pretty similar. So definitely not a financial decision. Maybe I'll go back to a condo later on (I'm in my late 50s), although if I do, I expect it will be a townhouse, which is actually what we were looking for and then we stumbled upon a house we loved. I really really missed my own front door and my own little patch of the outside world -- balconies just didn't work for me. There's no right and wrong when it comes to lifestyle choices, you have to find what works for you.
 

Eug

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I lived in a condo for the better part of the last decade (well, two different ones actually) and have just returned to a detached house. I wanted my own front door back and I was sick of elevators, and I missed my garden. I didn't mind paying the condo fees because I know exactly what it got me, and all things considered, my carrying costs will end up being pretty similar. So definitely not a financial decision. Maybe I'll go back to a condo later on (I'm in my late 50s), although if I do, I expect it will be a townhouse, which is actually what we were looking for and then we stumbled upon a house we loved. I really really missed my own front door and my own little patch of the outside world -- balconies just didn't work for me. There's no right and wrong when it comes to lifestyle choices, you have to find what works for you.
Indeed. I wanted a yard too, and a quiet neighbourhood. And with two young kids, it's doubly important. However, as has been mentioned in various threads, one gets the impression that some people who are in condos don't quite understand that house maintenance is expensive, if not with dollars then with time. Moving into a house is about freedom and a yard, and stuff like that, not to save money.

P.S. I just came back from mowing the lawn. We have a large yard on a ravine lot in the inner burbs, and my neighbour and I share a riding lawn mower (which we picked up for 500 bucks at an estate sale a decade ago). Half-way through the cut, it died @#$@^@#!, so I finished the job with a push mower today. More $$$ to spend...
 

steveintoronto

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The old days aint coming back.
One could read economic theory until blue in the type-face, but one has to wonder: "How did our folks (I may be a bit older than many here) manage to buy and pay down a large, detached house *on one income* and with considerably higher interest rates?"

Something was footing the bill. Mother Nature? Residual colonialism? It may not appear to be directly related to "bubbles" as we're now seeing of price not reflecting fundamental value, but the present "bubble" is on a cantilever that goes back much further than just a generation.
 

ponyboy

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more bubble talk --

read this piece yesterday:
http://vancouversun.com/news/local-news/douglas-todd-new-10-year-visas-stoke-housing-booms-in-vancouver-and-toronto

If 500K 10-year visas have been granted, and holders have used nominees and international-student children to flow money to real estate, I can see that having a pretty big effect on real estate prices over the past few years. It seems the laws need to focus on the source of the money purchasing real estate (foreign money) rather than just the status of the individual linked to the property (child or nominee). The poor quality of data, and lack of transparency around real estate market, buyers, sellers, prices, etc is a problem (and suspicious) since it is systemically so important to the economy. We deserve better.

I'm sure local investors are a part of the mania as well. Plans to now require non-insured mortgage holders to quality at a +2% rate starting in the fall will show who's swimming naked. I hope the govt follows thorough on those plans.

Finally, it is interesting to me that the MSM rarely acknowledges that lower housing prices are positive in many ways. As a middle aged homeowner in Toronto, I feel bad for the many young adults I know who appear to be struggling a lot with costs of living here. It has never been easy, but recent rental increases and prices to purchase a home or condo have been unprecedented.
 
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TheKingEast

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I'll tell you one thing. The government has no idea what they're doing. They're trying to walk a very fine line and failing big time. Rents have increased mightily lately because they stupidly put in that 1.5% limit for rental increases. Rental limits do not work. And yet htey still implemented the rule which really makes me question if they know what they're doing.

Young adults are struggling with the high cost of living here for many reasons. Lets focus on those reasons instead of trying to kill the market. Maybe they can add another land tansfer tax or something.
 

interested

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The King East:

The government knows exaactly what it was doing. It is in election mode and the threat they fear is the NDP taking away votes from the Liberals and the Conservatives winning by default. So they are positioning themselves to take the NDP vote. They are appealing to renters by saying we are holding your rents. The rent increases only hit those who are moving. The majority of renters who are not moving will be happy. It looks good on paper that they "acted" to defend the renters. The Government was warned by many sources that rental limits would increase the rental rates in the longer term but governments think short term.
Had they agreed to allow a reasonable rent increase limit....say 4-5% or an amount pegged to 1.5% + the increase in Hydro/other utilities/ and property taxes then I suspect there would have been no mighty increase in rents we are seeing now.

I assume you are being facetious when you say add another land transfer tax. Toronto already has double land transfer taxes. Adding a third unless it is province wide will just distort the markets further sending people to the burbs to avoid the "triple land tax". Besides, taxing more is hardly going to stop wealthy immigrants/speculators who want to get their money out of locations where it is unsafe. More taxes are just not the answer. Targetted speculator/non resident buyer taxes would be.
 

Eug

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Teranet's pricing curve lags TREB's due to the fact that they measure things differently, but FWIW, Teranet's July pricing for Toronto is now available and it still shows a month-over-month increase of 2.1%. This represents a crazy 28% year-over-year increase.

Teranet's index for Toronto is now at 254.93. The index is set at 100 for June 2005, and in July 2005 it was effectively the same at 99.99.

In other words, if you bought a dozen years ago, your home on paper would be worth 255% of your purchase price. This represents an 8.1% annual return, compounded yearly.

In contrast, a few months ago, TREB showed a month-over-month pricing decrease. It will be interesting to see if Teranet's August numbers finally show a m/m price decrease.
 
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