Personal Finance

Housing market hot, but will it last?

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  • Dec 17th, 2013 7:15 pm
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Deal Addict
Jan 11, 2004
1277 posts
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In the GTA market things will definitely cool off. IMO things are not sustainable and will come back down to economic fundamentals.

You will probably see another run in the spring/summer due to the HST. So there might be a short window in the winter where there might be some deals.
Deal Guru
Dec 11, 2008
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I keep preparing myself for the crash as I bought a house last year.
Deal Addict
Dec 25, 2007
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yea interest rates are going ot eventually go up..and when those people realize they cant pay them I think the market will start to adjust accordingly.
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Aug 10, 2009
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Halton
yeah...no kidding lol....in my area...semis area being listed for $380K - $410K range near 9th line/ eglinton area of mississauga .....

I for one bought one almost 5 years ago and paid way less. But yeah a street or two down for me has detached 2500 sq ft houses being listed for 800K lol....


bubble will bust soon I think
Member
Dec 8, 2008
434 posts
104 upvotes
One current theory is that most baby boomers that will be retiring soon are house rich but cash poor and will need to sell their houses to fund their retirement. Some believe this will definitely pop the bubble.

I have a wait and see attitude.
Deal Guru
Dec 11, 2008
13064 posts
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ginko123 wrote: yeah...no kidding lol....in my area...semis area being listed for $380K - $410K range near 9th line/ eglinton area of mississauga .....

I for one bought one almost 5 years ago and paid way less. But yeah a street or two down for me has detached 2500 sq ft houses being listed for 800K lol....


bubble will bust soon I think
I'm in that area too, it's crazy!
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Feb 24, 2003
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Toronto
I believe that, when a correction happens, some house prices will drop more in some areas that others. Where I live, I haven't noticed an substantial price drops. In fact, prices seem to have stayed the same or gone up which is good for me.
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Jun 14, 2003
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mecassa wrote: One current theory is that most baby boomers that will be retiring soon are house rich but cash poor and will need to sell their houses to fund their retirement. Some believe this will definitely pop the bubble.

I have a wait and see attitude.
Another theory is some baby boomers are actually cash rich and now have time to find new income after retirement from work. One type of income is rental income. I know a few people who are going to retire are preparing to jump for prime rental property when the market 'crashes'. By the way, baby boomers do not all retire in the same year. They are already buying and selling for a few years already.
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Banned
Jun 19, 2006
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What I'm seeing out there is that basically nothing is being done with CMHC mortgage insurance, or a downpayment at all. In other words, the entire market is being held together by a government subsidy program that cannot continue forever, as it will simply exhaust the ability of taxpayers to pay, or simply run out of buyers who are willing to buy into such a ponzi scheme.

I personally think we're on the precipice of a systemic meltdown of the housing industry in Canada, and this nonsense can't continue much longer. But then again, I would have never predicted this bubble would have inflated so much. All of the metrics on the Canadian market are far worse than even what existed in the USA before they had their crash.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
Newbie
Nov 3, 2009
52 posts
toronto
pitz wrote: All of the metrics on the Canadian market are far worse than even what existed in the USA before they had their crash.
Which metrics are you referring too?


"Canada's housing market is certainly not stained by the sort of excesses that characterized the U.S. market before the crash. Subprime lending in Canada is estimated to represent less than 5 per cent of the market, compared with more than 20 per cent in the U.S. prior to the crisis."

http://www.theglobeandmail.com/globe-in ... le1346308/

Not educated enough to form a legitimate opinion but it seems obvious to many that we are in a bubble. But that doesn't mean it will just pop and come crashing down.
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Jun 19, 2006
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kahoots wrote: "Canada's housing market is certainly not stained by the sort of excesses that characterized the U.S. market before the crash. Subprime lending in Canada is estimated to represent less than 5 per cent of the market, compared with more than 20 per cent in the U.S. prior to the crisis."

http://www.theglobeandmail.com/globe-in ... le1346308/

Not educated enough to form a legitimate opinion but it seems obvious to many that we are in a bubble. But that doesn't mean it will just pop and come crashing down.
Well, a lot of people are in 'denial' over what 'subprime' really is in Canada.

5% down/35 year loans in Canada, CMHC-insured, would be considered 'subprime', if issued in the United States, and insured by insurance companies there (or structured as a 'subprime' loan per se, ie: an 80/20 piggyback loan, etc.).

Of course, the use of CMHC insurance seems to be burned into the psyche of most first-time home buyers in Canada; to wit: the 5/35 buyers in Canada would be insulted if you called their CMHC-insured loans 'subprime', but in reality, that's exactly what they are.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
Deal Fanatic
Aug 27, 2004
7673 posts
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Toronto, ON
kahoots wrote: Which metrics are you referring too?


"Canada's housing market is certainly not stained by the sort of excesses that characterized the U.S. market before the crash. Subprime lending in Canada is estimated to represent less than 5 per cent of the market, compared with more than 20 per cent in the U.S. prior to the crisis."

http://www.theglobeandmail.com/globe-in ... le1346308/

Not educated enough to form a legitimate opinion but it seems obvious to many that we are in a bubble. But that doesn't mean it will just pop and come crashing down.
The problem in the US wasn't subprime loans. Not DIRECTLY.

The problem in the U.S. was that CHEAP DEBT after 9/11 fuelled 10-12%/year increases in house prices.

That, in turn, creates speculation. If you can buy a house for $100K and sell it for a "sure" $110K next year, possibly tax free (is U.S. tax law like the Canadian?), and write off the mortgage interest (something you can't do in Canada), why not do it?

And then, since the prices are increasing, lenders stop thinking about default risk. After all, if somebody borrows $100K with no down payment, the value of that house rises to $110K by the time they default, then the bank.
THAT's where you got the subprime loans coming in.

And of course, the subprime loans get a whole new range of buyers and speculators into the market, fuelling the price increases for another round.

And, since the subprime loans were based on the lousiest fundamentals, they went belly up first. There are lots of underwater non-subprime mortgages out there, but hey, if the people can still make their payments... who cares that all their equity went poof?

In Canada, we may have fewer subprime loans, but we ALSO have the same underlying cause, namely that cheap debt is fuelling house speculation and increases in house prices.

Let me, finally, end this with a thought experiment. Let's pretend you have a simple loan. 5 year loan, $1200/month payment. You have two options:
a) Pay $62070 for the thing, and borrow at 6%, or
b) Pay $70201 for the same thing, and borrow at 1%.

Now, let's make these 25 year loans, again at fixed rates (impossible to get on a mortgage, but let's forget that for a second).
a) Pay $186248 for the thing, and borrow at 6%
b) Pay $318410 for the thing, and borrow at 1%

If you pick a), congratulations, you are a financially responsible.
If you pick b), you must be an auto industry MBA or a realtor.

If you tell me "but VivienM, you're such a tool, who cares, the payments are the same", then sorry, but you're an idiot. The real estate and banking industry will be happy to rip you off and keep you in debt forever, though. (And don't forget that in the real world, you can't lock in that 1% for 25 years like in my example)

What has happened in both the U.S. and Canada is a slightly fancier version of this.
People, for reasons that escape me, tend to adopt the same idiotic "but the payments are the same" reasoning instead of separating out amount borrowed and interest rates. (This is why 0% financing is used to sell cars instead of $5000 discounts and a market rate of interest. 0% financing is the same idea as option b) from above, and it's better for the lender/seller...)

Therefore, people who, when the interest rate was 6%, might only have been willing to pay $186248 for my hypothetical thing are apparently now prepared to pay up to $318410. (Remember, it's "1200/month of debt" in both cases) So up they bid the price, to the great benefit of sellers who get cold hard cash...

But the thing about this is, when the interest rates rise, the prices have to come back down. Let's say the interest rate on the $318410 goes up to 4%. Congratulations, it now costs $1680/month to buy that thing.

If (silly) people value it at $1200/month and are only willing to incur $1200/month worth of debt to buy it, then the price is going to fall way down...
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Jun 19, 2006
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Yup VivienM, even prime loans in the USA are now subject to crazy rates of default. Subprime, in either Canada or the USA is just the proverbial tip of the iceberg in terms of problems in the market.

Canadians also don't have the benefit of long-term fixed-rate financing -- so the *entire* market in Canada is essentially based on VRMs/ARMs. At least an American can lock in their mortgage rate for decades if they want (and they'd be wise to do so), which means they can logically pay a higher price for a home than a Canadian could because they never have to worry about interest rate risk.

Whereas, a Canadian has to worry extensively about interest rate risk. So, for the same level of risk, they can't pay as much.

IMHO, best-case scenario is that the stock market hyperinflates, housing remains flat, and salaries inflate strongly. Worst-case scenario is that the stock market stays relatively flat, salaries drop, and housing drops by half. I can't imagine there possibly being a happy ending for people who are buying today. Either they miss out on strong stock market gains, or they get raped on what they pay for their house relative to value a couple years from now.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
Deal Addict
Feb 9, 2005
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VivienM, you forgot all the people that got in late with "OMG, prices keep going up so I'll never be able to afford it unless I act now" and managed to get an "affordable" payment at a low rate by going to a 35 year ammortization. Things will end up badly in the overheated RE markets in Canada. Vancouver in particular is in for some serious pain, even though the house of cards has been holding up surprisingly well.
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Sep 10, 2004
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AllWheelDrift wrote: VivienM, you forgot all the people that got in late with "OMG, prices keep going up so I'll never be able to afford it unless I act now" and managed to get an "affordable" payment at a low rate by going to a 35 year ammortization. Things will end up badly in the overheated RE markets in Canada. Vancouver in particular is in for some serious pain, even though the house of cards has been holding up surprisingly well.
I wonder how long they can keep prime at 0.25 % ?

When will inflation take off ?
Deal Addict
Aug 13, 2007
1100 posts
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rage2021 wrote: http://www.yourhome.ca/homes/realestate ... ll-it-last

Discuss.

I'm going to be a first time home buyer in a couple years and I know I don't wanna overpay for some of these ridiculous asking prices. I'm hoping the market comes down.
Yeah the prices will come down in a couple of years but the Mortgage rates will go up so essentially your monthly payments will remain pretty much the same.

Right now people are just getting sucked in by the low mortgage rates and are just seeing the monthly payments they will have to make . ..and they think they can afford the house . They might not be able to make their monthly payments when the rates go up considerably in the next few yrs.

Wait till the rates go up when their mortgages come up for renewal .
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Dec 11, 2005
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pitz wrote: Well, a lot of people are in 'denial' over what 'subprime' really is in Canada.

5% down/35 year loans in Canada, CMHC-insured, would be considered 'subprime', if issued in the United States, and insured by insurance companies there (or structured as a 'subprime' loan per se, ie: an 80/20 piggyback loan, etc.).

Of course, the use of CMHC insurance seems to be burned into the psyche of most first-time home buyers in Canada; to wit: the 5/35 buyers in Canada would be insulted if you called their CMHC-insured loans 'subprime', but in reality, that's exactly what they are.
I don't see how you can compare a 5/35 Canadian mortgage to what was going on in the US, at all.

In the US you had things more like 50 year term mortgages, with the first 2 years being at a steep discount teaser interest rate and the mortgage being interest only. And then the mortgage was approved based solely on your ability to pay this crazy teaser rates.

This is totally different than a standard Canadian 5/35 mortgage -0 mainly because even if you are CMHC insured, the bank approval is base don your ability to make the TOTAL mortgage payment, not on this mystical reduced payment.
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Feb 9, 2008
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China
I overheard my manager's friend at work talking about an imminent crash in housing prices. Apparently he works as an appraiser for some government agency forgot the name of it since my manager mentioned it to me briefly when I asked him. He also mentioned that housing prices won't crash steeply within a short period of time, but will drop gradualy over a couple years. Will have to see if this is true...


EDIT: Also, I have doubts housing prices could hold up much longer, as MANY of my mother's friends (in their 40s) have been cheering house prices to go up, and one time when I was speaking to them voicing my opinion on the housing market, all I got was "House prices will only go up! It's the best investment one can make!"

From hearing that from most of my mother's friends, it reinforced my doubts in someway.

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