[interested]

re: US economy reference. Articles in the paper Globe and Mail article of a day or 2 ago (sorry don't remember exactly which but I believe article written by the big bear at Sheriff gluskin suggested that backing out the stimulus effects would have resulted in negative growth of the US economy in the 2rd and 3rd quarters of 2009 and even the 5+% which will be revised down for the last quarter would have been only slightly positive. what happens when over a trillion dollars of stimulus put in in 2009 is not replicated in 2010. Do we slip back into negative growth or minimal growth?
My speculation re interest rates: these are more my thoughts as to a logical progression tieing various data together. if things are good, inflation likely will pick up. If things are bad, they will not do so and interest rates stay down. Canada's competitiveness is a big issue and the higher the Canadian dollar (if we unilaterally raise our interest rates without the US following suit) the less competitive our industries become. I do not claim to know if things will improve and inflation return. I just think it is likely there will be a grouping of these events: If economy does well, we will see some escalation of the Canadian dollar (exports to US and BRIC countries(raw resourses) improve,prices rise, wage demands increase, and interest rates go up. If the economy does badly, Canadian dollar falls, production/manufacturing stall or fall, interest rates cannot go up.
Again, I am not an economist so please don't hold me to every prediction, I just think that certain logical conclusions should be expected to follow.[/QUOTE

Great analysis...we would be better off with the second scenario...and hope the canadian economy goes under, then interest will stay low and Canadian dollar low, Canadian business more competitive and sky will be blue...

Actually, I think I would much prefer the first scenario, that the economy does well. Overall, no country ever got ahead by devaluing its currency or having low interest rates because the economy is doing badly. Even if this means somewhat higher interest rates, I can assure you from reading history, mild inflation (2%/year is good: shows a growing economy) hi inflation is bad, deflation(think 1930's

 

[interested]

He is why we should be wary of any government or media reports on housing. The Canadian Government is in bed with the 5 Canadian banks. All the economists in Canada quoted daily in all of the Canadian media work for one of the banks. The government is currently guaranteeing all residental bank mortgages through their own "Fredy Mac" the Canadian Housing and Mortgage Corporation (CMHC). Any buyer who can come up with 5% down can acquire a mortgage and receive 35 year amortization simply by adding the CMHC fee to their mortgage. As prices are going higher, the rest of the Canadian home owners are refinancing their homes as low at 1.75% to maintain lifestyle, meet minimum payments, and the lucky ones are apparently buying more real estate. Banks are having record profits / bonuses, Canadians are spending, personal debt is at a record high. Any one want to buy some Canadian real estate?

Agree with Ponyboy: Clearly no one will want to report bad things about Canadian housing as it will hit the banks, the government (CMHC) and the consumers who will be poorer and hence the economy. However, this does not mean that there will be a severe correction or that prices will not remain at these levels. Besides, R/E is an asset class like every other one, except for your principa residence you get preferred tax treatment, and for investment, at least if rented provides a rate of return which is more secure than say watching the stock market bob up and down on an almost daily basis, which is difficult for a lot of investors. So, a drop in price should improve the rate of return and make the R/E investment more attractive, not less for the investor, though not so when speaking of the primary end user who equates his net worth significantly with the value of his home. The question, esp. with regard to downtown Toronto condos which this forum seems to be skewed to, is which of these 2 groups will be more significant players in the market to come.

 

[azureray]

Question:

How much influence did these factors have on the rising housing prices since last summer:

1) Extremely low inventories: worried sellers since 2008 were holding off selling...there were literally no detached homes on the market in the downtown core for months (what did the text book say? supply and demand...)
2) Low interest rate: we all know this
3) Rush into the market before HST in effect in July
4) Growing optimism of Canadian economy
5) Rush to secure homes before school season (parents are willing to pay as much as it takes to get their kids onto the best school boards)

All these factors triggered the overheated market we were seeing in the past few months. Since Christmas, the market has been cooling down. Do you guys see any of the above factors were creating a bubble, or they were just some one-off events that just happened to combine and created this "over-heating" illusion? And of course...we will see an "adjustment", or "cool off"...it's like we have a sales "slow down" after the boxing day...did we forget we are still in recession?

One thing I know for sure...people are as concerned as hell when we say the word "bubble"...except those who are hoping for a "bubble burst", so they can get into the market with their saved cash, and then ironically, they are the exact same people that will drive the market back up again...I mean, C'mon

 

[EXgeMMy]

One thing I know for sure...people are as concerned as hell when we say the word "bubble"...except those who are hoping for a "bubble burst", so they can get into the market with their saved cash, and then ironically, they are the exact same people that will drive the market back up again...I mean, C'mon

For sure you'll see some prices go back up after the people who hold out jump back in, however traditionally it should follow a "W" model where prices will hit a "low" point after the people have bought are done before it begins to recover.

 

[azureray]

For sure you'll see some prices go back up after the people who hold out jump back in, however traditionally it should follow a "W" model where prices will hit a "low" point after the people have bought are done before it begins to recover.

Wasn't that what we saw last Spring / summer, when skeptical people were holding back in late 2008, and suddenly realized the market would never hit the "bottom" and then started buying? (A lot of them are parents too...so they had no choice but to buy before the school starts...hence the bidding war) No one wants to get involved in bidding wars, but when its for your children's future...would you mind paying 30K more even you know price wise its crazy?

So "W" shape...you mean we are coming to the second low of the "W" right now?

 

[EXgeMMy]

Wasn't that what we saw last Spring / summer, when skeptical people were holding back in late 2008, and suddenly realized the market would never hit the "bottom" and then started buying? (A lot of them are parents too...so they had no choice but to buy before the school starts...hence the bidding war) No one wants to get involved in bidding wars, but when its for your children's future...would you mind paying 30K more even you know price wise its crazy?

So "W" shape...you mean we are coming to the second low of the "W" right now?

Well it's quite obvious the emergency interest rates is what pushed buyers back into the market. We're actually more in a V shape right. the low being early of 2009 and the high being right now. A V shape recovery in any business tends not to be healthy.

As others have stated. 19% increase in 1 year, yet salaraies have remained flat and unemployment has gone up, that's what worries me.

 

[Chromeboy007]

As others have stated. 19% increase in 1 year, yet salaraies have remained flat and unemployment has gone up, that's what worries me.

These numbers have shock value in the media, but overall the prices fluctuations have not been this dramatic.

1 - Percentages can be misleading.

For example, if a house is worth $100,000 in year 1, and decreases to $90,000 in year 2, it's a 10% drop.

But what if in year 3 it goes back up to $100,000, is it a 10% gain from year 2? No. it's actually a 11% gain from year 2 (100/90).

$100,000 to $80,000 is a 20% drop. $80,000 to $100,000 is a 25% gain, not a 20% gain.

That is why in mutual fund reporting, if your investment had gone down by 20% one year and went back up 20% the next, you have not actually recouped your losses. It's very misleading.

2 - According to these numbers, 2009 and 2010 have simply kept up to a long term pricing trend set in Toronto since the mid 90's. Though we are in a recession with high unemployment. So perhaps pricing is a little overvalued. It's nothing like what we saw in the US.

http://www.randi-emmott.com/market.htm

 

[azureray]

These numbers have shock value in the media, but overall the prices fluctuations have not been this dramatic.

1 - Percentages can be misleading.

For example, if a house is worth $100,000 in year 1, and decreases to $90,000 in year 2, it's a 10% drop.

But what if in year 3 it goes back up to $100,000, is it a 10% gain from year 2? No. it's actually a 11% gain from year 2 (100/90).

$100,000 to $80,000 is a 20% drop. $80,000 to $100,000 is a 25% gain, not a 20% gain.

That is why in mutual fund reporting, if your investment had gone down by 20% one year and went back up 20% the next, you have not actually recouped your losses. It's very misleading.

2 - According to these numbers, 2009 and 2010 have simply kept up to a long term pricing trend set in Toronto since the mid 90's. Though we are in a recession with high unemployment. So perhaps pricing is a little overvalued. It's nothing like what we saw in the US.

http://www.randi-emmott.com/market.htm

And also...I am interested to see the volume of sales last year. People have been talking about average price increase...but if only a small number of properties were sold, that price increase would be less significant. It is the combination of price incrase and sales volume that form the momentum.

 

[TrickyRicky]

From the Globe and mail today:

At Mr. Loleski's company, Homefund Corp. in Toronto, nearly 42 per cent of first-time buyers have a down payment of 5 to 7 per cent. Another 12 per cent put just 10 per cent down. Most of the people in these groups go with a 35-year amortization.

"People want to own property, and from the affordability standpoint they have to go this route," Mr. Loleski said.

Low and long

Here's what several mortgage brokers have to say about the extent to which their clients are making the minimum 5-per-cent down payment and using the maximum 35-year amortization.

Kim Arnold, Dreyer Group Mortgages (Vancouver)

90 per cent of first-time buyers go for 35-year amortizations 90 per cent of these buyers are putting down 10 per cent or less

Mike Loleski, Homefund Corp. (Toronto)

Most clients putting 5 or 10 per cent down go with 35 years

41.7 per cent of first-time buyers going with 5 per cent down

Peter Majthenyi, Mortgage Architects

(Toronto)

A majority of clients going with the 35-year amortization

Two- thirds of first-time buyers going with 5 per cent down

John Panagakos, The Mortgage Centre

(Toronto)

60 to 70 per cent of clients are going with a 35-year amortization

25 to 35 per cent of clients are going with 5 per cent down

Jim Tourloukis, Verico Advent Mortgage Services

(Unionville, Ont.)

A 50-50 split between 25- and 35-year amortizations, no one goes 30 years

20 per cent of clients go with 5 per cent down

These kind of numbers are concerning. Remember it is not the passive average home owner but the active average home buyer that drives the market and valuations. The market and valuations in turn define the net worth of the average Canadian since so much of the average Canadian's wealth is tied in their home value. The result is that the fate of the market is in the hands of these marginal players. This is why markets can swing wildly even when the average guy is sitting 15 years into a 25 year amortization with decent home equity.

 

[Eug]

What percentage of buyers are first time buyers? Cuz it sounds like it may be that most first time buyers put 5 or maybe 10% down, but most buyers aren't first time buyers (at least if you consider the last quotes).

And it's no shock that many who consider putting down only 5-10% will go for 25-35 year amortizations.

Anyways, a 7.5% minimum with 30 year amortization, or possibly a 10% minimum with 30 year amortization may be reasonable. Anything stricter than that seems like overkill at this point.

 

[Chromeboy007]

Where did all these shadey mortgage lenders come from?

2 years ago before all of this no one would give me, a first time buyer, less then 20% down payment.

 

[azureray]

Where did all these shadey mortgage lenders come from?

2 years ago before all of this no one would give me, a first time buyer, less then 20% down payment.

Unless you purchase compulsory mortgage insurance.

CMHC mortgage insurance chart here:

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

For a 5% down, 35 years amortization , you need to pay:

2.75% + 0.40% = 3.15% premium.

If a standard 5 yr mortgage is at 4% fixed rate...then to get 5% down, 35 years amortization, your actually mortgage will cost you 7.15%.

 

[cdr108]

From the Globe and mail today:

At Mr. Loleski's company, Homefund Corp. in Toronto, nearly 42 per cent of first-time buyers have a down payment of 5 to 7 per cent. Another 12 per cent put just 10 per cent down. Most of the people in these groups go with a 35-year amortization.

"People want to own property, and from the affordability standpoint they have to go this route," Mr. Loleski said.

could someone please post the link to the article ... i can't find it and i want to read it in full.

TIA

 

[MAU]

could someone please post the link to the article ... i can't find it and i want to read it in full.

TIA

http://www.theglobeandmail.com/globe-investor/personal-finance/its-not-the-mortgages-its-the-borrowers/article1464019/

 

[EXgeMMy]

found it on globe advisor

http://www.globeadvisor.com/servlet/ArticleNews/story/gam/20100211/RCARRICK11ART1902