[daveto]

A BOC focused on exports growth and a continued 2 % target inflation rate = interest rates are going no where.... unless our success and export growth creates enough inflation for the BOC to 'dampen' that growth... No immediate damper on the housing bubble from the Monetary side?

http://www.theglobeandmail.com/repo...ience-as-recovery-takes-root/article12667079/

Not necessarily.

The BOC's rate determines variable mortgage rates. However the bond market determines fixed mortgage rates. After the US Fed speech today, US bond rates have jumped, and Canadian bonds have followed (up 6% today). The key rate to watch is the Canadian 5 yr gov't treasury. Scroll down to the 7th chart at the following link to see the recent movement (up until yesterday)
http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

Here is a live data source on the yield
http://www.investing.com/rates-bonds/canada-5-year-bond-yield

As you see, the yield is at a one year high, and has moved sharply upwards in the last 2 months.

Currently, most active buyers have a locked in rate from the prior 3 months, and thus we're not seeing a lot of effect from the increased rates. To the contrary, May/June sales may have been juiced up in response to some buyers feeling pressure to close a deal before their locked in rate expires and they need to return to their bank/broker and take a mortgage 20bps higher.

Whether bond rates continue to trade at or below a 1.7% yield, or whether they breach that resistance and move higher...that is the question.

 

[blahblahblah]

I have bought real estate over the last 23 years and I think today is neither better nor worse than many times during that period. The best advice(rarely taken) I can give anyone contemplating real estate is to just go for it. (caveat: I don't buy condos so that might be different. But they have scared me for years and I have been proven wrong). Back to just go for it. Timing the market never works. That crash you non-owners are waiting for will come, but not when you are ready for it. You could wait 5 years for a crash or just get on with it, invest, and start paying down the mortgage. And don't ask advice about buying. Invariably someone will talk you out of it. Just grow a pair, bit off more than you can chew, and chew like hell(my personal motto for real estate investing). Oh, and one of the best things I ever bought: house in 1989 top of the market, in a bidding war. Dropped 10% or more for a 5 years but who cares. Not me today with a 300% return.

 

[Eug]

Not necessarily.

The BOC's rate determines variable mortgage rates. However the bond market determines fixed mortgage rates. After the US Fed speech today, US bond rates have jumped, and Canadian bonds have followed (up 6% today). The key rate to watch is the Canadian 5 yr gov't treasury. Scroll down to the 7th chart at the following link to see the recent movement (up until yesterday)
http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

Here is a live data source on the yield
http://www.investing.com/rates-bonds/canada-5-year-bond-yield

As you see, the yield is at a one year high, and has moved sharply upwards in the last 2 months.

Currently, most active buyers have a locked in rate from the prior 3 months, and thus we're not seeing a lot of effect from the increased rates. To the contrary, May/June sales may have been juiced up in response to some buyers feeling pressure to close a deal before their locked in rate expires and they need to return to their bank/broker and take a mortgage 20bps higher.

Whether bond rates continue to trade at or below a 1.7% yield, or whether they breach that resistance and move higher...that is the question.

First off I'll say I don't buy technical analysis much, so I'm not sure there is any real "resistance" to breach.

However, the main point to consider here that even 1.7% isn't actually high. Even 2% isn't high. In fact, I'd say 2% would keep prices relatively high going forward. It would dampen the market somewhat, but it wouldn't cause it to crash by any means. Soft landing as it were. Remember, bond yields in 2011 were a full 1% higher than they are now, at around 2.7% and higher, and in the early 2000s were well over 4%.

 

[chwong]

I have bought real estate over the last 23 years and I think today is neither better nor worse than many times during that period. The best advice(rarely taken) I can give anyone contemplating real estate is to just go for it. (caveat: I don't buy condos so that might be different. But they have scared me for years and I have been proven wrong). Back to just go for it. Timing the market never works. That crash you non-owners are waiting for will come, but not when you are ready for it. You could wait 5 years for a crash or just get on with it, invest, and start paying down the mortgage. And don't ask advice about buying. Invariably someone will talk you out of it. Just grow a pair, bit off more than you can chew, and chew like hell(my personal motto for real estate investing). Oh, and one of the best things I ever bought: house in 1989 top of the market, in a bidding war. Dropped 10% or more for a 5 years but who cares. Not me today with a 300% return.

I fully agree. I ventured into Toronto real estate market in the early 80s. Yes, I bought a house in 1989 at the height of the market too. Yet today I can look forward to a comfortable early retirement. Do your accounting, do not spread too thin, buy properties in good location and work HARD. Your will be richly rewarded.

 

[daveto]

First off I'll say I don't buy technical analysis much, so I'm not sure there is any real "resistance" to breach.

However, the main point to consider here that even 1.7% isn't actually high. Even 2% isn't high. In fact, I'd say 2% would keep prices relatively high going forward. It would dampen the market somewhat, but it wouldn't cause it to crash by any means. Soft landing as it were. Remember, bond yields in 2011 were a full 1% higher than they are now, at around 2.7% and higher, and in the early 2000s were well over 4%.

Eug, the issue is not just the mortgage rate. It is the direction of mortgage rates..

When rates are declining, that expands the pool of buyers and their buying power.

When rates are rising (even if still historically lower) it has the opposite effect.

Remember, RE is a marginal market and the "average price" derives from the actions of a proportionately small pool of buyers and sellers.

 

[KA1]

Guys, discussions have been sidetracked, first by recharts and then by others towards the statistics and away from this thread, that is "Bubble".

Not too long ago, 'bears', ably led by one Interested and fully supported by Daveto, were predicting R/E market bursting and going to the level of 2008 and staying put there.

It has not happened as yet and based upon your reading of the 'Tea leaves" -- that is, statistics --, does any one from the 'Bear' camp still believe that the prices will go down to the level of 2008. If so, then, when we expect that to happen?

 

[daveto]

Guys, discussions have been sidetracked, first by recharts and then by others towards the statistics and away from this thread, that is "Bubble".

Not too long ago, 'bears', ably led by one Interested and fully supported by Daveto, were predicting R/E market bursting and going to the level of 2008 and staying put there.

It has not happened as yet and based upon your reading of the 'Tea leaves" -- that is, statistics --, does any one from the 'Bear' camp still believe that the prices will go down to the level of 2008. If so, then, when we expect that to happen?

I can't speak for others, but I've answered this many times. I will do so...again.

Unprecedented Gov't global and domestic monetary intervention after 2008 skewed our market. To ignore that is akin to someone who smokes in bed, sets their house on fire, gets saved by the fire department, and then happily goes back to smoking in bed while mocking those who try to warn them.

Housing bubbles typically deflate as a mirror image of the price increases. A 20% decrease brings prices back to 2008 levels (adjusted for inflation). My "prediction" would be a total inflation adjusted decrease of 25-35% over the next 7-10 years. Here below is a link to a great illustration of some 40+ housing bubbles

Here is the analysis I mentioned. It shows that RE bubbles decreases usually mirror the pace and amounts of the increases. The US had a much more rapid price increase (5 years?) than Canada, whose increase has been spread over much longer (10 years?) The red line is Canada. The blue line is the average for the 48 housing bubbles
http://leithwheelerblog.sitecm.com/u...bble/#more-341
View attachment 12519

 

[KA1]

Housing bubbles typically deflate as a mirror image of the price increases. A 20% decrease brings prices back to 2008 levels (adjusted for inflation). My "prediction" would be a total inflation adjusted decrease of 25-35% over the next 7-10 years.

In the meantime, what does a potential home owner do? Rent ? And if you are an investor, then, perhaps, put your money in GIC/Bonds/Stock market? Returns on stocks/bonds are not that great these days. And stock market is behaving like a yo-yo. A close friend of mine has seen his stock market gains go done by around $ 61,000 during the last few weeks.

Perhaps Interested, a savy investor, could also add his two-bits worth.

 

[daveto]

In the meantime, what does a potential home owner do? Rent ? And if you are an investor, then, perhaps, put your money in GIC/Bonds/Stock market? Returns on stocks/bonds are not that great these days. And stock market is behaving like a yo-yo. A close friend of mine has seen his stock market gains go done by around $ 61,000 during the last few weeks.

Perhaps Interested, a savy investor, could also add his two-bits worth.

Every week the daily newpapers include a "financial facelift" type article in their personal finance section where an advisor reviews the retirement planning of a couple. In almost every case that I've read, the couple would suffer a serious (perhaps insurmountable) setback if their multiple RE assets decreased by 25%, and that is typically the only asset class to which they are so heavily exposed. Studies have shown that the average person expects to retire with 70% of the pre-retirement income, whereas the retirees on average end up with closer to only 30% of their pre-retirement income.

It's not an issue of don't buy/invest. It's an issue of know what you're buying/investing and diversify appropriately.

If a homeowner is buying on the belief that housing is guaranteed to always increase in price YOY in the medium term (10-15 years), then they are at risk if they overextend themselves.

As for stocks/bonds being "not that great" these days, perhaps in the last few days. But the Dow/S&P are up 20% in the last year, and the TSX is up 7%. The stock market will indeed vary day to day, but simply buy some ETFs of blue chip preferreds and then leave them alone for 5+ years and you'll be fine.

 

[KA1]

Every week the daily newpapers include a "financial facelift" type article in their personal finance section where an advisor reviews the retirement planning of a couple. In almost every case that I've read, the couple would suffer a serious (perhaps insurmountable) setback if their multiple RE assets decreased by 25%, and that is typically the only asset class to which they are so heavily exposed. Studies have shown that the average person expects to retire with 70% of the pre-retirement income, whereas the retirees on average end up with closer to only 30% of their pre-retirement income.

It's not an issue of don't buy/invest. It's an issue of know what you're buying/investing and diversify appropriately.

If a homeowner is buying on the belief that housing is guaranteed to always increase in price YOY in the medium term (10-15 years), then they are at risk if they overextend themselves.

As for stocks/bonds being "not that great" these days, perhaps in the last few days. But the Dow/S&P are up 20% in the last year, and the TSX is up 7%. The stock market will indeed vary day to day, but simply buy some ETFs of blue chip preferreds and then leave them alone for 5+ years and you'll be fine.

Thanks for the sound advice, Daveto.

 

[blahblahblah]

Well not sure I agree. If one is buying real estate as a principle residence, I maintain it doesn't matter if prices go up or down. As long as one is tracking the market, ones position is maintained. My principle residence going up or down 20% doesnt mean a thing. I feel better when it is up, sure, but practically speaking it is meaningless. If it drops 20%, everyone elses house drops 20%(assuming I have real estate indicative of the general market). I can never understand people thrilled their house is up 20%. Everyone else's is too so they are in the same shape.
As for real estate as an investment, I maintain an increase or decrease can be meaningless as well, as long as the rents don't drop in sympathy. I care about the cash flow. It is just like a dividend stock. Do you sell your BCE if it drops 20% but the dividend is maintainable over the long term?

Thanks for the sound advice, Daveto.

 

[chwong]

Well not sure I agree. If one is buying real estate as a principle residence, I maintain it doesn't matter if prices go up or down. As long as one is tracking the market, ones position is maintained. My principle residence going up or down 20% doesnt mean a thing. I feel better when it is up, sure, but practically speaking it is meaningless. If it drops 20%, everyone elses house drops 20%(assuming I have real estate indicative of the general market). I can never understand people thrilled their house is up 20%. Everyone else's is too so they are in the same shape.
As for real estate as an investment, I maintain an increase or decrease can be meaningless as well, as long as the rents don't drop in sympathy. I care about the cash flow. It is just like a dividend stock. Do you sell your BCE if it drops 20% but the dividend is maintainable over the long term?

Yes, I agree. I do not consider principle residence as "investment". One needs a place to live, otherwise you have to pay rent and no long term stability. It is the rental properties that I consider "investments". It should be at least 30 % of your overall portfolio. Then of course the cash flow is paramount whether one could ride out the ups and downs of r.e market cycle.

 

[daveto]

Well not sure I agree. If one is buying real estate as a principle residence, I maintain it doesn't matter if prices go up or down. As long as one is tracking the market, ones position is maintained. My principle residence going up or down 20% doesnt mean a thing. I feel better when it is up, sure, but practically speaking it is meaningless. If it drops 20%, everyone else's house drops 20%(assuming I have real estate indicative of the general market). I can never understand people thrilled their house is up 20%. Everyone else's is too so they are in the same shape.
As for real estate as an investment, I maintain an increase or decrease can be meaningless as well, as long as the rents don't drop in sympathy. I care about the cash flow. It is just like a dividend stock. Do you sell your BCE if it drops 20% but the dividend is maintainable over the long term?

For the majority of Canadians, their equity in their principle residence represents the majority of their net worth. They've experienced unexpected windfall gains in that equity over the past 20 years, and accordingly they've been somewhat careless in saving money to invest in other areas. So now they are relying upon that RE equity to fund their retirement.

The sentence I put in bold from your post suggests that you've taking a much more prudent and balanced approach. But if you take a look at the typical "financial facelift" article in the weekend Post/Globe/Star, then I think you will begin to recognize the problem. An alarming portion of families have both a principle resident and an investment condo, both of which are 60%+ mortgaged.

As for investment properties, the cash flow yield on most properties based upon current prices is close to zero. Investors are hoping merely to cover their monthly costs, with an eye to realizing profits from capital appreciation when they sell. Again, the issue is not the yield based upon the purchase price 15 years ago, but rather based upon the price today.

 

[daveto]

For added perspective on what is happening in our RE market, consider the following discussion on a Mortgage Broker's article about a hypothetical "dream client". Again, the author is a mortgage broker who created this hypothetical 50yr old couple as an example of what constitutes a AAA risk in our current marketplace.

http://www.canadianmortgagetrends.c...allenges-for-borrowers-and-brokers-alike.html

 

[blahblahblah]

The yield on properties bought 15 years ago is about the same as now, factoring in interest rates. My first interest rate in 1989 was 15.15% on my first mortgage and I think 20% + on my second. So they just covered. But I just focused on paying down the mortgage and maintaining them and improving them. Low and behold they are close to being paid off and I can look forward to enjoying some income. So nothing has changed. Slow and steady wins the game. I have a solid stable of dividend paying stocks I manage myself and which I have all set up on drips. They do fine, but if I had to base my retirement on them I would be worried. For those who can approach real estate investment as a job, not a hobby, it is still a good way to go in my opinion. It is not for most though.

For the majority of Canadians, their equity in their principle residence represents the majority of their net worth. They've experienced unexpected windfall gains in that equity over the past 20 years, and accordingly they've been somewhat careless in saving money to invest in other areas. So now they are relying upon that RE equity to fund their retirement.

The sentence I put in bold from your post suggests that you've taking a much more prudent and balanced approach. But if you take a look at the typical "financial facelift" article in the weekend Post/Globe/Star, then I think you will begin to recognize the problem. An alarming portion of families have both a principle resident and an investment condo, both of which are 60%+ mortgaged.

As for investment properties, the cash flow yield on most properties based upon current prices is close to zero. Investors are hoping merely to cover their monthly costs, with an eye to realizing profits from capital appreciation when they sell. Again, the issue is not the yield based upon the purchase price 15 years ago, but rather based upon the price today.