Housing Bust 2012

Leveraging, renting vs owning, making an investment or buying a home?
gsp_
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Re: Housing Bust 2012

Post by gsp_ »

Brian, is 2k/month the total rental cost or the additional cost difference above what you pay as an owner(taxes, maintenance, etc). Keith's post assumes the latter, 600k may well be too much if it's the former.
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Re: Housing Bust 2012

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gsp_ wrote:Brian, is 2k/month the total rental cost or the additional cost difference above what you pay as an owner(taxes, maintenance, etc). Keith's post assumes the latter, 600k may well be too much if it's the former.
2k/month would be total rent cost in my neighbourhood ( a good deal, some as high as $2500 ) to rent a similar house which costs @ $600,000.
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Re: Housing Bust 2012

Post by gsp_ »

Ok then how much are operating costs which you wouldn't have to pay as a renter? Those should be substracted from your 24k yearly rent to get a net additional rental cost which can be compared to returns on that 600k.
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Re: Housing Bust 2012

Post by BRIAN5000 »

Well my actual maintenace expenes over the last 22 years have been about $1000 a year. (new furnace, hot water and roof) Average reccomended by some web sites is 1%. One percent ($6000) is huge.
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Re: Housing Bust 2012

Post by gsp_ »

At 600k, surely there are roads, schools and running water in your area. :D
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Re: Housing Bust 2012

Post by freedom_2008 »

Home ownership operating costs normally include maintenance, property tax, house insurance (plus monthly fee for condos), which added together could be 1% of the house value or higher.

If you rent in your area, with say, 12% income tax for dividend, $600K could generate about 3.08% after tax income of $18,480/yr, plus saved operating costs of $6000, you are just about even.
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AltaRed
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Re: Housing Bust 2012

Post by AltaRed »

BRIAN5000 wrote:Well my actual maintenace expenes over the last 22 years have been about $1000 a year. (new furnace, hot water and roof) Average reccomended by some web sites is 1%. One percent ($6000) is huge.
What about paint, appliances, flooring, and other renovations such as countertops, cabinets, vanities, etc.? All of those things have to figure into upkeep that tenants do not pay for. By the time a house is 30 years old, all of those things would typically be replaced at least once, if not twice.
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Brix
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Re: Housing Bust 2012

Post by Brix »

AltaRed wrote: [...] countertops, cabinets, vanities, etc.? By the time a house is 30 years old, all of those things would typically be replaced at least once, if not twice.
Countertops? No way! All those currently obligatory slabs of granite will last forever, spark bidding wars at auction houses, go on display in museums of Art and Civilization...
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Re: Housing Bust 2012

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freedom_2008 wrote:Home ownership operating costs normally include maintenance, property tax, house insurance (plus monthly fee for condos), which added together could be 1% of the house value or higher.

If you rent in your area, with say, 12% income tax for dividend, $600K could generate about 3.08% after tax income of $18,480/yr, plus saved operating costs of $6000, you are just about even.
Not about even, most likely ahead by a mile over longer timeframes. With the stock, you also get residual income not paid out as dividends. With the house you get bupkas. And before anyone says 'but the house could appreciate' (multiple expansion on the asset class is what you mean by that), so can a stock or any asset for that matter.

Its not that housing is bad, its that overpaying relative to fundamental value is bad.
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Re: Housing Bust 2012

Post by parvus »

I predicted a housing bubble in 1999 (once the condos started gearing up in Toronto again). Now I know why I was a decade early.
Canada's housing market: a victim of demographics
Mr. Bhangu said that taking a fresh look at the fundamentals supporting the real estate sector suggests prices are overvalued today by one-third, while other estimates call for a price decline of 10 to 25 per cent from current levels. Forecasts like these are educated guesses, whereas the demographic impact on housing is rooted in basic numbers.

Pacifica’s report says people aged 45 to 64 used to account for just below 20 per cent of the population. In the 1990s and 2000s, however, this cohort claimed an additional 10 per cent of the population. In round numbers, there are 4.3 million more 45- to 64-year-olds now than there were in 1990. Most housing bubbles in the industrialized world have occurred after sharp growth in the number of 45- to 64-year-olds, Pacific said in paraphrasing research issued last fall by the French bank Société Générale.

In previous generations, the supply of young people in Canada was big enough to replenish the gaps created as older workers moved into retirement. Now, with baby boomers such a disproportionate part of the population, there’s a shortfall.
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Re: Housing Bust 2012

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Shaky foundations: How Ottawa's computers get Canadian home prices wrong
by GRANT ROBERTSON AND TARA PERKINS, The Globe and Mail
Saturday, Dec. 22 2012,

"When Dennis Gilmore gathered financial analysts and investors on a conference call last summer, the head of California-based First American Financial Corp. had some troubling news. It was what he referred to bluntly as “the situation” up in Canada. The Los Angeles-area insurance company was losing tens of millions of dollars due to hidden problems in the Canadian housing market, and there were no assurances that the bleeding was going to stop. Few Canadians may have heard of First American Financial – but several of Canada’s biggest banks knew the firm well. As home prices soared over the past decade, the banks quietly turned to First American Financial to buy protection against mounting risk in the housing market."

http://www.theglobeandmail.com/report-o ... le6673774/
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Shakespeare
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Re: Housing Bust 2012

Post by Shakespeare »

An excellent article that all FWFers should read.
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Re: Housing Bust 2012

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I am frustrated by the lack of data in the article. It is a warning but without any indication of size. The insurance company paid out $45 million. Over how many houses? How many banks? Should I be concerned about bank stocks?

I agree it is a "must read" for anyone interested in housing lending in Canada. What about Teranet? Is that data inflated too? I am thinking yes because it is driven by the housing sales data.
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Re: Housing Bust 2012

Post by patriot1 »

kcowan wrote: What about Teranet? Is that data inflated too? I am thinking yes because it is driven by the housing sales data.
Teranet is based on actual sales prices. Its purpose is to show what properties sell for, not what they should be selling for.
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Re: Housing Bust 2012

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kcowan wrote:I am frustrated by the lack of data in the article. It is a warning but without any indication of size. The insurance company paid out $45 million. Over how many houses? How many banks? Should I be concerned about bank stocks?
I think it's worth keeping an eye on the bank stocks more from a lack of new mortgages being written than anything else. In theory I think they have pushed most of the real risk off defaults of their books and on to CMHC. That being said the caterwauling can already heard further down the food chain amongst the real-estate agents and mortgage brokers.
Last edited by randomwalker on 23 Dec 2012 06:03, edited 1 time in total.
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kcowan
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Re: Housing Bust 2012

Post by kcowan »

patriot1 wrote:
kcowan wrote: What about Teranet? Is that data inflated too? I am thinking yes because it is driven by the housing sales data.
Teranet is based on actual sales prices. Its purpose is to show what properties sell for, not what they should be selling for.
Yes but it is actual sales prices based on inflated house price estimates that banks used to grant mortgages.

IOW the whole thing might be a house of cards!
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Re: Housing Bust 2012

Post by Insomniac »

$45 million doesn't seem like much. Maybe 200 homes? In 1982, people were walking into bank branches and dropping off their keys.

I remember a story of one guy who bought a nicer home for less than the remaining mortgage on his existing house. He didn't sell the old house; he just gave it to the bank.
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Re: Housing Bust 2012

Post by ghariton »

Insomniac wrote:I remember a story of one guy who bought a nicer home for less than the remaining mortgage on his existing house. He didn't sell the old house; he just gave it to the bank.
Where was that? As I recall, in Canadian provinces, home mortgages are "recourse" loans, i.e. if the price the bank gets by selling your defaulted house is less than the amount owing on your mortgage, you are still liable for the difference.

You used to be able to duck by moving to another jurisdiction (another province), but no longer, since a 1990 decision by the Supreme Court declaring that Canada is a single country. :shock:

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Re: Housing Bust 2012

Post by Insomniac »

It was in Victoria during the big bust of 1982. I thought it was odd that the bank wouldn't sue him. I believe that the bank lost about $10K. Maybe they thought it wasn't worth their while to go after him given the court costs?
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Re: Housing Bust 2012

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Mortgages in Alberta used to be non-recourse - in late 70's or early 80s- there were lots of people who handed their keys in and headed back to Ontario or where ever they had come from. No affect ontheir credit - mortgages are not tracked on the Credit bureau
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Re: Housing Bust 2012

Post by Bylo Selhi »

twa2w wrote:Mortgages in Alberta used to be non-recourse...
I recall that during the early 1980's real estate crash here in Ontario many people also walked away from their homes, especially when their mortgages came up for renewal at drastically higher interest rates than the previous term. The market was then flooded with so many properties that whether for legal (no recourse) or practical (low market values) reasons lenders generally didn't bother to go after defaulted mortgagors.
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Re: Housing Bust 2012

Post by dusty2 »

The 80's seems to be a sort of 'golden time' for housing bubbleheads -when market crashed! Mortgage rates of 20% will tend put a damper house prices. Maybe it's worth noting that all the houses that people walked away from are now worth 3 or 4 times what they were worth then, so walking away was an economic disaster. With rates now at all-time lows no one is walking away. All those homes with prices pushed down by 20% mortgage rates were screaming bargains looking back. If rates rise, I'm sure it will be the case again. Another reason to ignore bubbleheaders stupid advice.
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Re: Housing Bust 2012

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dusty2 wrote:All those homes with prices pushed down by 20% mortgage rates were screaming bargains looking back. If rates rise, I'm sure it will be the case again.
Wow, dusty has seen the light! He's finally acknowledging that "if rates rise", house prices will fall substantially (houses will be "screaming bargains" again). :P
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Re: Housing Bust 2012

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dusty2 wrote: Another reason to ignore bubbleheaders stupid advice.
Wow! :roll:
Dusty advice is downright scary.
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Re: Housing Bust 2012

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twa2w wrote:Mortgages in Alberta used to be non-recourse - in late 70's or early 80s- there were lots of people who handed their keys in and headed back to Ontario or where ever they had come from. No affect ontheir credit - mortgages are not tracked on the Credit bureau
Yes, I had forgotten about Alberta.

As I recall, mortgages are non-recourse under Alberta provincial law. But if CMHC is involved -- if your down payment is less than 20% -- you fall under federal law, and the mortgage is recourse.

Of course, before 1990, even if your mortgage was recourse, if the debtor moved to another province, you had to get that other province's permission to pursue him, and permission was routinely refused. No longer.

And as pointed out above, if the amount is small, it is not worthwhile to bring a court action (which can easily cost $30,000) except as an example to others.

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