The sad descent into HELOC

The painful 20-month stall in Motown detroit.jpg

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Some damn good questions from Saskatchewan, Calgary, Victoria and New York City

Hi Garth

I’ve just finished reading your book. It’s very good. I live in Calgary, rent, have always rented, and have no intention to buy with what I’m watching with inventories and sales. If this was any other commodity, I would be selling it short. It’s a shame, I’m reaching the point in life where it would make sense to buy.

I have a question about the availability of data on home equity loans. Do you know where I can find information on home equity loans and HELOC’s in Canada? Volumes, amounts, etc? I know a fair number of folks who having been taking money out of their homes as the price rises, either for expenses or to leverage up into 2nd or 3rd homes. Being a renter, I don’t know for sure how this works, but based on what I read and I’ve heard from them I get the sense that you can take money out based on the increased appraised value. That would suggest to me that this is a house of cards.

I know from Calculatedrisk site that these loans are starting to really implode in US, and it has been pointed out by a few commentators that one of the real ‘unknowns’ that has caused the credit market to freeze up is that you can’t value the CDO’s if they are full of mortgages where the houses also have home equity loans on them (that aren’t tied to the mortgage but are floating around in another CDO). So the value of mortgage and the equity that mortgage has doesn’t really reflect the value that the homeowner owns.

If I understand this right, and if my anecdotal evidence of friends using these financings is representative, I think this is going to be a real problem here in Canada. So I want to know more about these loans but I can’t find data on it anywhere. So I’m curious if you know of where its available.

Lane

Good question, but there is simply no place where this data is compiled or made public. Home equity lending is proprietary to the financial institutions making the loans. However, all evidence points to a growing use of HELOCs in Canada, as has happened in the United States. Without a doubt, millions of Americans used their homes like banking machines as housing values raced higher during the period 2001 to the autumn of 2005, when the wheels came off. With home values galloping ahead, it became easy and cheap to suck that paper gain out of a home and turn it into a plasma TV, boat, investment property or vacation. It also allowed people to get mortgages with cheap introductory rates, then refinance to cover higher monthly costs when the loan was reset. This fuelled a wave of consumer spending which has now collapsed.

There is no justification for borrowing against real estate equity unless the money is used for the purpose of earning more money – to buy diversified financial assets or possibly an income-producing property. In that case, the interest is tax-deductible. Having said that, I would shy away from taking our any new HELOC today since housing values are about to decline almost everywhere. Borrowing against real estate to buy more real estate at this moment is semi-suicidal. And if you want to diversify out of having all your wealth in a home, then arrange for a leverage loan which is secured by financial assets you are buying (like diversified income-producing mutual funds), rather than your home.

Is the middle class screwed in Van? vancouver.JPG

 

Garth,

I wanted to tell you how much I enjoyed reading your book, and it helped solidify some of the gut feelings I have been having about the real estate market in Alberta and Saskatchewan. I moved to Calgary two years ago and have only heard great things about the real estate market. I am amazed how many of my friends are convinced that real estate can only rise in value. (I am 33, so many of my friends, including myself, don’t remember the early ’80s). I have a condo in the Eau Claire area of Calgary that I am selling and I happen to find out today if the seller conditions are removed. If the sale goes through as expected, I am thinking of renting for a year or so before buying a bigger condo. If things go like I think they might, I hope to be in a position to buy a new 2 bedroom condo for the same price I sold my 1 bedroom for.

One point in Greater Fool that I wanted to comment on is found on page 118, where you state “In Canada, homeowners are personally responsible for their mortgage debts. Bank and other lenders are legally entitled to pursue you for any shortfall between the amount you borrowed to buy a property, and what they might sell it for under power of sale if you move out. You can be sued, in which case personal bankruptcy in an alternative.”

While I think this is true in the rest of Canada, I don’t think this statement is accurate in Alberta. In Alberta the Law of Property Act does not permit the bank to sue on the personal covenant contained in the mortgage. In the event of non-payment in Alberta, the bank’s remedy is limited to taking back the property, the bank is not permitted to sue for the deficiency.

There is one large exception to this rule, however, that applies to high ratio mortgages. In Alberta if a person holding a high ratio mortgage defaults on their mortgage payments, CMHC federal legislation trumps the Alberta Law of Property Act, and the lender is permitted to sue for any deficiency. While most new homes in Alberta are purchased with CMHC financing and therefore the defaulting borrower is personally liable for any deficiency, if an individual purchases a home and has a conventional mortgage, then the bank is not permitted to sue. (There are a few other stipulations that apply if the purchaser happens to be a corporation).

In law, you are correct. Alberta has such a clause in its Alberta Law of Property Act, a populist inclusion which, if it had any teeth, would result in less credit being extended in the province. But, it does not. The vast majority of land transactions today involve heavy mortgage financing and CMHC involvement, or one of the private insurers, who have federal – not provincial – charters.

Therefore, this is an archaic statute which is not affecting day-to-day legal proceedings, or likely to stem those to come. While you are too young to remember, many people in Calgary walked away from their homes three decades ago when prices collapsed. They ‘sold’ them for a dollar a house, just to legally wiggle out of the debt obligation. Sadly, in most cases, it did not work. Many Canadians may soon understand the level of risk involved in owning the ‘riskless’ asset of real estate. All booms end badly, even when they are bathed in oil.

Garth,
I’m a recent university grad living in Regina who is just starting his career and have been kept busy studying for upcoming professional exams. While I have been spending all of my time studying and working, the real estate market in Regina has been booming around me and I’m left with little options but to stay at home with parents or look for a cheap rental option as the prices have skyrocketed in the past 2 years. Most of the discussion on your blog is focused on the Vancouver and Ontario markets and rightfully so given their massive populations and much higher average housing prices. However, many of the common themes you have discussed seem to apply to the Saskatchewan market with the rapidly increasing housing costs, the moderately increasing income levels, and a real estate and media barrage constantly providing indicators that slowing down will not occur for a long time.

I would really appreciate your thoughts and analysis on the markets of Regina & Saskatoon specifically as they possess certain variables that do not appear in the Ontario and Vancouver markets. In this regard I mean, the much lower base price we had before the boom, the existence of significant natural resource findings, and the increasing population. Basically, I’m looking for advice on whether to wait out the market here, get in now before it goes up more, or wait and try and swoop into another market such as Calgary after the bust you’re predicting happens.
Thanks,
Starting out on the Prairies

I did refer specifically to the Saskatchewan market in Greater Fool, because it poses a wonderful example of mania. House prices roared higher by 56% last year in Saskatoon, and local, breathless, dollar-eyed realtors started 2008 by warning your people like you to dive into debt and buy a home because otherwise you’ll lever be able to.

That, of course, is crap. Saskatoon and Regina are now seriously over-valued, and give us a good example of local asset inflation. The population of Saskatchewan may be growing, but the entire province still has fewer bodies in it than one-sixth of the GTA. True, base home prices were low a few years ago, but the rule remains that when average prices exceed the ability of average families to afford, the market will correct. Sask houses have exceeded their logical value because of the halo effect from Alberta, but that will not be long-lived.

Stay with your parents and save your money. I bet you have food and linen service there.

Hello Garth,
It’s been many years since we last spoke about the time you returned to government, but I wanted you to know how well received Greater Fool is out here in Lotus Land. Well, at least by me. I hadn’t finished the first chapter when I called down to Bolen Books and had them set aside additional copies for each person in a group I meet with to discuss investments. You’ve put into clear language what I’ve been trying to tell people for some time now. Hopefully with your background to back it up, the words will carry further and with more weight. I’m even hoping that after reading her copy my mom will be able to shake herself out of her lifelong fixation on her house.

The sad thing is there are many who will grudgingly admit that what is happening in the US *might* happen to the rest of Canada, but *surely* won’t happen here in Victoria. This has added gasoline to many people’s desire to buy, even in the face of increasing inventories and stagnant sales.

The unfortunate quandary for people like myself is that for a mid-thirties, recently divorced, working stiff it looks like *all* the options are poor ones at this point. Affording a traditional mortgage on a single self-employed income is prohibitive, renting anything affordable has far too many restrictions (no pets, no gardens, etc), the new mortgage options seem to have more downsides than ups for the person paying the bill, and it’s looking to get worse as costs continue to increase across the board due to Olympic Inflation while wages lag.

Thank you for your time, and all the advice over the years.
Cheers,
Scott

Yes, delusional thought seems to be a by-product of living in Victoria. Granted, it is a jewel, with lots of cultural stimulation, an enviable climate, wondrous geography, a quaint way of life, government stability and memorable architecture. All that supports local real estate and has resulted in a premium for houses located in the region.

However, you must remember that affordability levels have plunged as prices increased, and with the inevitable economic downturn gripping the national economy, this problem will be exacerbated. The second major concern is that Victoria’s relatively small population demands a sizeable net inflow of people in order to sustain real estate values. Those people – buying homes worth an average of over $600,000 – need to dispose of real estate in other regions, usually Ontario, before they can buy over-priced digs on the island. But the market is falling apart back East, and the disintegration will only pick up speed over the next year. Conclusion: Victoria prices now have just one direction in which to travel. And anyone buying in the next 12 months will, unfortunately, regret it. The phrase, ‘greater fool’ charges to mind.

td2.jpg ‘Don’t panic on housing prices’


Garth,
You’ve already answered one email from me, but at the risk of being greedy with your advice, I would like to ask a deeper, broader question about the economy in general that would be particularly important for anyone following your advice of “sell, rent and invest”.

Given the current economic climate, how would you suggest a person protect the proceeds from the sale of their home? The stock market is in tatters, the US economy is in a recession that everyone expects to last well over 12 months and be potentially deep. And given the potential severity of the US downturn, the Canadian (and world?) economy seems sure to follow.

It appears clear that the Fed is willing to print as much money as needed to deal with the current credit crisis. (And I believe other central banks will follow suit.) With the price of energy and food continuing to climb, it is likely that we are headed towards a significant inflationary period at least as severe as the 1970’s.

So while I completely agree with your assessment that the real estate market in Canada has followed the same overinflated pricing that has occurred in the US, UK, Spain and other countries and is due for a strong downturn back to the mean, isn’t it possible that along with a decline in house prices there will occur a counter force of inflation that raises prices (and eventually wages) to bring the prices of assets back into relative equilibrium? Isn’t it possible that, in the end, inflation will over take the over-pricing that has occurred in the housing market as the value of one’s currency is redefined by inflation? This certainly will not happen quickly or painlessly, but it should happen within the time frame that a person would expect to live in a newly purchased house, assuming that they can manage their mortgage payments through this period.

In the same way that a collapse of the US Dollar will render the US national debt far more manageable as it will be paid off in inflated dollars, won’t it also make an overpriced house manageable in the medium term of 6-10 years? But most importantly, will not the ownership of this four-walled asset actually be the ideal form of wealth protection during an inflationary period? (Especially if it turns out to be highly inflationary?)

The stock market will not keep up with heightened inflation, nor will any fixed income investments. At least they didn’t in the 70’s. One can only stomach putting so much money into oil and gold and TIPS. When it comes down to it, a house has a real value regardless of what the economy or currency might be doing. As housing prices revert to the long term mean, it will theoretically buy roughly the same number of loaves of bread and the same number of shirts, regardless the number of dollars required to do either.

One cannot definitively say that about money invested in a TD Waterhouse account. And that is the dilemma. In five years time, in this economic climate, will one’s money be best preserved through prudent investing or within the physical walls of a house?

As always, your thoughts and insights are appreciated.
Best Regards,
Trent from NYC

PS – I painfully realize that the underlying premise of this email may be wrong: That the credit crunch, decline in worldwide housing prices and convulsion of financial institutions may eclipse everything, ravaging the US (and worldwide) economy to such a degree that the Fed and other central banks are rendered powerless in the face of deflation. If that’s the case, cash is king and owning a mortgage would be financial suicide.

Your note is well reasoned and your arguments strong. The current reaction of central banks to the global credit crunch is understandable in the short term, and totally destructive over the sweep of history to come. After getting us into this mess of asset inflation with too-low interest rates following Nine Eleven, the Fed under Ben Bernanke is going down the same road, followed merrily by the Bank of Canada. Interest rates are set to crash over the next year by a full point or perhaps two, in a desperate attempt to paper over a debt crisis with more borrowing.

It is a failed policy. And this is why the seeds of a long and painful global economic correction are being planted now. The United States is cooked, with more than $8 trillion in debt, an unsustainable war, a real estate-induced recession, consumer crisis and a new President who will, in 2009, surely make things worse with a bail-out program costing hundreds of billions and effecting little. There is no escaping the debt legacy of the last decade, no matter how persuasive the politician.

So while inflation may be an inevitable consequence, I see it combined with sluggish economic growth, falling or stagnant wages and a diminishing of personal purchasing power. That is not a formula for real estate gains. This stagflation will prove to be problematic for new housing purchasers, since debt simply becomes more difficult to service. As to your question of where wealth is safe – not commodities, not oil, definitely not gold. Better to purchase the dividend-paying stocks of strong global banks, to be in well-diversified income-producing mutual funds and short-term bonds which will gain as rates fall. Best of all, get a smart financial advisor or portfolio manager. The times ahead will eat amateurs.

16 comments ↓

#1 Trevor on 04.12.08 at 12:16 pm

Re: Victoria

I know many people who have retired to Victoria in the last couple of years. They are in their 50s to 60s. Most are very disappointed with the city. The climate was not what they expected (it rains a lot and is very damp and cold) and there is a huge problem with drug addicts downtown. My children are afraid to go downtown and many people won’t. One must be very careful of needles. They do a needle sweep every morning but you should still be cautious especially if you are with young children or a dog. They also do a needle sweeps every morning around 2 private junior schools downtown and even wanted to open a needle exchange across from one.

Many of the homes here were built in the 50s, 60s and 70s and need to be torn down or totally renovated. They are still asking $500,000 for badly dated 60s houses with car ports. Many of the homes in the desirable areas such as Oak Bay and Uplands are also in dire need of renovations. Either it was the mentality of the owners or lack of funds. I think both.

One thing that we noticed when we moved here was that there was not one children’s shoe store but a tattoo and body piercing shop on every corner.

The shopping is poor and there are only a few good restaurants (but it is getting much better).

The long and the short of it – Victoria is a very strange place. Very small middle/professional class. Huge lower income population and a small scattering of wealthy people.

Having lived in TO and Europe we find this a strange land. As a friend said – it is a cute city but with many warts. They are leaving.

#2 SMWhite on 04.12.08 at 12:24 pm

Trent & Garth, great read!

As scary as the markets are, buying stocks of solid companies such as utilities and responsible lending institutions as Garth mentioned, during times of insecurity and instability, provide some cushion against future inflation.

Oil is up 5X its value at the turn of the century.

Gold is up 3X its value at the turn of the century.

Housing is up 2X its value at the turn of the century.

The rate cutting of all central banks didn’t create a lack of supply in these sectors, all it did was make more money available for these assets to be bid up to new historic highs.

None of these prices are sustainable in the long term; I’m betting we see another spike in the first two this summer.

To highlight Trent’s point on the US dollar, its in their best interest to debase their currency. Isn’t that why Federal reserve ceased to publish M3 statistics as of 2006?

#3 Trent on 04.12.08 at 2:06 pm

The US government often stops publishing statistics that it doesn’t like. Another example is the military’s recruitment rates.

I’m still not convinced about the stock market providing any protection against inflation and a slowing economy. Everything I’ve read says the exact opposite.

I’m not a pure commodity bull, but the arguments for hard assets being the preferred investment type during an inflationary period is persuasive.

I’m a numbers guy and like to let the data speak for itself. This site seems to be objective enough. (One can never tell, though) You can choose any 7 year period in the 70’s and you end up with a negative real return for the S&P with full dividend reinvestment. (And this imagines an index fund with a zero expense ratio.)

Jan 1970 to Dec 1977 shows an annualized real rate of return of -2.19%.
Jan 1972 to Dec 1979 shows an annualized real rate of return of -3.41%.

Not terribly reassuring.

There’s no question that a commodity bull run is temporary and partially speculative, as it was in the 70’s. But nonetheless, during that decade, it was a real bull market that did far better than stocks or bonds.

But as they say, history doesn’t repeat, it rhymes, so I take nothing for granted.

#4 Al on 04.12.08 at 5:40 pm

I wonder where the person lives that took the opportunity to trash Victoria? Funny he didn’t say.

I agree with Garth that the world is knee deep in major doo doo right now. All the more reason to invest in gold and silver( I know Garth doesn’t seem too hot on Gold). But, I argue this. The more money that is printed or (typed) into circulation, the higher the price of gold/silver will go. It is simply inevitable. The prices of gold and silver automatically correct relative to the money supply. One only has to look at the chart of global gold reserves relative to money supply to see this corellation. And since silver is a consumable industrial precious metal, there is less and less of it each and every day.

Now I’m not saying hold Gold and Silver forever. Just hold it until it is clearly in a bubble and has peaked. I saw a clip by Mike Maloney where he said hold it until you can buy a single family house with 500 ounces of silver! One might argue the price of it has peaked now, but I think the real run has just begun. The mortgage meltdown is just a warm up. The real bubble is the credit card bubble, and that is about to implode.

I guess thats what makes a market though. Varying points of view.

There is no way I would buy real estate right now unless it was an income producing property with positive cashflow each month.

#5 Trevor on 04.12.08 at 7:47 pm

Al,

I live in Victoria as a matter of fact. People go crazy if you saw anything negative about Victoria but love to trash other cities.

In fact, I am not “trashing” Victoria just stating what I have seen and heard.

#6 Nancy on 04.12.08 at 8:12 pm

HI Mr. Turner,

I love what you have to say and have been following your articles for a few years.

Are you getting much hate mail? I can imagine you are not popular with RE agents and developers etc.

My husband was on Bay Street during the tech stock mess and he said the analysts in NY that were predicting the tech bubble burst were even getting death threats.

So many people want to keep this bubble going I was just wonder what you are receiving on your side.

Regards,

Nancy

#7 jason on 04.12.08 at 10:17 pm

Starting out on the Prairies,

I’m in the same boat as you bud. It seems opinion is divided on the fate of Saskatchewan real estate. On one hand, investors and speculative buyers are saying now is good time to look into selling you properties because prices are going to take a hit, and on the other realtors are saying that the Saskatoon and Regina market are just getting into stride and that we will likely see similar price gains as we did last year for the next couple years at the earliest. They say Saskatchewan is THE place to be, and that they have been receiving calls from people around the world wanting to relocate here because of our bright future economy. From what me and my friends have been told, $300,000 will be the entry point for a small condominium come next spring, and prices will only continue to climb from there. In the meantime, me and my peers who are at the point in our lives where we would like to be looking at getting into a home are now looking at moving out of the province as we simply can’t afford to do that here with our 1990’s level incomes. It just floors me that I never would have thought Saskatoon and Regina would have become the new Vancouver, becoming two of the most desireable places to live in the world. Or so the media says.

On a side note, I took a trip to Winnipeg last week and was amazed at the reasonable cost of housing there. I wonder how long before speculative buying destroys that market as well?

#8 Nick on 04.13.08 at 5:38 am

Good book, good advice.

Not sure what we’re going to do yet, but I can tell you that there are a record number of homes on the market here in Barrie right now. Every second listing is advertising “reduced 10K!”. Me thinks the tide has started to turn.

#9 Pegger on 04.13.08 at 5:41 am

Garth, I have just finished reading your book and believe it is very
prescient. The ducks are in a row for a real estate collapse.

I own one twelfth of a vacation residence in the Okanagan (which is
achieving its objective precisely: providing affordable and delightful
vacations for myself and my family) and first realized that a bubble
was afoot last summer, when the final fraction sold for 150% of what I
had spent two years before, and when I saw dozens of wealthy boomers
from Calgary camping out prior to early release of yet another upscale
development (not even on the lake!). Already, the signs are there: the
Westin Kelowna is not being built “due to rising construction costs”.
And this week twenty something Jerome Aginla closed on a $7.2 m home
on Okanagan lake. Oh, to be young, rich and ill advised!

I live in Winnipeg where I own a modest, mortgage free home which I
bought at the last price nadir in the early 90s. I also own investment
property in Ontario which is paying for itself and which will generate
retirement income for me in due course. But in total, real estate is
approximately 15% of my net worth and will never be more than 20%. In
fact, I am considering selling my Winnipeg house now while the market
remains vigorous. I am considering a move to Vancouver which would
most certainly mean becoming a renter again while I watch the purchase
price graph go down…….

I see my friends at home and abroad caught up in the property craze
and keep saying, like a broken record: “it’s just a place to live”.

Fast forward five years and we’ll see who’s ahead!

#10 SMWhite on 04.13.08 at 11:52 am

Trent, other then hard assets like bullion and a home(of course this asset is now way over valued) there are very few things you can do to protect your wealth during a recession. I’m starting to put money into European stocks via RRSP for 25% of my 50/50 split, the other 25% has been in precious metals. I’m staying out of growth stocks at this point until the markets hit the floor.

I’ll steal a snippet from Wikipedia of Benjamin Graham wise words:

“Mr. Market, a very obliging fellow who turns up every day at the stock holder’s door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but often it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn’t mind this, and will be back the following day to quote another price. The point is that the investor should not regard the whims of Mr. Market as determining the value of the shares that the investor owns. He should profit from market folly rather than participate in it. The investor is best off concentrating on the real life performance of his companies and receiving dividends, rather than being too concerned with Mr. Market’s often irrational behavior.”

I just finished his book “The Intelligent Investor” which is really interesting to see his outlook on what happened during the Great Depression and what actions could have been made during to provide some protection. He really pushes during times like this to invest in companies with solid balance sheets and to stay away from growth stocks and uses many examples. I’m into his “Security Analysis” 1934 edition as we speak. Interesting to hear the analysis of the Great Depression right after it happened and before WWII.

Even with the current fed debasing the US currency you see the result in the DJIA, on the outside it looks like its gone up but when you factor that people have just pushed more of those available US dollars into it has it really? I learned my lesson when I started investing in Microsoft after the tech bubble buying at $23 a share and selling a year later at $28 a share. I’m thinking, smooth move, until I cashed it into Canadian funds and the gain was minimal at best.

Gold and housing have been my main two areas of study over the past 7 years and this inflation area is new to me for the most part. I like historical charts and love the numbers as well. Here are two great charts:

http://www.zealllc.com/2005/gorex2.htm
http://www.incrediblecharts.com/economy/gold_oil_ratio.php

The DOW/Gold ratio is another interesting theory:

http://home.earthlink.net/~intelligentbear/com-dow-au.htm

One of my favorite investors is Peter Schiff, do a youtube search on him and watch him go head to head with the market bulls on FOX, its great to watch him against these “experts” as he’s been 100% correct about his predictions of the US economy and has a similar book to Garth’s called “Crash Proof”.

#11 SMWhite on 04.13.08 at 12:02 pm

Great article from the LA Times on inflation protection and the author sounds to be as bearish with gold as Garth:

http://www.latimes.com/business/investing/la-diverse-story3,1,2727650.story

#12 vultur on 04.13.08 at 4:39 pm

SM, Darth’s prediction concerning the future price of bullion are absolutely no more relevant than yours, mine or a 12 year old’s. Show me his credentials to opine on that subject. Probably even less than his dubious experience with real estate.

#13 Trent on 04.13.08 at 7:49 pm

vultur,

You’re right. We should just all burn our books, throw out our computers and invest our money based on where falls the blood of a sacrificed dove killed on the next full moon.

What hope do we have to use any kind of rationality in our investment decisions?

#14 Geoffrey on 04.17.08 at 1:12 am

I am from Victoria as well. I agree with Trevor that the homeless population is HUGE here. It is after Regina and Saskatoon one of the most crime ridden little cities. There are no job opportunities if you hold a university degree, just geriatrics, tourism and a few lucky ones who have family connections work for mediocre jobs with the BC government. All in all, the city is way overrated, there are no zoos, operas, galeries, any sort of diversity or a transportation system. In addition, pretending to be an environmental friendly kind of place, the majority of people here drive 30 year + old diesel spewing and polluting rust buckets simply because they are too poor or too cheap to live in 2008. And, then we dump all of our raw sewage into the ocean. Certainly not a world class city. I am currently actively looking for a job in my professional focus area in Calgary, Toronto or Halifax, as there are none in Victoria (unless you’re fine with $15/hour to pay for an overpriced s**tbox to pay for 40 years). This is a very strange town indeed.

#15 Arriving in Victoria on 04.20.08 at 11:50 pm

A question for Garth or anyone here who cares to offer an opinion about housing market in Victoria, BC.

I recently arrived in Victoria after a stay of some years overseas and started a professional job in Victoria with, let’s say upper moderate income. I am sleeping on a friend’s couch for now and will need to provide housing by July/August when my family of 2 kids & wife arrive.

Given cash down payment that I have on hand I can afford to buy in about the low-mid range of housing. I can also rent however the rental market in Victoria is very tight and costs for rent and mortgage differ only by a couple of hundred dollars monthly PLUS many homes here have basement suites as mortgage helper so net costs are lower to buy, even at these insane prices. This does however involve dropping a substantial cash down payment to make it so.

I face a situation:

1. Buy now at likely overvalued prices and watch the market potentially fall in the medium term. This would provide stability for my family so they can build relationships with friends & school.

OR

2. Rent which is undesirable since it involves yet another relocation (tough on kids) PLUS I risk that the market does NOT indeed fall and I spend even more money when I do finally get in later.

My employment is stable and I plan to stay here for as many years as I can – e.g. retire here in 30 years time and I am not interested in flipping houses for profit. This will be a long term buy.

My personal sense is that Victoria will always be a desirable destination given the lifestyle and climate so the long term prospects (15 – 30 years) are strongly positive irrespective of the immediate situation.

So… do I buy over the next few months and potentially overpay or do I rent at 1500-1700 monthly (risking yet further house price inflation) and hope the market cools to my advantage??

I do NEED to have something to live in by latest August as my family will be arriving and will need a home.

Insight from the forum is kindly appreciated.

Thanks

#16 brenda on 08.08.09 at 9:33 am

i have a first not cmhc insured in alberta and am being foreclosed. There will be a shortfall. If I have an equity loan on the house is this the same as a 2nd and can they sue me.. I don’t believe they can in alberta