Should you wimp out and get a 10-year mortgage? Fibulate with a five? Or go virile and variable? The answer’s below.
Most economists believe what most homeowners don’t, that interest rates will rise. In fact, they already are. Lately bond prices have been going down and yields up because the US is in recovery mode. As the economic news gets better, we inch closer to the end of the Fed bond-buying frenzy that’s kept the cost of money in the ditch.
It will take some time for interest rates to normalize, but there’s no doubt they will. By 2018, I betcha, five-year mortgages will be double today’s level. And at 6% they’ll still be 2% below the 20-year average. Oh, my, how we’ve all been spoiled since 2009.
So, bond markets will sawtooth yields up over the next year. Then central banks take over. That’s the consensus view, which means anyone who bought with 5% down, a 2.69% mortgage and no savings, is in for some hurt come renewal time in 2017 or 2018. The impact on real estate prices will also be self-evident.
But what about now? Variable-rate loans are still available for 2.5%, while five-year mortgages are 3.29% at the monster banks (some hick lenders are at 2.89%) and ten-year money’s available at 3.69%. What’s the best choice? Is it worth paying a premium for a few years in order to be protected later on? Or will we turn out to be Japan, where deflation has kept rates low (and crushed real estate)?
It’s a big choice if you happen to be buying now, or renewing. Choose badly, and you’d better hope your home value or your salary is a lot fatter in five year. Personally, I can’t imagine current rates holding, since they’ve led directly to record house prices and historic household debt – two big negatives for future growth, and squarely in the crosshairs of the Bank of Canada. It was no coincidence the new boss, Stevie Poloz, used his first report to warn the doubters.
So what to choose? I used to recommend variable because historically a VRM yielded the cheapest long-term cost. But no more. Rates have only one direction in which to travel. A year ago I suggested a fiver was best, since 2.89% money was available from the trusted banks, and ten-year rates were at a premium. But now? There’s only one sane route to go.
Here are the seven reasons why you should choose a ten-year mortgage.
First (obviously) rates will be swollen in five years, meaning higher mortgage payments on a house which will probably be worth less. Home loans have not been this inexpensive since Boomers were swimming up the birth canal, and a whole mess of surprised people will soon understand that inverted relationship between rates and real estate prices. If you want protection against shock, this is it.
Second, what happens if you lose your job in the next decade? Get pregnant? Retire? Having a ten-year mortgage means your payments won’t change, giving you predictability in a volatile world. At least there’s one thing you can count on. Besides your dog.
Third, consider renewal risk. If you get a cheapo mortgage from one of those online lenders you’ve never heard of before because it’s two-tenths of a point less, you have risk. In a housing correction when the mortgage business is consolidating (like now) that dinky lender could be bought up by another company that doesn’t want to renew, especially if your house is worth less. With a ten-year loan, you might avoid the Houseaggedon.
Fourth, ten-year money is ideal for investors. If you own a duplex or a sixplex or even a rented house, you can calculate cash flow and remove interest rate risk for a decade. If dealing with idiot tenants was this simple…
Five, you are not locked into a ten-year mortgage for ten years. Thanks to the Canada Interest Act, all mortgages become open after five years. So if I turn out to be a bigger dork than many now realize, and rates are lower in 2018, you can get out by paying the minimum penalty – three months. Sweet.
Six, given the fact about a third of the wrinklies are now retiring with a mortgage, a ten-year mortgage protects them. Anyone on a fixed income, actually, gains the certainty of fixed payments for a long time, and sidesteps the potential disaster of a scary renewal, or none at all. This partly makes up for being stupid enough to retire with real estate debt.
Finally, and more importantly, is the relative cheapness of ten-year money. Bankers will lock you up until 2023 now for 3.69%, which is a scant 0.4% more than their five-year offering. This is a gift, and probably temporary. It means rates don’t have to be much higher in 2018 for this choice to make you an overall winner. You triumph financially, even without all the psychological and emotional stuff I referenced above.
So there you go. Simple. Now worry about your tan.
147 comments ↓
first?
Even Krugman is concerned about Canadian house prices:
http://krugman.blogs.nytimes.com/2013/06/15/worthwhile-canadian-comparison/
But Garth, 3.69 means a 27% increase in your present payment.
So if you were paying 5000 bucks a month. That means you will pay an extra 1384 a month.
I guess its time to take on another job which pays 33,000 bucks just to make ends meet!
I’ve been in Windsor for several days now on business, and have been listening to Detroit radio. There is a constant commercial stating ” With interest rising now is the ideal time to sell your home before prices drop” and this is coming from a already depressed market. Its was interesting to hear considering the commercials I regularly here in Toronto are the complete opposite.
Another great post. I don’t want to see whats coming for some of these people. It’s gonna hurt, bigtime.
Fuuuurst
Time to change from my 2.79 5-year to a 10. Thanks Garth! Good Post!
Thanks for the confirmation – I’d been thinking this way for a while now. I am buying a house for my dad in a warmer climate. Happy Dad’s Day!
Garth – the UK suppressed rates for some time. Admittedly it was in parallel with US QE.
Will your central bank have the balls to let people suffer for the good of the future? Will your politicians let them?
I’m over in Montreal now, renting for a year. Sure hope you are right as I have a big deposit so don’t have to rely on affordability and a big loan.
Lol @thefirstworld
– Considers nomads as barbarians, but pays big for fancy restaurants that cook food in front of you on an open fire.
– Demands fully stocked supermarkets with the lowest price always, but craves “authentic” famers markets and artisans. Sometimes.
Say I see “Tony Robbins” is coming to the GTA. Wonder if he covers real estate.
(As long as he’s not mentioning that olde-book-of-fairy-tales, or shoving-it-down-our-throats.) It’s different this time. I bet merchandise sales will be swift.
[…] via Real men go long — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estat…. […]
The trouble with you Canadians is you have a Gov’t everyone envies (and as a bonus citizens that keep then honest the odd time they would stray ).
No one knows this but now big lenders like scotia are already not renewing some customers……. they are now doing this because of pressure from regulators. So yeah the big banks are starting this practise…. only occasionally though…..
so if you lose your job at the right time and you are carrying too much debt? or you have a derogoratory on your credit?
you are not safe
interesting garth. i am happy you did flag a reversal in your previous comments about sticking with the 5 with the rationale that the savings would likely offset the 10 year premium. despite your arguments, at what rate would the 10% be to offset a 2.89% rate now?
So aggre with this logic, differential between 5 and 10 year nothing, also if rates went to the moon and you had to sell, the added value of transferring it the new owner get you a much higher price
US debt clock 16.8 trillion and counting, US economy recovering indeed:
http://www.usdebtclock.org/
Canadian’s debt all time record highs and counting, mortgage business also recovering indeed.
More debt baby more debt, debt to oblivion.
Garth, while I agree with you about the continuing improvement in the US economy, getting better doesn’t mean getting good, yet. I think these higher interest rates were but a blip, and a wonderful buying opportunity. This week, the Fed will slightly revise down the top end of its GDP growth expectations, and a few more hundred thousand people will realize that Fed bond buying will continue until late 2014 or early 2015, because that’s how long it’s going to take for unemployment to hit 6.5%. Even with 200k a month job creation, enough formerly discouraged workers will be coming off the sidelines to keep unemployment elevated.
Maybe I’m wrong, and we’ll see a bigger hiring boom. But I’m betting on a continued long, slow US recovery.
“Bankers will lock you up until 2023 now for 3.69%, which is a scant 0.4% more than their five-year offering. This is a gift, and probably temporary….”
********
When I log onto sites to check various rates, I find they’re around 5.25% (Valley First, 10-year). Why is this?
Does it boil down to serious negotiations?
6 month 3.85% *
1 year 2.80% *
2 year 3.09% *
3 year 3.19% *
4 year 3.29% *
5 year 3.19% *
5 year (variable) 3.00% **
The asterisk means what?
7 year 4.75% *
10 year 5.25% *
Discount to posted rate available. — Garth
That’s what you said in 2010. People are still renewing
At a cheaper rate.
In five years they will reintroduce the variable
With prime minus one again especially if sales are lower.
Well…how would you know if the asterisk means anything? LOL
I’m assuming it means ‘special considerations’ of some kind…
This home is so awesome….
http://www.realtor.ca/propertyDetails.aspx?propertyId=13234766&PidKey=1669939911
Hey Realtor #1. Did you apply for a job at McD’s yet? Better hurry before the rest of the realtor scumbags beat you to it lol.
#1 No Longer Innocent on 06.16.13 at 5:33 pm
“first?”
#6 Ben on 06.16.13 at 5:42 pm
“Fuuuurst”
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Dumb and Dumber…
Just this past week I was doing a site search for all your postings referencing 10 year rates and came to the conclusion that you’d take the 10 year bet now. I just did with Scotia on Wednesday, and so it was really nice to see your confirmation today!
A few months ago ING was offering 10 years at 3.99%, until they and a few of the others brought in these 3.69% rates… we’ll see how this plays out, but with the stern words by F for the big boys who tried to lower 5 year deals, and the recent nudges up even further in 5 year rates, though its still a big gamble against the history of variable winning out, I think nows as good a time as any to call it: **bottom!**
AK – just a bit of fun. You have to go at it positive as you have no way of knowing!
Terrible sales pitch but the German accent is so convincing.
http://www.youtube.com/watch?v=odrM6FnKSGw&feature=youtube_gdata_player
A good way to describe some vendors right now is dellussional.
It is tough choice for sure between variable and fixed.
Someone said people make decision to sell stocks in a few minutes, but who is shorting takes days to determine why you are shorting.
Sell and short is same thing.
Same logic, going for variale or fixed mortgage is to pick between short term and long term bond. So, go either long term / short term are both risky.
Most mortgage is portable, assumable, but what if you are selling property and not buying next one, your mortgage contract is not as good deal as current best mortgage rate?
10Y fixed mortgage is still on (scream) sale, but think more about your 10 years mortgage (= bond) committment.
First of all America is in recession mode and any recovery maybe decades away. Like i’ve mentioned before at some point in time America has to tell the truth about the monthly unemployment figures and the practice of voodoo accounting has to stop. We’ve seen the REIT’s drop like a lead weight and the bank shares fall in America Copper is falling and will fall back to the dollar and change level. Everything points to sharply lower interest rates as the world lends a blind eye to quantitative easing just like the “boy who cried wolf”.
First, (no, not THAT ‘first’), I figure I owe Garth big time. A friend of mine put me on to his site several months ago & I have learned & learned…
I’ve always casually followed housing – we rent – but it’s an interesting… culture. Following up on the Open Houses that were scheduled locally for yesterday. Three were within a few blocks & I meandered by several times – almost no action at all at any of them.
45North yesterday guessed I was in Peterborough. Nope – Kingston. ReMax said we were going to do oh, so well this year. Not seeing it. Sales are down year over year by a big margin & interestingly, it’s the lowest end of the market getting hit hardest right now:
http://creastats.crea.ca/king/mls/mls03_price.htm
If you’re trying to sell a fixer upper or any place in a sleazoid neighbourhood, (like mine); good luck.
It’s a tough rental market too – very low vacancy rate & at the lower end of the rental market, it’s not getting any better. I’m seeing small, private landlords bailing – it’s too tough to get rid of bad tenants.
We should be just rolling in RE action right now & you’d swear it was getting close to Christmas. Sellers are slow to drop prices – their houses are SPESHUL & buyers are finding financing harder to get.
Gonna be a sweaty summer for agents.
re my #14 post, i meant at what renewal % would make the 10 yr (not %) make it worthwhile.
“What if… (you) get pregnant?” – Garth
You are so right! I work at a horrible daycare and even that crappy zoo for kids cost around 1500-1800 a month. I can only imagine paying a mortgage AND paying for daycare.
It’s funny. People take more time in general to pick out a dog kennel than they do a daycare. If people only knew what their kids go through in the name of “socialization” it would make their heads spin!
Daycare is nothing more than a cash cow for the owners. They under pay the workers citing that they can’t afford it just to save a few bucks.
It’s too bad that life is so expensive that both parents need to work. I do realize that it is necessary, but no one can replace mom and dad!
Although at the end of the day, is it REALLY worth it?
Garth, when the bond market caused increased interest rates, how did that turn out?
PS: this is what my “take it up the *@?!” Obedience certificate got me…a job I hate!
I swear that is all collage/university is for: telling you that that is how it is so there’s no use complaining.
#25 AK – wanted to try it just once…. never been #1 at anything… needed the boost to my self esteem… do feel like i ought to dye my hair blonde now.
CatFoodLady: oh Kingston – thanks
I’m seeing small, private landlords bailing – it’s too tough to get rid of bad tenants.
The Landlord Tenant Act discards the rights and interests of the landlord. This imbalance is the direct cause of lack of quality rental housing.
http://www.greaterfool.ca/2013/04/26/all-in-this-together/
LTA, even the ‘improved’ version from some years back certainly doesn’t encourage small landlords & that’s a pity in tight markets. Part of my neighbourhood contains well looked after elevated bungalows from the 50s-70s with perhaps one senior or a couple. They’d love to stay in their homes & in many cases, they’ve already got a legal apartment in part of the house or basement; from when their kids were young adults. They hear too many scare stories & are rightly fearful of renting.
Our complex is small…ish, our landlords are a private REIT that know the RTA inside out & even doing everything exquisitely correctly, I’ve seen it take the better part of a year to get rid of deadbeats, party animals & just… animals.
If the RTA were amended to be more balanced, everybody would win. We have a severe lack of affordable rentals in this city & at the same time, a ton of clean, decent space that could be available – if potential landlords weren’t afraid of being taken to the cleaners.
Our 2 person household is VERY low income; our rental amount is well beyond the recommended percentage but we’re in DECENT housing & factored in an averaged out number of years of rental increases before we rented here. Even as poor as we are, I’d love to see landlords being able to ask for & get a reasonable amount of money as a damage deposit & be able to pursue bad tenants much more quickly. I wish tenant screening could be overtly more vigorous as well.
#34 Chickenlittle on 06.16.13 at 10:04 pm
“……….It’s too bad that life is so expensive that both parents need to work…….”
I’ve watched friends deal with daycare and decided that unless the wife has something close to a six figure job (or perhaps “years of service” towards a good pension at stake), putting two or more kids in full day institutional daycare is frigging insane.
Would $3000 plus per month not be enough to get you a live-in Nanny? I’m thinking you could get someone for ~48 hours a week at average wage of $15 in this economic clime……perhaps less if there’s a “free” “apartment” on offer as part of the deal.
Anyway, I think I’d be looking in this direction…..and then only if the wife actually needed to work.
Not working on my tan, using high numbered sunscreen these days.
8 years left on the mortgage, renewed in April for 5 years at 2.79. Thought about going with the 10 year but thought the 5 year would incent us to pay off the mortgage quicker. If I extended to 10 years, I would have less mortgage payment each month and I guess I could have invested the difference but I think I would have just spent it.
#34 and #40 – If you take into consideration the cost of daycare, commute (gas), professional wardrobe, taxes, buying more convenience items, etc some people may be surprised at what their take home pay really is.
Depending on their occupation, some families can go down to one car as well if there is a stay at home parent (drive your spouse to work when you need the car, take transit, walk or if the working spouse can occasionally working from home) and that saves a bundle.
If both parents work I have seen families do nanny sharing to save money on daycare.
I, and the people I know, may be abnormalities, but many us professionals try to aggressively pay down the mortgage and be mortgage free in the first 10, maybe 15 years. therefore, the lower interest rates make a huge difference in the beginning.
Not everyone is an idiot.
6 month 3.85% *
1 year 2.80% *
2 year 3.09% *
3 year 3.19% *
4 year 3.29% *
5 year 3.19% *
5 year (variable) 3.00% **
The asterisk means what?
7 year 4.75% *
10 year 5.25% *
Discount to posted rate available. — Garth
i vaguely remember (not 100% sure) that [email protected] few yrs back told me that i can not blend my var. rate with special discounted rate when i decide to blend rates, it can be done only with regular”” rates. it seems to me that only way i can do is to take mrtg elsewhere. or pay a penalty and get special offer rate with my bank, and i believe amortization will stay a same. (my bank 10yrs reg rate 6.3%) if that is a case my rate would doubled.
if i can blend my 2.25 and 3.7 (10yrs special discounted rate) to 2.97, that rate would almost look as attractive as our [email protected]
Does anyone have any more info?
Just talked to a single mom w/ two kids and she mentioned that she has a $500k mortgage. Assuming a 30-yr mortgage, her payment must be about $2k/mth. That payment + taxes would take up one paycheque, leaving her to get by on the other paycheque per month. She’s essentially just scraping by, and the coming interest rate rises will wipe her out. I wonder how many others will be similarly affected.
I considered telling her to sell now, but I knew she’d dismiss the idea immediately and so didn’t bother.
You can lead a horse to water, but….
Tenants rule in Quebec (Montreal especially, where 60% of the population rents). There is no getting rid of bad tenants here. The system is totally skewed in their favour. Unless they leave of their own accord, you will get no justice from the system as a small landlord (while being screwed over by professional deadbeats or “Bougons” as they are referred to here). These people are pros, they know how to squeeze a landlord and live rent-free. Better keep an empty apartment than rent to scum. For once they are in, you can’t get them out.
Truly Sad….
http://www.youtube.com/watch?v=OaYfnhUJZgo
http://www.youtube.com/watch?v=odrM6FnKSGw
Hi Garth, here’s something you could use for a future post… Thanks for all you do!
3 observer – it means an increase in the interest portion of your payment. Your number translates to something
close to a $2M mortgage. I’ll be sure to tell all my friends.
#3 observer
Or maybe it’s time to buy a house you can actually afford, if a 0.4% rate increase put you in such a bad situation.
That’s the consensus view, which means anyone who bought with 5% down, a 2.69% mortgage and no savings, is in for some hurt come renewal time in 2017 or 2018. – Garth
Garth drastically overestimates the impact of rising rates on people’s affordability.
Take an average home purchase with a $350,000, 25 year amortization. Payments are $1600 per month.
After five years at 2.69% the principal outstanding is down to $297,000. Even if Garth is right and rates are 6% in five years (quite possible) then worst case scenario a home owner could simply refinance into a new 25 year mortgage (or possibly 30 by then, as its quite likely the government will bring back 30 year mortgages once rates normalize).
$297,000 at 6%, 25 year amortization is $1900 per month. So your payments are increasing however not very much in real terms. At 2.5% inflation your $1600 at beginning of year 6 would be $1810: ($1600*1.025*1.025*1.025*1.025*1.025) = $1810.
So in real terms your payments are up $90/$1600 = 5.6%.
Yes an increase, no question, but not much. And if amortizations are back to 30 years (which I’d wager money on) then you can refinance and your new payment at 6% is $1766 which is down in real terms from your $1600.
Long story short, you can make a good argument for not buying certain types of properties in some cities using many different arguments. But rising rates back to 6% is hardly one of them.
As I was killing time between flights at the airport in the Center of the Universe (Toronto), on my way back to The Best Place on Earth (Vancouver) from the actual best place on earth (Montreal, doesn’t need a slogan), I had a couple of hours to reflect on some things.
First, I could not help but notice the condo-land skyscape of Toronto as the steel bird was descending on suburbia. It may seem normal to the locals, having crept up on them as it has, one tower at a time, but it was rather shocking for someone who has not been for over a decade. I wonder what all those condo investors going to do for mortgages in 3-4 years. Maybe if they are lucky, their projects will get cancelled.
Montreal has its own condo boom, but it is not quite as apparent. Most of the buildings there are 3-4 stories, not towering over their neighbourhoods.
Of course, there too, people are the same as everywhere else. Complaining about the high prices and rents. It was hard not to smirk, but just goes to show, after other misc regional factors are accounted for in a baseline, and localized distortions smoothed out, cost of real estate is primarily driven by the local economy. Most houses trade hands between locals.
Which means, nationally, nowhere is different, whether it’s the Chinese, oil, potash, immigrants, ships, government, whatever, it’s all just dressup for a boring, mundane, run of the mill credit-driven bubble.
As I wondered how this one would end, a planefull of Asians poured out of the nearby boarding gate, signalling my departure was imminent. Unfortunately, I did not spot any suitcases, so I don’t know if they were laden with cash.
Garth is right. 10 years @ 3.69% is an historical bottom when rates are already starting to ease up and we have F, S, and IMF are all warning Canadians their debt levels are in dangerous territory and rates are going to go up. A person with a large mortgage is making a very, very, poor gamble taking a variable rate now. Extremely bad odds. Listen to Garth’s 7 reasons and do it. Later, you will look like a genius.
Why get a 10 year mortgage? Just get a 5 year and buy HTD on the TSX. Garth, since you’re so fond of ETFs, you should be pumping this strategy to your clients.
Oh, I forgot you don’t like broadcasting you’re a stockbroker, AKA ersatz “Wealth Manager”. HTD gives investors the ability to profit from the increases in 30 year US Tbond yields. It’s called hedging… a good investment concept.
RE: #37 No Longer Innocent on 06.16.13 at 10:18 pm
#25 AK – wanted to try it just once…. never been #1 at anything… needed the boost to my self esteem… do feel like i ought to dye my hair blonde now.
——————————————
Hey buddy, when you are with the girl… are you trying with all your might to finish “FIRST!!!” or are you trying to make your performance more memorable for both of you???
Trust me on this one: you will NEVER find a better way to boost your self esteem than NOT to finish first.
And if you don’t get it… I am sorry for you, kid.
#12 Donald Trump – Your comments are as fictitious as your posting name. In fact your use of the name exposes your ignorance of the point you’re trying to make because Trump represents all that is wrong with American politics and business as he so aptly showed throughout the last election. No, Canadian government isn’t the beacon of democratic government in the world
Garth, could you tell me why you get twice the house in a city such as Medicine Hat or Strathmore compared to say Moose Jaw or Regina Saskatchewan? In fact a new house going for under 300k in Medicine Hat, would get you a war time dump in Regina.
y’all won’t believe this stuff, but , damn, i still can hardly believe what happened ths wknd and i got to brag a little!
was out at the camp enjoying beautiful howe sound and the almost sunny weather, and the neighbor calls over from their dock saying a submarine was coming by!?!
this is not a usual thing in the area , if ever, so we watch as it comes into view, about a mile offshore, cruising slowly across our shoreline. we saw other small boats following and circling so we jumped in the boat to go get close up. they seemed fine as i got up real close as they very slowly made way in total silence. so up top of the tower thing there is 5 or 6 guys, chillin out it seems.
im close enough that when i shut off the motor we can easily talk to them.
it turns out a good friend of my wife is/was close with a sub commander dude in vic. we of course, wondered if he was ‘driving’ the sub. so i ask the guys, they say yes, he’s in charge on board. cool. say hi for us.
so we continue for 10 min checking it out from all angles, and then bail out and head back to the dock.
as we are docking and getting out of the boat we notice the sub is making a sharp turn toward the shore and it keeps turning until it ‘comin right at us. well it keeps coming straight to our dock, my 12yo daughter is beyond freaking out, the adults were about the same. it comes up real close, stops, spins a bit, and then over a loudspeaker is a greeting to my daughter, by name. holy crap.
they then punch it in reverse and for the first time it made a sound and backs out, turns and continues on the path it was previously headed. if we didn’t have video i would be doubting my eyes.
http://news.nationalpost.com/2013/02/14/west-vancouver-residents-get-a-scare-as-hunter-killer-class-submarine-unexpectedly-appears-in-howe-sound/
To #19 Daisy Mae
ING Direct has fixed rate mortgages of a 3 year at 2.79%,5 year at 3.08%,7 year at 3.55%,10 year at 3.69%. They have a 5 year variable at 2.75%.
There are others like Meridian C.U. 10 year at 3.69%,TD Canada Trust 10 year at 3.69%,Scotia Bank 10 year at 3.69%,First Calgary National 10 year at 3.68%, Manulife Bank 3.89%.
Bank of Montreal,Royal Bank had a 3.69% 10 year a 6 days ago but raised them to 3.99%. I ‘m sure next week the most others will do the same.
So, Garth, you think a variable rate is the best then? Awrighty then. After my breakfast and reading my Google Alerts of “crack” and “Rob Ford”, (you should see what’s up on message boards!), I’m strolling on down to the bank and work some of my financial magic. I’m going to print this blog out and bring it with me.
And what the hell is going on in Quebec soccer? A dude wants to play soccer in a turban, who cares? Let the dude play. It’s not like it’s hockey and he’s complaining that there are no helmets to fit his religious beliefs.
“Quebecers!” (shaking fist in the air)
http://www.youtube.com/watch?v=if0CrySPSzs
I’m sure most Japanese economists gave similar advise back in 1994.
#50 JL — “Even if Garth is right and rates are 6% in five years (quite possible) then worst case scenario a home owner could simply refinance into a new 25 year mortgage”
That strikes me as more of a best case of the worst case scenarios. If the homeowner has been stretched, what are the chances he/she didn’t add a little credit card debt or maybe finance a car, or perhaps let the maintenance slide on the house. Remember, an extend and pretend refi will need to be underwritten all over again, taking into account GDS and TDS ratios, credit score and an appraisal of the house — possibly even a new CMHC premium if the house hasn’t appreciated.
Most people will probably be able to refinance. But there will be a fraction who won’t qualify with an ‘A’ lender. Their choices will be one of Canada’s subprime lenders, help from family, or selling.
#57 Inquiring minds on 06.17.13 at 3:04 am asked:
could you tell me why you get twice the house in a city such as Medicine Hat or Strathmore compared to say Moose Jaw or Regina Saskatchewan?
Because the price of bare land is higher in MJ or Regina than it is in MH or Strathmore. So if you’ve got $300K to spend, you’re spending $250K on MJ land and $50K on the house whereas in MH you’re spending $200K on the same amount of land and $100K on the house.
Abracadabra! Twice the house for your $300K in the Hat!
Why is the land more expensive one place than another? Well, that’s down to how the local economy is doing. An area with higher wages and profits will have pricier land and therefore worse houses at any given price point.
#51 JL on 06.17.13 at 1:07 am
You nailed it.
And if you’re smart along the way, you throw any extra cash at the principal so when it comes time to renew your costs are even more manageable.
Selling your house and throwing the money into the stock market is ludicrous. Balanced portfolio or not.
We are long overdue for a major correction ( I say Oct) so watch your cash folks. I’ll be in total cash by Labour Day and will risk a few weeks of potential lost capital vs what I think is coming. (meltdown)
People here that drool over the possibility that people will lose their homes disgust me. What a way to live your life, seeing others fail and cheering. I guess in some perverse way they seem to think that it confirms their decisions to rent, was the right one.
How bizarre.
Meltdown in October? Let’s see how smart you are in four months. — Garth
#63 Derek R,
forgive me, but isn’t the usual rule-of-thumb for splitting the cost of a house between land and building one-third for the land, two-thirds for the building?
Would “real men” use the “Smith Maneuver” to buy a house these days?
Never. — Garth
@ #51 JL on 06.17.13 at 1:07 am
So, your financial strategy is to constantly re-extend to 25 years, and never get closer to paying off the mortgage?
Do you also recommend paying credit card bills with other credit cards?
Ford in need of some Amazonian protection.
Throwing a drink onto someone is never the right thing to do.
But in this case it may be considered slightly amusing, and deservedly so. The peas-ants are revolting – and amused.
…
Toronto’s mayor may soon hire his own security detail after a woman allegedly threw a drink at him at a weekend street festival.
Until now, Rob Ford has resisted taking on security guards or his own driver in an attempt to save money.
But following Saturday’s alleged incident at Little Italy, Ford told his radio show yesterday that it’s time to get his own security personnel
TURNER NATION
Can you believe the media zoo hounding Ford..
Maybe I’m just insane, but should the media not be all over queens park, deleted emails, power plant move, billion dollars. Or shove there cameras up the insurance industry for raping kids on auto insurance.
No let’s pick on the fat bastard… Who’s only real crime has been to cut off the pigs from the trough…
I’m must be from another plant…
the cat won
http://www.guardian.co.uk/money/2013/jan/13/investments-stock-picking
============
http://www.guardian.co.uk/world/2002/jul/10/usa.dickcheney
http://en.wikipedia.org/wiki/Halliburton
#25 AK – just when you were getting a shred of credibility back, you tturn into Wayne-hole again.
#65 Herb on 06.17.13 at 8:06 am wrote
forgive me, but isn’t the usual rule-of-thumb for splitting the cost of a house between land and building one-third for the land, two-thirds for the building?
Yes it is, Herb. But that rule-of-thumb only really holds for new builds or rebuilds. For a house built 50, 60, 70 years ago, the value of the land keeps rising and the value of the house keeps falling. So you can easily get an older $100K house sitting on what was originally a $70K lot and is now a $200K lot.
If you think about it a hundred-year old house in central Calgary or central Vancouver is often a worthless shack sitting on some very expensive real estate even though it originally fit the 2-to-1 building-to-land price ratio. So it’s just a rule-of-thumb.
51 JL on 06.17.13 at 1:07 am
I find your flippancy disturbing. You are very casual about the possibility (or necessity) of consumers choosing to extend amortizations upon renewal and increase the amount of total interest they pay. In your example of a $350,000 mortgage financed at 2.69% for five years leaves the consumer with a balance of $297,694 at the end of five years. You are not fulsome with your description of what follows that point.
If someone needs to extend their amortization at that point to 30 years because rates have modestly increased to 6%, this is no light thing. Presuming no further increases in rates ever, this borrower will pay a total of $345,000 in interest to the lender over those 30 years (not including what was already paid in the first term). Compare this to $214,000 if they were able to maintain their original amortization (which would mean a monthly payment of $2132, a 33% nominaly increase).
You would counsel your example to extend the amortization at the cost of $131,000 in interest. That would have a disastrous impact on their ability to save for retirement. And this to mitigate the effects on cash flow of an interest rate that is below the historical average, and will continue to rise.
In your example, the “average” home purchaser can not afford this purchase, and never was able to.
http://business.financialpost.com/2013/06/16/krugman-warns-canada-vulnerable-to-a-big-deleveraging-shock/
Krugman warns Canada vulnerable to a ‘big deleveraging shock’
Nobel prize winning economist Paul Krugman was in Toronto over the weekend and he was kind enough to take notice that we may be experiencing a housing and debt bubble here.
In a new post on his blog over at the New York Times, Mr. Krugman said what’s going on in Canada could be a litmus test for what causes deep recessions and slow recoveries, the type that has plagued the U.S. economy for the past four years.
Mr. Krugman explains most economists initially considered the 2009 recession to be the simple byproduct of the financial crisis. Stabilize the banks, the thinking went, and it would all solve itself.
“Yet the economy remained depressed [even after banks were stabilized in the U.S.],” he writes. “As a result, many economists — myself included — turned to a view that stressed nonbanking issues, especially the broader effects of the collapsed housing and the overhang of private debt.”
That’s where Canada functions as a potential case study. Our household debt and home prices keep trending to unnervingly higher levels. At the same time, our banks are viewed as well regulated and conservative in their capital structures — they’re “boring,” as Mr. Krugman points out.
In the past, those boring banks would have led Mr. Krugman to rest easy about Canada’s household debt and housing. But the non-financial view undermines that.
“Canada ought to be quite vulnerable to a big deleveraging shock,” he writes.
Of course, Mr. Krugman admits he’s a little late to the game in warning about Canada’s household debt and housing prices. Economists have regularly expressed their unease about both over the past several years, and Canada’s federal government has taken multiple steps to try to tackle the problem.
Despite all that, Mr. Krugman is still worried.
“Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the U.S. housing bubble took a long time to pop, too,” he writes. “I’m not exactly making a prediction here; but I guess I believe in the debt overhang story enough to be worried, and Canada is certainly an important test case.”
…who will remember them
Canadian home prices and sales up.Seems real estate is the place to invest for the time being.Beats 1% gic.
What doesn’t? — Garth
@64 Craig:
I will not laugh at people losing their homes – I will laugh at greedy fools who due to this stupid greed went head over heel into debt to “start building equity”, who paid much more than 4 times their family gross income for a cornflakes box on a postage stamp-sized piece of land.
I will laugh at the fools who laugh at those who are actually smart with their money, laugh at the fools who feel superior because they “own” a house, but don’t realize that the bank owns them until debt is paid off, AND given the size of their debt they are the bank’s perpetual slaves, because they will be repaying debt until they die.
I will laugh at those who put the burden of this debt on all of us tax payers via CMHC and who being chained to their houses will have to stay here and bear the brunt of their own stupidity, while the smart (and mobile) money flow to other countries to avoid paying even more taxes (that are already exaggerated in this country).
It will be nasty out there, and mostly because people did it to themselves: lost their minds because of cheap credit and went berserk using it. Well, their payback time will not fail to materialize, and I feel it’s close.
#34 ChickenLittle: “It’s too bad that life is so expensive that both parents need to work. I do realize that it is necessary, but no one can replace mom and dad!
Although at the end of the day, is it REALLY worth it?”
********************************
What came first — chicken or egg? If families had just one parent working, cost of living would have to come down across the board. As it is, this is great for all levels of governments — collecting income taxes from two rather than one.
6% rate is not the end of the world, life is going on.
Link please!!
There will be at least 2 more recessions before 2018 so the BofC and FED will be ratcheting those rates down before long. Variable always wins in the long run. Rates will be under 4.5% for your life time if not longer.
And I also watch the U.S. debt clock with interest. The number one indicator of economic health is debt to GDP ratio and the U.S. slide inexorably downward everyday, never stopping stalling slowing or reversing. This number will be 25 trillion before Obama leaves office and a new 2008 style recession starting up.
More than a trillion a year added to the debt to keep a tepid 2.1% GDP going. When the SHTF, and it will, Garth will just call it a “correction” again. Anybody that praises the U.S. “recovery” hasn’t got a clue whats really going on down there.
Good luck with that. — Garth
Fed bond buying won’t end for many years, taper maybe. Look what happened when the market thought tapering was for real last week, market tanked. Then Bernanke’s Fed buddy had to come out and say that Ben will calm the market this week that bond buying won’t be ending anytime soon and markets scream higher. US recovery is tepid at best, many middle of the road numbers still.
Markets declined about 3% on the spectre of the Fed tapering, after a 19% advance. This is ‘tanking’? You need to get out more. — Garth
The Canadian Real Estate Association is raising its forecast for home sales this year…
http://www.bnn.ca/News/2013/6/17/CREA-bumps-up-annual-home-sales-forecast-.aspx
#56 cynically on 06.17.13 at 2:25 am
#12 Donald Trump – Your comments are as fictitious as your posting name. In fact your use of the name exposes your ignorance of the point you’re trying to make because Trump represents all that is wrong with American politics and business as he so aptly showed throughout the last election. No, Canadian government isn’t the beacon of democratic government in the world
==================================
This Blog has assured us all is well, ( regardless of megabank bailouts, Pentagon can’t find the shoe box where $1 Trillion was stored, Graduates can’t find jobs, shadow inventory is huge etc.) any country that hasn’t incarcerated Celine Dion, nor shot Don Cherry’s tailor, and will erect another unspayed Trudeau) all the positive signs are there.
PS do you want to be on my TV show…you can sit between Howard Stern and Simon Cowell
#81 not 1st — “And I also watch the U.S. debt clock with interest. The number one indicator of economic health is debt to GDP ratio and the U.S. slide inexorably downward everyday, never stopping stalling slowing or reversing.”
That’s part of the “burden” of being the global reserve currency. You can import more than you export virtually forever, because people are happy to trade their stuff for pieces of paper with dead presidents on them. Your dollar doesn’t fall and prices don’t rise.
Also, what would this chart have told you?
http://www.tradingeconomics.com/spain/government-debt-to-gdp
What about a blend & extend for 10 years at ~4.3%? Still worth doing? Current 5 year rate (renewal Aug 2014) is 3.89%.
The bank economists are getting positively cocky. Here’s BMO’s Doug Porter:
“Until recently, it seemed that the only debate on Canada’s housing market was whether the landing was going to be of the soft or rough variety. Well, it appears that housing may not be so keen on landing at all at this point. Existing home sales rose for the third month in a row in May, posting a snappy 3.6% seasonally adjusted gain from the prior month […] Prices remain stable, perhaps maddeningly so for the legions of bubble mongers. Making a mockery of talk of an imminent collapse, no fewer than 24 of the 26 reporting major cities posted price gains from year-ago levels in May […] Far from plunging, most price measures have in fact firmed a tad in recent months. Sorry to inform you, but “The Great Real Estate Crash of 2013” has been postponed until 2014, or until further notice. More seriously, we believe housing remains on track for a fabled soft landing.”
Skin in the game? Undisclosed side bet with a junior analyst? It’s the zippiest writing I’ve seen out of BMO from anyone but Don Coxe, anyway.
http://www.bmonesbittburns.com/economics/econofacts/20130617a/econofacts.pdf
#77 Gladiator: “I will laugh at those who put the burden of this debt on all of us tax payers via CMHC…”
******************
The Conservative government placed the ‘burden of this debt’ on our shoulders.
#77 gladiator on 06.17.13 at 9:48 am
The overriding message here is that folks with a mortgage are idiots and won’t pay it down…will only increase the mortgage to buy Kia’s, granite counter tops etc, etc.
I laugh when renters constantly make those statements as if it’s wise or coy.
Yet 70% of Canadians own homes and are doing well, which drives you renters NUTS!
Your post is loaded with assumptions that you twist into facts, then slam people as if they’re going to be a tax burden on society…LOL…
Yes there will always be a % that go to far into debt and it has nothing to do with interest rates and all to do with their ignorance. People were doing the exact same thing when rates were at 15%
That’s just how some people live.
A lot of people that a really BAD at managing money are RENTERS because they can’t manage to save a down payment and then take care of the house payments, etc and all it’s costs.
So they rent and trash people who own.
TOOOO FUNNY actually.
@ #63 Derek R on 06.17.13 at 7:26 am
#57 Inquiring minds on 06.17.13 at 3:04 am asked:
could you tell me why you get twice the house in a city such as Medicine Hat or Strathmore compared to say Moose Jaw or Regina Saskatchewan?
Because the price of bare land is higher in MJ or Regina than it is in MH or Strathmore. So if you’ve got $300K to spend, you’re spending $250K on MJ land and $50K on the house whereas in MH you’re spending $200K on the same amount of land and $100K on the house.
Abracadabra! Twice the house for your $300K in the Hat!
Why is the land more expensive one place than another? Well, that’s down to how the local economy is doing. An area with higher wages and profits will have pricier land and therefore worse houses at any given price point.
————————————————————————
All I know is that you’d have to pay ME $300K per year to live in any of those places.
“Montreal’s interim mayor arrested on fraud charges”
http://www.cnn.com/2013/06/17/world/americas/canada-montreal-mayor-arrested/index.html?hpt=hp_t2
#7 Jordan on 06.16.13 at 5:43 pm
premature thankulation? I place bets a turtle beats the rate hikes although it may be a slow sprint to the finish.
#42 Karie on 06.16.13 at 11:21 pm
#34 and #40 – If you take into consideration the cost of daycare, commute (gas), professional wardrobe, taxes, buying more convenience items, etc some people may be surprised at what their take home pay really is.
Depending on their occupation, some families can go down to one car as well if there is a stay at home parent (drive your spouse to work when you need the car, take transit, walk or if the working spouse can occasionally working from home) and that saves a bundle.
If both parents work I have seen families do nanny sharing to save money on daycare.
We currently have a nanny from the Phillipines who can drive, which is an anomaly, to look after our 2 kids. The rate is $14/hr, about $1800/month for a 4day work week, which is much cheaper than if we were to have them in daycare. If both parents work, and you make more than about 50k, you are better off financially to work and hire a nanny.
Garth, I just re-upped for 5 years @ 2.89, mulled over the 10 yr but the plan is to take the cheap money and ‘hopefully’ build up a big chunk to put against the principal in 5 years. Are you saying I messed up my not taking the 10yr???
Great Story From Alberta
Friends… $850K house, late model vehicles, toys every where, family of 4, big money job in the tar pit.
The D happens….
Quits the big money job (I ain’t supporting you… la da dah), sells it all and $80K cash is all that comes out of that pictured lifestyle.
LMAO
#40 The Man From Nantucket:
Re: The nanny situation
Check out this Kijiji ad:
http://toronto.kijiji.ca/c-services-childcare-nanny-Need-a-live-out-nanny-for-the-month-of-July-plz-read-be4-u-reply-W0QQAdIdZ493928101
The most I have ever seen offered is $13 and hour. Usually people want a Filipina for some reason. Maybe because they are cheap?
VERY, VERY sad! I wouldn’t do it.
economic textbooks of days gone by can be tossed as logic no longer has a place in this mad financial world mankind has created.
It’s like we have boxed ourselves into a hole which keeps getting deeper. As long as the financial elite can stand on us average folk to see the sunshine, it will be status quo and business as usual.
Who wants fries with that mortgage?
Realtors need not fear lost income in the coming melt. For some, their personal ethics will be a perfect match for careers in politics.
In fact, one realtor/mayor position has just become available this morning!
(Must be willing to relocate, like bagels and ice storms)
http://montreal.ctvnews.ca/montreal-mayor-michael-applebaum-facing-14-criminal-charges-1.1328606
betamax: Just talked to a single mom w/ two kids
a single mom with two kids – I would say “say what you think” but it’s gonna cost you
CatFoodLady: RTA = residential tenancy act
http://www.ltb.gov.on.ca/en/
funny how the rules have seriously undercut the middle class
So I would surmise a lot of nothing about nothing then.
Wow I feel much better now knowing that MSN has it all figured out. Whoow, sure had me worked up there for a moment, Oh Crap I just woke up, it was all a dream.
http://money.ca.msn.com/investing/deirdre-mcmurdy/why-we-should-stop-worrying-about-the-condo-market
My brother is renewing his mortgage in Germany.
With a min. of 28% equity the banks are offering 1.7% variable or 2.7% fixed over 27 years.
I saw the docs and its a great time to be leveraged to the gilts in Germany provided you’re a good customer and have steady income.
Also shows how much the banks are anticipating a rate hike in Draghiland.
FWIW, 2-ply 24 rolls with 200 sheets costs 2.65 Euro. Good stuff and unfreakin’ real.
Why are BoC and Flaherty doing such a fairy girly man dance around the interest rate issue. Just bring ’em down or Canada is not competitive in this currency war.
#78 Daisy Mae
Of course! That is why nothing will ever change! Even though having a parent stay home and take care of the kids until they are at least in school full time would save the gov’t money in the long run by reducing subsidies to childcare facilities (especially the bad ones!), it will never happen. For some odd reason, schools and daycares always need MORE money in spite of the fact that children are very creative and do not need expensive toys or more computers to learn and enjoy themselves.
Oh! and “collage” should be college…oops.
Daisy Mae;
The title of this topic is ” Real men go long ”
How’s Little Abner ?
For those who are still confused about the latest uptick in sales, here are three key points.
1) Developers are not completing units on schedule. The completion or turnover rate has fallen to levels last seen in 1976 while units under construction are at record levels for metropolitan areas throughout Canada.
Units Under Construction in Canadian Metropolitan Areas
Completions as a Percentage of Units Under Construction
Of course resale inventory is not going to rise if units are not being completed. Duh! Right now we have the biggest bottleneck ever seen of units held by speculators that are ready to flood MLS inventory as developers complete units. This is the crisis Flaherty and the BoC is talking about.
2) Demand Shift: Sadly here in Canada, most housing analysts are pathetic and fail to understand that our housing market is much like China and Hong Kong that includes a highly speculative presale market, where units are sold like futures contracts — adding a middle man that sucks up supply from the end user. Looking at one market (resale) alone will tell you little as presale data is just as important and gives more insight on demand and supply. For you analysts, I suggest to review this China housing report by JP Morgan to see why primary and secondary (resale and presale) are always compared to assess market conditions.
From what presale data we do have in Canada, here is what the market looks like.
Vancouver (Landcor minus REBGV sales spread) Chart
Toronto (RealNet New Home Sales) Chart
It doesn't take a genius to realize that if one market is crashing, naturally, some fundamental demand will shift to resale homes that are currently being discounted. Why buy an expensive tiny new home when just around the block you can buy a larger resale for less?
3) If you're a realtor or brokerage, you've probably noticed that sales haven't been so great compared to other years, which is why you probably decided that this year (being on a tight budget) you're not going to shoot your marketing campaign during low season to front-run buyers, rather you'll try to make it count and advertise during high season (April-May).
What we're seeing overall is lower-low seasons and moderate or flat high seasons, making resale data more volatile. When looking at the big picture by summing year-to-date sales and dollar volume (actual money transacted), the trend becomes evident.
Non-Seasonally Adjusted YTD Sales for May (CREA)
British Columbia -10.7%
Alberta 2.9%
Saskatchewan -11.9%
Manitoba -9.8%
Ontario -8.25
Quebec -12.2%
New Brunswick -2.5%
Nova Scotia -17.8%
Prince Edward Island -9.3%
Newfoundland & Labrador -11.8%
Northwest Territories -15.8%
Yukon 4%
Canada -8.2%
Non-Seasonally Adjusted YTD Dollar Volume for May (CREA)
British Columbia -12.2%
Alberta 7.5%
Saskatchewan -6.9%
Manitoba -5.3%
Ontario -5.7%
Quebec -11.7%
New Brunswick -2.1%
Nova Scotia -19.9%
Prince Edward Island -4.75
Newfoundland & Labrador -4.7%
Northwest Territories -18.6%
Yukon -3.7%
Canada -6.5%
If this was the best number May could pull off with record low completions, a crashing presale market (extra demand) and marketing campaigns, I can't wait to see what happens going forward during low season months.
Another example of statements made in the media without facts to back it up, but then again it is MSN Money News.
Another point to consider: about 25 per cent of the current condo inventory is held by domestic investors, for rental or tax purposes.
A big chunk of the rest of the market is dominated by foreign investors who typically purchase such properties as a long-term hold, a strategy that contributes to condo market stability.
http://money.ca.msn.com/investing/deirdre-mcmurdy/why-we-should-stop-worrying-about-the-condo-market
Variable rates are not going anywhere for years…
Keep telling yourself that. — Garth
Correction on post #89. Landcor- REBGV sales spread is mislabeled. Chart
#19 Daisy Mae on 06.16.13 at 8:04 pm
“Bankers will lock you up until 2023 now for 3.69%, which is a scant 0.4% more than their five-year offering. This is a gift, and probably temporary….”
********
When I log onto sites to check various rates, I find they’re around 5.25% (Valley First, 10-year). Why is this?
Does it boil down to serious negotiations?
*********
http://www.firstnational.ca/Residential/Mortgage-Rates/
CatFoodLady, thanks for posting that link, useful statistics. I checked out the sales for Kitchener Waterloo and it seems sales are way up in May vs previous years and active listings and months of inventory are both down. Can anyone who is local to Kitchener or Waterloo (and not a realtor) give me a spin-free commentary on the market there? Thanks.
Canada on course for a soft landing…
http://www.bnn.ca/News/2013/6/17/Could-Canada-be-on-course-for-a-soft-landing-.aspx
To happy renter #76
What bank,trust company or credit union are you going to. GIC’s are not 1.00%,they are more like 2.50% to 2.85%. Even a 1 year GIC is 1.85% to 2.00%.Longer term provincial strip bonds are 4.00%. Get informed.
#110 Dean Mason
You keep pumping strip bonds, so you’re gonna have to explain this to everyone. Strip bonds pay nothing. How are you getting 4%?
Still dreaming…..
http://news.ca.msn.com/top-stories/canadian-home-sales-and-prices-tick-higher
http://www.news1130.com/2013/06/17/vancouver-home-resales-prices-were-up-in-may/
According to this article prices are going up, sales are strong and getting stronger in Vancouver, and everything is just roses.
So who does one believe?
However in my neighborhood homes have been sitting for months now and a whole lot of zero seems to be moving.
According The Red Pin's GTA weekly MLS listings: listings based on a four week moving average is up 49.4% y/y.
Watch TREB's mid-month listings tomorrow tell a completely different story.
Ontario Savings Bonds raised their 10 year fixed rate bond by 0.25% point from 2.85% to 3.10%. This week you will see financial institutions raise their 10 year fixed rate mortgage by at least 0.25% to 0.30%.
109 Uwinsome on 06.17.13 at 2:41 pm
Canada on course for a soft landing…
Exactly what I’ve been predicting all along. That and continued low interest rates and wild swings in the stock markets, predicating a massive slide in Oct.
It’s taken 5 years to get back to where it was in 2008 and that was wiped out in 3 months and will happen again.
The US is a disaster regardless of the MSM BS that is pumped out. Their economy is not recovering, nor is their deficit improving. Half the country is on food stamps, unemployment or welfare.
Nice recovery.
Folks confuse a strong stock market with a strong economy.
WRONG!
For the last 10 years all of the US jobs have been shipped to China in search of those much needed EPS that market analysts look for every Q.
Some experts say the REAL US DEBT is over $100 Trillion….fun with numbers.
PS – House prices and sales volumes always drop off in the summer. What’s with all the cheering?
Get a grip.
If half of the crap you spewed above were true the last thing you’d want is real estate. — Garth
After talking with many angry, under employed men and women, on my recent trip to Paris, I was stunned to realize just how moribund Europe’s job market is.
Paris was eye opening, believe me.
That is all very concerning (add Spain and Italy and Greece and Estonia and you have a LOT of angry University grads, playing Barista) – but this just moved on the AP wire and points to a potential Black Swan that will scare the pants off investors:
HONG KONG — A record seven million students will graduate from universities and colleges across China in the coming weeks, but their job prospects appear bleak — the latest sign of a troubled Chinese economy.
Businesses say they are swamped with job applications but have few positions to offer as economic growth has begun to falter. Twitter-like microblogging sites in China are full of laments from graduates with dim prospects.
Link: http://tinyurl.com/k4wff37
What happens to a mortgage agreement in the event of a bail-in?
Nothing. They won’t be any. — Garth
smoking man: Maybe I’m just insane, but should the media not be all over queens park, deleted emails, power plant move, billion dollars.
The spot light needs to be on Queens Park. The Liberal Government cancelled the power plant so it would be re-elected. This is a waste of hundreds of millions of dollars. The cost is simply added to the debt – the Province doesn’t have the money.
Rob Ford is very small potatoes. If you don’t like him vote against him. You don’t need electoral reform.
Starting from eighties -(Reagonomics), consumer consumption in the US has been stimulated with decreasing peoples savings and increasing household debt.
Consumer consumption, as per today, exceeds household income in the US by at least 3 trillion dollars.
Here is my very naïve question:
Can you please explain me where the US government will be getting those 3 trillion dollars to support the current level of consumer consumption?
As long as somebody will explains me the monetary mechanism of constant provision of US households with those money, I don’t believe in the US recovery.
#89 Craig
If your house makes you happy, rock on! I sold mine and rent. No regrets! Have a nice portfolio (balanced) and spend my time making tough decisions, like which way this putt will break, or what lure works on the end of the rod. Oh, and those long rides as a cyclist, & a little eight ball. Amazons & Ale, right on! Isn’t that more fun?
Interesting piece of data (from here http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/05/q2-2013-bank-earnings-mortgage-morsels-.html)
64% of BMO’s portfolio has an effective remaining amortization of 25 years or less.
Does it mean that 36% has an “effective remaining amortization” of more than 25 years?
If half of the crap you spewed above were true the last thing you’d want is real estate. — Garth
A soft landing in RE, continued low interest rates and an inevitable market crash and I DON’T want to own RE?
Huh? What do I want to own then?
PS- watch what the next QE does.
Garth, it’s time for you to tell the truth about the re market, the prices are staying put, interest rates will be low for at least another decade and I’m being very conservative with that number as it may be even two. Unless there is a massive recession with millions of jobs lost the prices will stay where they are for the most part, $2 million dollar houses will see price drops as the demand is very small but on an average most re will stay stagnant. You owe it to your readers to come clean.
#89 Craig — “The overriding message here is that folks with a mortgage are idiots and won’t pay it down […] Yet 70% of Canadians own homes and are doing well”
Most of them probably are doing well. But 5% of them are probably living on the edge. If you want confirmation, read the comments on mortgage brokers’ blogs about deals that used to get approved but don’t anymore, or note that there have been a lot more debt consolidation, bankruptcy trustee and credit counselling ads lately. Then you can note that more Canadians work in real estate and construction than ever before, and that a lot of those construction jobs will likely be disappearing over the next two years as condo presales peter out and the building boom goes bust. Then you can note what happened in the US as unemployment and lower house prices affected prime homeowners who worked in other sectors of the economy. Then you can disregard all that and get on the other side of my trade.
121 espressobob
I do all of those things and more. Aruba in Jan, St Maarten this Thursday and then a European River Cruise in Sept.
What we did was paid off our mortgage with every extra penny we had, every year. In no time, no mortgage and those were during the times of 12% rates!
So when people here scream folks will be wiped out when rates double to 6% I just laugh.
Loretta Lynch, U.S. Attorney for the Eastern District of New York, said Monday :
As set forth in the indictments, the defendants used 7-Eleven as a platform from which to run elaborate criminal enterprises. From their 7-Eleven stores, the defendants dispensed wire fraud and identity theft, along with Slurpees and hot dogs. In bedroom communities across Long Island and Virginia, the defendants not only systematically employed illegal immigrants, but concealed their crimes by raiding the cradle and the grave to steal the identities of children and even the dead. Finally, these defendants ruthlessly exploited their immigrant employees, stealing their wages and requiring them to live in unregulated boarding houses, in effect creating a modern day plantation system,” stated United States Attorney Lynch. “As this case shows, we are committed to preserving the rule of law and protecting our communities from the abuses of corrupt businessmen seeking to gain illegal advantage. I would like to thank our partners at HSI, New York State Police, Suffolk County Police and SSA-OIG for their hard work on this important investigation.” http://www.justice.gov/usao/nye/pr/2013/2013jun17.html
If you want to see what happens when developers keep building to the moon while the populace speculates on futures housing contracts, look no further then China's inter-bank lending rates: SHIBOR
The Chinese solution for a housing bubble? Capped prices
Fears of a housing bubble are not unique to the United States. In fact, both China and Canada have addressed similar concerns in the past year. Beijing is currently dealing with surging home prices and skyrocketing payments, according to the latest Rob Chrisman Report.
So what is the local solution?
According to Chrisman, the city has enforced citywide price caps over the course of the past three months and is withholding presale permits for new projects when ‘planned’ selling prices are considered too high.
Canada seems to be dealing with similar concerns. The Secretary General for the Organization for Economic Co-operation and Development recently told the Wall Street Journal that in fact the housing market may be overvalued, but said it's not reflective of a bubble. Read more about Canada's concerns in The Globe and Mail.
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Yep. Read more G&M and FP where almost every report is practically copied and pasted direct from the RE boards' press releases. No unbiased analysis needed. Just trust them because there's no conflict of interest when CREA directors are winning broker of the year awards.
As I said a many times over on this blog. We've adopted a presale system we know very little about, that quite frankly has the Bank of Canada very very concerned because not like China, imposing housing caps here is unthinkable.
This doesn't end any other way but a hard crash. When it happens, is when stupidity and greed meet reality.
#126 Ralph Cramdown
But 5% of them are probably living on the edge.
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No doubt, in fact maybe more than 5%, who knows. I said that there are some who will never be able to manage their money properly regardless of the interest rates.
That’s just the way it is with some and always will be.
#127 Craig — “What we did was paid off our mortgage with every extra penny we had, every year. In no time, no mortgage and those were during the times of 12% rates!”
And you STILL don’t see the problem? In addition to all his other meddling in the mortgage market, Flaherty eliminated the penny!
Why do sooo many real estate agents brokers and speculators come on this blog. Shouldn’t you be selling houses in this booming market. In this “pathetic” log of Garth’s really a threat to your livelihood? I don’t get it. What amazes me most is the lies out there. I had a realtor lie to me on the weekend regarding the “staging of a home”. It was a lottery home and the owners won the furniture. Everyone assumes you are a dumb buyer and don’t know anything. On and according to the oakville realtors all the Chinese are buying in because you know markham is full! Lol… Yup I’ve heard it all now. My ultimate favorite was the realtor who had an email ready on her phone for every question or comment I had to counteract my thoughts. Savvy! I’ve low balled where I’m comfortable but for now I stay in my paid for home and continue to live comfortably. I’ll watch everyone else live behind their means. I’m amazed the conditions people are willing to live in just to be in a slightly more desirable neighborhood. Also the house flipping and moving and selling to profit. Isn’t there a downside to moving your children multiple times already during their short lives. Do people actually factor in their true costs into their “so called” profit. Did they actually profit more then I did by not moving for 10 years and actually paying off my house? Really interesting times we live in.
Dear House Humpers and Realtors…
it appears as though you missed this blog post from Mr Turner. Have another look.
http://www.greaterfool.ca/2013/06/14/suck-it-up/
I know that it was posted 2 WHOLE DAYS AGO, almost 3 now, and that is like 45 years in today’s insta-world….the prices these homes sold for are what the homes sold for. No gimmicky composite indexes, no seasonally adjusted number, no statistical manipulation etc etc
put your money where your mouth is if you are so certain, go all in on and start your own blog and report how well you are doing
If real estate is fine, how come so many idle realtors are coming to this blog? — Garth
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Tut tut…
No such thing as an idle realtor.
In their time honoured obligation to provide a combination of quality housing and affordability, they are always striving hard to deliver the aforementioned.
Thus, they are lining up at a Tijiuana Plastic Surgery clinic to appeal to the latest demographic.
Traders Pay for an Early Peek at Key Data
http://online.wsj.com/article/SB10001424127887324682204578515963191421602.html
On the morning of March 15, stocks stumbled on news that a key reading of consumer confidence was unexpectedly low.
One group of investors already knew that. They got the University of Michigan’s consumer report two seconds before everyone else.
Infinium Capital Management, a high-speed trading firm in Chicago, used the information to launch a wave of trading in futures contracts, in just one example of the activity that followed.
In a single second, according to a Wall Street Journal analysis, traders from various firms bet nearly seven million shares that equity markets would decline—which was exactly what happened when news of the survey became widely known.
Economic reports from public universities, trade groups and other nongovernmental organizations can move markets as surely as official data from the U.S. government. But unlike government reports, where pains are taken to make certain no one gets them ahead of time, few rules control release of nongovernmental economic reports.
Unknown to many investors, selling early access is routine.
etc.
This is a “blind spot” in U.S. law, said Richard Painter, a former Republican White House ethics lawyer. Groups, he said, should “not be allowed to selectively disclose market-moving data to people who pay more money—that is not right.”
CTV news coming after commercials ” the housing market heats up” !
CTV news throwing this blog and it’s host under a bus!
Canadian real estate bubble is no different than any other country…….all in the RE industry denied the existence of the US bubble including Greenspan….same stuff happening here…..would anyone expect Carney and Flaherty to admit they are responsible for the pain to follow?….more likely to expect Rob Ford to admit his crack use than Flaherty admit to the coming burst
Markets declined about 3% on the spectre of the Fed tapering, after a 19% advance. This is ‘tanking’? You need to get out more. — Garth
Last few weeks have had way more red days then green days, the market is clearly topping and will be over-sensitive come Bernanke’s next market pump or any further bad news out of China and their credit bomb about to go off.
#71 Otto on 06.17.13 at 9:08 am
“#25 AK – just when you were getting a shred of credibility back, you tturn into Wayne-hole again.”
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Come on now. It’s not that bad. Have some sense of humur.
#93 cowtown cowboy
$14/hr, not much above minimum wage. Yep you want the lowest paid people taking care of your biggest asset.
“You’ve come a long way, Baby?”
#124 pinstripe: “Flarhety made the right decisions addressing the potential housing bubble.”
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Damage control. He caused all the problems we face.
#124 Pinstripe: “Interest rates have no choice but stay LOW for a long time.
Anyone waiting for a massive decline in house prices is a Fool.”
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How misguided can one person be? Amazing…
#131 Ralph Cramdown: #127 Craig — “What we did was paid off our mortgage with every extra penny we had, every year. In no time, no mortgage and those were during the times of 12% rates!”
And you STILL don’t see the problem? In addition to all his other meddling in the mortgage market, Flaherty eliminated the penny!
*****************
Funny! But you’re right. Flaherty can’t do anything right…and all Canadians suffer because of his stupidity. Remember, this government won a ‘majority’ with a whopping 38%. LOL I’ll be damned if I know how that happened….
Dear Montreal and Paris – you could do a LOT to boost your RE values of any property with one simple effort.
Stop [email protected]#ing pissing everywhere, it reeeeeeks! MTL Downtown, oldtown ,university, it all STINKS TO HIGH HEAVEN of piss. How do you stand it?
vancouver air makes properties worth 3x of mtl urea fog.
#55 Turtle… well given that I am a woman any story I could possibly tell of being with a woman for the first time is not fit for discussion on this blog…. besides all married women can appreciate the occasional “love me and leave me to get some sleep” moment. If you don’t get that then I’m sorry for you, bud.
To #111 Devore
Yes your right,strip bonds pay nothing they are interest free loans.Did you ever hear of compound interest and maturity values.When you buy a rental property and sell it for a profit after say 20 years you don’t make any money called capital gains,right.Try that one with the CRA and see what happens.
I am not pumping anything.I was talking about a particular investment that yields 4.00% simple interest.You never heard of yield to maturity.
To #111 Devore
If you actually read people’s posts,I said longer term provincial strip bonds are 4.00%. You said get 4.00%,I did not say that.I said are 4.00%. A 20 year provincial strip bond that has a 4.00% yield to maturity costs $45.639 today and when it matures is worth $100.00.
This means that if you have $10,000 to invest today,it will be worth $21,911.08 in 2033.After 20 years you have $11,911.08 more than you started with.It is 4.00% with every new principal and interest balance not only on the original $10,000 investment.
You understand,you just like acting ignorant to insult me.Reverse mortgages work the same way,compound interest.
An alternative interest rate view:
http://www.integratedmortgageplanners.com/blog/monday-morning-rate-update/fixed-rates-move-up-and-variable-rates-look-better-by-comparison-monday-morning-interest-rate-update-june-17-2013/
Garth, where are you? Please hurry up and take the load off my boring day.