COVID and the housing market

[GreyGhost]

Another common mindset is that when renting, you are just paying someone else's mortgage. Owning, at least your money is paying off your own home (eventually or almost never with these prices).

The scariest part of renting for me is somebody else gets to pick when you move and how much you have to pay monthly. Life can be cruising along nicely yet you are always 61 days away from disaster. Owning a home drastically slows down the swings. You can see rates rising or monthly cashflow not working out and take steps to improve your position. If you are already renting on the low end of the market, there is not much you can do to improve your position (and it will quickly get worse).

On our last house, I ran some numbers using the required expenses (mortgage, tax, maintenance) and appreciation in house price. For renting to be a better deal financially, I needed to find a place to rent for minus $2000 a month (ie the landlord needs to pay me to stay there). Ontario market is not normal though. House cost less than 2000 a month (including principal payments, half that if you ignore principal) and was appreciating at more than $3000 a month. Current house is even more crazy with house appreciating five to six dollars for ever dollar of monthly expense (including principal payments, almost 10 to 1 if you exclude principal). All of that untaxed. Crazy.

 

[Lightcycle]

Another common mindset is that when renting, you are just paying someone else's mortgage. Owning, at least your money is paying off your own home (eventually or almost never with these prices).

That's the thing, you can rent property from a landlord or you can rent money from the bank, it's six of one, half dozen of the other...

YMMV, but my portfolio has appreciated faster than my landlord's property value.

 

[Lightcycle]

The scariest part of renting for me is somebody else gets to pick when you move and how much you have to pay monthly.

No different than the central bank increasing interest rates, thus affecting your Adjustable Rate Mortgage. At least with rent, there are laws governing how much a landlord can raise the rent every year, so you are effectively able to budget for rent increases.

 

[nobbie48]

Admittedly not the best source. Gives sufficient information to allow further digging.

TL: DR 25 years ago, cdn govt prepared reports showing high percentage of mansions were bought by foreign buyers, many with very little income. Reports were suppressed as they didnt fit with the political image government wanted to present.

Canada Hid A Foreign Capital & Housing Study While Dismissing Intelligence Warnings - Better Dwelling

Canadian tax authorities confirmed they knew about illicit foreign capital inflating real estate. They first found out over two decades ago, but only confirmed it to the South China Morning Post (SCMP) this week. A whistleblowing, retired auditor first told SCMP journalist Ian Young about the...

betterdwelling.com

The more government diddles with this stuff the worse it gets for Canadians. A correction in prices could hurt some Canadians.

1) You have a $1.5 M house with a $1.3 M mortgage and the market drops 15%. You're underwater with the bank. Do you visit your local loan shark at XX% or cash in an RRSP and give half to the government that ran you aground?

2) You want to start a small business and use your house as collateral. You can't get as much as you need.

 

[Scuba Steve]

That's the thing, you can rent property from a landlord or you can rent money from the bank, it's six of one, half dozen of the other...

YMMV, but my portfolio has appreciated faster than my landlord's property value.

I have thought about this lately what could I rent with the income from 2 m dollars instead of owning that house. There is also the 500 mo in property tax and maintenance.

Sent using a thumb maybe 2

 

[GreyGhost]

No different than the central bank increasing interest rates, thus affecting your Adjustable Rate Mortgage. At least with rent, there are laws governing how much a landlord can raise the rent every year, so you are effectively able to budget for rent increases.

Super easy to dodge that. They just curb you and get someone else. Friends were in a building that sold and they got out. The ones that stayed were told rent increases in line with guidelines but then quickly changed to family members needed to move into those units. The people that bought own 120 doors but those specific units were needed for family. Strange coincidence.

 

[backmarkerducati]

Generally when I rented in purpose built rental buildings, townhomes etc. there was stability, same for everyone I know that did and still does the same, you more or less get decide when to move.

For the people I know that rent condos or houses the statistical stability has been much worse. Owner decides they need the place or they want to sell, panic looking for a new place to live with a short runway. Seems to be much worse lately as I think many owners are looking at selling and cashing in. Could also be investment owners heading for retirement as well.

 

[GreyGhost]

The more government diddles with this stuff the worse it gets for Canadians. A correction in prices could hurt some Canadians.

1) You have a $1.5 M house with a $1.3 M mortgage and the market drops 15%. You're underwater with the bank. Do you visit your local loan shark at XX% or cash in an RRSP and give half to the government that ran you aground?

2) You want to start a small business and use your house as collateral. You can't get as much as you need.

On the small business side, this crazy runup has made a mess. Do you invest in a business that requires to bust your ass or go all in in housing where income is mostly passive (and you get to live in a cool house)? If you go all in on housing, coming up with capital to fund the business isn't easy.

A friend just got a mortgage for 1.0x %. Damn.

 

[mimico_polak]

On the small business side, this crazy runup has made a mess. Do you invest in a business that requires to bust your ass or go all in in housing where income is mostly passive (and you get to live in a cool house)? If you go all in on housing, coming up with capital to fund the business isn't easy.

A friend just got a mortgage for 1.0x %. Damn.

Wow….I need me a new broker. He’s actively stopping me from refinancing and taking on more debt…

 

[nobbie48]

No different than the central bank increasing interest rates, thus affecting your Adjustable Rate Mortgage. At least with rent, there are laws governing how much a landlord can raise the rent every year, so you are effectively able to budget for rent increases.

Just be careful. Not all properties are covered forever.

If the property is a one off (Condo) the owner or a relative can move in with six months notice.

Some building were only protected for 20 years

One recent complex in NW TO was bought and will be torn down. The residents were scrambling to find similarly priced accommodation.

Rent controls, reducing hydro costs and other attempts at veiled price controls basically mean the government controls the profits of companies and individuals. To avoid a fight the government (Taxpayer) picks up the tab for a subsidy.

What if the price controls went by simple calculations. $300 a square foot for the house and $200 a square foot for the lot. A 1500 SF house on a 50 X 100 lot would be $1.45 Million. Not to bad but there's a guy standing at my door and I can hardly understand a word he's saying but he has two briefcases full of $100 bills, $2 M.

 

[nobbie48]

On the small business side, this crazy runup has made a mess. Do you invest in a business that requires to bust your ass or go all in in housing where income is mostly passive (and you get to live in a cool house)? If you go all in on housing, coming up with capital to fund the business isn't easy.

A friend just got a mortgage for 1.0x %. Damn.

If he needed a million dollars to start a widget factory what % would he be paying?

 

[GreyGhost]

That's the thing, you can rent property from a landlord or you can rent money from the bank, it's six of one, half dozen of the other...

YMMV, but my portfolio has appreciated faster than my landlord's property value.

I'm getting 10 to 15% in a normal year in most investment accounts. I don't invest with leverage. Housing for me is getting 8 to 40% on the asset value but I am leveraged on housing so my return is higher (minus a few percent for interest but 2 or 3:1 leverage).

I was talking to a guy on the weekend who is really all in. Pulled as much as he can out of his house and invested it. Investment portfolio is returning 10 to 12%. House is 5-10M range.

EDIT:
Last year was an anomaly in housing and investments. Both got ~40%. Investments were not leveraged. It makes no sense to me why that happened unless that is inflation and the politicos are pretending it is real money.

 

[GreyGhost]

If he needed a million dollars to start a widget factory what % would he be paying?

A hell of lot more than that. Work got offered a revolving LOC with no setup fee. Yearly cost to have the account even if you don't use it is ~2.5% of limit. Interest at prime + 2.5% or so on top of that.

 

[mimico_polak]

A hell of lot more than that. Work got offered a revolving LOC with no setup fee. Yearly cost to have the account even if you don't use it is ~2.5% of limit. Interest at prime + 2.5% or so on top of that.

This is why I had to sell my investment property.

Banks changed their rules 3 years in and it was no longer eligible for residential mortgage but had to go commercial.

Couldn’t refinance for even $1 more. Only renewals. So BMO had us by the nuts but they didn’t abuse it.

My cousins just added 800k HELOC to their investment 3-plex to buy a house. Easy.

They love the low rates, their payments went down by $500/month.

 

[GreyGhost]

Average new mortgage in Canada is ~350K now. That puts monthly payments at mortgage ~1750/month (~1050 principal+700 interest), property tax at 500-1000 for most people, maintenance ~500. So 2750 to 3250 a month for the average new (not necessarily first-time, could be a jump) homeowner in Canada. If interest rates double, they are at 3450 to 3950 a month. Painful but should be survivable for most that were able to buy in the first place. By the time the rates double, rent will have continued to climb and it is probably cheaper monthly to own

What is the average value of new mortgage loans in Canada?

Find out in this housing data that shows you the average new mortgage loan values since 2012 across the country and in various provinces and CMAs.

www.cmhc-schl.gc.ca

 

[Deleted member 50930]

^
ThAt must be pre covid

 

[GreyGhost]

^
ThAt must be pre covid

The link has lots of data over time as well as location. My stated value is Q2 2021 for all of Canada. If you are selling and jumping up, a 350 mortgage is not an unreasonable jump (I used to like 200 but given the expense and hassle of selling, I think a bigger jump is justified). Obviously GTA numbers are higher and pulling that average up. It may also include people that were paid off and remortgage to renovate or pay off LOC as house value has skyrocketed, those would be mostly <200K even if the house was >1M.

EDIT:
For what it's worth, writing off moving closer to my wifes work was recently reviewed by the CRA and accepted. Paying for expenses related to the move (LTT, RE, lawyer, move, etc) with pre-tax dollars makes a huge difference. Almost to the point of being worth it to change jobs when you move even if it is a lateral move employment wise.

 

[crankcall]

I have thought about this lately what could I rent with the income from 2 m dollars instead of owning that house. There is also the 500 mo in property tax and maintenance.

Sent using a thumb maybe 2

Friend just did exactly this , he's single, sold his house for 1.45m and is renting a $4,800 month apt , brand new building , he has a corner unit and can see the lake and our yacht club from his balcony. Invested money will pay his rent .

But he was free and clear on a 1.45m house to sell.....

 

[GreyGhost]

Barrie is trying something that may work well but it is causing a lot of animosity amongst neighbours. Maybe the system needs some refinement. You are allowed to build a 2nd house in your backyard. You don't need to notify your neighbours before you do. More dwellings makes rent more affordable. That's good.

They have problems with trees. No single-tree bylaws in barrie so you may cut down an old tree or worse, cut the roots off your neighbours old tree and then they get stuck with the bill to take it down before it falls down.

I posted one before where a neighbour was concerned about her privacy as the neighbour was building a two storey house along her rear property line (mainly whining as visibility was no different).

I anticipate a parking disaster as rear yard tenants park on the street to avoid blocking main house tenants (easy to solve with a by-law passed and enforced to stop that).

It seems that most of the dwellings taking advantage of the program are multi-tenant rental (eg student ghetto/rooming houses). Adding more students to a residential lot doesn't help the neighbourhood if you want to keep it mixed with some conventional owners.

If Barrie decides this is a failed experiment, the ones that got approved are there in perpetuity for better or worse. It would be interesting to see what happens with property values on lots with two houses and their neighbours. I suspect the two house lot will be way up and the neighbours down noticeably. I would be going after the municipality to let me build a dwelling too if the neighbour did even though the rules changed. If everyone has one, the neighbourhood becomes all medium density rooming houses. Lots of reasonably affordable dwellings but probably not the place people want to live forever.

LETTER: Building homes in backyards won't solve affordability, says group

'Our city must be held accountable to all residents and not simply approve developments without any regard for neighbours and communities,' say letter-writers

www.barrietoday.com

 

[GreyGhost]

Another post that I dont know if it belongs in election or housing thread. If a political party believed that a home price correction was the right way forward, they could implement principal residence capital gain tax effective in something like four or six months. That gives people time to get out and lock in money before it gets taxed. The rush of people trying to get out and dodge a ~25% tax could drop prices 15 to 20% quickly.