COVID and the housing market

[backmarkerducati]

My parents are getting older. In theory, my brother may assume ownership of their property at some point. With the recent crazy price increases, buying out my half is well beyond anything he could ever afford, yet alone paying them so they have money for alternate living arrangements. To make the finances work, we may have to subdivide and I own most of the land while he gets the house and a few acres. It was included in the ORM as my parents are not developers so the land got locked up. Last I checked, you are allowed one split into two lots. It is not a simple situation. If my parents sell it and spend it all, good for them. It would be annoying if he got gifted everything to try to correct for his poor choices. Once land leaves the family, you will never get it back. I don't use it often but I don't want it to disappear forever.

Having gone through some things similar to this.

Park the emotion, calculate the money. TVM, what if it was sold and the money invested (or used to pay debt), what is the FV needed to be to break even, how much does it need to increase in value each year to cover this and all the carrying costs. Once all that is nailed down you can figure out the cost of the personal attachment then decide what is best. Most people will refuse to do this for one of two reasons IME, 1) they are afraid of the outcome or 2) they don't know how to do it/don't understand (in your case GG from your posts the second one is not you....).

Land is just another inanimate object...

 

[xfactor]

A tale of two cites...a story as old as time.

April is when the usual buzz starts for the Canada/GTA market, but this January seems already crazy enough. With 15% year over year growth, the barrier of entry is not the price of the house, but the cost of the down payment. If you can afford the down payment, then welcome to the high life. If not, it sucks to be poor; nothing new.

Here is another index that breaks down where we are as far as the rest of the world:

Property Prices Index by Country 2024 Mid-Year

Property Investment Index by Country. Contains comparison of indicators for residential property investment. Apartment price to income ratio, price to rent ratio, gross rental yield, loan affrodability index, ...

www.numbeo.com

Affordability index places at or around 16, only the second G7 country in the top spots after the US (#3 spot).

Of course this is a country specific data and not localized for the hot zones, but it's a good indicator that you can use to quantify your sentiments. As an advise to anyone young who is reading this, if you have the option, buy and hold! Even the mighty Japanese market peaked around 1990 and bottomed out around 2010 and is making now climbing back.

So, everything is in cycles and if you can maintain your carrying costs and increase your earing potential, buy and hold. The usual time in market rather than timing the market and all that jazz.

 

[nobbie48]

Pretty fortunate you can even look at houses in that range. A lot of people don't have that option anywhere in their lifetime.

EDIT: Toronto considering increasing the luxury tax on properties over $2M.... Luxury home tax could yield $18 million for Toronto in 2021, if approved

It may have merit but I don't like the fixed number. If prices continue to rise anything in Toronto will be 2 million. Then people move to the "bargains" in Mississauga and create a new demand there.

 

[mimico_polak]

Of course there is a big "trend" to look and/or move out of the city and buy something cheaper further away because of COVID telecommuting.

Hopefully this works out for these people BUT from past experience:

• The company they work for may change policies and now they will be required to suffer in traffic to get into the office or forced to now rent a place in the city for those days, even if it just a few times per week.
• An opportunity to move up the food chain may come with more in-office time.
• The current company may downsize or even go out of business, now they are looking for the same level "big city" job in the boonies.
• An opportunity at another company may require in-office in the city, even worse if the point above happens!

For people in a career (not just a job) my advice has always been live where your industry is not just where your current job is, or even worse not were either is! Some careers are more portable than others. Always be thinking about what could be next in life, not just what is now.

A lot of it has to do with the 'I'm special' attitude where the workers think they'll be able to work forever out in the far reaches of the GTA. Newsflash, all it takes is a change in management, drop in productivity, a few co-workers coming in more often and the office can come calling.
'Oh you don't want to come into the office? No problem. Consider this your 2 week notice.'

Once COVID ends it's going to be interesting. I expect that rates will go up, people will realize the party is over, taxes will go up to pay for the JT gifting, and the condo market will re-bound as people realize a 2hr commute each way blows. I'm tempted to snap up a condo somewhere within a commute distance just for kicks.

People are going to be in for a doozy when they realize it's not all about what's best for them.

@nobbie48 I agree with you 100% on your comment. You've seen my house. Nothing special. According to the comparables in the area, I can get 1.3-1.5 right now...considering the stuff on the market right now within 500m of our house.

Really hoping my neighbour gets what he's going to be asking. Within 500m, nicely done home, I'm looking forward to the bidding war on his house.

 

[nobbie48]

I wanna live within my means, so maybe I could pull off a million dollar home, and rent out of a couple of rooms but then that whole living within my means thing goes out the window

A friend bought a townhouse with the lower level isolated enough to be an apartment. It's four bedroom above that and he was renting rooms pre covid at $600 a month, $1300 a month for the apartment. $3100 a month.

If you don't value your privacy / shared baths and kitchen. You also have to know how to push back when needed.

 

[Deleted member 50930]

A friend bought a townhouse with the lower level isolated enough to be an apartment. It's four bedroom above that and he was renting rooms pre covid at $600 a month, $1300 a month for the apartment. $3100 a month.

If you don't value your privacy / shared baths and kitchen. You also have to know how to push back when needed.

Big happy family

I semi-seriously asked a non-Asian friend and his wife if they would want to live with us in a big house. They were not pleased but my Asian friend and his wife were up for it :|

 

[mimico_polak]

A friend bought a townhouse with the lower level isolated enough to be an apartment. It's four bedroom above that and he was renting rooms pre covid at $600 a month, $1300 a month for the apartment. $3100 a month.

If you don't value your privacy / shared baths and kitchen. You also have to know how to push back when needed.

Agreed. If you can make it work, have at it. About a decade ago my buddy bought a place at Humber Lakeshore...couldn't afford it fully, so him and the wife lived in the basement and he rented each room to students on the main floor. 5 years the house was paid off. Short term pain, for long term gain.

 

[GreyGhost]

Having gone through some things similar to this.

Park the emotion, calculate the money. TVM, what if it was sold and the money invested (or used to pay debt), what is the FV needed to be to break even, how much does it need to increase in value each year to cover this and all the carrying costs. Once all that is nailed down you can figure out the cost of the personal attachment then decide what is best. Most people will refuse to do this for one of two reasons IME, 1) they are afraid of the outcome or 2) they don't know how to do it/don't understand (in your case GG from your posts the second one is not you....).

Land is just another inanimate object...

Yeah, you are correct on paper. I may be willing to accept less return on investment to help out my bro though. He loves the forest. It's his happy place. The house without the forest is not great for him. Return on investment would be reasonable on the land (although likely lower than market investment). When the time comes I'll run lots of numbers and see what makes sense and what is possible. Hopefully we have another decade before that time comes and market prices may make the decision for us.

 

[nobbie48]

That's part of the reason we moved north. To go from a 3 bedroom 1.5 bath single garage to typical subdivision house in the same neighbourhood with 4 bed, two car garage was ~250K. Boo. For 500 more, you might get 5 bed, two car garage, 10' wider lot on a less busy street. If you move north, holy crap. House prices align with your mental picture of what a house of that price should look like.

That's our dilemma. Particularly for me the two car garage. It would cost me $300 - $400 K to move across the street plus $100 K to bring it up to the standards we have brought our house up to.

Up to date waterproofing of a basement on a 60 YO house is about the same price as a granite kitchen but no one will pay for the waterproofing. They'll swoon over the granite as they wade through the rec room.

 

[timtune]

No granite c/t and stainless appliances. Pfft Not fit for the homeless, move on.

Seriously when I was removing kitchens for HFH we pulled a nice kitchen out of a unit so the landlord could install granite and stainless for a student rental. Luxury student rentals is a thing.
As a student I lived with two other guys in a one bedroom 3 story walk up.

 

[Lightcycle]

Big happy family

I semi-seriously asked a non-Asian friend and his wife if they would want to live with us in a big house. They were not pleased but my Asian friend and his wife were up for it :|

Mangia cakes be like: "Okay, now I'll go into my house and you go back into yours. See you tomorrow, Bill!"
Everyone else: "MOM!!!! GRANDMA IS HOGGING THE BATHROOOOOOOM AND AUNTIE JUST BUD IN LINE FOR THE DOWNSTAIRS TOILET!!!!!"

 

[GreyGhost]

No granite c/t and stainless appliances. Pfft Not fit for the homeless, move on.

Seriously when I was removing kitchens for HFH we pulled a nice kitchen out of a unit so the landlord could install granite and stainless for a student rental. Luxury student rentals is a thing.
As a student I lived with two other guys in a one bedroom 3 story walk up.

Houses near st Andrew's college routinely get kitchens thrown in a bin as Asian buyers pick up houses for their kids to own (we dont have foreign ownership issues right?). What was a 200K kitchen last year is filling this years dumpster. Yikes.

 

[Deleted member 50930]

Mangia cakes be like: "Okay, now I'll go into my house and you go back into yours. See you tomorrow, Bill!"
Everyone else: "MOM!!!! GRANDMA IS HOGGING THE BATHROOOOOOOM AND AUNTIE JUST BUD IN LINE FOR THE DOWNSTAIRS TOILET!!!!!"

That's what happens when I go back home lol

Edit: Also trying to figure out what to eat for lunch and dinner ... Hours pass and we just get takeout ><

 

[Priller]

My parents are getting older. In theory, my brother may assume ownership of their property at some point. With the recent crazy price increases, buying out my half is well beyond anything he could ever afford, yet alone paying them so they have money for alternate living arrangements. To make the finances work, we may have to subdivide and I own most of the land while he gets the house and a few acres. It was included in the ORM as my parents are not developers so the land got locked up. Last I checked, you are allowed one split into two lots. It is not a simple situation. If my parents sell it and spend it all, good for them. It would be annoying if he got gifted everything to try to correct for his poor choices. Once land leaves the family, you will never get it back. I don't use it often but I don't want it to disappear forever.

Getting stuck in areas with limited development can work out, assuming the location is good. There's a 'town' northeast of Vancouver called Anmore, and it was decided a while ago that the lots couldn't be smaller than 1 acre with a single residence. This appeals to folks who are (legitimately) afraid of waking up one morning to find a development application for the lot next door, so drove prices up. Now, it's mostly full of mega mansions with gated yards, and they're worth a fortune.

(for some semi-motorcycle related content, I was told one of the reasons they mandated the big lots was creeping development, the largest of which involved demolition of the historic Westwood Motorsports Park to build a huge subdivision)

 

[nobbie48]

For sure. It's crazy how much interest you actually pay over the life of a mortgage. Good for you guys on working that down so quick!

I'm set up on accelerated bi-weekly, and the first time a 3rd payment in a month came out I was shocked that it knocked an entire month off the end of my mortgage.

I took a loan from the bank of mom&dad to buy this place, so I've been funneling them $500/month to repay them. Once that is paid off, I plan to put that $500/month back into the mortgage.

Our last house mortgage was 40 years ago at 13%. Not everything was done on computers then and we got a printed out mortgage sheet outlining principle and interest. IIRC the first approximately $400 payment was a dollar principle and $399 interest. (25 years amortization).

We could pay off any amount of principle once every six months. For the price of a few Timmies we shortened the length of the mortgage by six months. Then we threw bonuses into the mix as things went on and were mortgage free a half dozen years later. I was the only bread winner as my wife stayed home with our daughter. When she pinched pennies the queen got a head ache. European shopping ethics and we didn't eat junk.

Back then a decent detached was $100 K.

 

[Lightcycle]

Our last house mortgage was 40 years ago at 13%. Not everything was done on computers then and we got a printed out mortgage sheet outlining principle and interest. IIRC the first approximately $400 payment was a dollar principle and $399 interest. (25 years amortization).

We could pay off any amount of principle once every six months. For the price of a few Timmies we shortened the length of the mortgage by six months.

That Abraham Lincoln was one super-smart guy.

 

[nobbie48]

It's because you can't wrap your head around how much money they have in China.

In Vancouver, they've tried to levy all sorts of vacancy taxes to deter absentee foreign ownership.

It did absolutely nothing to house prices. In fact, prices kept on rising. 1.25% Empty Home Tax a year? Pfft, the property just appreciated 30% from last year!

Canadians who want to own property in the country they live and work in just cannot compete against the vast sums of money trying to hide from the Chinese government. There needs to be check on foreign ownership, and not just in word, by enforcement as well.

It's more than housing, the big fish in a little pond syndrome. If you don't travel or at least read about something beyond your own backyard it's easy to think you're the cat's pajamas. Whether it's wealth, technology or culture it's easy to become smug after seeing a few pictures in National Geographic.

If you look for the lowest common demographic you will find it and it's all too easy to use that image as an excuse to put yourself on a throne.

Even with low tech the images can be skewed. Someone commented about the primitive boats being used in a jungle lake by the natives. Someone else corrected the comment by pointing out that the boats were the most advanced one could make for the purpose with the materials at hand. There were lots of reeds but a distinct shortage of epoxy pools, hardener streams and carbon fiber trees.

Anyone remember "Eat your vegetables, some child in China or India would be thankful"? Now they ship us food.

I wonder what country has the highest Rolls-Royce ownership per capita. Not in my 'hood.

 

[crankcall]

I know everybody says the bubble has to end, but when?? People re buying 1mil houses for 250k over initial price, the financing is being provided because the 'market' dictates that is what its worth and jimmy and the missus can swing the payments. Its been mentioned if interest goes up 1.5% jimmy and the missus could be in trouble, and the house may not be at the value they owe.
Its sounds very 2008 ish.

I think the biggest takeaway for anyone is , the banker is not your friend. He's not the enemy , but he will give you all the credit you can swallow and hopefully not choke on.

 

[backmarkerducati]

Our last house mortgage was 40 years ago at 13%. Not everything was done on computers then and we got a printed out mortgage sheet outlining principle and interest. IIRC the first approximately $400 payment was a dollar principle and $399 interest. (25 years amortization).

We could pay off any amount of principle once every six months. For the price of a few Timmies we shortened the length of the mortgage by six months. Then we threw bonuses into the mix as things went on and were mortgage free a half dozen years later. I was the only bread winner as my wife stayed home with our daughter. When she pinched pennies the queen got a head ache. European shopping ethics and we didn't eat junk.

Back then a decent detached was $100 K.

Starting with real numbers are always interesting....

100K house in 1980 based on inflation alone would/should be worth ~$300K today.

If we base it on payments (inflation on the cost of P+I per month) and not the overall value of the home the number is $720K today (income indexed to inflation). Why, the interest rate is under 3% today and was in this case 13% in 1980. Add in the concept of two incomes vs one and that bounces north of $1M.

If the Interest rate was under 3% in 1980 for the same cost per month (compared to 13%) at the time one could have bought a $240K house (in 1980)....

 

[Lightcycle]

I know everybody says the bubble has to end, but when?? People re buying 1mil houses for 250k over initial price, the financing is being provided because the 'market' dictates that is what its worth and jimmy and the missus can swing the payments. Its been mentioned if interest goes up 1.5% jimmy and the missus could be in trouble, and the house may not be at the value they owe.
Its sounds very 2008 ish.

This is the thing. The CDN government is caught between a rock and a hard place. If they raise rates and tank the RE market, the entire economy will crater spectacularly. If they do nothing, the runaway train continues to pick up speed and any resulting crash will be even more devastating as time goes on.

We're way beyond the point of engineering any kind of soft landing.