COVID and the housing market

GreyGhost said:
While the interest rate rocket was hard to predict with accuracy (especially when faced with the official BOC position of low rates are here for the long run), it was easy to see that prices in greater GTA were nuts. Townhouses outside barrie were selling for 1.3 which was similar to the price of a similar town in Vaughan. wtf. I wouldn't want to live in Vaughan but it should have a price premium based on proximity to Toronto and transit. Paying 2M+ for houses in cookie cutter subdivision hell in the middle of nowhere is insane. It's trivial to replicate that model thousands of times and nothing makes that house special. Sure, it's housing but there is nothing to justify that price (other than people were dumb enough to pay).
Click to expand...
Wasn't just new builds. A typical house in our neighbourhood went from $550k when we were buying in mid-2019 to over $1.2M at the height of the Covid craziness in Q1 of '22. It doesn't take a real estate guru, or a crystal ball, to see how stupid that is.

Sales are finally shifting along again, though slowly, after a period of absolutely nothing. Values seem to be pegged back to '21 levels (so still quite high on a historical trend line) and are relatively flat. The prognosticators I've read seem to think the days of the sub-2% fixed 5-yr are extremely unlikely to return, no matter what the BoC does, as lenders prefer to make profits. Mid to high 3's seems to be the floor they're predicting.
 
BoC comes down 0.5% today. Pretty much as expected.
 
mimico_polak said:
Yup. I think those stating it was going to be 0.75% or 1% were a little too optimistic about the BoC's direction.

www.bankofcanada.ca

Bank of Canada reduces policy rate by 50 basis points to 3¾%

The Bank of Canada today reduced its target for the overnight rate to 3¾%, with the Bank Rate at 4% and the deposit rate at 3¾%.
www.bankofcanada.ca www.bankofcanada.ca
Click to expand...
By changing too fast, BOC really creates winners and losers as some people need to renew. As much as I want lower rates for me, metering in changes over time makes more sense. I wouldn't be surprised if the next one was -0.25 or -0.5 depending on inflation data.

I renewed variable in Feb 2024. The five year fixed rates the bank was offering went from 6.47 in Oct 2023 (with encouragement to renew early to lock in the special rate) to 5.47 in Jan 2024. My current variable rate is 5.27 and headed down fast.
 
Construction loans vs mortgages and transfer of mortgages always looked complicated to me . Probably isn’t but I’m not smart on this stuff .
I can say being mortgage free does not suck .


Sent from my iPhone using GTAMotorcycle.com
 
Buddies are already salivating at the extra $200/month they'll get now with their rates reducing. Time for a new vacation were the first words from one of them!

Fak I need to change my mentality.

Their 2.xx% fixed loans are coming up in 2026, so living is good for now.
 
raginduck said:
FYI.. for anyone doing short term rentals...

www.thestar.com

Homeowners who regularly rent on Airbnb and other sites must pay 13% tax on property value when they sell, recent tax ruling finds

The ruling from the Tax Court of Canada will likely have big implications for short-term rental operators.
www.thestar.com www.thestar.com
Click to expand...
Wow. That is a huge number. Seems excessively punitive to put a 13% fee on sale price for something that was a short-term rental for ~10% of the time he owned it. Similar to renting a portion of your house, I would have expected tax implications to apply to the percentage of space and time rented and not the entire property. Given the punitive penalty, owners would do well to get below the 10% threshold prior to selling. The article wasn't clear whether that 10% was over the lifetime of ownership or if it is only related to a shorter recent timeframe.
 
GreyGhost said:
Wow. That is a huge number. Seems excessively punitive to put a 13% fee on sale price for something that was a short-term rental for ~10% of the time he owned it. Similar to renting a portion of your house, I would have expected tax implications to apply to the percentage of space and time rented and not the entire property. Given the punitive penalty, owners would do well to get below the 10% threshold prior to selling. The article wasn't clear whether that 10% was over the lifetime of ownership or if it is only related to a shorter recent timeframe.
Click to expand...
Change of use rules if you go from short to long term rentals you owe hst now as well.

Sent from my Pixel 5 using Tapatalk
 
crankcall said:
Construction loans vs mortgages and transfer of mortgages always looked complicated to me . Probably isn’t but I’m not smart on this stuff .
I can say being mortgage free does not suck .


Sent from my iPhone using GTAMotorcycle.com
Click to expand...
Think of it like a line of credit where you don't actually start paying for it until you actually use it. Spoon-feed the builder from it at stages in the build. Those stages need to be inspected by the bank to show it's actually at that stage. Make the bank pay for those inspections and specify in the agreement with the builder that if they go past the close date a percentage comes off the final price (to cover the interest you'll be paying to the bank of the money you've paid the builder). Depending on credit/rates a mortgage to pull that money from (used like a LOC) is easier and often cheaper.
 
crankcall said:
Construction loans vs mortgages and transfer of mortgages always looked complicated to me . Probably isn’t but I’m not smart on this stuff .
I can say being mortgage free does not suck .


Sent from my iPhone using GTAMotorcycle.com
Click to expand...
You’re done worrying about wealth if you’re mortgage free.

Mortgages are the cheapest way to borrow money. Reasonable market returns this year are 2x mortgage rates. … borrow $100k at 5%, and use those funds to earn 10% in a TFSA.

I think that’s a no brainer.
 
Mad Mike said:
You’re done worrying about wealth if you’re mortgage free.

Mortgages are the cheapest way to borrow money. Reasonable market returns this year are 2x mortgage rates. … borrow $100k at 5%, and use those funds to earn 10% in a TFSA.

I think that’s a no brainer.
Click to expand...
The trick is buying the winners. 10% YOY isn’t something I’d expect to be very common.
 
nobbie48 said:
Management fees kick the snot out of the percentages.
Click to expand...
What management fees? If you're borrowing to invest, hopefully you aren't paying a blood-sucking advisor to make the investment. If you are, you're doomed. Highest MER I pay is 0.39%. Most of the portfolio I pay zero.

Fwiw, the people I know that have the most disposable income are either investment advisors siphoning off money from their clients or lawyers siphoning money off settlements from government. Both are making many times more money than jobs with equivalent education that don't directly siphon money from others.
 
Mad Mike said:
You’re done worrying about wealth if you’re mortgage free.

Mortgages are the cheapest way to borrow money. Reasonable market returns this year are 2x mortgage rates. … borrow $100k at 5%, and use those funds to earn 10% in a TFSA.

I think that’s a no brainer.
Click to expand...
Not beyond grade nine econ... This conecpt is also US thinking with mortgage interest tax deductions.

Real world, 100K room in TFSA???, maybe if someone never contributed to it otherwise investement is outside and not tax sheltered and taxes eat up profits. A real 10% YOY for an investment???, I guess the ballers here say it is easy peasy and maybe averaged over a decade or more for many....or just looking at this year in a vacuum. It comes with risks, no one is getting it on say a GIC...

If that was all perfect like sugested, 100K 5% loan and 10% investment is 5K extra per year, in theory compounded. But real world expect half of that or less after taxes and considering risks in the real world. It is not hard to do better than that with the now free cash flow.

I recommend people run the actual real numbers and consider taxes (both income and CG) and investment risks. Also look at other investment options you may have available by not having a monthly mortgage payout (free cash flow). Things like per pay stock options/purchase plans, pension top-ups, etc. (sure not everyone will have these, many do). Increased RRSP contributions at your top tax bracket(s) each year. There are lots of things (more than above) that open up (be it investment or even YOLO) when you free-up 2K to 4K of after tax cash flow per month. All of that can be a better yearly payout or just erodes the real world advantage of keeping the mortgage or extending it.

Even just for the want to be YOLO crowd that decided to go without to get the mortgage paid down, hey you can make an extra say 2K real world per year after taxes OR you free up 2K++ cash flow per month for toys and vacations... Lifestyle vs 2K or so extra money real world per year...
 
backmarkerducati said:
Not beyond grade nine econ... This conecpt is also US thinking with mortgage interest tax deductions.

Real world, 100K room in TFSA???, maybe if someone never contributed to it otherwise investement is outside and not tax sheltered and taxes eat up profits. A real 10% YOY for an investment???, I guess the ballers here say it is easy peasy and maybe averaged over a decade or more for many....or just looking at this year in a vacuum. It comes with risks, no one is getting it on say a GIC...

If that was all perfect like sugested, 100K 5% loan and 10% investment is 5K extra per year, in theory compounded. But real world expect half of that or less after taxes and considering risks in the real world. It is not hard to do better than that with the now free cash flow.

I recommend people run the actual real numbers and consider taxes (both income and CG) and investment risks. Also look at other investment options you may have available by not having a monthly mortgage payout (free cash flow). Things like per pay stock options/purchase plans, pension top-ups, etc. (sure not everyone will have these, many do). Increased RRSP contributions at your top tax bracket(s) each year. There are lots of things (more than above) that open up (be it investment or even YOLO) when you free-up 2K to 4K of after tax cash flow per month. All of that can be a better yearly payout or just erodes the real world advantage of keeping the mortgage or extending it.

Even just for the want to be YOLO crowd that decided to go without to get the mortgage paid down, hey you can make an extra say 2K real world per year after taxes OR you free up 2K++ cash flow per month for toys and vacations... Lifestyle vs 2K or so extra money real world per year...
Click to expand...
My wife has an unfunded TFSA. Her savings are dumped into a defined benefit pension at max allowable rate. If we come up with extra money, it can buy some years of service in the pension. I ran the numbers and I may be able to beat ROR of the pension but with risk. The pension removes the risk, is inflation adjusted and still returns a decent rate.

I borrowed to invest at the end of 2021. Dividends pay the loan. Currently investments are worth 10% more than original loan and loan is 17% paid off from dividends. Most of the money is in TFSA and more gets moved there each year as space opens (and dividends transferred out make room too). Tax paid was ~1% of loan. So I assumed the risk (which was very much not zero) and total after tax return over close to three years is in the ballpark of 26%. That's around 8% yearly after tax income from borrow to invest. In the interest of sanity, blood pressure and solvency, I did not max out heloc for this game. Bite size chunks. Pay off this loan over a number of years and repeat (next iteration will pay off faster as it gets existing dividends plus new dividends). Very, very few buys/sells to ensure that CRA doesn't call this a business.

My life won't change substantially without a cash injection (lottery/inheritance/etc) or paying off mortgage in a few decades. I didn't start chasing passive income until too late. I should have started early.
 
You must log in or register to reply here.
Back
Top Bottom