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Not Going to End Well!


Parsad
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Is there anyone in Vancouver who doesn't think that home prices are excessive? One family I know purchased a home, not a mansion, for $1100 per square foot! But then why does TD Economics report average British Columbian debt to income at 160%? One would think that the lenders at least would be more cautious.

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Parsad, there is absolutely no risk, Vancouver home prices never fell significantly in the long run. You are trying to get your clients good returns in the stock market but the real gold mine is right next to you!

 

BeerBaron

 

(For those of you less acute to human expression it was a joke!)

 

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Is there anyone in Vancouver who doesn't think that home prices are excessive? One family I know purchased a home, not a mansion, for $1100 per square foot! But then why does TD Economics report average British Columbian debt to income at 160%? One would think that the lenders at least would be more cautious.

 

It's weird... I live in Vancouver and everyone I talk to seems to agree that home prices are ridiculous and unsustainable. (Of course, some of them are buying anyway, and I only know one person looking to sell and rent. Home ownership is not primarily a financial decision most folks.) But in a bubble isn't everyone supposed to be in denial? How can a bubble be self-aware that it's a bubble? Seems like a paradox.

 

Unlike tech stocks in 1999, or US real estate in 2005, where the general consensus seemed to be that it really would go on forever, here it seems people are aware of the how silly things are, but plunging in anyway. People are trying to minimize future regret, and the fear of getting left behind outweighs the fear of losing equity or working until 80.

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Hi Leftcoast, I think you just defined a bubble.  Most people knew that tech stocks and housing were getting ridiculously priced in their respective turns.  Crowd psychology starts to operate and people figure that things are expensive but they will keep going up so you better get in now or you will miss out.  It is not a rational process by any means but then people aren't rational.

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Yes, prices are high. The real driver is low interest rates. You can get a fixed 5 year rate for about 3.5%. $700,000 house; $140,000 down; $560,000 mortgage. Interest on interest payment = $19,600/year = $1,633/month. Most families can easily afford this amount.

 

Also, to afford to live in the Lower Mainland many families have 'adjusted' and both spouses work (two incomes) and many, many houses have suites that are rented out to generate extra income to help pay the mortgage.

 

Until commodities correct and unemployment increases or interest rates increase my guess is the market goes sideways (perhaps fpr 10 years). With inflation of 2 to 3% per year prices will come back into line.

 

Having said the above, prices in Vancouver have always been at the peak in Canada and also have been VERY volatile (over decades) so people should not be surprised should prices decline substantially (or not).

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Yes, prices are high. The real driver is low interest rates. You can get a fixed 5 year rate for about 3.5%. $700,000 house; $140,000 down; $560,000 mortgage. Interest on interest payment = $19,600/year = $1,633/month. Most families can easily afford this amount.

 

Viking, I'm about to renew my mortgage... which mortgage originator offers 5Y at 3.5%?

 

BeerBaron

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Yes, prices are high. The real driver is low interest rates. You can get a fixed 5 year rate for about 3.5%. $700,000 house; $140,000 down; $560,000 mortgage. Interest on interest payment = $19,600/year = $1,633/month. Most families can easily afford this amount.

 

Viking, I'm about to renew my mortgage... which mortgage originator offers 5Y at 3.5%?

 

BeerBaron

 

BeerBaron,

 

There are plenty of financial institutions that quote ~4% for five years.  With a little negotiation, the quoted rates can often be reduced (sometimes substantially!).  Here's a table of the current quoted rates:

 

http://www.financialpost.com/personal-finance/rates/mortgage-closed.html

 

 

SJ

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I'm not worried about millionaires - they won't suffer that much if bad things happen. It's the people who stretch - that should be the metric. The statistic that prices are 9x income is misleading. if the contest was between 1000 millionaire families against all the income earners in the province that would be unfair no? I bet many of those who have 1/10th the income to afford a house are probably renting and rental rates especially in the immediate suburbs are not as crazy.

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I have a commercial loan coming due. I have been paying a variable rate of prime.

 

Would anyone here lock in long term mortgage to lock in low interest rate?

-history shows that one is better off sticking to variable interest rate, but interest rates are so low

 

What rate would be attractive for the next 5-10 years?

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I have a commercial loan coming due. I have been paying a variable rate of prime.

 

Would anyone here lock in long term mortgage to lock in low interest rate?

-history shows that one is better off sticking to variable interest rate, but interest rates are so low

 

What rate would be attractive for the next 5-10 years?

 

I wish 10 Years would be in the 4.5% range. I would take it. Probably 35 Years out of the last 50 were above 6% so the mathemical odds of my loan being profitable look good.

 

I have a profound hate for variable rates, especially since it<s usually the one that should not use them that opt for them.

 

Let's use Pascal dilemna:

 

                                        Fixed Rate                                              Variable Rate 

Interest go up to 10%          You keep your house Good Move                You lose your house 

Interest stay flat               You overpaid interest. Keep House.            You saved money. Good Move.

 

Why would someone risk it's house to save 10 000$ ... I don't know!

 

BeerBaron

 

 

 

 

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http://www.theglobeandmail.com/report-on-business/economy/housing/canadians-putting-more-cash-toward-homes-rbc/article2029516/

 

The problem is especially pronounced in Vancouver, where [Royal Bank of Canada] estimated families must now dedicate 72 per cent of their household income to pay the mortgage, property taxes and utilities on a bungalow. That's much higher than Toronto, where it would take 47.5 per cent.

 

Good lord!

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Story in Bloomberg about Vancouver house prices.  I thought there was a bubble 4-5 years ago, and it has only gotten worse since!  Cheers!

 

http://www.bloomberg.com/news/2011-05-16/chinese-spreading-wealth-make-vancouver-homes-pricier-than-nyc.html

 

You're not as far off as I was - I called a bubble in Dubai a full 8 years before it burst! If it had not been for the global financial crisis, who knows how much longer the bubble would have lasted.

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