real estate and the canadian economy

[financestocks123]

real estate is booming in certain parts of Canada, it could be a bubble, i think that we need to be cautious when we buy a house, we need to think short term and long term, we need to buy what we can afford, thank you.

[trent]

The real estate in big Canadian cities like Toronto, Vancouver and Calgary is in a huge bubble. Vancouver may go down more than 50% before the coming crash is over...

[Rickson9]

real estate is booming in certain parts of Canada, it could be a bubble, i think that we need to be cautious when we buy a house, we need to think short term and long term, we need to buy what we can afford, thank you.

When I read about bubbles in the media (which is almost every day now; google 'real estate bubble' in the Canadian news) I know that we aren't in a bubble.

[Canadian]

When I read about bubbles in the media (which is almost every day now; google 'real estate bubble' in the Canadian news) I know that we aren't in a bubble.

You are so smart Rickson and a real contrarian :)

[Rickson9]

You are so smart Rickson and a real contrarian :)

I wish I was either.

[trent]

http://www.financialpost.com/news-sectors/financials/story.html?id=2901557

Second rate hike from RBC in just 2 weeks. I'm sure this and the coming hikes won't be a problem for our wonderful RE market :)

[Rickson9]

http://www.financialpost.com/news-sectors/financials/story.html?id=2901557

Second rate hike from RBC in just 2 weeks. I'm sure this and the coming hikes won't be a problem for our wonderful RE market :)

Nothing else has been.

Fixed rate mortgages are related to the Government of Canada bond of the same maturity. The 5 year bond is up 0.5% in the last few months so it should be no surprise that the banks are raising their closed fixed-rate mortgage rates by roughly the same amount.

The spread between fixed and variable is widening since short term rates haven't moved in a long time. All this means is that if the spread continues, more and more home buyers will simply choose variable rate mortgages over closed fixed rate mortgages.

Individuals shouldn't have been surprised in the rise in closed fixed rate mortgages. The bond market has been baking this information into the economy for months.

[trent]

Nothing else has been.

Fixed rate mortgages are related to the Government of Canada bond of the same maturity. The 5 year bond is up 0.5% in the last few months so it should be no surprise that the banks are raising their closed fixed-rate mortgage rates by roughly the same amount.

The spread between fixed and variable is widening since short term rates haven't moved in a long time. All this means is that if the spread continues, more and more home buyers will simply choose variable rate mortgages over closed fixed rate mortgages.

Individuals shouldn't have been surprised in the rise in closed fixed rate mortgages. The bond market has been baking this information into the economy for months.

Yes, but to comply with the new mortgage rules the buyers have to qualify for a 5 year fixed rate, no matter what the actual rate they’ll be paying right? If you think this will not hurt real estate than you are plainly naïve.

[Rickson9]

Yes, but to comply with the new mortgage rules the buyers have to qualify for a 5 year fixed rate, no matter what the actual rate they’ll be paying right? If you think this will not hurt real estate than you are plainly naïve.

Yes yes, real estate will crash and burn. Of course. I've never heard of that one before.

[Emma Lending]

regardless of what happens short term in the long run property goes up in value, that is always what happens regardless of short term changes

[trent]

regardless of what happens short term in the long run property goes up in value, that is always what happens regardless of short term changes

Regardless of what you think, real estate goes up in value in the long term because of currency devaluation. Most people never account for inflation when they calculate their gains in real estate. For example a house increases from $100,000 to $400,000 in a 25 year period. Assuming average interest rate of 8% over the 25 years the owner will pay $129,000 in interest on the 100K loan. Add around 40,000 for taxes for the 25 years and the real cost of the amount the owner paid for the house becomes around $270,000 and this is without any maintenance fees. The owner sells for $400,000 minus 5% commission and they net $380,000. Subtract the $270,000 they already paid for the house and you get a whooping $110,000 profit. But wait, this "profit" doesn't account for devaluation of the currency, which more than likely has lost more than 50% of its value for 25 years. So finally the "real estate always goes up in value in the long term" return is a measly $50,000 on a $100,000 asset.

This all sounds so exciting that I'm going out to buy a few houses right now, as I don't want to be "priced out forever" :p.