Easy credit, soaring prices raise new housing fears

[Conrad5]

Here is an interesting artcle:.Easy credit, soaring prices raise new housing fears

 

[JoeRagona]

This is one area I point out to people to whom I speak daily . It is obvious the low interest rates have caused a `false recovery` in the housing market and in my mind it when these mortgages come due in 5 years and people realize they cannot afford the payments at 5 or 6% interest, there will be an influx of properties listed for sale with very motivated vendors. This could have an impact on how we as sophisticated investors buy up these properties...maybe assuming mortgages should the numbers work.

Just a thought.

 

[RedlineBrett]

QUOTE (JDRInvestments @ Nov 1 2009, 10:21 AM) This is one area I point out to people to whom I speak daily . It is obvious the low interest rates have caused a `false recovery` in the housing market and in my mind it when these mortgages come due in 5 years and people realize they cannot afford the payments at 5 or 6% interest, there will be an influx of properties listed for sale with very motivated vendors. This could have an impact on how we as sophisticated investors buy up these properties...maybe assuming mortgages should the numbers work.

Just a thought.

5 years is a long time... Go back 5 years and look at the path the market has taken. If rates come up it will be because the BOC has raised their lending rate and banks are following suit. That will only happen if the BOC thinks our economy is recovering. We will have cheap money for a while until the country gets some confidence.

 

[JoeRagona]

QUOTE (RedlineBrett @ Nov 2 2009, 12:38 PM) 5 years is a long time... Go back 5 years and look at the path the market has taken. If rates come up it will be because the BOC has raised their lending rate and banks are following suit. That will only happen if the BOC thinks our economy is recovering. We will have cheap money for a while until the country gets some confidence.

Thanks Brett,
So you are suggesting that in 5 years time the rates will still be low?

 

[JimWhitelaw]

QUOTE (RedlineBrett @ Nov 2 2009, 11:38 AM) That will only happen if the BOC thinks our economy is recovering. We will have cheap money for a while until the country gets some confidence.Not only that, but it`s highly likely we`ll see a low bank rate even after a Canadian recovery, due to devaluation of the $USD. The $USD has nowhere to go but down for the foreseeable future. Carney has already hinted that the BoC will engage in "unconventional measures" (direct intervention in currency markets) to meet Canadian inflation targets if low bank rates alone don`t do the job.

http://www.vancouversun.com/business/Renew...8993/story.html

 

[RedlineBrett]

QUOTE (JoeRagona @ Nov 2 2009, 12:13 PM) Thanks Brett,
So you are suggesting that in 5 years time the rates will still be low?

Well I`m not an economist but I have to make decisions on where I think interest rates are going same as any other consumer.

I have done three deals this year. The first two I took fixed at 4% for five years. Rates have jumped and I would be above 4% for my latest one so I have instead opted to go for the variable at prime plus 0.1%. So yes I believe rates will stay low for the next few years.. but that is just my opinion.

If they go up we`ll just see the return of prime minus products again. There are lots of lenders out there and I`m confident we`ll continue to see a competitive market for residential mortgages. As long as the BOC rate is low someone out there will stay cheap and scoop the business the big banks are passing up by increasing their rates without a BOC jump.

 

[ltam68]

Young families are already challenged to make ends meet. Many are taking this opportunity to get out of renting and stretching their financial limits to buy some property. I would have to guess that if interest rates go up significantly in 5 years and their household income have not kept up, they may not be able to hang on. The BOC will have to be responsible and be careful how quickly they bring the interest rates back up.

 

[jkcomm]

Hi everyone,

Very thoughtful posts indeed!

My 0.02 on this... hopefully record low interest rates have reminded everyone to do a "stress test" on their existing and/or future properties. If a property can cash flow (or break-even) at 6% interest, what we have now is a bonus!

This said... our properties is getting close to passing the stress test! Raising rents and triming expenses are in the works.

James

 

[UTCVenturesLtd]

QUOTE (caglah @ Oct 30 2009, 09:28 PM) Here is an interesting artcle:.Easy credit, soaring prices raise new housing fears

I have been going through the mls.ca website for Calgary. There is not much to buy in the single family entry level. There are "For Rent" signs everywhere in my daily travels. That suggests that as many renters as possible have shifted to becoming home owners here.

If interest rates do go up or lay offs continue to rise, then there will be an increase in the supply of homes available. If you see interest rates rise, i think you may see property prices slide a little. All depends on the supply and demand. When i pick up real estate advertising, i am always seeing Foreclosure stamped on a number of properties.

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Nov 7 2009, 01:59 PM) .. That suggests that as many renters as possible have shifted to becoming home owners here.
.
As an investor in rental properties you are hedged:

Scenario A: rates stay low .. your cost of owning a home is low due to low borrowing cost, as the cost of money is one major cost ingredient in your real estate investment portfolio: YOU WIN !

Scenario B: rates go up .. cost of owning a house goes up BUT rents will go up too as more people will rent as it costs more to own .. thus REVENUE goes up .. YOU WIN !

 

[ibuildstuff]

QUOTE (JDRInvestments @ Nov 1 2009, 10:21 AM) This is one area I point out to people to whom I speak daily . It is obvious the low interest rates have caused a `false recovery` in the housing market and in my mind it when these mortgages come due in 5 years and people realize they cannot afford the payments at 5 or 6% interest, there will be an influx of properties listed for sale with very motivated vendors. This could have an impact on how we as sophisticated investors buy up these properties...maybe assuming mortgages should the numbers work.

Just a thought.


Mortgage rates have been very low for well over 5 years, more like 10...at what point will people stop asking "what happens when your rate goes up?" It is quite apparent that we are in a low interest rate phase, it is not a short lived trend, and while eventually rates will rise I do no see any reason for anyone to be very concerned. The entire global economy is in the same position, and there is no reason to think that rates are going to rise more than marginally any time soon. We are simply living in a period of lower than usual (almost ever) interest rates. I am not in finance or anything, this is just my opinion, but would seem to make sense.

 

[BrianPersaud]

QUOTE (ltam68 @ Nov 2 2009, 02:52 PM) Young families are already challenged to make ends meet. Many are taking this opportunity to get out of renting and stretching their financial limits to buy some property. I would have to guess that if interest rates go up significantly in 5 years and their household income have not kept up, they may not be able to hang on. The BOC will have to be responsible and be careful how quickly they bring the interest rates back up.


I wonder if this is a wide spread problem. remember that article from May WBTC

- 42% of Canadians have no mortgages
- of the remaining that do have mortgages they average over 50% equity
- 75% of Canadians have 25% or more equity

It seems that on average Canadians aren`t too overly leveraged