Housing bubble is coming… again?

You’ve seen them before.. but they went silent for a few years.  I’m talking about the housing bears.  The pessimists that say house prices are too high and will crash.  A housing bubble.

Are they right?  Maybe.  But here’s the thing.  We’ve been hearing that house prices are too high for over a decade.  One of the more vocal pessimists is David Madani, Economist for Capital Economics.

HOUSING BUBBLE?

Madani was on BNN this past week saying we are in a ‘Full blown housing bubble’.   Hmmm, that sounds familiar.  Let me think… when did I hear that before?  Oh, that’s right, 2011.   He said, we could see house prices drop by 25% in 2011.  And he was completely wrong. (hope you didn’t listen to him). Read the rest of this entry »

Panic buying? When will the housing market slow down?

 

hot-housing-marketHouses selling over asking price is becoming the norm, these days.  Kinda crazy.  Sometimes a house is just listed under market value to attract a frenzy of buyers. An old tactic that has worked well in larger urban markets.  Today, that tactic is being used in smaller communities, too.

What’s unclear is if this selling tactic is contributing to houses selling for more than they’re worth.  And what is a home worth, anyway?   I always thought a house was worth what someone was willing to pay in the open market.  That’s still true in most cases, today.

When I see reports of houses selling for $100k, $200k and $300k over asking, it makes me wonder.  How long will this market last?  Will it crash?  And if so, when?   It’s hard to make forecasts and I can’t see into the future, but let’s examine this a little.

WHEN WILL THE HOUSING MARKET CRASH? Read the rest of this entry »

Trump’s George Ross says Canada’s Housing market is undervalued….

George RossGeorge Ross is Donald Trump’s Executive VP.  He’s Trump’s senior advisor and has worked with Trump for 30 years.   You’ve probably seen him on TV on ‘The Apprentice’.   This week, he was quoted as saying Canada’s real estate market is undervalued, not overvalued.    That’s quite the opposite of what the so-called experts have been saying for 8 or 9 years.  (by the way, where are those experts now?)

If you listen to his interview, he makes some good points.   Office properties have more upward potential than residential properties.  But the residential market follows the Office or commercial market.   He also says that buying a house for a quick flip isn’t a good strategy.    It may sound good on the TV shows, but it’s a risky game to play.   Mr. Ross says more fortunes have been lost in real estate than have been made.   Read the rest of this entry »

Darryl Sittler made his fortune in real estate, not hockey.

RRSP home buyers planLast week, I had the privilege of attending REIN’s (Real Estate Investment Network) monthly workshop.  One of my childhood idols was a guest speaker.  I’m talking about Darryl Sittler, the former captain of the Toronto Maple Leafs.   In case you haven’t heard of REIN, let me share some details about this group of professionals.

REIN is a group of real estate investors that get together to network and share valuable information that affects real estate in Canada.   The leader of the group is Don Campbell.   If you haven’t heard of him, you should.  His approach to buying investment properties has proven to be very sound and profitable.  His “top ten best cities to invest” is legendary. Read the rest of this entry »

Rising personal debt levels.. but how about rising asset levels?

net worthEver notice how all economic news is bad?  Seriously, when was the last time you heard Canadians were doing well, financially?   Even when we came out of the October 2008 U.S. sub-prime mortgage crisis (notice I’m very specific about the cause of that recession) with flying colours, we kept seeing the same negative messages about how lucky we were to come out of this as strong as we did.

But here we are, 5 years later (hard to believe it’s been 5 years) and all we keep hearing and reading is how the economy is fragile… the housing bubble is coming… personal debt levels are at record highs…  housing affordability index has increased (this measures how much of your income is used for housing)…   This all sounds terrible and depressing.. maybe we should sell everything, move to another country and herd sheep? Read the rest of this entry »

Mortgage rates hit all-time lows….it all adds up to record savings too.

graph trend downMortgage rates are still low… In fact, they are at record lows…  5 year fixed rates for qualify products can be found at 2.89%… some No Frills products are at 2.79% (stay away from these products)..   Put another way, for every $100,000 of mortgage you borrower, your payment is $468/mth.

Compare this with the average 5 year fixed rate for the past 25 years being over 7.00% and you have huge potential savings.  That same $100,000 mortgage would cost you $700/mth… That’s a $232/mth difference.  No wonder more Canadians are buying homes, buying rental properties or tapping into their equity to invest. Read the rest of this entry »

Baby Boomers 10 yr real estate retirement plan

Last week, I was asked to comment on BMO’s Retirement Report  which pointed out that more Canadian Baby Boomers are using their home as their retirement fund.  The BMO study shows the baby boomer generation were not downsizing like many experts were thinking.  But instead, they are buying bigger, more expensive homes.   The thinking is that the higher priced homes will grow their retirement fund more quickly and more securely.

Several Financial Experts commented on this study…. mostly offering negative reviews about this retirement strategy….. including BMO… you know, eggs in one basket, diversification, that sort of thing…  there is merit in the statements but I really don’t agree with the negative spin….. Here’s a link to my quotes about the “10 year plan” in The Star.

The 10 year plan has grown in popularity over the last 5 years as we’ve seen the value of our RRSPs or other investment drop in value.   It’s capitalizing on real estate values going up over the long-term.    It’s really simple to understand….

THE 10 YEAR RETIREMENT PLAN

Here’s an example of what one couple did….Let’s say you’re between the ages of 35 and 55.

  • You own a home worth $500k.
  • You have a $300k mortgage., but you can afford to buy a $700k home.
  • Your new mortgage is $500k.
  • You are committed to keeping that home for 10 years….and you can afford the payments..
  • In that 10 years, the goal is to pay down your mortgage by at least half, if not more. (a realistic goal considering the average Canadian pays off their home in 12 to 17 years).
  • if your home goes up by 5% each year, on average (and this is probably a realistic number looking back at historical values), then your home should be worth $1.14million.  
  • the 10 year timeframe is critical… we want to give enough time to live through any up or down real estate market…

Using the example above, in 1o years you should have a mortgage of $350k or less and house worth $1.14millon… that’s $790,000 of equity in your home.   Oh, and it’s all Capital Gains Tax Free….

Does it sound too easy or too good to be true?   It’s really not… take any 10 year period in history…  work out your own stats… This is reality…

By the way, the couple I’m referring to are real… they are actual clients of mine.   They bought their home in 2007 for $850k… They have paid down their mortgage to $300k…this is way ahead of schedule…(the low interest rates have helped)….  The value of their home today is approximately $1.5million.  They have $1.2million in equity today.  They estimate the home will be worth $2million in 5 years…  but even if it isn’t, even if the property is only worth $1.2million 5 years from now, I’d say they’ve done pretty well, wouldn’t you agree?

And for those that prefer stocks and bonds, then stick with those investments…  There isn’t one good strategy…  This plan is less exciting and probably a little boring…  but I like boring when it comes to my money and my retirement…

This plan isn’t for everyone.  You need to be comfortable with debt and understand real estate…. and you need to commit to owning real estate for 10 yrs (it doesn’t have to be the same house.. you can move)…

If you need help with this plan or just want more info to help understand it, give me a call anytime.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

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