Imminent Housing Crash

[89coupe]

Originally posted by Sugarphreak


+1

...although I guess that is kind of obvious given that I started this thread in May. That earned me the distinctive title of "Mr Doom and Gloom" for a while. I think I can pass that hat onto Buster now

I believe that by next spring, things will still be stagnating, but the panic that is capturing the market right now will start to subside. People looking to move who are too afraid right now will start to make commitments, and it will stabilize prices at around 5-7% below last years selling prices. The luxury market was hurt, and will probably not recover for a while. Great time for people to move up IMO, with prices falling steeply relative to mid-level homes you are getting huge bang for your buck.

I also think 60~70$ oil will happen next year at some point, it seems reasonable to me. I doubt that the O&G industry is going to generate a lot of jobs though.

I don't think we will see $65 oil next year, I don't think we will see $65 oil till 2017. 2016 is not going to be pretty.

[Darkane]

I strongly feel many people looking to upgrade should be aggressively pursuing $1.2mil properties.

Homes priced in this range are going to be difficult to close because buyers will need to have enough down for 20% as per CMHCs new policy regarding 1,000,000+.

In these homes I can see someone lucking out signing for 999,999 with minimal down. The trick would be to have a shit load of equity in the current home. Rent current home, move into the new home.

Keep or sell current home when market stabilizes or heats up a little 2-3 years.

[Zhao Kan]

Originally posted by msommers


Being able to sell your primary residence, while keeping a rental property rented, and then having your housing expenses dropping to zero because you moved into your mom's place is more than lucky. It's completely an outlier as an adult.

MANY people cannot afford to dilly-dally with their primary residence. You have to live somewhere and usually that means having a mortgage or renting. Being able to time markets perfectly would be a wonderful skill, but that also means moving often, and renting when you once had a home.

I believe that most people's issue comes up if they want to upgrade or downgrade, and when.

Outlier yes, but not luck. And lots of things are in the realm of possibilities for people, they just don't want to do it.

They need their fully financed new SUV every few years, and they need all the latest gadgets: the biggest tv, the newest phone, tablets, laptops, cameras, designer clothes, etc. ...and they are completely incapable of downsizing anything. They refuse to share residence or move back in... even if we're talking saving 6 figures (or gaining 6 figures in equity, or whatever you want to call it) in less than a year?

Buster was saying it never happens that home owners do that, and my post was directed at him saying yes, I did do what he said no one ever does (I know it's rare for people to do that). What I did was somewhat annoying and made 6 months pretty hectic (moving stuff 3 times sucked lol), but it was easily one of my best decisions.

I learned before about hesitating with seeing markets change. I was slow in the uptake in the last recession we had and lost my business. I was blind to the signs that it wasn't worth weathering that storm, and I should have shut it down the instant I saw the market change (because it was like someone threw a switch for my business in that one. one minute its good, and the next costs are skyrocketing and at the same time no one is buying) with a lot of money in my pocket, rather then delaying and being stuck bleeding money out (because shutting down a business takes a long time and took me about a year) and ending up with zero (thankfully I only had a lease for a year i didn't need to break or sublet).

I'm actually somewhat tempted to list my place on the market again and see if i can take my on paper equity and make it a reality, but i think my wife would kill me if we had to move again this year lol. So now you can probably lump me in with everyone else again lol.

[Buster]

haha....that'll teach me to talk in absolutes.

Good job.

Waht was your business in, generally speaking?

[CanmoreOrLess]

Drove ten blocks in my area yesterday and counted 41 houses for sale and three rentals. I've not seen rentals available before. Is this the norm in Calgary?

[Cos]

.

[pheoxs]

Originally posted by CanmoreOrLess
Drove ten blocks in my area yesterday and counted 41 houses for sale and three rentals. I've not seen rentals available before. Is this the norm in Calgary?

I haven't seen them in a while. That being said, I still can't find a tenant for my house and its been a month, though this isn't exactly a 'good' time to be finding a roommate.

[holden]

Originally posted by pheoxs


I haven't seen them in a while. That being said, I still can't find a tenant for my house and its been a month, though this isn't exactly a 'good' time to be finding a roommate.

http://www.cbc.ca/news/canada/calgar...2015-1.3299748

- Calgary vacancy rate quadruples since last year, higher than national average
- average rent price still slightly higher than last year (second highest in Canada)

[ExtraSlow]

One of my buddies rents out six condos, and he has dropped prices significantly to keep them occupied.

[Buster]

Originally posted by Darkane
I strongly feel many people looking to upgrade should be aggressively pursuing $1.2mil properties.

Homes priced in this range are going to be difficult to close because buyers will need to have enough down for 20% as per CMHCs new policy regarding 1,000,000+.

In these homes I can see someone lucking out signing for 999,999 with minimal down. The trick would be to have a shit load of equity in the current home. Rent current home, move into the new home.

Keep or sell current home when market stabilizes or heats up a little 2-3 years.

Your minimum down to get a mortgage (never mind CMHC) rises quite quickly over a million. You must have 20% down on the first million, then 50% on everything above.

So a $1.5MM house will actually need $450M down, or 30%.

[A790]

Tough market to be in right now as a new landlord, let me tell you. I had my place listed for nearly two months before I found a tenant. I wound up renting it for way less than the "market average" to a good friend who is also an excellent tenant.

We're thinking about buying a second rental property in six months to a year. I think there's an opportunity to find some really well priced, highly rentable units and if you can get cashflow positive with rental prices that are 10-20% lower than "market average" I think you're pretty well insulated and in a position to benefit.

The way some of you guys are talking, you'd think that the sky is actually falling.

[Buster]

I dont think the sky is falling. I think we will see more like "sky slowly descending for a lot of years".

I hope you have a lot of spread between your mortgage payment and your rental rate.

Rental rates are going to be put under tremendous pressure for a relatively long period of time.

[bjstare]

Originally posted by ExtraSlow
One of my buddies rents out six condos

Holy shit, so much nope.

[SkiBum5.0]

What's everyone's thoughts on Ski/Summer places to buy now?

I'm being relocated to Houston on assignment for 2-4 years and would like to get something to rent/use in both the summer and winter months.

Fernie was my first thought but they've had two shitty winters in a row, with another one forecasted.

Looking for a 2br/2bath, with moutain access.

[Buster]

Originally posted by SkiBum5.0
What's everyone's thoughts on Ski/Summer places to buy now?

I'm being relocated to Houston on assignment for 2-4 years and would like to get something to rent/use in both the summer and winter months.

Fernie was my first thought but they've had two shitty winters in a row, with another one forecasted.

Looking for a 2br/2bath, with moutain access.

I'd wait at least six months before considering a purchase. The pain is just beginning.

[Buster]

I want to be a bull. I really, really want to.

Unfortunately, there is almost no quantitative reason to now believe that anything but a very significant correction is headed our way in RE in Canada. Calgary probably hit the hardest. Every day that goes by, new data points make it a virtual certainty.

I hate being the bear. ugh.

I think really the only question is the rate of decline, and how deep. My guess is 15-25%. Both are probably dependent on how much the Toronto and Vancouver get impacted. If it's a lot, then we might see some dramatic intervention to put a floor on things. If it isn't, and things look more dramatic in Calgary than other places, I doubt we see any intervention, and the decline will be steeper and deeper.

Sucks.
_________________________________________________

http://www.cnbc.com/2015/10/30/why-i...ng-market.html

Why investors are shorting Canada's housing market
Kalyeena Makortoff | @kalyeena
Friday, 30 Oct 2015 | 6:46 AM ET
CNBC.com
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A growing number of investors are betting Canada's frothy property market will nosedive, according to research firm Markit, as low energy prices drag down the country's economic outlook.

Investors are taking out an increasing number of "short" positions on banks and insurers with high exposure to the property market, Markit explained, with these investors expecting share prices to slide. This comes amid record low interest rates in the country— which have been cut twice this year, down to 0.5 percent.

Financial groups now account for three of the top 10 shorted stocks in the country, it said.

An exterior view of BC Place in Vancouver, Canada.
Andrew Chin | Getty Images
An exterior view of BC Place in Vancouver, Canada.
Home Capital Group — one of Canada's largest financial institutions— currently ranks as the most shorted stock in Canada. Markit measures the short interest in a stock by calculating the amount of shares that are out on loan.

Home Capital Group recently saw an 18 percent share sell-off and the cost to borrow its shares jump 10 percent after second-quarter results showed fewer mortgage starts than expected. Shares on loan now total 31.9 percent, according to Markit.

That's followed closely behind by Canadian Western Bank, which has 54 percent of its $19 billion portfolio in real estate, personal loans and mortgages. About 27.7 percent of its shares are on loan, making it the fourth most shorted stock in the country.

Genworth Mi Canada, which underwrites private residential mortgages, has not only seen its stock slide approximately 22 percent in the last 12 months, but the number of short holdings increased to 19.3 percent, Markit said.

"Short sellers have been trying to call the top of the Canadian property market for some years now, which has proven to be a tricky trade as the continued cheapness of credit has continued to propel local demand and prices," the report, led by Markit analyst Relte Stephen Schutte, said.

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But, it seems investors are taking a hint from declining market conditions.

Data from the RBC Purchasing Managers Index (PMI) clocked the sharpest decline in Canadian business conditions in the survey's history in September. Weak demand and stagnating exports helped send the PMI reading to a 5-year low of 48.6 — with any reading below 50 indicating a contraction.

Furthermore, with oil prices widely forecast to stay lower for longer, it's likely there could be further pain heaped on an economy which Markit estimates has a 20 percent structural exposure to energy markets. Canada's economy technically entered recession after clocking two quarters of economic contraction in the first half of 2015.

Meanwhile, property prices have continued to soar across the country, particularly in cities like Toronto and Vancouver. The latter was earlier this year dubbed one of the most expensive markets in the world in a housing survey by The Economist. It claimed Vancouver property was overvalued by 89 percent.

An employee directs a vehicle toward gas pumps at a China Petroleum & Chemical Corp. (Sinopec) gas station in the Zhujiang New Town district of Guangzhou, Guangdong Province, China.
Pouring oil on troubled waters: 'Surplus until 2017'
The Bank of Canada itself says it was concerned about overvaluation in its June Financial System Review. It said prices were outpacing income, and that the bank's models saw national house prices overvalued anywhere from 10 to 30 percent.

There is a chance, Markit suggests, that short sellers could see their property market bets foiled, especially if the central bank looks to counter the worsening economic outlook through further interest rate cuts.

"However, after Canada recently cut interest rates in July to 0.5 percent, there is not much maneuverability left to cushion a collapse in the housing market," the report explains.

[A790]

Originally posted by Buster
I hope you have a lot of spread between your mortgage payment and your rental rate.

We talked a lot about how to minimize risk and this was a big concern. When we first looked at a rental the "market" said $1,850/mo. In reality, we wound up renting significantly below that. Thankfully, we have enough equity in the property that we aren't losing our shirts over it.

I am also somewhat risk adverse with my cash since I've been known to be stupid with it, so now I'm pessimistic on a lot of things... rental rates and mortgage rates being a couple of them.

Still, where there's risk there's also opportunity.

[Buster]

Originally posted by A790

We talked a lot about how to minimize risk and this was a big concern. When we first looked at a rental the "market" said $1,850/mo. In reality, we wound up renting significantly below that. Thankfully, we have enough equity in the property that we aren't losing our shirts over it.

I am also somewhat risk adverse with my cash since I've been known to be stupid with it, so now I'm pessimistic on a lot of things... rental rates and mortgage rates being a couple of them.

Still, where there's risk there's also opportunity.

Cool. Not advising for or against anything. But a rental property is by definition highly levered, il-liquid and un-diversified (just like any RE).

In many ways it's swimming with the sharks. So keep your head up, and like any investment, be prepared to liquidate and walk away from a loss if you think the trade is moving against you.

[A790]

Originally posted by Buster


Cool. Not advising for or against anything. But a rental property is by definition highly levered, il-liquid and un-diversified (just like any RE).

In many ways it's swimming with the sharks. So keep your head up, and like any investment, be prepared to liquidate and walk away from a loss if you think the trade is moving against you.

Fair enough. I appreciate the conversation and viewpoint, especially because it's forcing me to look at my investment portfolio critically.

EDIT:

I am fortunate that I bought my place at the peak of the downturn of '08-'10 so the market will have to move considerably more before I start to get nervous. It's also a townhouse and is nicely upgraded so it has good curb appeal/value.

I don't feel "safe", but I feel prepared and I am watching the market closely to see what comparables are selling for, how long they're taking to sell, etc.

[max_boost]

Originally posted by A790
Tough market to be in right now as a new landlord, let me tell you. I had my place listed for nearly two months before I found a tenant. I wound up renting it for way less than the "market average" to a good friend who is also an excellent tenant.

We're thinking about buying a second rental property in six months to a year. I think there's an opportunity to find some really well priced, highly rentable units and if you can get cashflow positive with rental prices that are 10-20% lower than "market average" I think you're pretty well insulated and in a position to benefit.

The way some of you guys are talking, you'd think that the sky is actually falling.

Well one can view it as opportunity. Buy low sell high. Some are ok with break even cash flow, some don't think it's worth it. If you have someone paying your mortgage for the next 25 years then why not? It is a free house and you become a slumlord. I know that's the Sorath way to riches.