NOTICE TO VISITORS
A fire in the Toronto data centre hosting our servers knocked out network connectivity and disabled this site, from 2:25 am to 9:15 am EDT Sunday morning. If your comment was lost, please repost. My apologies. — Garth
GF special? Listed: $799K. Sold: $825K. Lot 25 x 122.
Historians may rue that, in the early 21st Century, as the planet reeled under three times its sustainable population, the climate tipped towards the irreversible, a fossil fuel-driven economy ran out of reserves and a billion faced hunger as foodstocks were diverted to run cars, young couples would sacrifice all for a mortgage.
That is, I guess, if there’ll be historians.
Anyway, here’s an interesting juxtaposition for you between the young who have wants, and no resources, and the mature who have funds, and smarts:
From this week’s Georgia Straight (which used to tell it straight):
For a week after they signed the papers on their Douglas Park townhome, John Morettie and Jessica Wilson felt nauseated with anxiety. Like about 40 percent of first-time home buyers, according to Statistics Canada, the couple waited until their 30s to dive in. On the one hand, they now have enough money flowing in to afford a Vancouver-sized mortgage. On the other, they need more space than a typical box-in-the-sky condo provides, due to a work-at-home situation and the imminent possibility of kids. So thanks to a once-in-a-lifetime low interest rate, they snagged a home.
The facts: John and Jessica lived in an apartment for which they paid $1,800 in rent. When mortgage rates temporarily dipped to 2.75%, they figured they could afford to ‘buy’ – which actually meant they could afford to rent a steaming pile debt.
“But we don’t have a lot of [wiggle] room,” he said. “We can go up to four percent, but then we’re done.” Oh crap.
Actually, it appears the two moist children borrowed $600,000, with monthly payments of $2,221. Plus property taxes, house insurance, mortgage insurance, amortized closing costs and maintenance, they will likely see a monthly carrying cost of at least $3,000, or 65% more than they paid to rent a home. The best part: they’d been offered $850,000 in financing.
But not to wory. The executive director of the Mortgage Brokers Association of B.C. (Tamera Olsen) said, “I don’t think anyone wants to see what happened in 1981. The lenders are aware; they don’t want to see anyone lose their homes.…What I’m hearing is that any increase in rates will be gradual. Very gradual.”
Maybe someone should tell Tamera that lenders do not set mortgage rates. But perhaps that’s a little technical for her. And where did she ‘hear’ what interest rates will do? Ben Bernanke on Twitter?
Meanwhile John and Jessica might want to know payments on the $600,000 mega-loan, amortized over 35 years (meaning virtually no equity is being built up) can double to more than $4,200 if rates return to 8% – which is still a tad below the historic norm for the last two decades. It’s also twice the point at which they’d be financially screwed.
Now, this:
Mr. Turner: I have read your Real Estate book and followed your financial advice for several years.
My question is simple… I am 45 years old with about one million dollars in cash. I have been waiting for the real estate market to collapse but each time it starts heading south the Government steps in to change the rules…whether it be extending the legal duration of a mortgage, or reducing the amount required for a downpayment, or most recently slashing interest rates and thereby making mortgages cheaper.
So it would seem that now we have just about EVERYONE who has thought of getting into the market in…speculators, 1st time home buys…everyone. and many of these people are the greater fools because the prices have not retracted much compared with other countries around the world.
My question is this…does our government make their policies to protect the dumbest Canadians out there? Is there a chance that real estate will ever be allowed to fall? Will the government resist raising interest rates to keep inflation in check now because it would cause havoc in the real estate market (prices dropping, foreclosures everywhere)?
What would you suggest I do? I don’t want to rent for the rest of my life. — Dave
Well, Davey the millionaire, you did not get all that money by being naïve. So, you know the answers: Absolutely, the government will do everything in its power to distort the marketplace, tilt the playing field in favour of the John & Jessicas of this world, encourage a rapid plunge into debt and aggressively discourage people like you from saving money.
Since our economy is essentially unsustainable, it can only maintain the semblance of status quo through growth. That growth gives ever-larger tax revenues, allowing the government to augment, and citizens and corporations to maintain debt payments with marginally increased incomes. When growth falls to zero or (as today) into slightly negative numbers, it is called a ‘recession.’ If it drops to 90% of former growth levels, it is called a ‘depression.’
Governments in Canada, the US, Europe and most of the rest of the world are currently doing everything they can to encourage borrowing and spending, in order to create demand and growth. The techniques include dropping interest rates to almost zero, deficit spending, printing new money, massive bailout loans to corporations, tax cuts to individuals, grants to new homebuyers and the propping up of unstable and failing companies and sectors in order to maintain jobs which will not last.
But, Dave, you know this. You have no debts, and a million dollars. You are a deity.
Wait.
http://www.greaterfool.ca/2009/07/04/juxta/
reviewed by Moishe Alexander, CFC Canadian Funding Corp CEO
