Thursday, June 14, 2007

Lock, Stock and Two Smoking Barrels

Or was that 3 mortgage interest rate hikes in 2 weeks?

H/T to VG for this link. Scroll down to 11:11, watch it. An increase of 1% interest on a $300,000 mortgage over 5 years is $23,000. That's $383/month. If you've got a suite you could up your rent right? Only 4% per year though, unless your suite is vacant. So if you're getting $800/month you could up it to $832. You'll still be on the hook for the other $351/month. No worries, you can sell your car, that will free up that payment; the bus is only like $80/month. You should be able to make it work, and hey, maybe you'll do something for your health and the planet at the same time with those walks to the bus stops.

That said, the stats suggest only 30% of mortgage holders didn't lock in for 5 years. I'm guessing a lot of that 30% is locking in as you read this.

We don't expect a glut of foreclosures anytime soon. But Victoria just became that much more unaffordable. I wouldn't expect a rush of sales anytime soon. Smart money will recognize that the-tides-they-are-a-changing, and let the developers/current owners take the hit before they buy.

UPDATE: sorry, that link should have read 11:11, not 11:15.


vg said...

What about those who took out a 3 year mortgage back in 2004 ? When I owned previously I always went for 3 years as did alot of others I knew,especially if the experts kept prediciting lower rates forever. We are talking 2% increases so you can double that $383, maybe this is cause for all the sudden increase in over priced new basement suites ?
Smells to me like the beginning of a tidal wave.

greg said...

With interest rates going up, even condos will become unaffordable.

But prices will still go up!

Aleks said...

Even if you're not limited to the 4% increase (like if your suite is vacant and you can ask whatever you want), rent is set by supply and demand, not the owner's mortgage payment. There is no causal link between the two. A landlord will charge as much as the market will bear, whether that results in positive or negative cashflow. A higher mortgage payment comes directly out of the owner's pocket, because he'll already be charging the renter as much as he can.

vg said...

"With interest rates going up, even condos will become unaffordable.

But prices will still go up! "

Check this out greg,just off the Hot Sheet from The Falls, so much room along with a great view of the fights after the Strath closes, it has go up ! :

District Victoria - Downtown
Price $459,000
MLS 231452
Taxes 9999 $1
Year Built 2009
Lot Size 708 sq.ft.

vg said...

Some discussion on the VanCondo blog about the similar effect of rates going from 5-8% as they went from 13-19% in 81/82. Glad to see some others getting it,but this time the bankers instead of scrutinizing your ability to pay still seem more than happy to lend out whatever you can possibly handle even if it has to go a 50 year mortgage.
This is the most insane market I have ever seen besides the dotcom but the similarities are uncanny,and I thought Canadians had more brains than our southern neighbors when it came to making major life effecting investment decisions. Now I see we are just as stupid as the suckers who got reeled in by the sub prime slime. I have no doubt it is going to end very ugly,all the commentary I have read today other than this morning's BNNTV segment insist higher rates should not effect real estate sales or cause any correction. Frigging insane !

greg said...

vg -

if anyone wonders why myself, and probably a few others, are so adamant about not buying at the top, well, on a personal note, I got burned bad by the dotcom flame-out.

Don't want to be a sucker twice.

vg said...


That makes two of us,rode a couple all the way up and most of the way down due to my inexperience in the stocks at the time. Houses I knew,stocks I didn't but now I know a whole lot and won't have any investment burn me again by not analyzing all the angles and valuations.
Thats why I sound like a broken record on here harping away,I hate to see anyone get burned by buying at the top.Its so easy to do when you don't know better though at the time you think you do.

greg said...

vg -

that was exactly my problem - I didn't know half as much as I thought I did.

Better to think you know too much on the bearish side than on the bullish side.

A missed opportunity is unfortunate, but a missed exit or a blundering entry at the top of the market, those are something else.

olives said...

Better to sell a year too early than a day too late!