Consumer confidence was at the same level as it is today.
Interest rates were at 15%.
House prices dropped 18% YOY.
In 2008, if the trend continues, single family house prices may drop up to 18% from April 2008 average prices. Yep, the more things change, the more they stay the same.
91 comments:
Holy Gajeebies!
What's up with the waterfront figures? I'm in Vancouver and haven't been looking at Victoria figures much lately.
There are some 47 waterfront properties for sale in the core municipaliites of Victoria.
In the last 90 days 7 have sold. The median price being $962,500. The typical home being 3,185 square feet on a quarter acre waterfront lot.
For the same monthly period, but one year ago, the median was $1,274,500 (8 sales). The typical home being 3,235 square feet on a quarter acre lot.
This at first glance would seem to imply that waterfront properties are 24.4 percent lower than last year. However, this is not accurate. In 2007 the typical waterfront sale was in Saanich East. Today, the typical sale is in View Royal. Most of the difference in price being attributed to location.
Nevertheless, the trend for waterfront properties is for lower sale prices which would most likely be in line with the housing percentage change showing a decrease of 3.6 percent from this time last year. The high months of inventory of waterfront properties would mean that this trend to lower prices can not be reversed.
What I think you are seeing is a large difference in the asking price as opposed to the selling price which again would lead you to believe that a substantial drop in year over year water front prices has happened.
To me, it just seems that the agents are listing higher than last year but are getting offers lower than a year ago.
If interest rates go up to the same insane rates they were at in the early 80s, doesn't that negate the benefits of the lower housing prices we're all waiting for?
But HHV, no one could EVER have predicted this downturn could occur (or so I hear constantly).
Anon - re interest rates increasing - if they do increase then prices will have to drop all that much further to become affordable.
Hi Just Jack:
Are you able to post the total number of SFH sales so far this October? I don't know if it's just me but it seems like there has been very little sales activity on my Matrix views so far in October.
Well Womp, when I try to get the number of sales since the first the number comes up 71.
jj
71?!?
That's got to be wrong. If that's right, we're about 50% off from October of last year.
18% interest rates. I wish I could look out my window and see what's going to happen this round. I'm plodding away with GIC's every month worried that event outside my control will hurt me as a saver.
As far as I can see people are so in debt and the governments are entering financial realms on levels never seem in our life... nothing is clear.
Interest rates should go up. But banks now seem to be held hostage by the borrower at the moment. Raising interest rates doesn't seem like it's in the cards. I'd love nothing more than putting my savings in a GIC at even 7% for 3 years and buy an affordable house when prices correct.
My one question while I save up my down payment. If Canadian banks are sound institutions will we not see interest rates rise to encourage saving? If they don't increase interest rates are they more at risk than they are admitting?
Just Jack - thanks!
msr - I'm not so sure that that has to be wrong... Vancouver is currently suffering from 50% YOY sales declines.
It will be interesting to see how October turns out. The one-two combo of no more 0/40's and the implosion of the stock markets have to have some effect.
One other point. I've been walking past this little house for years loving it because it looked like a cute starter home. It's almost a cabin just down from summit part and they are asking $399,000.
http://www.findyourhousewithamouse.ca/single.php4?id=247150&ct=
Am I really that far out of the loop, or is this a $250,000 place on a good day?
Fodder said...
"One other point. I've been walking past this little house for years loving it because it looked like a cute starter home. It's almost a cabin just down from summit part and they are asking $399,000."
Fodder - I know the property well, it's being sold together with the adjoining property (I'm not sure that they are entertaining separate offers). The realtor (and probably owners) are promoting its development potential - I'm not sure if they are proposing 3 lots on that tiny parcel or 3 between the two parcels or 3 on each parcel - you get the drift.
It's been on the market now late spring.
Any new owner will need to go through a development application process... so "potential" it is in name only.
"Economic woes sideline Landmark
Condominium project" developers withdraw application for rezoning - of course it wouldn't have ANYTHING to do with the fact that municipal staff are recommending that the application NOT proceed.
This was to be on the site of the Admiral Motel on Belleville at Pendray in James Bay.
http://tinyurl.com/5tdjkv
Of course, this one is definitely not at the build stage so the bets are still on as to the next partially built project to bail .
Word on the street (from construction workers) is that the next two buildings at Dockside Green won't be started. That and around 100 got laid off on Monday in initial excavation phase at Capella.
hhv -
I can see they stirred you up and you posted the same sort of comments here as at Vibrant Victoria. Amazing the difference in the responses that you get from a different readership.
Sort of glad to hear about the Admirals being on hold, like Victoria needs more condos and less motels to improve out tourist infrastructure - NOT.
Mind you, with the decrease in tourism this year and probably next year, it may not matter...
-"out"
+"our"
If Canadian banks are sound institutions will we not see interest rates rise to encourage saving? If they don't increase interest rates are they more at risk than they are admitting?
That's completely backwards. If banks (or bond issuers such as corporations) are seen as risky by the public they will have to offer higher interest rates to get deposits.
Higher interest rates = more perceived risk.
By definition.
If interest rates go up to the same insane rates they were at in the early 80s, doesn't that negate the benefits of the lower housing prices we're all waiting for?
But people who had previously bought at high prices would have to pay the same higher interest rates at renewal time. Or walk away. How many people do you think would be able to handle a 200% increase in their mortgage payments?
Olives is right. If interest rates went up to early 80's levels, you'd probably see nominal prices return to 1983 levels. It would probably be a bigger bust than the Great Depression.
Call me crazy. I'm actually excited with the coming apocolypse. These are wonderful times to play a market full of chaos.
BRING IT ON BABY! I'm ready.
Now happy owner wants a housing bust? I'm confused!
Eventhough prices went down in 1982 versus 1981, the prices in 1982 were STILL considerably higher in 1982 than 1980 pre 1981 peak.
Even in the 1995 drop in home prices, prices didn't fall much below 1993 levels.
I really don't know how anyone here can argue with this graph of 41 years of data. 7-8 up years and then 6-7 of slightly down/flatline growth while you are paying off 4% of your mortgage per year like a dividend.
http://www.vreb.org/pdf/historical_statistics/GRAA2007.pdf
The fear right now is not inflation, its deflation. Just look at Japan. High interest rates are not the issue there.
Although if you follow Jim Rogers he thinks that hyper inflation is on its way. If so, great, I will pay off my mortgage extra quick in hyper inflation. My hard asset home will increase along with the price of gold and my salary.
On a doom and gloom note. I heard in the US there are 5 million foreclosures coming down the pipe from illegal aliens who are now without jobs.
So just what's your point anon?
If we get an early 80's type bust, which seems more likely by the week, anyone who bought from 2005 on, or maybe even earlier is going to be toast.
If you bought, even at the peak, in the past bubbles it doesn't matter once the next cycle gets going. In fact you would have paid off 25% of your purchase waiting for the next cycle to get going.
The 1981/82 cycle was harsher than this one will be for Canadian Real Estate in my opinion.
I saw the monthly pricing graph in 1982 and it was very volatile month by month. But the end result was that the market leveled out and ended up higher than 1980's pre-peak level.
My point is that the real risk, in the long term, is not pulling the trigger and getting into the market. Someone who doesn't buy because prices are going higher then when prices fall they don't buy because they have not hit bottom will always lose in the end.
Does a person who bought waterfront property in 1981 or 1994 really care today if they bought at the peak?
"Does a person who bought waterfront property in 1981 or 1994 really care today if they bought at the peak?"
There is a reason why past performance does not guarantee future performance in all investments.
Time in the market does not outperform timing the market. RE myth number 1.
Anon Said:
"Does a person who bought waterfront property in 1981 or 1994 really care today if they bought at the peak?"
Well the person who bought waterfront in 1981 is either dead, can no longer keep the property up or about to go into a nursing home.
Most likely they have sold, as the typical Canadian only holds a property for about ten years. So for the most part they are not even in the equation.
How about those that bought in 1994. Well prices stayed flat till around 2000 then more than double in the last eight years. I think they are worried a little bit, because they remember how bad it was in the late 1990's. I wonder how many of these people have increased their mortgages to buy other properties?
How about those that bought within the last three or five years.
It really sucks to have that much capital tied up in a so called "hard asset" that is falling in value or even worse to have highly leveraged the property. A 10 percent drop on a $500,000 home or a 10 percent drop on a $2,000,000 home. Which one is the better "hard asset" investment?
Folks in Toronto are feeling the after effects of drinking too much Koolaid
Resale home prices tumble in Toronto
Prices of existing homes in Canada's largest city took a stunning drop in the first half of October, down by 15 per cent compared with the same time last year.
The average price of a home in the city of Toronto is now $375,804 compared with the $441,878 recorded in the first two weeks of October in 2007, according to figures released by the Toronto Real Estate Board yesterday.
The impact was more muted once the 905 suburbs were factored in where the average price of a home is down by 8 per cent to $337,671.
Overall, Greater Toronto Area prices fell by 11 per cent, with the average home now commanding $353,722 from the prior $399,013.
The last time average prices were that low was back in January of 2007 – or 21 months ago.
So why do some people consider real estate a "hard asset".
The theory of substitution, states that someone will not pay more for an existing home than the cost of constructing that same home new. In otherwords, a new home sells for more than a used home. The cost to construct being the "hard asset" component.
What happens when construction projects are suspended? There is reduced demand for labour and materials which leads to lower prices for both.
So, for example a home that has just been completed at a cost of $300 per square foot will have to compete with a proposed home that only costs $225 to build.
The lower cost of new construction has a direct affect on used homes. Consequently, prices for used or re-sale homes have to fall in relation to new homes.
Currently, projects are being suspended in Victoria. This will lead to higher unemployment and less demand for building materials.
Langford, Colwood and Bear Mountain, are particularly susceptible for a significant drop in prices as the market place is heavily dominated by homes of less than five years.
Victoria and Oak Bay are not immune to a fall in prices. The inner city, with its older established housing, will only tend to lag behind Langford and Colwood.
This is possibly where the phrase "location, location, location" comes from. The better located properties are the first area to increase in prices and the last to decline. So, the areas with the least time period with low prices would be the better located homes.
Anonymouse illustrates the dangers of judging investments by plots on a graph. A profitable trick of the mutual fund industry and real estate industry alike.
For the actual living people who bought just before or at those previous peaks, a job loss or relocation, death or divorce in the family, or countless other reasons meant having to sell into a raging downturn.
The Wealthy Barber's advice (to name another well-known real estate honk) to buy real estate is advice based on our parents' and grandparents' habit of living in the same house for 40 years. It was also a time when interest rates held at 6% for about 25 years, when people held well-paying jobs virtually for life, and the North American economy absolutely dominated the world.
In a world where our jobs are disappearing, interest rates swing wildly, and people move every five years on average, buying a house is a bad idea on a micro level. It costs homeowners too much in maintenance, taxes and transaction costs over the short and medium term.
In the long term, houses are priced in step with inflation. Wild swings will always revert to the mean. We are in a painful reversion right now. Also, you can only cash out when you no longer need what the house provides - shelter. So unless you're moving to a lower-cost jurisdiction (by definition "less desirable" or planning to live in your car) you will have trouble turning you home into money. Ask the old ladies sitting in million-dollar waterfront properties in Victoria who have to buy their apples bruised and on sale because their income consists of a $700/month government assistance cheque.
Anonymouse will learn these lessons the hard way, when our jobs are all located in Asia, the stores are selling a loaf of bread for 13 hyperinflated dollars, and the only vegetables you eat are the ones you grow in your garden. Drywall, he will find, can't be eaten regardless of the amount of Frank's Hot Sauce you put on it.
On a graph, buying a house and owning it forever is brilliant. In the real world, it's a bad idea an so many levels that, were our politicians not thieves and retards, they would discourage us from buying houses and instead encourage us to invest in our productive future.
I think the problem with talking about real estate cycles and referring to past ones(since 1980 or so) is the fact that the recent real estate bubble was actually a product of the credit cycle (the "boom" part). We are now entering the bust part.
Does anyone still deny we are experiencing a credit contraction?
The last time we were in this similar credit crunch (bust) was in the 1930's, and therefore it seems that comparisons to that era would be more relevant.
I think our social safety net of employment insurance and social assistance will prevent us from reaching the depth of the 1930's depression.
I don't know where our society is heading. Is it inflation, deflation, stagflation, hyperinflation or combinations of them all.
I remember the frustration of my parents and their friends in the 1980's with the high cost of housing. Eventually all of them bought a home. Then they all starting loosing their jobs and bouncing from one job to another or living off unemployment insurance.
I particularily remember my 50 year old uncle trying to get a labourer's job after decades as a well paid elevator installer and being turned down. Sad, so sad.
A recession is when your neighbour losses his job. A depression is when you lose yours.
Lets all get our beef jerky, bottled water and run for the hills.
Or be smart and buy when there is blood assets in the streets or at least in this forum.
If the worse happens
What would be the point of owning a mansion when your surrounded by poverty, tent cities, drugs, crime and despair?
Ooops, thats Humbolt Valley
-nice views though
This is a bit offtopic, but Anonymous - I once visited Peru and your statement describes the city of Lima.
I was astonished driving through that city seeing obviously very wealthy people living in large, beautiful houses in the middle of a block, surrounded completely by wicked looking iron fences with angled spikes, and concrete walls with broken glass lining the tops. Inside would be beautiful grounds, nice cars and electronic gates.
Surrounding the mansion along the rest of the block would be poverty, shanties, drugs, crime and despair. Islands of wealth in a sea of suffering.
Whenever I think things are bad, I remember those people I saw in Peru, and am grateful for living in our society.
Some of you may have noticed that in the last few days have not been getting updates to your PCS or Matrix accounts . I have been advised that the VREB server has been having problems since last Thursday and will not return to normal service until Tuesday, October 21st.
Thanks roger, was wondering about that.
Some good news from a local REALTOR®.
Victoria Real Estate More Affordable
Looking at the stock market over the last few weeks, I’m sure you are happy that you own Real Estate. There is always some good news if one look for it. With the prices stabilizing, Victoria real estate is becoming more affordable
Roger, Hmmm...I wonder why Bill thinks it's great to lose money in BOTH real estate and equities at the same time.??????
Thanks Roger for the link above regarding Victoria being more affordable.
I'm going to have to wait for the homes to become more, more, more affordable before we buy.
On a side note. I was speaking with a friend in a store this weekend about how bad the real estate market has become and how much worse the market may get. When, a person near us jumped into the conversation and told us how wrong we were and that real estate in Victoria will always go up and up. Both of us were stunned at first, but after a couple of questions, we learned that he had a vested interest in the high rise condominiums being built as well as a property in Arizona. Both of us were shaking our heads as he spoke of his impression of the market, which just made him more angry.
The impression that I was getting was that he was angry at us for not buying what he was selling.
It probably didn't help when he said that he had properties in both Victoria and Arizona as my first thought was that he was a double loser which more than likely came across in my expresssion.
That's a funny story anon. How mature could his business decisions have been if he gets irate at overheard conversations in the market? Talk about emotion-driven investing.
Here's another funny story.
http://www.canada.com/vancouversun/story.html?id=8770a2d4-cbc9-4a54-be9d-04fd7a342f1e
or
http://whalley.notlong.com
The story twice refers to the "plunging real-estate market" in Van and also the anecdote from the banker at the end is hilarious. O, how attitudes have changed in just a few short months!
This is at last the BC I recognize: fraudulent developers, arson, insurance scams, the little guy being ripped off, etc etc. Comforting in a weird way to see BC reverting to type instead of this manufactured 90210-type glitz that everybody has fallen for ("best place on earth").
There is a lot of interesting RE news on Canadian Mortgage Trends today.
roger,
this comment was very interesting,but I think we know the answer, also liked the Plunge- O-Meter.
"More people = more housing demand, and usually higher prices.
Mind you, BC home prices have been coming down steadily. Who knows when demand will reappear and support BC's market once again."
With the prices stabilizing, Victoria real estate is becoming more affordable
Gee I love realtorspeak. Sort of like saying the Titanic "stabilized" after it hit an iceberg.
Economic crisis bottoms prices for scrap steel
People wondering aloud or debating when or if Victoria will feel the impact of the global economic crisis tend to make Al Graham laugh.
The 69 year-old former auto parts worker, who has been in the scrap metal business for the last few years, says it's time they all pulled off their blinders. "The recession ain't coming, it's here," he said.
Graham said the crisis has slammed broadside into Victoria and its impact will likely force him to finally take his retirement. "I will be 70 in a few months, it's probably time to pack it in," he said, noting at the moment there is simply no reason for him to stay in business.
http://www.canada.com/victoriatimescolonist/news/business/story.html?id=0acacad7-5a7b-4f9f-8da9-af6268cae584
Ozzie was on Global TV today talking about the "fear in the market".
You can watch the video here (it takes a few seconds to load)
Premier Gord was on TV tonight and it looks like we should be OK, he is going to cut taxes.
I guess no one told him that tax revenue from real estate has dried up. This will be ugly folks.
Ozzie says 12-24 months til the RE market bottoms.
Gordie looked a tad nervous as he stumbled his words. Funniest part is BC Ferries has no idea what he's talking about.
And when did the Wizard of Oz first inform us that the market was going to fall? Last June?
Mish on Global Economic Analysis had an informative post today:
S&P 500 Crash Count Compared To Nikkei Index
This article features a long term comparison between the S&P 500 Index and the Japanese stock market as measured by the Nikkei Index. The Nikkei peaked almost two decades ago.
Someone buying the S&P 500 in 2000 is down 40% nine years later. Buy and hold dollar cost averaging has been an absolute disaster. You would be behind on nearly every addition no matter when you started.
Did anyone else notice a (relatively speaking) ton of sales in the last couple of days? It was so slow and then all of a sudden there seemed to be a significant number this week. Even that poor dwelling on Belmont is gone.
That is because the VREB MLS database was out of service from last Thursday until a few days ago. So there were lots of new listings, sales and price reductions reported over the last couple of days.
B.C. house prices to head downward until 2010: report
The downturn in B.C.'s housing market will drive prices down another 18 per cent over the next two years, according to a new report that blames the international credit crisis for the fall.
anon 1:38 said:
B.C. house prices to head downward until 2010: report
The downturn in B.C.'s housing market will drive prices down another 18 per cent over the next two years, according to a new report that blames the international credit crisis for the fall.
CBC had this article on the report:
Since a high in March 2008, B.C.'s residential house prices have fallen 12 per cent, and will fall another 13 per cent in 2009, bringing the provincial median to $310,000, the report concluded.
And despite an anticipated economic recovery in 2010, the median price is expected to drop a further five per cent that year.
"...according to a new report that blames the international credit crisis for the fall."
When are these "experts" going to realize the worldwide credit crisis is a result of the worldwide housing bubble bursting, not the other way around?
"Since a high in March 2008, B.C.'s residential house prices have fallen 12 per cent, and will fall another 13 per cent in 2009, bringing the provincial median to $310,000, the report concluded."
What about the last quarter of 2008?
Can we add in another 5% decline there?
Of coarse grain of salt with these wonderkids, last March this was their prediction
"Housing prices will reach new highs this year and next, but with a slowing in the rate of increase as market conditions ease. Prices will typically increase by 10 to 12 per cent this year and five to six per cent during 2009, after rising 12 to 14 per cent last year. "
anony 2:15,
exactly,they also blame the fear mongers AKA as the realists who saw this coming miles away. Pathetic excuse makers,wait til they see DOW 7000 and maybe lower as these hedge funds are still dumping like rabid dogs all the free paper Greenspan the Denialist gave out to pump this pig over the top.
Did I not just read this somewhere yesterday using the immigration excuse ?
"Price stability, rather than decline, would be expected for most of the housing stock . . . since underlying home ownership demand remains strong due to continued high immigration." (Frank Clayton, January 18th 1981 in the Sun. The market crashed by about 50% over the following year. )
The underlying demand is very strong in Victoria. This blog alone is proof. If prices dropped a total of 20% there would half as many voices on here - they would be the new happy homeowners.
30% and you'd all be so busy trying to pay off mortgages that you would have to cancel your internet account.
We own two houses plus other RE and I can tell you 1st hand if prices drop anywhere near rent levels I'll be snappin' up another two - and so will most everyone I know.
Victoria is a great city!!
Why wait for the rush anonymous - buy them now!
Think of it this way, if you buy them now, then your other homes will be worth more, so then you can buy more, which would make your homes worth even more, so that you can buy more.
Who needs a marketplace you can make your own market!
Anonymous,
If property values drop to near rent levels, you and your buddies will not be snapping up any properties.
You and your friends will be so upside down in your mortgages, the banks will never lend to you or your friends. You will be too much of a risk.
As for the demand for housing in Victoria this is only half the equation. You also have to factor in supply. If there is too much supply on the market - prices will continue to fall. And you can't stop the market from falling anymore than you could have stopped your stocks from falling.
Sure, I will be buying a house in the future. The home will be well kept character style home in Fairfield around 2,000 square feet on a 6,000 square feet lot. And I will be paying $2,500 per month on a self directed mortgage through my RRSP.
And yes, I will be a happy home owner. How about you?
Hmmmm..Sounds good. Why don't we work together on this. I'll buy two more next summer (total decline maybe 25%.) You rent one from me and get your bear friends to rent the other.
Maybe I'll offer you a lease to own option with a $50,000 down payment that I know you'll never complete. You rent for 5 years and move on to your next rental just in time for me to receive rents at about 150% of today's prices.
Your bear friends will be still just as desperate to own and will have taken the prices back up to "today's" prices plus another 25% for good measure.
Anon, your posts are about 18 months too late. 2006 is that way ----->
Anon 7:48 & 8:17,
I want to thank you for your posts. We sure needed some comic relief on this blog.
Since April the bears have been talking about monthly price drops , rising inventory and a falling YOY (now negative). After a while watching price drops every month gets old.
Most happy owners just drop by to tell the bears that real estate only goes up or that the boomers will be here soon snapping up all the old houses because they wantt to enjoy Victoria's great weather. What we need to keep us interested is more owners like yourself telling us how happy you are to see your assets dropping by 30% over the next year or so. That way way we won't feel so guilty when we make a good deal.
Will most bears buy if they get 30% off the April 2008 peak? I suspect they will. A house that sold for 500K earlier this year with a new reality price tag of 350K sounds good to me. But you never know what will happen. Some folks might get greedy and hold out for more. Only time will tell.
Yes Roger the comic relief is important. Really just yankin' your chains and apparently I got a few bites:-)
I do like JJ's integrity. Steadily getting ready for that home through debt repayment and savings into RRSPs'. He's got it made. I have positioned myself very well with regards to mortgage risk and I too intend to own my own mortgage through RRSP's.
I have about an 8 year plan to do so - 8 years and financially independant. Pretty cool.
I've been smart enough to mostly avoid the stock market in recent years and just keep putting $$ toward the mortgage. Nothing fancy, just good tax planning and a steady resolve.
Speaking of the NAL SDRSP mortgage, I've recently visited TD bank and they appear (at my first run) to have a pretty good offering around terms. Fixed rates, variable, HELOC, pooled HeLOC, 1st, 2nd etc and reasonable rates to boot. I'm hoping to open a LOC through my RRSP that will self fund back to my mortgage. Any knowledge / insight on the TD's offering would be gratefully received.
Have a great night.
Victoria is still beautiful.
"Victoria is still beautiful."
So is West Palm Beach, apparently it isn't helping!
http://miami.craigslist.org/pbc/reb/868712823.html
Had to post this for all of you to give another example of how nuts it is out there!!!!!
These people post
MLS 253764
3 bed, 3 bath 1600 sq ft home for$595,000 (bc assessment: $525,000)
Then they drop it to $569,000 just ONE WEEK LATER
THEN, just a COUPLE DAYS LATER, they relist with the same realtor under a NEW mls number for this:
MLS 255222
$549,900
"We own two houses plus other RE and I can tell you 1st hand if prices drop anywhere near rent levels I'll be snappin' up another two - and so will most everyone I know. "
sure dude, fear has a funny way of changing thinking when your house values have declined 30-50% and the bank won't lend you the coin cause credit markets have tightened to extremes.
"Will most bears buy if they get 30% off the April 2008 peak? I suspect they will. A house that sold for 500K earlier this year with a new reality price tag of 350K sounds good to me. "
This current scenario is far worse than 1982 so you will see 50% deals out there I am sure. The world wasn't on the brink of financial collapse back then, this time it is,then watch the rates climb back up next year as well. I'll be waiting for 50 %,I'm a patient guy.
A few buying bears won't save the market from a -50% scenario.
In fact considering the once in a lifetime downturn we are now seeing -50% is almost looking bullish.
This is not financial collapse it's reoganization of wealth. Lots and lots of opportunity in the coming months.
It's all perspective and if you've been smart and stayed out of debt and out of the markets in the past year or two you will enjoy lots of financial growth in the years to come.
Life is great.
Just Jack or Rogers, Could you explain the following, financially, a little bite? seems it is a very good thing, how does it works? Thanks inadvance.
"a LOC through my RRSP that will self fund back to my mortgage
to own my own mortgage through RRSP's.
a self directed mortgage through my RRSP."
"This is not financial collapse it's reoganization of wealth."
Time will tell,I am not saying it will happen but we were staring into the abyss a couple weeks back like no other time in history. We may revisit the abyss over the next few months as far as the markets go but you sound like you missed out the last 2 years,some of the greatest gains in ages were made during this time up til the summer.
There are many more dangers to get past first before stepping back in, corporate bonds and massive hedge fund selling at end of Novemeber plus more foreclosure coming in the US may sink us much further than we could ever imagine. Like I said, this is so beyond 1982.
Anon 8:59 asked about setting up a mortgage using their RRSP.
CRA permits holders of self-directed RRSPs to setup a mortgage using the funds in their RRSP. Here are some of the key points involved in doing this:
- mortgage must be administered by a financial entity. For example TD bank can set up a mortgage using funds in a TD Waterhouse self-directed account.
- interest rate charged must be at current market rates. It is possible to have a variable rate but some institutions will only set up fixed rate mortgages.
- there is an initial set up fee which might be around 1K and an annual fee around $300 (those figures are from memory and may be off a bit)
- loan must be CMHC insured regardless of amount or loan ratio. This can be a little as .5% up to several percent depending on ratio of mortgage amount to appraised value.
Is a self-directed mortgage a good idea?? It depends on your financial goals and personal circumstances. A financial planner can help you evaluate the trade offs. One thing to note is that the mortgage should be over 100K due to the setup and annual fees.
If you are in Victoria you can drop into the Douglas St. branch of TD and they will give you all the details. Other banks may be able to help you as well but as a customer of TD I know for a fact this branch has staff that is familiar with this type of mortgage.
Remember that your RRSP is the source of your funds. You have to think like a banker not the loan applicant. Since you are paying the mortgage back into your RRSP, you want the WORST terms possible.
You want a 35 year mortgage, paid monthly at the highest possible interest rate allowed. Because, your monthly payment is going back into your RRSP, you will be able to rebuild your RRSP quickly over the next 15 years.
Take a look at the mortgage calculators that show how much of your payment is interest that would be paid to the bank. When you use your RRSP savings that interest is flowing into your retirement account.
VG said: "We may revisit the abyss over the next few months as far as the markets go but you sound like you missed out the last 2 years,some of the greatest gains in ages were made during this time up til the summer."
Quite right VG I watched friends and family "making"(paper of course) good returns in the past couple years while I paid towards my mortgage, but it's hard to be everywhere at all times. Quite frankly I looked at the stock market as bubbled as well with no clear indication of when it would pop. Those claiming to be experiencing the stock gains were clearly sitting on a time bomb.
The problem with getting in during that time (just as in RE) is we don't know where the top is, now the only concern for both markets is finding the bottom.
"We own two houses plus other RE and I can tell you 1st hand if prices drop anywhere near rent levels I'll be snappin' up another two - and so will most everyone I know."
If this actually happened, it would create a second credit and housing bubble bigger than the biggest in history, which is now unwinding in rapid and ugly fashion. But let's get real - the dream of everybody in Victoria getting fabulously rich by owning 4houses is deader than a doornail.
Have you read the news? The real news, like the FT, Economist, etc? Try putting down the T-C. This is a real crisis and you will not solve it by buying more overpriced crap houses in Victoria.
Thanks Just Jack and Rogers.
Just Jack said:
Since you are paying the mortgage back into your RRSP, you want the WORST terms possible.
This is not necessarily true. That is why I suggested that a financial planner should be consulted prior to setting one of these up.
When you withdraw funds from an RRSP you are taxed at your marginal rate. This rate may be quite high depending on your other sources of income and the amount withdrawn. Having a pile of cash in your RRSP that you are forced to withdraw after conversion to a RIF may not be a good idea.
Some folks try to do the opposite of what you suggest. They try to get the most money (starting now) out of their RRSP with the least tax payable over the long term. Using a self-directed mortgage and paying the least interest may work for some people. One needs to remember that mortgage interest is payable with after tax dollars. The less you pay the more you have for other purposes like the new TFSA account. Paying high mortgage interest with after tax dollars is in effect making a contribution to your RRSP with no tax deduction benefit. Sure the money grows but you pay tax on it when you withdraw.
It is hard to give you actual examples on this blog because of the limited text format. One really needs a spreadsheet or retirement planning tool in order to see what works in a particular situation. Age, current income, expected retirement income, asset mix, current RRSP holdings and many other factors are needed prior to making any decision.
Having too much money in your RRSP is definitely something we all have to avoid. So lets say you gave yourself a $375,000 mortgage at 8% over 35 years. Well now you really have problems because your RRSP will grow to well over a million dollars in that time and your house will be paid off.
You certainly don't want to be in this position at age 72. Perhaps you should retire earlier and draw down that RRSP.
The self directed mortgage may not be right for everyone and not everyone can save enough into the RRSP to do this kind of thing. But it sure is nice to have the option.
but you sound like you missed out the last 2 years
Not to worry, the last 2 years (and most likely a couple more) in the RE market are going to replay in reverse.
Kind of like in the first Superman movie.
"We own two houses plus other RE and I can tell you 1st hand if prices drop anywhere near rent levels I'll be snappin' up another two - and so will most everyone I know."
I don't seem to get your math here. You say you are paying down mortgages on multiple properties so then you would lose all or most of your equity in a 30% downturn so you would thus lose a major amount of borrowing leverage.
Wheras if you sold now and bought back in 2 years at 30% off but you don't seem to want increase your leverage,you want to reduce it and put yourself in an even tighter situation should Victoria flatline for 7-10 years afterwards.
If I was trying to be a Donald Trump thats what I would be doing,increase leverage not reduce it,thats how you increase your wealth. Carrying more debt is like your Superman movie.
Some happy or not so happy numbers to ponder over the weekend.
For the core capital area of Victoria there have been 33 condominium sales in the first 21 days of October or on average 1.57 condominiums selling per day. The bad new is that there were 844 condominiums listed for sale.
Or how about single family homes. 69 homes sold in the first 21 days in the core municipalities of Victoria or 3.29 homes per day. But, there were 793 listed for sale.
The Edmund Fitz Gerald has collided with the Titanic.
Listings just crested 5150 - a new record high. After the slow start to the month I wondered if we had finally started to see a seasonal decline... but listings have been piling in for the last few days.
But here is my favorite.
That hot bed of retirement communities beautiful downtown Sidney. The blue hair rinse capital of Canada.
Of the 90 condominiums available for sale, two(2) sold in the first three weeks of October. Hold onto your stroller, those septagenarians are beating down the doors of the developers. Well, maybe just bumping the door lightly with their oxygen tanks.
Just Jack said:
Having too much money in your RRSP is definitely something we all have to avoid. So lets say you gave yourself a $375,000 mortgage at 8% over 35 years. Well now you really have problems because your RRSP will grow to well over a million dollars in that time and your house will be paid off.
Lets take a look at your example. A 375 K mortgage at 8% results in payments of $2628 per month into the RRSP. If those payments are invested at 5%, compounded monthly, (long term bonds, GICs etc.) at the end of 35 years the RRSP is worth $2.99M (see annuity calc)
Now lets say we pay 5% mortgage interest on the mortgage and set up a TFSA for the difference in payments. Monthly payments are $1880 per month and the RRSP at end of 35 years worth $2.14M (at 5%) (see annuity calc). The difference of 2628-1880 = 748 or 8976 per year which is under the 10K allowed for a married couple's TFSA. At the end of 35 years the TFSA is worth 850K. (see annuity calc)
So with 8% mortgage payments at the end of 35 years the couple owns the house and has an RRSP worth 2.99 Million and tax to pay on every withdrawal. With 5% mortgage payments the couple owns the house and has a net worth of 2.99 Million but 850K of it can be withdrawn tax free.
This TFSA is a great saving tool and for younger Canadians can be of considerable benefit.
BTW - The value of an RRSP containing 375K, with no further contributions, compounded monthly @5% will grow to $2.15M in 35 years
OOPS!
Pasted wrong mortgage payment graphic. Correct graphic showing 5% and 8% rates here
What I like about the RRSP mortgage is that 8% is guaranteed. Then if the bond and equity markets average 5% then you just build wealth faster.
So you reach 72 with a paid off home and 3 million in the bank and you have to make withdrawals and pay tax on them.
Let's see, suppose I don't smoke, reduce my carbohydrates, drink in moderation, jog 30 to 60 Kilometers per week, have regular medical and dental check ups and play bridge. I can probably squeek out to age 92.
So, can I live on $300,000 (before taxes) a year for the remaining 20 years of my life. How much do you think Alpo dog food will be by the middle of the 21st century?
Oh, I forgot to add in CPP, thats gotta be an extra $600 per month better buy the Presidents Choice brand.
There is a joke making the rounds today....
What is the difference between a BC real estate agent and a pigeon?
A pigeon can still make a deposit on a BMW!!
Just Jack,
The 8% only sets the rate of payments into the RRSP. You still need to invest the money that comes into the RRSP every month in order to get that $3M. I chose a pretty conservative, minimum risk 5%.
I don't know about you but I would rather not have to pay any tax on 850K of the $3M (TFSA route)
BTW - 35 year mortgage was your example. How many 36 year olds have 375K in their RRSP? A more realistic case would be a 25 year mortgage (46 year old).
You also may want to set up a home equity line of credit. So, when your mortgage drops below 80 percent of the home value, you can use this money for non RRSP investments. The interest portion being tax deductible.
Furthermore, if you own your own company you may wish not to draw an income from the company in the years prior to your retirement, but draw down your RRSP instead.
In this way the company might have a large retained earnings which you could draw upon as a dividend when you retire. Sort of like your own pension plan.
The HEL is basically the premise behind the smith manouvre. Probably not a good idea in these times.
I like the idea of drawing down RRSPs rather than taking funds from your company (incorporated) as you can later potentially sell the company and claim a capital gains exemption on the sale - tax free. Provides much more flexibility overall.
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