Saturday, May 18, 2013

The 200

Comment madness?  No...

Amazing how interest rates have continued to come down and improve affordability. 

Carry on.  




55 comments:

koozdra said...

My landlord came to me the other week and offered me a deal. We will base my rent on the towel consumption rate at the local YMCA. If towel use is down in a certain month I get a discount. However if it goes up then the price of rent has no limit of going up.

Of course I expressed concern. As a renter I like steady predictable payments. So he said I could lock in the current towel usage rate for four months of my one year lease.

They just put up one of those signs that says you should help the environment by using less towels. So towel usage has taken a dip recently. If I lock in now, I'll be able to get a good deal on my rent for the foreseeable future.

Maybe I can afford a larger rental?

koozdra said...

"WIN YOUR DOWN PAYMENT, call for details."

13208773

StalJ said...

It is also amazing how inflation continues to come down. Who would have thunk consumer deflation here?!?

Saint John -0.3
Vancouver -0.8
Victoria -1.3 ..since last april

info said...

I agree that interest rates have been declining. It's interesting to note that this has not stopped the housing market in Victoria from declining.

Canada has the least affordable (most overvalued) housing in the world. Even Mark Carney said that Canada's housing market is 37% overvalued.

Leo S said...

The improvement of affordability has come mostly from interest rates, marginally from declining prices, and marginally from increasing incomes.
I'd say interest rates can't get lower and further declines should come from actual prices, but then again I thought that was the case last year and rates continued to come down.

Leo S said...

Anyone know the previous (1998) purchase price of 1751 San Juan?

Marko said...

$228,500

Leo S said...

Thanks.

Introvert said...

I agree that interest rates have been declining.

I'm glad to see that you're agreeing with a fact.

Introvert said...

Instead of the (totally predictable) picture you chose for this thread, Leo, you should have used this one.

CS said...

@Info
I agree that interest rates have been declining.

@Introvert
I'm glad to see that you're agreeing with a fact.

Is it a fact? With inflation of negative 1.3%, the real minimum mortgage rate is around 4%.

Is that really lower than last year? The year before last?

CS said...

And why are interest rates so low?

Is it not simply that the limit on the amount of money a bank will lend is the amount it believes will be repaid, i.e., by creating mortgages banks create the reserves necessary to make the loan. (Although we can assume the existence of an informal price fixing arrangement that insures a decent return for all.)

If that is correct, and I am not stating that it is, then competition among banks will drive rates to near the break-even point, i.e., the rate that covers the administration and insurance of the loan.

And if that is correct, then why would rates ever rise?

Only if the risk of default increases. But as long as either house price increases do not reduce affordability, or some panic does not scare buyers out of the market and cause prices to drop, the risk of default should stay low.

Anyone here understand banking?!

koozdra said...

A good dose of insurance will make anyone act with a moral hazard.

No... no... our big six would never betray us like that. They are well regulated. They are, our friends. They give us low rates.

dasmo said...

I sure felt those plumeting gas prices filling up this morning...???

dasmo said...

Sorry CS my mortgage payments are really 2.99% and my cheese still costs $11.99...really.

Introvert said...

I don't know what CS is talking about half the time.

Leo S said...

Yeah damn cheese prices. And I heard that mozzarella was supposed to be getting cheaper now that the mozzamafia had been disbanded or something

Chris said...

Your “filling up” frustration soon to be thing of the past USA soon to be next Saudi arabia.
Notsure about the cheese. Maybe you can make cheese from petrol.

CS said...

I don't know what CS is talking about half the time.

Sorry about that. I thought I had a simple question. What could cause mortgage rates to rise?

Specifically, if banks create money to make loans in amounts limited only by their expectation of repayment, as seems to be the case, will not rates always remain low due to competition among lenders, with a lower limit on rates set by the cost of administration and insurance?

It is generally assumed that inflation is a factor that could cause rates to rise. But why?

If inflation increased, that would increase the confidence of banks about the repayment of loans because it would mean increasing nominal incomes and asset prices. That increased confidence would, in turn, increase the competition to make loans and thus keep rates low.

There is, I hope, something missing in this argument, because it implies a progression from increased inflation to increased bank lending, to rising asset prices and even more inflation leading ultimately hyperinflation.

But what is the control mechanism that I have omitted to take into account? If there is one.

CS said...

Sorry CS my mortgage payments are really 2.99%

Yes, 2.99% nominal, but 4.3% in constant dollars, based on the CPI.

What that means is, that relative to the CPI, the amount of your loan outstanding is increasing by 1.3% annually.

We are now in a liquidity trap, when people become increasingly reluctant to spend because things will cost less in the future.

That is now the situation with housing, as well as cars, computers and much else beside.

So fear of continued deflation, however low mortgage rates fall, could be the thing to set off an RE crash.

Alexandrahere said...

Good morning all...here are my stats for last week


SFH: In the areas of Vic,OB,Esq,SE&SW with a min of 2 beds and 2baths, priced between $375K and $775K.

Inventory:389
Sold: 33
Avg selling price: $545
Med selling price: $555

Thirteen of the 33 went for below BC assessment & 10 had disclosed secondary suites.

In the SE areas of Mt Doug, Gordon Head and Lambrick Park there were three sales. The average selling price was $599K.

For comparison and within identical criteria:

May 14-20, 2012
Inventory: 378
Sold: 22
Avg selling price: $551K
Med selling price: $548K

May 16-22, 2011:
Sold: 28
Avg Selling Price: $556K

Condos (Apts & Townhouses, pretty much in the same areas including downtown, with a min of 2 beds & two baths and priced between $248K and $550K.

Apts:
Sold: 6
Avg selling price: $395K
Med selling price: $402K

Townhouses
Sold: 4
Avg selling price: $346K
Median selling price: $380K

One townhome in the old Burnside Gardens complex went for $250K so that unit brought the average selling price down.


dasmo said...

Perhaps the conversion away from HST has changed the CPI in the short term... That is just the obvious one. After that it could be a shift in spending habits leading the indexers to adjust the weighting of certain things or even changing what items are in the "fixed" basket.. Who knows. The CPI to me is a little bit like the weather report...

westcoast said...

Long time lurker new poster.
@ CS, If this were House Hunt Regina I could see a RE Crash.
VanIsle is the "Hawaii" of Canada. Go look out your window.
People listing in this market are victims of bad decisions.
IMHO at worst a flat market for 10 years. Good luck with your crash though ;)

Great blog btw.

CS said...

Good luck with your crash though.

I have no reason to hope for a crash. My house is up about 12 times since I bought it in 1972.

The thing is, it seems worth entertaining hypotheses about the factors that may determine the course of the market, rather than simply engaging in a "yes it will," "not it won't" argument about a possible RE crash.

Personally, I'd like to see the market take my house up another couple of hundred percent at the expense of all those young people who will be looking for a home in the next year or two.

koozdra said...

"Personally, I'd like to see the market take my house up another couple of hundred percent at the expense of all those young people who will be looking for a home in the next year or two."

We're willing to go into as much debt as it takes.

CS said...

Despite the relative constancy of mortgage payments since the 70's, this does not mean that the cost of house purchase has remained constant.

Far from it. In the 70's when mortgage rates peaked at 18%, a family with an average income could borrow very little as a multiple of income, which meant that houses were cheap.

But inflation was rapid, so that with rising wages the principle could easily be paid off.

Not so in today's deflationary environment when interest rates are low, which means that a family with an average family income can — and likely must — borrow a huge amount to buy a Victoria house, all of which sum may have to be paid back without the benefit inflation cutting the real value of the balance outstanding.

On the contrary, at present, deflation is raising the real value of the balance outstanding.

So, as I said, without any reference to my own interest, "fear of continued deflation, however low mortgage rates fall, could be the thing to set off an RE crash."

But as I have also argued in an earlier discussion, Government has an interest in keeping house prices up as a collapse would drive the economy into a deep recession.

We can infer, from the massive government intervention into housing finance in 2009, how important the government considers the RE market.

The question is, can they keep the ball in the air indefinitely. And in particular, can the do it now that the economy has, apparently, fallen into outright deflation.

CS said...

We're willing to go into as much debt as it takes.

I appreciate that.

Or rather, when I drop dead and the house is sold, my daughter will appreciate it.

dasmo said...

Personally I don't wish it one way or the other. If it crashes it will only reinvigorate another boom later and it will give some young blood opportunity. It would give me some opportunity too. If I could buy a profitable rental building in Victoria....wow once in a life time. I'd do it at the drop of a hat! What have I been doing here. The crash is imminent people. Now is the time to sell. List while you still can! Buyers don't buy hold off for the crash...

koozdra said...

"The question is, can they keep the ball in the air indefinitely. And in particular, can the do it now that the economy has, apparently, fallen into outright deflation."

Do they want to keep house prices high or do they want to control debt growth?

Those two seem at odds with each other.

From their actions it seems that they would rather see house prices tank and see some reduction in personal debt.

If they wanted to keep prices high they would not keep tinkering with the mortgage rules.

A soft landing from this high up is not possible. Or maybe we'll be the first to create one, we'll see.

koozdra said...

"If I could buy a profitable rental building in Victoria....wow once in a life time."

Where will you get the money?

Borrowing against your house will not be in vogue post crash.

dasmo said...

I got cheddar...

koozdra said...

"I got cheddar..."

Another beautiful Canadian government policy, supply management.

The mystery behind high Canadian cheese prices revealed

CS said...

From their actions it seems that they would rather see house prices tank and see some reduction in personal debt.

If house prices tank, lots of people will go broke, which will certainly reduce their personal debt. But that's probably not the Government's preferred debt reduction pathway.

But I don't see what actions the government is taking that suggest a greater concern with debt than house prices.

It seems to me they are rather desperately using alternating stimulus and restraint to try and keep RE prices in more or less level flight.

The challenge is that prices are in an unstable equilibrium such that any dip generates positive feedback (i.e., reluctance to buy when buying will be cheaper later on), which makes downside excursions in price difficult to control once started.

At the same time, upward excursions only aggravate the problem by increasing the downside instability.

Some people think a crash is unavoidable. But when was any government deterred from attempting the impossible when the alternative was certain electoral defeat?

koozdra said...

All I'm seeing is some serious austerity. They are cutting back on the stimulus.

What was the last thing you saw that was stimulus?

koozdra said...

In terms of winning the federal election. It shouldn't be a problem for the conservatives.

Spend a lot on negative advertising. Say the word economy no less than 20 times per speech.
Make everyone believe that the recession was caused "abroad" and that they are the best qualified to handle the recovery.

Bam... another majority.

CS said...

What was the last thing you saw that was stimulus?

It may not be the government's doing, exactly. But they are allowing the credit union to offer me a 2.69% mortgage, which is 30 points cheaper than Dasmo's

Bam... another majority.

We'll see. It will depend on whether young Justin's charisma holds up in the heat of an election and whether the lad is smart enough to stick to platitudes and promise nothing.

dasmo said...

"What was the last thing you saw that was stimulus?" You mean beside keeping rates at unprecedented emergency low levels?

dasmo said...

And remember earlier this year when rates had nowhere to go but up?

Marko said...

Not so in today's deflationary environment when interest rates are low, which means that a family with an average family income can — and likely must — borrow a huge amount to buy a Victoria house, all of which sum may have to be paid back without the benefit inflation cutting the real value of the balance outstanding.

We'll ignore the fact that almost half your first payment goes towards principal at these rates.

dasmo said...

In the world according to Garth, 90% of your payment goes to interest....

a simple man said...

25 yr amoritization, 3.00% interest (assuming this will stay constant, unlikely). Yearly amount, in percent, that are interest payments.

1. 52%
50%
49%
47%
5. 46%
44%
42%
41%
39%
10. 37%
35%
33%
31%
29%
15. 27%
25%
22%
20%
18%
20. 15%
13%
10%
7%
4%
25. 2%

Marko said...

Some people have substantially better mortgages than 3%.....I've been in a low 2s variable for 1.5 years now. I've also been investing in my TSFA + RSPS which with a bit of good luck have had solid returns.

If rates when up, hypothetically, the low rate environment has set me up to pay off the mortgage need be; however, I doubt I'll be scrambling anytime soon to sell of my TSFA to bring the mortgage amount down.

Leo S said...

Broker told me he's sold full featured 5 year fixed for 2.69%

koozdra said...

The race to the bottom. Teaser rates.

dasmo said...

TFSA ;-) I can only aspire Introvert....

a simple man said...

3% just for illustration purposes.

CS said...

Not so in today's deflationary environment when interest rates are low, which means that a family with an average family income can — and likely must — borrow a huge amount to buy a Victoria house, all of which sum may have to be paid back without the benefit inflation cutting the real value of the balance outstanding.

@ Marko: We'll ignore the fact that almost half your first payment goes towards principal at these rates.

What is the logic of that response?

As I stated, someone borrowing six or eight times family income to buy a home, has to pay back that principle amount "without the benefit of inflation cutting the real value of the balance outstanding."

In fact, while deflation continues, the money has to be paid back as the real value of the outstanding capital increases.

That's the ssence of a liquidity trap. And it makes people inclined to save their cash with a view to buying later when prices are lower — which adds to the deflationary pressures.

a simple man said...

same @ 2.69%:

Percent of mortgage payment that goes to servicing debt, by year of loan:

1. 48%
47%
45%
44%
5. 42%
41%
39%
37%
36%
10. 34%
32%
30%
28%
27%
15. 25%
23%
20%
18%
16%
20. 14%
11%
9%
7%
4%
25. 1%

dasmo said...

And this is why the banks love 30-40 year mortgages. Even more front end interest payments.

CS said...

Having consulted a mortgage calculator, I see that the logic of Marko's comment is this:

that when interest rates were high and house prices correspondingly low, it was much easier to pay down your mortgage with extra payments than is the case today when interest rates are low.

For example, a $50,000 mortgage with a 25 year term at 18%, the peak rate in the 1970's, costs $733 per month to service, most of the payment being interest.

If with such a mortgage you had some extra cash at the end of the first year and made an extra year's payment, you would cut your monthly payments and the outstanding capital by 18%.

Today, if you borrowed $155,000 you monthly payments would again be about $733 per month, but with only about half going to pay interest, the rest going to pay down the principle.

If then you made an extra year's payment at the end of year one, you would cut your monthly payments and the outstanding capital by only around 6%.

So in making the case that "despite the relative constancy of mortgage payments since the 70's, this does not mean that the cost of house purchase has remained constant," I did ignore the fact that it is now much more difficult to pay down a mortgage than it was in the 70's.

This, I take it, is what Simple Man is saying, but in purely numerical form.

Leo S said...

Just another way that savers get punished...

Marko said...

Tuesday, May 21, 2013 9:30am

MTD May
2013 2012
Net Unconditional Sales: 367 659
New Listings: 916 1,740
Active Listings: 4,724 5,015

Please Note

•Left Column: stats so far this month
•Right Column: stats for the entire month from last year

totoro victoria said...

Right now a greater percentage of your mortgage payment goes to principal than if we were in a higher rate environment.

Affordability is similar.

I would say that now is not the best time to pay down your mortgage. Better to invest your extra money in something else given the cheap rates. It would have been better to pay down your mortgage at high rates.

I also don't see that buyers are as hesitant to buy right now as you might expect. There are a fair number of sales.


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John Adam said...

What is the meaning of mortgage?
Mortgage broker