Archive for the 'Real Estate/Housing' Category

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Should Jason Sell his Home and Rent Instead?

On MP Garth Turner’s blog, a recent post about housing entitled “Jim to Jason” has generated over 100 comments so far. Here is the question that was posed to Garth by a constituent Jason (Jim is a reference to finance minister Jim Flaherty from earlier in the article):

I live in a townhouse in your riding that I bought with 15% down three years ago (10 years at 5.15%)…my wife is staying at home to raise our two children. We live modestly and don’t over-consume. My gut feeling is to sell the house (and realize the 70K gain), rent for a year or two and then buy back into the market when prices have depressed. My wife thinks I’m crazy….is she right?

Here is Garth’s response:

To Jason I would say, simply, there is only one reasonable course of action, which is to list the house as soon as possible, hope a hungry buyer comes along, and pocket the seventy grand. Go and rent a similar home for (likely) a lower monthly cost, and wait for the inevitable winds to howl through. Odds are the house will be worth less in a year than it is now, and a seller’s market will have turned into the same buyer’s feast that currently exists to the south.

In fact, you might want to question the whole notion of home ownership for a while. Consider that you face large, non-deductible costs of land transfer tax, mortgage payments, property taxes, utilities, insurance, plus hefty commission when you sell, and the lost earning potential of the money you used as a down payment. The only way to break even if is a substantial capital gain can be realized.

Given all that, you can often improve your cash flow by renting, rather than owning. Plus, if you do own a home and the market turns, you’ll find real estate to be an illiquid investment. You can always sell a stock or mutual fund with a single phone call, while it can take months to unload a home, with its value falling every day. In fact, this is already happening in spades to more expensive homes in the region – months on market, and offers for $100,000 or more off the asking price.

By the time your neighbours understand what you have just realized, it will be too late to take action.

I don’t think Garth is saying that everyone whose home has increased in value should sell and rent instead. He’s basically just saying “No, you’re not crazy, if you feel like selling and renting a comparable place I support your decision. For the most part the comments seemed to involve telling Jason he shouldn’t sell and although there were some good arguments, most were not, and involved things that surely Jason has already thought about.

One commenter mentioned that “for folks who have little ones, slipping from rental to rental, should the owner have to sell, is very hard on young families.” True, although I would argue that in this case the transition to the new place should be easier given the fact that the wife stays at home to raise kids. But whatever, Jason can deal with these issues on his own he doesn’t need anyone telling him that the move will be hard on his family.

Another comment said:

When you consider what it would cost them in realtor fees, lawyer’s fees, moving costs, and house rentals, is uprooting the family worth the hassle? . . . Sure, he can sell the house and gamble on the market–like playing the stocks–only with his home. Jason’s wife has obviously made a commitment to stay home to raise the children. In the present situation, she knows where she stands. If Jason sells the house out from under her–trouble. Just my 2 cents.

True, Jason must consider the costs involved with selling the home and the costs involved in buying a home, should he wish to buy again in a few years. Here are some supportive comments for Jason:

Garth has given you very good advice, should you and your wife decide to sell, invest your money well, do not take chances, plain simple interest (GIC’s) always go up and during troubled times you will sleep well.

Renting,…you will find a nice place and your costs for shelter, will be defined allowing your wife to set a planned budget in place, then in a couple of years or so you can look for nice home that is ready set go that meets your needs not your wants. By this time you will have over 25% to put down beating that deadly government mortgage insurance costs. If you can stay without any strain on your family or regrets when things go south, then do it. . . Bon Chance, good luck…..for starters you were wise to ask….so me thinks you and your family will do just fine.

There are a lot of silly comments too…

One person wrote that “Jason, your house is a home for your family, not an investment.” First of all I think Jason realizes that and probably never intended on selling but in light of the increase in his home’s value, he is weighing his options. Secondly, how is a rental property less of a “home for your family?”

Another said “renting is simply paying some person’s mortgage for them! At least if this family stays put and rides it out, they are investing in their own equity every month.” If the house goes down in value over the next 2 years, all the equity that has gone into the house in those 2 years will have gone down in value. Also, of course renting might be paying the mortgage for someone else (or providing someone else with income) but it may also be providing you with more money every month to invest (if your rent is lower than your mortgage was) or to spend.

Yet another said “I can’t believe that you, Garth, would giving such an advice. Renting only makes others richer.” This is the biggest renting vs. owning fallacy out there. Someone backed up the comment with “renting means money out the window. While paying mortgage, most is interest, but some comes off the principle. Whereas rent is all gone.” C’mon people give your head a shake! In general, rent ≠ mortgage payment, mortgages make others richer too (banks), and rent does go out window (just like interest does) but you can invest the difference (between what a mortgage would be and what your rent is (if lower)).

One last comment: “Jason you have to choose whether your house is a home or an investment. It can’t be both.” I don’t really understand what that means, but I can only assume that what this person means is that by selling the home you will no longer have a home (because you’ve treated it as an investment and it can’t be both!) and that a rental is somehow not a home, and that selling a home and moving to a rental is somehow “investing”? I don’t get it…why are people making this so complicated? He’s not losing a home here, he’s just changing homes and pocketing $70k?!

Popularity: 8% [?]

Link Fest – November 12, 2007

  • UK Housing Hurting – The British Housing bubble, “spurred by a borrowing spree, thanks to interest rates at 40-year lows from 2001 to 2006″ may be in its last days after the “average home almost tripled in value in the past decade.” It looks like properties bought as investments are going to be the hardest hit (just as they will in Vancouver): “Gabay says so-called buy-to-let properties, which investors acquire for rental income, are more vulnerable to a fall in prices . . . As interest rates rise, buy-to-let investors are making less profit on rental property, which may drive down housing demand and prices.” There are already many properties in Vancouver where the owners are not making up their mortgage payments with the rent (a few searches on MLS and Craigslist are all it takes to verify this, in addition to my own research while looking for  a new place for rent in July ‘07.
  • Buyers get real returns” – Apparently “if you’re purely interested in accumulating wealth, it’s hard to beat homeownership over the long term, according to a discussion paper (Are Renters Being Left Behind? Homeownership and Wealth Accumulation in Canadian Cities“) completed earlier this year by UBC real-estate professor Tsur Somerville and student research assistants Li Qiang and Paulina Teller.” The results vary by city, but even in “in those cities where it is even possible to accumulate more wealth than owners, renters must be extremely disciplined. They must invest on average nearly 80 percent of the difference between the annual cost to owners and the cost to renters . . . this is approximately equivalent to 9% of a person’s gross income.” 9% of gross income does not seem that bad. If one looks at Table 4 of the study it is not that bad for renters especially if they invest the difference between rent and a mortgage (100% in this case) in lower cost investments. They would have achieved 77% of “owner wealth” if invested only in GICs and 124% of owner wealth if invested in the only the TSX index with 0.75% annual expenses (ie. MERs). I noticed some possible bias in this study and that is that they used the years between 1979 and 1996 as starting years and 25 years OR 2006 as the ending year, then averaged all these scenarios. The later years are thus weighted more heavily in their average. The year 2004 is used in each scenario but 1979 is only used in 1.
  • Mishs Global Economic Trend Analysis: What Factors are Affecting the U.S. Dollar? – Just one paragraph here of note: “The housing bubble in the US is well known, but the bubble in Canada, the UK, China, and Spain is just as big (if not bigger) than the bubble in the U.S. In particular, the bubble in Vancouver is as massive as the bubble in Florida or California ever was. Vancouver housing prices are destined to crash. Don’t ask me when, but only fools are buying at these prices. The housing bubble in Australia was the first to start deflating.”
  • Buy the fund, or buy the company? – Rob Carrick discusses buying stock of mutual fund companies. I found this comment amusing: “Investors can even take their cues from CI chief executive officer Bill Holland, Paul Desmarais, founder of Power Corp., which controls IGM Financial, and AGF CEO Blake Goldring who all have “the majority of their wealth” tied up in their stock as opposed to the funds, Mr. Almeida added.” These guys are smart, they know that it doesn’t make sense to buy mutual funds when 2% or more (on average) of the return is eaten up by MERs every year. Carrick also comes right out and mentions that “with mutual funds, investors typically get market-type returns minus the fees collected by their managers . . . The allure of fund companies is that their business model allows them to collect fees on assets under management during the good and bad times.”
  • Who, in the real world, can afford to live here now? – Another housing story about Vancouver. I knew that the percentage of their income people are now spending on their home has gone up, but I was surprised to learn that “here in Metro Vancouver . . . In the second quarter of 2007, the average owner of a two-storey home spends 73 per cent of the family’s pre-tax income on financing and maintaining that home.” 73% of pre-tax income? How does this average Joe get approved for such a mortgage (or is it a variable-rate?). Or an ever better question, how does average Joe buy food after paying taxes?

Popularity: 16% [?]

Funny Mortgage Math

I was just looking at MLS listings earlier today and I saw this nice little place on Main Street in Vancouver and noticed the following statement by the realtor:

Investor alert, 2 potential suite. Main floor $1200/mo, 2nd floor $1500/mo, total $2700/mo

Investor alert? So he is implying that is an investment and I wanted to see if he was right. He is saying that rent would be $2700 for the whole place per month, and the asking price is $788,000. I am assuming that he his being completely honest on that rent figure or over-estimating it, as he has a vested interest in making this property as appealing as possible. Let’s assume some ideal conditions, that I have a 25% down payment as well, a 35 year mortgage, and a low interest rate of 5.5% (even lower than ING’s lowest rate). Plugging those into MLS’ handy mortgage calculator, even then, the monthly mortgage costs are $3149.80/month. If we rent the place out we are still short $449.80. So this is not an interest-bearing investment of any kind. We have invested $197,000 for the down-payment, and in return we owe at least $449.80/month (most likely more if we include maintenance costs, property taxes, etc…). That’s a -2.7% annualized return. If we put down a $78,800 down payment (or 10%), we owe at least $1100/month. It starts to become profitable with about a $300,000 down payment. I have neglected capital appreciation of the home of course. Historically, however, housing prices have grown with inflation, as shown in the graph below:
A History of Home Values
So one can never expect to make much off of capital appreciation of real estate. Not only that but as prices get higher and higher the probability that they will continue to grow faster than inflation decreases and the chances they will fall increases. Now back to the original MLS listing. How is this an investment?

Popularity: 10% [?]

Link Fest – October 4, 2007

I haven’t blogged in a while but over the past week I collected a few interesting links I present them to you now in my first “Link Fest” post. Enjoy!

  1. The Worst Recession in 25 years? – A guy named Robert P. Murphy talks about the Fed’s recent rate cut and how it will not only “pave the way for much higher price inflation than Americans have seen in decades, but it will also exacerbate what could be the worst recession in twenty-five years.”
  2. Vancouver’s big squeeze: Unreal estate – This article in the National Post profiles the Vancouver real estate market and its absurdly overpriced it is. Apparently a “psychologist in private practice” with income well above the norm cannot even afford a home.
  3. Dodge warns of inflated housing market – Bank of Canada Governor David Dodge is raising a red flag about housing prices in Canada, saying that increasingly loose lending rules may be helping overheat the country’s real estate market.
  4. Cake Financial – An interesting new website that (by the sounds of it) will calculate your portfolio’s performance based on the transactions you make through your broker. It does so by connecting to you broker’s website. That’s right, no more manually entering transactions manually into some piece of software. Unfortunately I am at E*Trade.ca and it looks like it only works with E*Trade.com. I am not surprised as I literally had to enter a fake zip code just to get into the site.
  5. Give a cheer for these index-beating mutual funds – Or… not. Instead give a cheer for random chance and probabilities. Rob Carrick fails to mention that 1) the performance of these top achievers is most likely due to random chance (just like if 1000 people flip a coin 25 times there is a high probability that at least one person will flip heads 20 times in a row). 2) Survivorship bias means that of all the funds that have lasted 15 years, the ones that actually last that long are quite likely to have beaten the index because the ones that didn’t were killed off. Returning to the coin-flipping example, if you also tell any coin-flipper that flips 5 tails in a row to quit flipping, by the end, the field will be smaller and thus the 20-head flipper will appear to be all the more impressive. As Rob Carrick said himself in his article, “just because a fund beat the index over the past decade and a half doesn’t mean investors can count on it to do so in the future. Again, too true.” So why write the article in the first place? Why celebrate past performance? Still not sure.

Popularity: 10% [?]

US Housing Update

On CBC Radio this morning, I heard that Canfor will be closing the mill in the small town of Mackenzie, BC, home to 5,000 people, because of “reduced demand due to a slowed housing starts in the US.” Another article said “Canfor, like most forest companies, is facing mounting pressures including a strengthening Canadian dollar and a slumping U.S. building market.”

Not sure if anyone noticed, but there were articles out recently about new economic data from the States, including a huge drop in median housing prices: “the median price of a new home sold last month fell to $229,100, a record 11.1 per cent decline from March that indicated builders are slashing prices in an effort to move a huge overhang of unsold homes.” Apparently, “the median price dropped by the largest amount on record.” Further, “the drop in median prices in April compared with March was a record one-month decline. If the April sales price was compared to the sales price a year ago, the decline was 10.9 per cent, the biggest year-over-year drop since 1970.”

Popularity: 4% [?]

Family Housing Story From 1982

I just had an interesting conversation with my dad a while back about the housing bust of 1981. They bought their house in 1977 for about $40,000 with a $471 monthly mortgage payment for a 25 year mortgage (Those numbers don’t work out quite right for an interest rate of approximately 10% at the time, but it doesn’t matter). They somehow also managed to put down 10% of the house’s original value every year (I think their tax rebate due to RRSPs may have helped out here), so in 1981 when the crash hit they were ok. When they went to renew their mortgage in 1982, they were quoted a 18.5% interest rate (just shy of the 20% peak). They didn’t have that much left on their mortgage after paying down 10% of the principal every year for the past 5 years, so they went to my grandfather (my dad’s father) for a loan. He loaned them about $10,000 at 14.5%. He was definitely not gouging them though; this was worse than the 19% he could get on Canada Savings Bonds at the time. They then took out a line of credit and paid the rest of the mortgage off using that. That was supposedly done to simplify the repayment terms (no longer stuck with a mortgage, can switch between loan-from-dad and line of credit more easily, and can pay down more principal whenever they wanted).

I don’t really have anything insightful to say there. Just that it’s an interesting story. The only thing I will bring up though is that I think everyone should consider the possibility of borrowing from a family member, or lending to a family member. You should be careful and think about that negative consequences if the borrower was unable to pay back the loan or make their payments. My parents payed back the loan to my grandpa, and then when they bought a rental property in the 1990s as an investment they borrowed money from my grandpa again. So it worked out well for them.

Popularity: 6% [?]

12-Year Old Financial Blogger

You gotta see this. There is a 12-year kid giving financial advice on his blog http://www.funnymunny.ca.

Some of his advice is questionable, like this one:

“Ya, hi, I’m over 150,000 in debt, not including my mortgage. I’m fearing that I’ll have to give up my lifestyle and everything I own. Is there anything I can do?” Well, I do have one piece of very good advice, find a really tall building… No, I’m just kidding! but seriously, the one thing you can do to take evasive action on that kind of debt is to, hold your applause, go further into debt! Ya, as crazy as it sounds, if you go another 300,000 dollars in debt and buy a condo, you can rent it out and slowly pay of that debt, plus the mortgage with the rent. And once you’re almost out of your financial rut, you can sell the condo for a profit and be completely debt free!

That seems like a sure-fire way to make your situation worse rather than better. Especially in today’s housing market. The guy is $150,000 in debt, plus he has a mortgage (let’s say $200,000 left), and he’s suggesting to take on another $300,000 in debt (if you can get approved for that, which is doubtful with the debt load he/she already has). Good luck trying to rent that condo for enough to make up for the mortgage (let alone having extra to apply against the $150,000 debt). And good luck selling the condo for a profit if housing prices tank (which they will).

He sort of explains himself in his next post, but there are still some assumptions I don’t like, like the one where the second house grows from $400,000 to $500,000 (timeframe not given).

Either way, this kid is one smart cookie and I’ll be keeping my eye on him.

Popularity: 6% [?]

Hot Labour Market

The hot labour market just got even hotter. Check out these recent numbers from the Vancouver Housing Blog.

Wow! Check out the leap in the employment rate and the sharp drop in the unemployment rate. With seasonal adjustments, weird weather, etc., it’s hard to know what to make of month-to-month jumps in these figures. But still. Unprecedented.

What do I mean by unprecedented? Check out the graph going back to 1976.

Since things on the national front look similar, I think you can kiss good-bye to any hopes for B-o-C cuts anytime soon.

Canadian Financial Stuff had a post a while ago about unemployment numbers going up in Canada. I don’t think that small upward blip in January is an indication of an upward trend. If you look at his graph the trend is clearly downward and there are upward blips (some larger than the January one) all over the place. If the numbers were taken every 5 months instead of every month, his headline would be the opposite, “Unemployment down in January.”

The discussion quickly turned to housing. I’ll copy & paste a few interesting comments below:

Someone named dave said:

lj – yep, I hear you. OTOH it’s worth remembering what happened to Isaac Newton during the South Sea Bubble. He saw the crash coming and sold in time, making some good coin. But when everyone else continued making money he bought back in, and of course got nailed in the crash. The crash is happening now in some of the previously hot markets south of the border. The early warning signs are everywhere else, including in Canada. Will it be different in Vancouver? Heck, anything is possible. But it isn’t that likely, especially given BC’s boom/bust history.

fcf said::

Remember, there IS a huge demand for RE “ownership” but NOT for shelter. There is a big difference there. Real rents have been stagnant for years. That tells me there is no true demand for shelter above new supply. The huge demand for ownership based on the thinking that it’s the greatest-can’t-lose-investment-ever is what the boom has been all about (and its a global phenomenon). Price/rent ratios are way too high. It costs nearly twice as much to own than to rent. This disparity can’t last. People have been making more money on their homes than in their jobs! This is what’s been fueling this bubble. It amazes me that even rational analysts are predicting long term RE price growths of 5% a year. What the heck for? Are rents going up by that much?

I have a friend in Sacramento who owns 4 houses. He is obsessed with RE. He intends to buy more since the prices there have dropped a tad. I urged him to sell but he thinks I am retarded. He quotes the usual myopic RE bull arguments, “they are not making enough land anymore…etc”. I said to him, if there is such huge demand for housing, how come rents haven been stagnant. He just can’t fathom that. He equates price increases with demand for housing. In fact one of his houses has been empty for a year. He doesn’t care because its been going up far more than the carrying costs.

Renters, stay cool. Don’t make the mistake Isaac Newton did. After his investment loss he was quoted to have said “… I can predict the motion of planets and stars but not the madness of men…”.

Martin said:

I must say that I don’t fully understand the despair of the reluctant bulls. If purchase prices belong where they are, then rent and get the deal of the century, and put your money in another investment. No skin off your nose.

alpha_bear said in reply to betamax’s comment:

“…i would be more miffed at waiting on the sidelines for 10 years for the perfect moment to buy (saving a $100,000 in the process) and putting my life on hold in the meantime. life is short.”

I don’t understand why the bulls equate renting with sitting on the sidelines. It seems to me that the bulls are the ones whose life is on hold, while they pray for housing prices to rise.

I’m so happy renting that I don’t care if it takes 10 years or more for the inevitable crash. I’ll buy back into the market when prices are more justifiable. In the meantime, my capital is working for me, and I have more cash available than I did when I rented the money to “buy” my last house from the bank.

Life is too short to spend underwater in a large mortgage.

Popularity: 3% [?]

The Home Buyers’ Plan (HBP)

A few weekends ago I was at a taxation seminar put on by a local accounting firm and they were pretty much saying that you should use the HBP. They mentioned it several times. They even went on to say that if you currently have some other debt, say a student line of credit, you should be concentrating on paying that off rather than contributing to an RRSP. Well I don’t know if I agree with that, especially if your line of credit is at prime, as ours is. Not only that, but contributing to an RRSP gives a tax rebate (which you can then throw onto the debt after having maxed out your RRSPs); paying down debt doesn’t. They were pretty insistent that paying off debt should be the first priority. But, they said, you should contribute to your RRSP up to the $20,000 so that you can take advantage of the Home Buyers’ Plan. Huh? They really made it sound like you should contribute just $20,000 to your RRSP, then ignore it and continue paying down debt. It didn’t really make any sense to me.

At one point I raised my hand and asked: “Can you compare withdrawing $20,000 from a line of credit to pay for a down payment vs. withdrawing $20,000 from my RRSP? for example, if my line of credit is at 6% or so and my RRSP is earning maybe 8 or 9%?” Their argument was that they thought I would have to have a much larger return in our RRSP compared to our line of credit to make it worthwhile. Their second argument was that you never know what will happen to interest rates in the future. Their answers weren’t that satisfactory and I expected a bit more from accountants. To make a long story short, after I got home, I started reading about the Home Buyer’s Plan.

The Home Buyers’ Plan is often touted as a magical way to get $20,000 needed for a down payment. I say “magical” because it is often explained in a very simple way without discussing the disadvantages, or any discussion of the alternatives. Here are some examples of what I am talking about:

  1. Assumption Life makes the assumption that The Home Buyers’ Plan (HBP) is a “winning formula.” “This winning formula can thus help you fulfil your dream to own while also making it possible to maximize your RRSP contributions.”
  2. This TD article “A Larger Down Payment Means Greater Savings
  3. This article from North Shore Credit Union talks about the Home Buyer’s and lists the only downside as being “If the $20,000 were left in the RRSP for 15 years, given an annual 3% rate of return, it would grow to approximately $31,200.” 3%!!! I hope that is real return!

As for #1 above, I think the HBP actually makes it harder to maximize your RRSPs. You will now owe money back to your RRSP and you may be saddled with a fat mortgage on a house that is slightly more expensive than what you might have normally bought had you not taken money out of your RRSPs. You might have a tough time paying off that big mortgage, paying of your RRSPs, and maxing them out every year going forward.

Contrary to what TD says in #2 above, although a down payment means greater savings, I don’t think the HBP necessarily means “great savings.” Here is a comparison between HBP and non-HBP using actual numbers (10% compound return in RRSP, 8% interest on mortgage). It works out roughly the same.

#3 is just laughable. I don’t know where they get their 3% rate of return from. They also claim that “if the homebuyer doesn’t use the RRSP, he/she will acquire a larger mortgage and may possibly even need to purchase mortgage insurance for a high-ratio home loan, which is 3.75% of the mortgage amount.” First of all, 3.75% is wrong, the max is 3.25% or 2.90% (I can’t figure out which, I think it was just lowered though). Perhaps their numbers are out of date. Second of all, if you’re buying a house on the North Shore (North Vancouver), $20,000 isn’t going to lead to a 3.75% premium (from 0%), although it may move you from a lower premium bracket (3.25%) to a higher one (3.75%).

Here’s what I see as the basic alternative to the HBP: Leave the $20,000 in your RRSP and add an extra $20,000 on to your house’s mortgage. This might leave you short of the 25% mark required for you to be exempt from the CMHC premium (of up to 2.75%). Or, it might move you from one CMHC premium bracket to another. This leaves you with a few alternatives, hold off on buying a home until you’ve saved up another $20,000 or take out a loan for $20,000, thus avoiding the CMHC premium (actually I am not sure if the CMHC looks at your other debt or not, if they do consider your other debts, what I just said may not work). You can get everything in between here. In the case where you have 0% down payment you could, again, take out a $20,000 loan or just increase your mortgage by $20,000.

I’d also like to remind you how little $20,000 is nowadays, especially if you are living in Vancouver and buying a condo for $400,000. A 25% down payment would be $100,000. If I get $20,000 of that from my RRSP or from a loan, it not too significant. If you are a couple, the Home Buyer’s plan allows you to take $20,000 from each RRSP which makes it a bit more significant.

The big downside of the Home Buyer’s Plan is that the rates of return from the equities and fixed-income investments in your RRSP may be much better than the interest rate on your mortgage. The amount of lost gains in your RRSP from taking out the $20,000 may be more than the amount of interest you save by reducing the size of your mortgage. The main upside of the home buyer’s plan is that it might allow you to reduce the amount of your CMHC premium. However, another way to reduce the amount of your CMHC premium would be to take out a loan and apply it to your mortgage. In this case, the same logic I used in the beginning of this paragraph also applies. Your RRSP’s rate of return might be higher than the interest rate on your loan. Another downside of HBP is that it can be a disadvantage to have your RRSP descend from $20,000 to $0, let’s say. First of all, when you have $25,000 or more in an RRSP, at some institutions this means you are except from the $125 annual RRSP management fee. Secondly, at E*Trade, for example, when you hit $50,000 in assets your commissions are reduced from $19.99 to $9.99/trade. Lastly, if a bear market is just winding down, that is the worst time to be selling $20,000 in equities from your RRSP.

There is a book from the CMHC called “Impact of the Home Buyers’ Plan on Housing Demand.” It says that “even when the individual has to borrow to make the repayments to the RRSP, there is still a net financial gain.” I think what they are trying to say is that taking money out of the RRSP under the HBP and then paying it back into the RRSP by taking out a loan. I would like to see their actual numbers but I can’t get the report to download.

Popularity: 13% [?]

Calgary Real Estate Update

In an earlier article, I quoted a Calgary Contrarian article (note that Calgary Contrarian has moved) that said:

if you want an excellent predictor of timing, continue to follow the inventory situation. . . Right now we are just below 2000 active listings, which is extremely low by historical standards. If you see that number start to climb back to “normal” levels of between 5000-6000 you can expect prices to slow down or even begin to drop slightly. As the number goes much above that level, you should see prices begin to decline. That is the pattern we have seen in many US cities. Once a bubble market exhausts itself, there is a rapid climb in inventory levels, followed by prices beginning to decline.

I noted that back in July, inventory was at 3,600. Now, if you check the Calgary Real Estate Board’s home page on the top-right, you will see that inventory is now at 6,852. Here’s the Calgary Contrarian’s inventory update:

Pretty crazy stuff. I was in a wedding near Calgary a while ago and couple people told me that prices have fallen about 25% in some cases. And someone else was telling how he knows many people who used the rise in their house’s price to sell and put a down-payment on a larger house than what they had. Now they are stuck with some hefty mortgages.

Popularity: 4% [?]