Yalie at vancouvercondo.info February 21st, 2011 at 5:28 pm – “I don’t know why, but for some reason it doesn’t matter how intelligent, educated, or mathematically inclined someone is: when it comes to real estate, it’s like they’ve suddenly taken crazy pills. Case in point – I was having lunch with a friend who’s an extremely successful (and highly paid) corporate lawyer, who’s looking to buy a house soon. This is one of the smartest guys I know, and he deals exclusively with corporate finance and securities law.
He mentioned that he’s in a rush to find a place soon, because “interest rates are likely going up and that’s going to increase monthly payments”. I mentioned that higher interest rates would mean lower prices, but he countered with “sure, but that still means the monthly payment will be the same either way”. So he figures it’s still better to buy now.
So one of the most intelligent, financially-savvy guys I know can’t figure out that it’s better to pay a lower price with higher rates than a higher price with lower rates, given the same monthly. And this guy deals with billion-dollar securities all day long.
There really is no reasoning with people over real estate. I have had similar conversations with several other people, and it never seems to make a difference. When someone has made up their mind to buy a house, all they want to hear is reasons why they should do it.”
Most Recent Comments:
- Nemesis on ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- Raspberry ketone on Commit Crime To Buy A House
- Nemesis on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- You're sore, not hurt. on ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- Ralph Cramdown on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Farmer on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- kabloona on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Brian on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Nemesis on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Burnabonian on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- dumpster diver on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- Joe at Kits on “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
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Latest Anecdotes:
- ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- “Let’s remember how we got here” – Looser and Looser CMHC Limits
- Don’t Worry, I’m Sure Somebody Will Sort This All Out – “Policymakers now know better and will be a lot more proactive in preventing a collapse.”
- “Things have changed, we are not doing that type of mortgage. We are not interested at all.”
- “We are noticing our target type of housing in price decline, albeit slow, as our money increases in value, slowly as well but outpacing housing.”
- Renter Buys In West Van – “For a few hundred more per month, you could own the place. Which is what I will be doing as my offer for a place down the street has been accepted. There is some value in staying in one place.”
- A Bed in the Bathroom, Why Not? [Let Us Count The Reasons...]
- “My husband and kids are pretty happy in our rental house within cycling distance of work that we could never have afforded otherwise. We’re doin’ pretty dang well, thank you, for median income earners in this expensive city.”
- “I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops
- “We asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!”
- “My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”
- Chat Thread
- Taking A Break
- “My best guess: this property is now an ‘investment hold’ and will be built ‘when prices recover’. Good luck on that!”
- Man Loses $745,000 Vancouver Condo Deposit
- Graphic – Degrees of Housing Overvaluation in Canada
- The Rare Individual With A Negative Ownership Premium
- Advice Regarding Renting In Vancouver, Please – “Unfortunately, the Vancouver rental stock is absolutely atrocious. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income.”
- “I just visited Manhattan for a week, and happened to snap some real estate ads on both the Upper West and Upper East sides of the island. Compare to Vancouver. It simply doesn’t compute.”
- Ben Rabidoux In Vancouver Next Week
- “The mortgage company told me they were calling in my 40-year, 0-down mortgage. I have paid nearly sixty thousand dollars towards it, but, nearly five years in, I have yet to touch the principal.”
- ‘Vancouver City Hall: Housing Report Card 2012′; Plus Revised Version
- “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”
- “Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”
- “They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”
- Greater Vancouver Home Builders’ Association Annual First-Time Buyer Seminar Attendance Plummets
- Mom and Pop Get It Wrong In All Markets, Time And Again
- The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.
- “He’s sold all his properties except his current one, which is now for sale. He explained that the market’s currently in crash mode, worst that he’s ever seen.”
- “One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized after debt paid off $185K.”
- “I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”
- Sturdy, With Views – “Calling Froogle Scott!… Is Dr. Scott ‘In The House’?” [Not In This One, Certainly]
- “She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”
- Kits Notes – “I’m pretty sure that this is the first 3+ bedroom property of any type that I’ve seen in the 5 years I’ve lived here that is priced below $700K.”
- “A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”
- “Two family members of hers are trapped, underwater, in condos on the East Side.”
- “Interprovincial migration is not saying good things about BC’s economy.”
- Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”
- More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”
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I realized this a couple years ago while taking my MBA. One of my classmates has scored 770 out of a possible 800 on the GMAT. This qualified him for membership in Mensa. He had lucked out and seen his 200k townhouse leap to 500k in a couple of years. So he sold it and bought an $800k+ house in Coquitlam. While trying to make a point about interest rates driving the bubble I asked him why he thought his townhouse had increased in value so dramatically. He had no idea, he couldn’t see it for his life. Here’s a guy that scored perfect on the GMAT math portion and near perfect in the language portion despite English being his second language and is a member of Mensa. It has nothing to do with intelligence. This was a guy who had grown up in communist China and I think he had really come to despise anything resembling socialism. I believe this translated into an inherent trust in the power of a free market. He didn’t feel the need to question “the invisible hand” because he had seen first hand the failure of the dictatorship.
It’s got nothing to do with intelligence, this guy was way smarter than me, honest as the day is long and one of the nicest people I’ve ever met, but when it came to shopping for a house, he might as well have been 6 year old watching pre-Christmas toy commercials during Saturday morning cartoons.
It’s like the American mentality has infected the Canadian brain. This low rate vs. price trade off is currently looking reasonable for parts of the U.S (the crossover point is easy to calculate) but only because the rate can be locked in for all 30 years. Canadians are acting like they have the same total predictability for their payments for the life of the loan. Guys, 5 years is nothing.
If interest rates are going higher, why would one buy NOW? Because whatever payment you lock into for five years is destined to be higher when you renew….in 5 short years. Maybe substantially higher. And if you couldn’t afford to buy your own house in five years, who else will be able to? So prices will have to come down. It’s so obvious but people are still in a real estate mania here in Vancouver. There’s no logic to any of it, it’s just “buy now or be priced out forever!” Too bad I’ve been priced out for years now, it’s way too late. At this point it only makes sense to rent for the rest of my life (if prices never go down, as the bulls suggest).
It’s better to buy when rates are high and house prices are low. Buying at the peak with a low interest rate is the worst thing you can do. Buy after the market correction with a higher rate and a much smaller mortgage.
Getting priced out of the housing market is a myth they use to manipulate you into buying when it is convenient for them. It’s the same as the myth high school teachers tell you, that you can’t get into college/university unless you are on the academic program. Both of these are totally false.
Don’t buy because you are afraid. Buy because you know the difference between buying an over priced house with a low interest rate AND buying a lower priced house (after the correction) with a higher interest rate. If you don’t know the difference between the two, you are merely taking a shot in the dark, on advice given to you by people who want you to buy now because it is WHAT IS BEST FOR THEM.
The term you are looking for is:
http://en.wikipedia.org/wiki/Cargo_cult
In theory buyers should be rational number crunchers in practice buying a house is an emotional decision the minute a bank tells you this is how much you can pay for house and this is the monthly payment. Even with my own sister and brother in law who both have bachelor degrees in Business IT management which did include a few accounting courses and one corporate finance course, they still totally ignored all the numbers got into a bidding war and spent $45K over their budget for a house in the GTA.