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Q: How to Own Real Estate for Dummies?
A: Borrow One of the effects of the last 7+ years of state imposed ZIRP & NIRP and mortgage default insurance subsidies is that the "value" of money has been destroyed. |
What is the point of saving for investment if the real yield (nominal yield less CPI = NRoI) or Net Return on Investment is zero(1), or worse if one has to pay the bank to hold one's deflating stock-pile of cash like paying a storage company to store one's old copies of VHS movie tapes after everyone has moved on to Netflix, Hulu and peer to peer file sharing torrents.
- In the U.S. for the past 55+ years the average NRoI has been +/- 2.5% and in the Eurozone has been +/- 1.7% (MonetaryRealism.com). In Canada, the "real" Bank of Canada bank rate (rate less CPI) was approaching 5% in 2007 before the 2008 crash and as well after the dot.com bust in 2001. It's flirting with zero now.
Not only does cash (money) 'feel' as if it has no value but realtors and developers also don't know what the value is of the product they are selling, because their value of money is being defined by a market seized by mania that is willing to pay more today than was spent to purchase yesterday and all along the way, agents in the market and government give their approval to a dynamic that will reach a limit (if not already reached in certain markets) UNLESS earnings improve.
At street level in Canada earnings have been topping with the commodity crash but in many cases, earnings reliability are not even necessary to use in the calculus of risk analysis when granting a mortgage or consumer loan. We should be ashamed of ourselves, but instead we blame others.
As CIBC economist Benjamin Tal said, he is concerned that subprime lending is “driving the bus.”
At street level in Canada earnings have been topping with the commodity crash but in many cases, earnings reliability are not even necessary to use in the calculus of risk analysis when granting a mortgage or consumer loan. We should be ashamed of ourselves, but instead we blame others.
As CIBC economist Benjamin Tal said, he is concerned that subprime lending is “driving the bus.”
Subprime borrowers’ debt loads will continue to grow as long as interest rates are low. Benjamin Tal
- Average debt levels up nearly 3% in the first quarter of 2016.
- Non-mortgage debt rose to $21,348 in 1Q 2016, up 2.7% Y/Y.
- Subprime average credit card balance grew by 5.7% Y/Y to $6,601.
- High interest installment loans grew 4.8% Y/Y to an average $23,591.
- Serious delinquency rates (90+ days late) increased 3% in 1Q 2016.
At the national level it's worse; net Federal Direct Investment widened dramatically in 2015 Y/Y meaning that Canadian investment capital would rather look for yield offshore than on. We can't even invest in ourselves (Net FDI has been negative for the last nearly 20 years); we continue to increase our borrowing so that we can consume to 'maintain' our lifestyle.
Even people without money via savings and low employment earnings are buying property - how would they know the value of money? Well they will find out along with their extended families the difference between equity and debt in an aging speculative triumph.
BMO Millennial Home Buyer Survey (March 2016)
According to the survey, millennials expect they will have to spend $350,000, on average, to buy their first home. These amounts range from about $235,000 in Quebec to more than $478,000 in British Columbia... To make such a purchase, respondents indicated that they expected to raise about 15 per cent of the purchase price for their down payment - or, roughly, an average of $53,000. Most (65%) indicated that they would rely, to some extent, on parents or other family members for financial assistance for as much as 10% of the purchase price, although most don't know.
A probability sample of this size would yield results accurate to ± 2.2 percent, 19 times out of 20.
Ipsos Reid - BDO Poll (May 2016)
55% of Canadian would have trouble paying bills if interest rates rise.
46% say rising cost of living is limiting the money they put toward paying off debts.
37% say the rising cost of living hasn’t impacted their debt payments at all, suggesting its having some impact on most people.
58% think the value of their home will increase.
The poll is accurate to within +/ - 3.5 percentage points, 19 times out of 20, had all Canadian adults been polled.
Condo Construction Subject To Red Alert From Royal Bank
HuffingtonPost.ca (May 30, 2016)
RBC isn't the only organization that has presented concerning statistics regarding the housing market recently.
Sales activity in Toronto and Vancouver may have "topped out," Canadian Real Estate Association (CREA) president Cliff Iverson said earlier this month.
Sales didn't grow in Toronto at all in April after dropping 1.8 per cent in March.
They were also down one per cent in Vancouver, after a drop of 0.3 per cent the previous month.
Gregor Robertson Mayor of Vancouver, May 30, 2016
Yes, housing prices are high in Vancouver, and global capital plays a part in that. If prices keep increasing, many of the things we love about Vancouver are at risk, and many will not be able to put down roots in a city bound together by a rich, multicultural history that has a lot to offer geographically and culturally.
Magic Bus - The Who 1968
I don't care how much I pay
I wanna drive my bus
to my baby each day
I want it
I want it
I want it
I want it
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