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How would a downturn in the real estate market affect you?


 


 
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How would a downturn in the real estate market affect you?

  1. The largest percentage of homeowners shouldn’t be harshly affected by a downturn in the real estate market. Those who are ‘cashing out’ to leave the country, or moving into retirement homes would be the exception. 

    For the vast majority of us, our property is a place we live in. So we won’t dispose of it till we’re incapable of caring for it – or ourselves. 

    A downturn also has some advantages. If the market drops 10% across the board, and you’re selling a 500K property to buy a 750K property – you’d actually save 25K in the process. (750K x 10% less 500K x 10%) 

    Unless you’re in the vulnerable 10% – you should relax and enjoy your home. 

    • I agree.  Because we don’t get a mortgage tax deduction like the US, we are much less tempted to use our homes as an ATM.  More of us pay down our mortgages as a result and are less affected.

      • “we are much less tempted to use our homes as an ATM.”…ever look at HELOC statistics? They beg to differ with you.

    • First, the market rarely, if ever, drops evenly across the board.
      Second, if you own multiple properties, a drop in real estate values can have adverse affects because of what it does to the rent you can charge (although this can be balanced by interest rates)
      Also it can adversely affect you if you’ve been using the bank’s money for investments. If the amount you can mortgage goes down, the amount you can make over and above your mortgage interest goes down.. eventually to the point where it’s no longer useful to do it because of fees/taxes etc.

      But I suppose that all fits in under the “smaller percentage” of homeowners you’re not addressing.

      •  If you own multiple properties, than you’re an investor, and we all know that investors are supposed to take care of the risk.

         The sooner prices start dropping, the better.

    • While I appreciate your optimism, I have to disagree with your caviler attitude. Real estate and related services are a huge part of the economy. A downturn in this industry would not be trivial.

    • A few points:
      1. People will, and do dispose of real estate when their mortgages go underwater. This has happened all across the US, and I see no reason Canada would be immune from this phenomenon. When people abandon their homes, that has further negative implications.
      2. At least some proportion of Canada’s unsustainable increase in housing prices is being driven by speculation. Some of that has to do with foreign money, and some of that has to do with people buying on the expectation that future rising house prices will increase their equity over time.
      3. You are ignoring the CMHC. A rising portion of mortgage loans are backed by the CMHC. Even a smallish collapse in housing would put taxpayers on the hook for billions of dollars. The resulting austerity could easily kill the fragile economy recovery we’ve seen since the crash of ’08.
      4. 10% is a ridiculously low estimate of overvaluation. Look at the Case-Shiller index since 1890 – in the long-term the price of homes (adjusting for quality) has been relatively constant. Since the modest crash, Toronto house prices are up about 35%. Are Torontonians 35% richer? Do 35% more people want to live in Toronto (no, in fact because of the crappy Ontario economy, people are moving away).

      Most optimists have their heads in the sand. They assume that there will be a single market correction, and then that’s it. They are ignoring the stresses such a correction would place on Canadian banks, on our national finances, and on underwater homeowners. The reality is that major downturns in the price of goods that are the subject of a bubble tend to have second and third order effects.

  2. I agree, its somewhat moot for the bulk of people unless they are getting out of the market.  I never think of the increase of price on my place due teo the fact when I sell it I will be buying in the same market so it’s somewhat of a wash.

  3. The new cover of Maclean’s “You’re about to get burned”…talk about sensationalism!  Chicken little reporting.  Canada is not the United States.  We do not have sub prime mortgages.  All this might do is cause panic amongst those who can least handle it.  

    • ” We do not have sub prime mortgages.”…guess again.

    • Do some research into the current status of the CMHC and how it is enabling sub prime lending practices and your eyes may be opened. The only difference here is it’s the taxpayers that will need the bailout, not the banks. Think the banks will bail us out when the time comes? Think again.

  4. My annual home property taxes as based on the assessed value has risen from under $1000.00 to $13,500.00 in 40 years and I have had no improvements on it. All this because wealthy people want to live in my area. If it wasn’t for deferring the taxes, I could not stay in it because I receive GAIN and Seniors Pension. However, my offspring will have to pay a hefty amount of back taxes when I die. One’s home should not be considered a commodity to be bought and sold. It is where I want to spend my life. I believe the government should at least double the property taxes of houses used as investments.

    • “My annual home property taxes as based on the assessed value has risen from under $1000.00 to $13,500.00 in 40 years and I have had no improvements on it” – okay, but what has the value of the home done over that time? Your income has probably gone up massively during that time period also.

      “All this because wealthy people want to live in my area.” – Would you rather your neighborhood be a crime infested slum?

      “If it wasn’t for deferring the taxes, I could not stay in it because I receive GAIN and Seniors Pension. However, my offspring will have to pay a hefty amount of back taxes when I die.” – The fact that you would burden your children with your tax bill just because you don’t want to move is deplorable.

      “I believe the government should at least double the property taxes of houses used as investments.” – This is patently ridiculous. Investment properties are typically inhabited by the poorest folks in society. You’d want to put the burden of living in a house you can’t afford on the most vulnerable in society? That’s simply revolting.

  5. 29.12% will have a rude awakening.

  6. As a life-long renter, I might benefit from a downturn.  If home values fall, more people buy, fewer people rent, which drives rental prices down….at least in theory.

    • I owned rentals since I was 19, over 20 years. All that time my tenants paid my expenses and made me a lot of money. When the market started going down in 2008 it had no impact on rents. The benefit to me was lower interest rates. More of my tenants rent was going towards principle. I will retire owning several homes, all thanks to my tenants. 

  7. Obviously the people who voted “I welcome the possibility of cheaper real estate” are not home owners. If there is a downturn in the real estate market all home owners will feel an impact because Canada is currently a buyers market which means people are selling. The majority of the middle class in Canada are home owners I think that’s a big deal and that my friends can have a big impact on how things are presently and in the future.

  8. One can only hope that a downturn in real estate will stem the flow of jobs south of the border as Canadians have to demand uncompetitive wages to pay for the meteoric rise in the cost of living largely as a result of this sustained real estate boom.  Canada, in general, is far worse off with ridiculous housing costs than if the average cost of a home could be afforded by the average family.  Anyone cheering on this boom is short-sighted and likely benefiting personally to the detriment of the larger population. *cough* realtors.

  9. HELOC’s are funding our desire for starter-castles.  When did 4 bdrm 4 baths, heated driveways and Silestone kitchens become standard?  What’s wrong with 3 bedrooms and 1.5 baths?  Houses should be purchased at 3x annual income.  If your family income hovers around $120,000, then your house should cost $350-400K.  Any more, and you are stretched too thin.  Can’t find a house in GTA for that price? It’s time to move somewhere else in Canada.  Guess what – other people live there, and we all have jobs and houses in towns that offer a really great standard of living.  It’s not what you earn, it’s what you don’t spend.  And really, with a mortgage on $500,000, all you are doing is renting the house from the bank (in the form of interest).

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