Wednesday, April 06, 2005

One In Six New Buyers Struggling: Canada

Some first time home buyers in Canada may have taken on too much debt, according to an Ottawa Business Journal report.

"Survey results showed that 16 per cent of first-time homebuyers have difficulty managing their house payments and consider themselves to be 'house poor.' In addition, 77 per cent did not seek financial advice..'on the biggest investment they'll ever make, and that could be a big mistake.'"


At 1:02 PM, Anonymous Anonymous said...

I'm an RE bear, but I'm wondering if there ever will be a bust. I just heard a radio report whereby the guest figures that if oil prices keep rising Greenspan is going to have to stay very accomodative and thus interest rates are going to stay low. Bond yields have been falling for the last 3 weeks. Asia keeps buying our dollar. Nobody seems concerned and I'm afraid it is going to take some sort of shock to make people realize there is a bubble.

Housing prices might not crash like stocks do. Prices might stay at their current levels or drift slightly lower. After 5 years of this and some inflation in everything else, they might be justifiable. Scary thought because I shouldn't be renting if that is the case.

At 1:19 PM, Anonymous Anonymous said...

I wouldn't worry about rushing out to buy anything right now. Renting is A LOT cheaper in most markets. Think about all the money you're saving renting. Some people say real estate will just keep going up, but the affordability index keeps dropping. In California, some areas are at 7% affordability with 36% investor speculation. This doesn't leave a lot of room for more upside. Could the bubble get even bigger? Of course. But probably not for much longer. And if it does it will just deflate that much faster.

At 1:29 PM, Anonymous Anonymous said...

I agree that renting is cheaper. I'm just worried that the prices aren't going to deflate. What if they just hold ?

Just wait... a world bank report just came out...

At 2:05 PM, Blogger John Law said...

remember, people are COUNTING on appreciation to keep them holding these mortgages they have but they can't cover the mortgage with the rent. at some point people are going to want to sell before their ARM/IO adjusts. some may get scared. the housing market is based on psychology as much as IR levels.

things just don't level off like a lot of people think. plus, even though the Fed may have to keep rates low, foreigners just might get tired of loaning to the US.

At 2:24 PM, Blogger mspenelope said...

Anon 2....
That was such a good response.

The speculation "facts" are around a 3rd of purchases. That means they have verified THAT number thru the loan application process.The so called experts refuse to verify the real number. EVERYONE knows that loan/RE agents
encourage you to mark the "owner" occupied that you qualify at the lower rate and so that the builder or funding entity doesn't have to know what your real intent is. They then instruct you to have all your bills sent to that house in your name for at least 6 months. This is a very old trick. Two years ago when I went to Las Vegas a real estate rep. told my husband and me not to mention to the home model reps that we were not going to live in the property because they wouldn't like it. So....the same idea/suggestion I was told back in 1986 was still alive and well today. At this point we can only guess how much higher than 1/3 the number (of speculators) really is. Considering what is going on in the mortgage industry.......
I think it is safe to assume that we are past the 50 percent mark and even higher than 75%. It is probably in close relation to the number of ARM/interest only loans being used. Only makes sense that these people would be taking out such disastrous loans with the intent of cashing in before these loans cave in!

At 2:39 PM, Anonymous Anonymous said...

When you look at the speculator numbers from mortgage applications it's closer to 10%. The 36% number is from a study done by the National Association of Realtors. I doubt the true number is much higher than that. Still, 36% is a huge number when historically it's probably closer to 8-10%.

At 2:51 PM, Anonymous Anonymous said...

Don't worry about holding out and renting.

Even if prices are flat:

1)Real prices decrease because of inflation.

2)Renting is cheaper: you can save piles of cash and invest that cash, just by renting.

Home equity isn't magic; it's just money. Renting beats buying in lots of markets because you can make money by saving the difference between rental and purchase payments and investing that money. In 5 years, if you do this religiously, you'll have a lot more cash than a buyer would have equity.

Then you can do whatever you want with your pile of money: buy a house, keep investing, whatever. With rental:purchase ratios so out of whack, it just makes no sense to buy.

At 3:05 PM, Blogger Ben Jones said...

Great posts!

(Prices might stay at their current levels or drift slightly lower)

I doubt this, as the return is terrible and wages don't appear to be moving up. As the foreclosure story indicates, even flat prices should eventually burst the bubble.

(In California, some areas are at 7% affordability with 36% investor speculation)

You would think the affordability numbers would be a screaming red flag, but they are reported almost as good news.

(people are COUNTING on appreciation)

That was the real sign that the tech stocks were in a bubble.

Hi Ms. P.

(They then instruct you to have all your bills sent to that house in your name for at least 6 months)

I have personally experienced this. That landlord went bankrupt, BTW.

(if you do this religiously, you'll have a lot more cash than a buyer would have equity)

Anyone familiar with amortization schedules knows this. Again, what we are seeing is a pure gamble on appreciation. Thanks for the info...Ben

At 3:45 PM, Blogger John Law said...

remember people, the P/E ratios of housing are out of whack. much like the tech bubble, people aren't looking at earnings or getting paid a dividend, they are solely holding for price appreciation. that's not bad by itself, but everyone seems to be doing it.

At 4:12 PM, Blogger mspenelope said...


Hi Anon 5,

Where are you getting your 10 percent information?
From what I've read...the reports claim that the 1/4% investor bought homes could be higher because of the additional investors that don't disclose this.
The other speculators are reporting this as a "second" home which is another way to get a lower rate.
My husband came across a couple that have two vacant homes in Sacramento....just holding on to them for the appreciation. I'm sure both of these homes qualify as second and third homes since they are not being rented.
10 percent is the number of investment homes purchased under "normal" market least, again, this is what I've read.
I still think 36 percent is way too low.
Your post also gives a clue to the accuracy of the 36% indicate that it comes from the "National Association of Realtors" ;o )

At 4:40 PM, Anonymous Bill said...

I live in Vancouver. I have been renting for some time, now. There appears to have been a sales "uptick" for the first three months of this year. However, I think it may be a "sucker's rally"...The "industry" is still playing up the market of course. Personally, I believe the market peaked last May. Time will tell.

At 9:42 PM, Blogger Van Housing Blogger said...

Hi Bill from Vancouver,

Yeah, I noticed the same uptick in the recent data. (You can see my commentary and charts of the recent Vancouver data at

It might be a 'sucker's rally', but it seems like there are still a lot of 'suckers' in Vancouver. I suspect it is not close to reversing yet. People are so used to increasing prices here it will take something big to update their psychology.

Vancouver Housing Blogger

At 8:05 AM, Anonymous Anonymous said...

"10 percent is the number of investment homes purchased under "normal" market least, again, this is what I've read.
I still think 36 percent is way too low."

Check out this link:

These are numbers based on mortgages held as investments based on what the loan documents state. The only source for the "third" you cited is the National Association of Realtors' study. If you have another source I'd love to see it.


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