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Hi All,
I’ve mentioned in other blog posts that I think Inflation may to be an issue in 2-3 years because of ultra low interest rates and Stimulus packages from National Governments around the world.
I’m going to buy more real estate (Downtown condo’s and a house in East Van) and I’m going to get 5 year fixed rate mortgages to keep my payments (costs) consistent and then rent these places out. Inflation should push up rents while my costs remain static, leaving me with a nice profit. (hopefully)
I plan on getting 4% 5 year fixed rate mortgages. I like these because a decent amount of principal gets paid off and the costs remain low.
I’ve included this cool mortgage calculator and this inflation calculator from the Bank of Canada for you to play with and hopefully help you with your plans.
I’d love to hear your thoughts!
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Hi Mike,
I don’t know why you insist on shooting with a shaking camera while the wind is noticeably blowing in the background.
Are you an aspiring film maker, or a realtor who’s trying to get his message out there? Place an aquarium in the background while sitting in the office to create an atmosphere.
I think you’re right when you say you think inflation will be a reality in the coming years. However, it leaves me wondering what will happen to real estate prices when rates do rise. Right now, credit is extremely affordable, and I think in the short term this will help increase demand and put people into houses. However, when interest rates are up into the high single digits are homes in Vancouver going to continue to demand the high prices that they have become accustomed to? Time will tell.
Hi Guys!
Thanks for commenting!
Luc:
Its that HD Cam. It doesn’t have stabilisation like the non-HD version and it is pretty jerky.
Any suggestions on stabilisation? I love the HD, but it could definatley look better.
How about a deal.
I’ll shoot with an aquarium in the background if you tell me a good way to walk, talk, and shoot that won’t make you woozy.
Landon,
I hear you there. I’ve been thinking the same thing. We have had periods were interest rates were high (higher than today) when property prices rose (’70’s & 80’s). That said, interest rates are often (but not always) negatively related to real estate prices.
I think inflation will be a negative side effect of a return to prosperity. I think greater demand in the economy for real estate will push up prices as well as inflation. I’m planning to aggressively pay down the mortgages on my property now, so in future I’ll be less vulnerable to interest rates and inflation.
How central bankers cope with inflation will dictate what happens. Check out thisarticle on how Central Bankers job has changed.The tools central bankers use have been irrevocably changed by the economic crisis we are enduring. I’d love to hear your thoughts on it
Hi Guys,
Check out this link about an study on Canadian Real Estate and how its a good hedge in an inflationary situation. http://www.investmentreview.com/archives/2001/spring/realestate_inf.pdf
I’d love to hear your thoughts.
Hi Mike,
I agree that inflation will become a issue in the next few years. Time will tell how long that will take but I would say at least 2 years before it starts playing a significant role.
What I don’t really agree with is buying real estate right now to protect yourself from inflation. The economy is down and will only get worse before it gets better. This will negatively affect real estate prices because less employed people cause less demand, also people unsure about their job will not be jumping into a 25 year payment plan anytime soon. I think these mortgage rates will be around for another 1.5-2 years, so what is the harm in waiting for a year or so, saving a bigger down payment and buying cheaper real estate then?
This also rings true for me, someone with no real estate and only paying 600 a month in rent. I can easily save 1000 a month for a bigger down payment. Then when I have more money I can buy a place for cheaper, and pay less interest in the long run.
And just out of curiosity, as a realtor buying property, do you get to keep all of the buyers commission for yourself?
PS. that article above is from 2001. It was a great time to invest in real estate then (hindsight bias) but I wouldn’t be to hasty right now.
Hi Dave,
Good to hear from you!
I am saving right now to buy more real estate and will buy probably in 12-18 months. If I had the cash to buy right now I would.
I am not convinced we in Canada are in for a wave further of layoffs. Unemployment in Canada is already at 8% and the market is used to bad news.
In the market I work prices have rebounded since late winter ‘08. That time might have been the bottom of the market. Then again it may not have been. I think in time Vancouver real estate prices will go up again. Its just a matter of when and why.
Deciding when to buy Real Estate is a personal decision based on your financial situation and needs. It also depends on where you think the market is going. If you think its better to wait a year, then that is the best course of action.
Like I’ve said in other posts, ALWAYS question real estate predictionsof others and do your own homework. (Sounds like you have)
I miss those days when the monthly cost of my housing was less than $1000/month… I’m jealous! Keeping your costs down and saving up for a down payment is a very smart thing to do which will save you lots when you do buy and will get that mortgage paid off quicker.
Buyers commission when Realtors buy on their own behalf – Yup, we get to keep the buying side of the commission which is a nice chunk to have to furnish/re-decorate upon possession or a good boost to a down payment. Keep that in mind if you’re selling to a Realtor, you might be able to keep that commission!
You know I didn’t even realise the article was from ‘01! Thanks! I was mostly interested in it for the historical perspective. I think we may see inflation that we haven’t seen since the ’70’s-80’s.
What are your thoughts?
Hi Mike,
The main reason I think there will be further layoffs, specifically in greater Vancouver is because of all the people employed in construction. I heard on the news that about 6% of employed people are working in construction. It didn’t say who that includes exactly (developers electricians…?) but it also said that a normal percentage is 3%. With most of the olympic construction nearing completion, and the lack of new condo developments being started right now, there simply won’t be enough work for all of these people.
Here’s a graph: http://3.bp.blogspot.com/_rt16FZ_z1N8/SfdLcNR97mI/AAAAAAAAB60/IFx6ELNCowI/s1600-h/cmhc+starts+completions+under+const.JPG
As you can see ‘under construction’ has probably peaked due to the plunging ’starts’ line.
I feel bad for all the 20 somethings who went into trades due to persuasion by government and promises of instant employment. ( I was almost one of them). Those people will probably be the first ones laid off and also probably would have been first time home buyers in a few years.
Yes I am lucky to be paying such low rent, but such are the benefits of having a roommate and living in a 40 year old building. It also makes taking the plunge into real estate difficult when it would probably triple my monthly payments (including utilities, strata, mortgage and taxes.)
That must be nice to get the buyers commission. I only just learned about buyers commission and am told that if I was to buy a house on my own then I would have to negotiate the commission off of the home price rather than simply get it. ( I believe it it usually around 3%). Just one of the perks of working in the industry I suppose.
Thanks for the engaging discussion!
Hi Dave,
Thank you for engaging with me!
With construction employment, I don’t see a huge drop off in employment immediately. If anything a lot of the layoffs and job losses have already occurred (see link above) and will continue to occur as projects finish up.
The entire 6% of the workforce you mention that construction workers comprise will not all be laid off. Most will keep working. Not as many as when there was so much demand for construction workers that their wages were rising.
The people buying in my market are not construction workers. Most are professionals and business owners. Also, the younger construction workers you mention are the easiest to re-train and get into different industries. I worked construction for many years when I was younger. It was a great training for real estate.
Renting can be good if you’re a disciplined saver and invest the money elsewhere. Most (myself included) are not so fortunate and owning real estate can be an enforced savings program that has paid off well for many.
If you have the time and energy you can definitely try to capture that commission, but you forgo the services of a Realtor. If you go in for a limited dual agency situation (you don’t use a buyers agent) the listing Realtor is not allowed to give you any advice on the value of the property.
The listing agent goes from being a the sellers representative to being an neutral middleman. He can’t tell you if you’re over paying or make recommendations. If they do, watch out. Realtors are CONSTANTLY being disciplined about these kind of infractions in limited dual agency situations.
I would suggest you do your homework and know exactly what you’re buying and what its worth before you forgo the services of a buyers agent.
I charge sellers 7% of the 1st $100K & 2.5% of the balance when I list a place. I offer half of this commission to buyers agents. In a limited dual agency situation I give my sellers a 25% discount on total commission, because I can’t give them advice in negotiations in limited dual agency situations.
Who effectively gets this discount is dictated by the relative negotiating strength of the buyer and seller. Keep in mind that its not always the buyer that gets the discount.
A better analysis of the housing market will depend on the chart movement and direction. Historical facts and data will show you these information clearly and then one can predict when and where the trend lines are heading in the future. I am a technical analyst (chartist) who relies more on the technical chart than in fundamentals. One of the best and useful website I always go to is the VANCOUVER BC HOUSING MONTHLY PRICE INDEX -try it and goodluck on your investment.
Hi Art,
Good to hear from you.
Are you trying to advertise a site? I googled what you had in upper case and I didn’t find anything.
I disagree.
Real estate markets are highly localised. At times certain types of property or certain sections of neighbourhoods are hot. These nuances can get lost in the numbers.
As for what the original blog posting was about, I would say I have been vindicated by the events and market activity of the last 3-4 months. Rates have gone up as have the prices of 1bdrm revenue suites.
What are your thoughts?
Hey Mike,
Why don’t you do a calculation to compare what a person’s financial situation would be like in 5 years if they bought now vs if they continued to rent for 5 years in an equivalent home and then bought?
Hi ObserverX,
Thanks for your comment!
I’m unclear on what we would be trying calculate.
Would we trying to gauge someone’s net worth in 5 years if they rented or bought? Would we include other investments and their income? Who would we use? A median income earner for all of Canada/BC or the people I am working with?
There are so many variables.
Renting is a good option for some, but at the end of the day, when you buy you are paying off your own mortgage. If you can comfortably afford buying, I think you should.
What are your thoughts?
Yes, there are many variables and yes no general conclusion can be reached without assuming specific numbers, but the point would be to show people how to properly do the calculation so they could put in their own numbers and determine what’s best for them.
I disagree with “at the end of the day, when you buy you are paying off your own mortgage” as an absolute statement. Better would be:
At the end of the day, when you buy you are paying off your own mortgage *plus the interest the bank is charging you to borrow money from them* — that money goes down the drain no different than rent money going down the drain. The amount that goes into principal paying off a mortgage could just as easily have been saved while renting. Which is better …? That’s what the calculation is for!
Hi Observer,
Good to hear from you and thanks for taking the time to comment.
I think buying is always better than renting for most people. You are free to disagree with me on this point.
Mortgage interest (please note I have excluded principal repayment)for most of the last 40 years has been less than rent and as of late with super low rates, way lower.
Once the mortgage is paid off, there is no longer any more interest payable, whereas rent continues perpetually.
If one factors in inflation to the calculation, ownership gets even better. Inflation pushes up real estate prices and reduces the relative value of the principal owed while rents tend to increase.
What are your thoughts?
My thoughts are that one should do the math before coming to a conclusion.
Hi Observer,
Good to hear from you.
The proof is in the pudding that buying is better than renting.
Most people buy Real Estate in Canada rather rent it and 68% of Canadians own their own home.
I’m interested to see your math that shows renting is better than buying.
I think you should do the math as a service to your readers/clients since you’re making the statement that buying is always better. (Shouldn’t be hard if the proof is in the pudding, eh?).
Hi Observer,
Good to hear from you again.
Buying is better than renting.
I don’t have to prove this is correct in the course of my business because I am far tooo busy helping people buy and sell properties who agree with the above statement.
I’m looking forward to seeing your reasons/math why I’m wrong. Like you say, it shouldn’t be too hard.
Thanks!
Nah, I’ll leave it up to you. Thanks for the compelling argument.
LOL!
Its 7:30 and tonight I am getting off early to hang out with my family.
Maybe next time!
M