Sheldon and I had the pleasure of chatting with Lewis Kelly from the Edmonton Journal yesterday. We discussed the real estate market in Edmonton and the impact the mortgage rule changes will (or won’t) have on our market. You can see the resulting article on the Edmonton Journal web site.
Overall Sheldon and I feel the mortgage rule changes will have very little effect on our market for a few reasons:
- No warning – in the past the federal government has given lots of warning about impending mortgage rule changes. This time potential buyers had less than 3 weeks to react – that’s not a lot of time to make a major decision like buying a home. For those that were already planning on buying, they may move their decision up by a few weeks, but that just means a small jump in sales for a couple of weeks followed by a dip in sales for a few weeks (net-zero).
- Timing – the spring market is over, summer holidays have begun, real estate is not the first thing on most people’s minds in July even if they were looking in April, May or June.
- Small changes – the changes were not unexpected, and they weren’t very big. They don’t have much of an impact on affordability (in Edmonton anyway).
- Job growth and migration – there are plenty of jobs and people are moving here to take them. The rental market is tight and affordability is high.
- Steady as she goes – the market here was just chugging along nicely – typical sales numbers, gradual price changes. In over heated markets like Vancouver and Toronto a small external force on the market can have can have a big impact on affordability and both cities saw big declines in June.
The weekly numbers last week showed a jump in sales, and I can only assume the rule changes contributed to that jump. This week the sales have dropped back down – people may have moved their decision to buy up by a week or two but the overall effect is negligible.
Of course “The Greater Fool” predicted a 20% drop in our market as a result of the mortgage rule changes, but he’s been predicting the same thing for various reasons for over 5 years now. If he was right our real estate in Edmonton would be worthless by now.
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Sara MacLennan is the Director of Marketing at Liv Real Estate and a licensed Real Estate Associate. The bulk of Sara’s experience and wealth of expertise lies in on-line technology and marketing both for agents and consumers. Sara is the former National Director for Interactive Marketing for Coldwell Banker Canada where she was responsible for an extensive training program traveling to offices across the country training agents and brokers on marketing and technology. Find Sara on Twitter @edmontonblogger.
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do you not find it contradictory to say the new rules HAD an effect on housing when they contribute to a jump in sales last week but then in the same breath say the new rules won’t have a effect as to causing sales to drop?? That’s akin to all those touting homes MUST go up because oil is up above the 100 roll but has no effect whatsoever when it dropped below $85?? Come on now.
So that 15% gain in crude last week because the ECB decided to fire up the printing presses, should have doubled the price of homes here but when it touched $78, nothing–no correlation whatsoever.
The rules will have very little affect a bump of 150 sales (my estimate) is hardly statistically relevant. In addition you have never heard us tie prices of homes to the price of oil. Jobs jobs jobs. Even w the drop in oil we still have massive labour gaps in this province so u nless the oil companies start letting some of their workers go. I dont see significant changes one way or the other.
I never said YOU tied home price to oil; I said it’s “akin to”— Yet, many of your posters here and many a realtors do.. we’re different here, remember?
Regardless.. all I’m saying either the new rules HAVE an effect or the don’t. Everyone expects homes to crash like stocks do since the last Boom… perhaps why so many come here and other RE blogs checking up on any incrmental change in average home prices every week—no different than scanning the stocks page in the Edmonton Sun…
Just wait….Japan’s housing has been melting for a decade; the US has been trying to bottom for almost 5 years… but then again like Garth Turner, even a broken clock is correct twice a day. May Flaherty have pity on our souls and rain stimulus on us when Garth Turner is right.
What I mean is, if the sales are up 50 more than normal one week, and down 50 the next, because people who were going to buy, buy anyway just a week earlier, the overall effect is 0.
Correction: perhaps homes in Alberta are only correlated to gas price at the pump… they only go up with crude too.
Ok, what about when the people who recently got into the market with little down have to renew their mortgages in a few year’s time, and will have to have that new mortgage qualify under the new rules esp. for those who will still need CMHC?
(That is, if I understand correctly, max 25 yr amortization, at a somewhat higher than current rates, needing more equity than they currently have in their homes, and having to prove their ability to cover that loan)
Of course everyone who buys a home is conservative and doesn’t stretch their budget to the max to get the biggest/bestest home they can possibly afford rather than one that suits their actual needs..
Mark, you clearly have not read the news/announcements carefully. What you say has been asked in every news article and the answer is, unless you want to change, you still get the same amortization as before and the new rules do NOT apply, got it? if you had 30-year you still get 30-year. CMHC or not is irrelevant for renewal.
Pardon my ignorance. So if someone in 2008 took out a 5/35 mortgage with minimum down payment, when they come to take out a new 5/30 mortgage in 2013 you’re saying no problem?
If it was a new mortgage then the new amortization rate willapply. If its an existing one then the existing amortization will still apply. Caveat. The mortgagors ability to negotiate a favorable rate might be limited with the eisting lender.
Long time reader of both the greater fool and this blog.
Always enjoy your honest and timely numbers and real estate insight. I enjoy the Greater Fool for the humor and financial advice. He gets pegged as a doomsday pusher but half his remarks are just to a get a reaction. He still owns his own home and often encourages blog followers to do the same. As long as you don’t over extend yourself and stay diversified owning a home is fine.
Even Garth knows that real estate is all about location and he’ll talk about Edmonton once and awhile but really he’s all about Toronto and Vancouver. I think Edmonton is a great location and the real estate prices overall will not be affected much by this change. I think the low end (condos and houses) will continue to drop slightly but otherwise a few more years of flat prices.
Okay, listen folks. The rental market isn’t as “tight” as many would have you believe. Recently we moved out of our condo that we had been renting. We couldn’t handle the pipes leaking anymore. (The poor girl who bought it as an investment property was in tears when we told her we were leaving, we wish her luck. Kids and money these days…).
Anyway, we haven’t really had any trouble finding a place to rent. Overall, we had a lot of different options in a lot of different locations. However, I will say this, the number of “quality” new, shiny, deluxe…etc. rentals was fairly limited. That said, if you don’t mind something a tad older, you have quite a bit of choice. Rentals are also still very affordable IMHO as well. Anecdotal? Yeah, but take it from a guy who was just out looking at the rental market.
3 kids in my shop all bought condos this year, all on 30 year terms, 2 on VRMs (fixed rate was too much for them), one even took a cashback mortage. I mentioned the new rules to two of them on lunch last week, both admitted that they wouldn’t have been able to purchase on a 25 year term. 5 minutes later, one of them is talking about buying a new 50,000 dollar truck on a 84 month term because “the payments are lower”.
The new changes are going to have far more impact than most people realize, on the segment of the market that needs the most correcting. Sad that parents don’t bother teaching kids anything about money these days.
To say that a change in mortgage rules will not have an effect on the value of housing and simply be a wash boggles my mind. A great contributor to the reason housing prices are where they are today, and the abnormal, unsustainable growth that was witnessed in 2006 was the result of increasingly lax rules. Guess what extending amortizations and and lowering down payments does to the value of real estate? It inflates values above the normal growth trajectory. The majority of home purchasers are unsophisticated investors and simply spend what their banks say they can spend or afford, and it works both ways. Credit conditions are tightening, and it WILL have an effect.
I have to agree with the above poster that the effect will be most visible in the near term in the lower end of the market, namely houses and condos currently valued at $350k and below. The first time homebuyer will be told by banks that they can now afford less, and will have less to offer.
There has to be an economic impact somewhere if more cash is to be diverted into down-payments and mortgage repayments. How prospective mortgagees will modify their spending is anybody’s guess.
Didn’t they also increase the debt limit to 44% from 40%? That on puzzles me as they say there reducing the time from 30 to 25 years but then they increase how much (possible) debt a person can have to qualify?
I have been calling the same outcome for a long time. Yes, Edmonton will be buffered from any significant downturn because of the very positive employment picture and the fact we have already corrected a rather large amount from the peak.
If anything happens to weaken the employment picture…well, look out below! People only move here for work, virtually never by choice. Most speculators trying to “flip the sign” are wasting their time and money here, as are the large number of want to be mogul junior landlords.
Had a great discussion with a co worker the other day. Had a realtor search high and low to purchase a truly cash flow positive rental (smart man, actually knew how to figure that out) and came up with nothing. I have lived in lots of places, and Edmonton has more uninformed junior real estate wanna be moguls per captia than anywhere I have seen yet.
Turner is a very sensible man once you learn to read his message thoroughly and realize the hyperbole is just that, not to mention hilarious. Remember, his main prediciton has already come true here (overall 15% correction).
Buy a home you can easily afford (or a truly cash flow positive rental if you enjoy dealing with tennants), save, diversify, and enjoy your life. Any other plan is a mistake for everyone, everywhere.
I agree, Turner does a good job of purposely being sensationalist. Very funny, dark humour.
When I see real estate salespeople say things like, “If he was right our real estate in Edmonton would be worthless by now,” I can only assume they aren’t bright enough to get it, or are just very bitter towards him. It’s like somebody getting worked up every time a charlatan like Michael Moore or Ann Coulter purposely says something inflammatory just to get attention.
I have to say, from my perspective this whole real estate circus is pretty good free entertainment.
“It’s like somebody getting worked up every time a charlatan like Michael Moore or Ann Coulter purposely says something inflammatory just to get attention.”
Kind like Garth Turner does constantly, but yet he’s not a charlatan in your eyes….. go figure.
That’s because Garth Tuner’s underlying message is 100% correct: diversification = reduced risk; having all your eggs in one basket = increased risk.
We all know which condition most homeowners are…
Garth’s underlying message since 2008 is real estate is going to crash….slowing melt.. correct… hold… crash…, I really don’t know what his latest prediction is. One day he may be right, it’s the when he has a problem with. He knows if he says it long enough he maybe right and if he is, will say “I told you so”. If he’s wrong he will make up some new excuse, like he has so many times in the past. Like; “It’s always H’s, F’s or the banks fault I’m wrong. They changed the rules.” If he’s such the real estate messiah that some seem to think he is then why didn’t he see those changes coming….. I did and I don’t claim to be a real estate expert.
The notion “diversification = reduced risk” is simply wrong. Maybe you could say “diversification = diversified risk”. But in total, not reduced.
When you diversify, you will be MORE likely to be hit, but the impact would be smaller. When you don’t diversify, you are unlikely to be hit, only that once you do, the impact is larger.
Actually it is obviously empirically correct.
link to en.wikipedia.org
You are wrong.
However for balance it should be noted that once a portfolio exceeds about 30 sufficiently different investments, the benefits of securitization are largely maxed out. So for example, don’t let mutual fund salesmen talk you into some actively managed fund with 2000 stocks that charges a high MER, on the basis of it being safer.
Of course by “securitization” I meant “diversification”.
More coffee needed today I suppose.
@GoodWillRenting, it’s in Wiki doesn’t mean it’s true. It’s more like a blog than a published paper. When I was working on my post secondary degree, I was not allowed to use Wiki as a credible source of citation.
The “risk reduction” string is how the proposers would label their theory. But that’s not a precise description. It’s true if it’s the “worst case risk” that you are talking about, but certainly false if it’s the average risk you are talking about.
That wikipedia link is only for your convenience. It is referring to a published scholarly article: E. J. Elton and M. J. Gruber, “Risk Reduction and Portfolio Size: An Analytic Solution,” Journal of Business 50 (October 1977), pp. 415-37
The concepts of diversifiable and non-diversifiable risk (aka security-specific risk and market risk) have been widely accepted in financial academia since the CAPM model was first introduced in the 1960s. Some of its contributors (Sharpe, Markowitz, etc) won the nobel prize in economics for their work.
Concepts such as these are well-covered in undergraduate finance classes and in professional designation curriculum such as the CFA and FRM.
I suggest you rethink your stance on this issue.
Your comments regarding “worst case” and “average” risk do not make logical sense to me.
If you actually read the words in my post, I called him “good at purposely being sensationalist”.
Any reasonable person would conclude from that statement I am calling him a good charlatan. Are you purposely being obtuse?
This has got to be the smartest circus on the internet.
If I am being funny, you jump all over me. If someone disagrees with YOUR perspective you resort to name calling. So I ask, why the hostility? I believe in a lot of the things you say Garth preaches. I believe in sensible home ownership and that renting is sometimes a very good option. I believe in diversification as well, but somehow you only hear what you want to hear. For the record, the reporter told me garth predicted our market would drop 25% because of these changes. Simply put I disagree with his take on that, and please I have never said these changes will make no impact. I have clearly stated that I believe the changes will have relatively low impact in our market while employment is what it is. So yes we are different here. We not only live in one of the best countries in the world, but for the past 5 years we have lived in one of the best economic zones in the world as well. As for the cash flow positive properties I am going to say thats a load of bull on that whole fantasy.
Sent from my ipad
Because I’m a bit of an asshole.
I try to get away with “candid” though.
wsn, not all financial vehicles and investments have the same chance of ‘getting hit.’ If they do then your reasoning would be correct, but they don’t.
If you diversify your portfolio correctly, you can absolutely minimize impact and that equates to overall reduced risk.
If you don’t diversify, then you’re taking your chances at a gamble, no matter how safe it seems.
We can play with words and technicalities all you want, but I know where I’d rather be financially. To those who invest too much into one thing… good luck. I hope it turns out well for them.
If you believe Garth Turner’s predictions, the average price in Calgary would be $193,000 today. (It’s actually $490,000)
In 2009 he predicted a 15% drop from the 2008 avg price of $417,000
In 2010 he predicted a further 20% drop
In 2011 he predicted a further 20% drop
In 2012 he predicts a further 15% drop
link to bobtruman.com
Yeah, it’s almost like his predictions are made to be eye-catching, and not accurate…
You call Michael Moore a charlatan?! Really? Wow!
Now not only your business opinions are looking odd but also your judgment on people.
Ok, I’ll bite.
What about my business opinions seem odd to you?
Please elaborate on the value you see in the media someone like Michael Moore (and Ann Coulter, Alex Jones, etc.) produces.
You called Michael Moore a charlatan and then I have to justify why he isn’t? How about I call you a name and then you try to justify you are not?! What kind of logic is that?
As for your first question:
I have yet to see a wealthy person who said he remained tenant because it made financial sense. That should be enough.
I am not asking you to justify why Michael Moore is not a charlatan. I am asking to elaborate on the value you see in his movies. Feel free to opt out though. Based on your comments so far, you seem to be more interested in making personal attacks than engaging in an intelligent discussion. I don’t expect to learn much from what you will say next.
Here is but one small example of why I have zero respect for the content people like Michael Moore produce:link to newsbusters.org
Those gems are what drive my opinion of people like him. It is useless info-tainment, that contributes very little value to society. It’s about as real as the WWF is a sport.
I won’t bother responding to your comments about renting vs owning a primary residence, since Inspector Gadget already sufficiently put you in your place.
If I can try to sum up the thread on this blog post: there are plenty of people out there who make a good living saying whatever needs to be said to make the news. They span the entire political spectrum, and in the case of Garth Turner, focus on a particular asset class. Peter Schiff takes much the same approach with his hyberbolic statements about the US dollar.
That may make for very profitable media for those people, but it adds little real value to society and certainly doesn’t make for intelligent financial conversations. However, while those people have a valid economic motive to speak and write the way they do, you do not (unless you have somehow found a way to monetize the web traffic this blog receives).
As such, I’m at a loss why the conversations here often quickly degenerate into total garbage. Why can’t an intelligent conversation about the actual issue be undertaken, such as Inspector Gadget has done? Once again, it appears I’ve made the mistake of wading into the fray, and essentially wasting time.
Enjoy the rest of your weekend, and 2012.
I always thought Michael Moore would be the type that renters like. Guess I was wrong.
Yup.
Hal – Good thing you pointed out that your observations are anecdotal. So because you talked to 1 or 2 dumbass kids, you can predict whats going to happen in the market? Why not actually look at the numbers to see whats going on? Vacancy rates are very low, around 3%. Of course you found a property with ease, you seem like you would be a good tenant. Landlords love good tenants. You would be able to find a place in any market. There are dumbass people everywhere, in every market. There are many smart people making money as well. And yes, there are cash flow positive properties out there. I have bought one myself.
Cant believe how many people are actually defending Garth. You claim to know his underlying message but you must be way off. He has in the past talked about Edmonton. If he does know that real estate is about local economies, he certainly doesnt say it often enough. He continually talks about Canadian Real Estate. And how it is doomed. He has, in the past, taken one months worth of data for edmonton, and extrapolated it over a year. What kind of analysis is that? Then if someone responses the same way for a good month, he calls the poster uninformed and ignorant.
He must be trying to sell books or something because he is all over the map.
Commn Guy you are earning your name on this one:
Kevin Oleary is a famous renter, pretty sure he has more money than your friends in “high end” Windemere!
Oh, then there is this:
link to cnbc.com
How about Peter Schiff?
link to peterschiffblog.blogspot.ca
Rich people who make their own money (not rich hand me downs from parents) buy low and sell high regardless of what it is. They don’t always rent and they don’t always buy. Sometimes it is a good time to buy a house, second house, vacation place or rental property and sometimes it is not.
You may have not met any rich renters Common Guy, but I assure you there are lots.
(Oh, and before you go assuming too much I am a home owner..though not a mortgage holder on the primary AND own a rental house. I am not at present looking to expand my real estate holdings. Too much chance of being one of the buy high people…not guaranteed but no slam dunk positive side either.)
Also, it should be noted the majority of Germans choose not to own their primary residence:
link to guardian.co.uk
Only 15% of Germans living in Berlin own their home.
Not entirely unrelated to the responsible use of leverage by its citizenry, Germany remains the strongest financially within the troubled EU.
Certainly the average German is not markedly poorer than the average person in Britain, Spain, France, etc.
Got nothing to do with responsible use of leverage. More to do with subsidizes up the wing wang, but soon coming to an end.
A Rental Nation? Germans Looking To Buy Those Four Walls
But rental subsidies and protections have started to fade in the last four years under Hartz IV, the government’s welfare and labor market reform program. According to a Dresdner Bank estimate, 10,000 rental households will be offered the chance to buy the home they live in over the next decade.
link to dw.de,,2155971,00.html
My previous post just goes to show that Government intervention into the market can skew the real estate market either way. With Germany… cheap rents from Government subsidies. With Spain and US… real estate price inflation caused by ineffective Government controls.
That is a good point. Government market interventions can definitely have large and often unintended consequences. However they would not realistically be the only factor at play. Consider also that Germans use credit cards for personal shopping much less than other nations, and more averse to personal debt in general, not just mortgage debt. Cultural differences will always be present, such as Asians typically being aggressive savers.
I wonder if the reversion underway in the US away from home ownership since 2008 will be long-term. The net result of the programs started in the 1990s to encourage home ownership could be opposing, multi-generational effects?
Actually that is a really great question GWR and I’ll bet they’re asking that in many homebuilding companies and bank boardrooms. Personally I think it will go back to a more normalized ratio of home ownership. Many people that would normally buy are forced to rent because millions lost their homes through foreclosure and it will take years to rebuild their credit scores to a high enough level that the banks will give them a mortgage. The years 2014-2016 could be very interesting.
First to GoodWillRenting:
Oh I am crushed by these comments!! If you feel it’s a contest when you say “I’m put into my place”, and makes you feel a winner, all be it. Your comments about how many Germans in a specific town are renters just goes further to show you grasp to anything to justify your position. Go ahead, keep renting. That’s all fine with me. But I still consider your opinions “odd”.
Inspector Gadget:
Comment for Kevin: he surely has many real estate properties that he owns (and uses).
To compare Edmonton to Manhattan is a bit of stretch, don’t you think? I have friends who love to live in Manhattan and one of them told me he pays for his flat there (that he owns) over $4k a month in fees (and that is not mortgage). You can certainly find luxury units there to rent there but good luck finding a luxury **house** ($1-2M house) to rent in Edmonton.
True, all people around me are home owners, and almost all of them are well above avg. No doubt there are wealthy people here that would drive across the city to save a buck on a gallon of milk… but I haven’t met them and they are IMO odd.
Actually my comment about German home ownership rates clearly serves to disprove your theory that “I have yet to see a wealthy person who said he remained tenant because it made financial sense.” Not all of those Germans can be poor at the same time. This in addition to the plethora of evidence Inspector Gadget provided you with.
Certainly it makes financial sense in general to own a primary residence for the long-term. However for many reasons it may be more beneficial at certain times to rent. Some of those reasons may be personal (e.g. an individual plans to move soon) or market-driven (e.g. what I viewed to be overvalued prices and poor odds of decent returns on Edmonton condos when I graduated university and had the option to buy or rent a home in 2007). In my personal situation, it is clearly a fact that my current net worth would be substantially less today if I had bought a residence 5 years ago rather than decided to rent one.
I am baffled by the fact you see this logical analysis of the problem as “odd”, and instead contend that everyone should always buy a residence (provided they have access to the capital to do so).
Which one of those opinions seem odd to you?
I also don’t understand why you seem to take personal offense to my analysis. I have not made any comments about your capital allocation decisions, just general ones about the topic of discussion.
I have tried to engage in a rational discussion about it, but I have grown quite tired of your avoidance of assessment of the facts and preference to throw out immature personal attacks.
Perhaps this is one area of personal finance that is just too closely related to people’s emotions and a reasonable two-way discussion is just not possible.
I will mention a few points and will stop:
- I have never said everybody should buy in any city in any conditions; clearly there are conditions under which this makes financial sense (e.g. I’d never buy in Vancouver under current conditions, or if I know I’m going to move in a year or two it doesn’t make any sense to buy).
- I am talking about Edmonton for god sake (when you guys bring a town in Germany or Manhattan into discussion). If you have a relatively stable job and are staying here and can bring together enough down payment to buy it doesn’t make financial sense to rent here.
You might think the prices are too high here, one might think the prices will go even higher, and no one has a crystal ball but my experience (which based on your comment seems have past a few more calendar years than you) is suggesting something different than yours.
good luck with your decisions (honestly).
Well it seems like we have achieved some real ground here.
I should mention for balance I have past experience in the stock market, so my opportunity cost of funds is probably higher than most when considering buying a residence in Edmonton. Also being relatively young, the priority to establish tax-sheltered retirement funds is much greater for me than it would be for someone closer to middle age, such as yourself I presume.
However that said I have had all the thing you mentioned since 2007, and clearly the result is that is made better financial sense to rent from 2007-2012 than to own. Things are getting pretty even now though, which is why I pop in to places like this periodically to see if I’m missing anything that might tip the scales in favor of buying.
Cheers.