Real Estate

Home Owners: How much % crash before you're upside down?

  • Last Updated:
  • Mar 20th, 2017 10:14 pm
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Poll: How much of a % drop before you're upside down on the value your paid?

  • Total votes: 109. You have voted on this poll.
5% Drop
 
5
5%
10% Drop
 
3
3%
20% Drop
 
14
13%
30% Drop
 
14
13%
40% Drop
 
14
13%
50% Drop
 
24
22%
60%+ Drop
 
20
18%
I bought my house for $100,000 in 2011 and is now appraised at $1M+, bring on the RE crash!
 
15
14%
[OP]
Deal Addict
Jul 6, 2005
2797 posts
462 upvotes
Toronto
dantey wrote:
Mar 9th, 2017 3:31 pm
Might be easier to determine a crash based on the mortgage that the average person is carrying.
If someone is underwater, but their mortgage is paid, they have a lot of holding power.
"holding power" in what sense?

So, you have paid off your $800,000 mortgage and own your house free and clear of the bank.... market now determines that your house is worth $600,000 as result of a 'crash'/correction. How exactly does being down $200,000 equate to 'a lot of holding power'?

As I mentioned in my OP, for the simplicity of the poll, I purposely negated mortgage value because I simply don't have the statistics/data on hand to back up what the average mortgage is in GTA/Ontario/BC/Canada/etc.

That's why I'm focused on "paper wealth" in the poll.
Member
Jan 31, 2016
260 posts
42 upvotes
Toronto, ON
speedyforme wrote:
Mar 9th, 2017 3:44 pm
Wow your home more than doubled in value? Nice
No. I'm an idiot. Increased nicely however not that nicely.

I am a good fisherman though. :)
Deal Fanatic
Dec 11, 2008
6592 posts
310 upvotes
Ketchenany wrote:
Mar 9th, 2017 3:51 pm
No. I'm an idiot. Increased nicely however not that nicely.

I am a good fisherman though. :)
Haha just checking ;)
Deal Addict
Dec 6, 2006
3351 posts
482 upvotes
Toronto
This question makes no sense for real home owners.

Home owners LIVE in the house. Whether the market value goes up or down does not matter. Why would a home owner be "upside down" if the home appraised value goes down by 50%? Yes, on paper there may be a lost depending when you bought, and it probably doesn't feel good. But what actual real financial impact will there be?
But I do get this seems to be what the RE doomers like to think.

May matter if one is using the home equity for investing/trading. The risk will then of course be dependent on the type of investment/trades.

Now if you're talking about speculator/investors who are buying multiple properties with the intent on turnaround sales for a profit... then sure a market crash will crash those people, no question.

Maybe some better questions will perhaps be:
-- "What will happen if the world's economy crashes and 50% of the people lost their jobs. How will you pay your mortgage then"... with the counter-part question of "How will you pay your rent then?"


I wish RE will go down by 50% next week, I do, so I can buy a nicer place.
Sr. Member
Jul 14, 2002
539 posts
43 upvotes
Repooc wrote:
Mar 9th, 2017 3:44 pm
"holding power" in what sense?

So, you have paid off your $800,000 mortgage and own your house free and clear of the bank.... market now determines that your house is worth $600,000 as result of a 'crash'/correction. How exactly does being down $200,000 equate to 'a lot of holding power'?

As I mentioned in my OP, for the simplicity of the poll, I purposely negated mortgage value because I simply don't have the statistics/data on hand to back up what the average mortgage is in GTA/Ontario/BC/Canada/etc.

That's why I'm focused on "paper wealth" in the poll.
what exactly are you trying to figure out? when/if a crash can happen/how deep it can be?

the holding power being the fact that you won't default.
if someone has to move and their house is 200k less, the other place that they buy would probably be down too, negating any losses.
there will not be a crash if there are no major defaults.

the worst thing that can happen otherwise is a stagnant/very slow decline in price.
Deal Addict
Aug 30, 2011
2481 posts
486 upvotes
Ottawa
No mortgage, and house is worth double what we paid in 2004. Ottawa, though, so not likely the market this post is about.
Deal Addict
Dec 5, 2009
3296 posts
853 upvotes
OttawaGardener wrote:
Mar 9th, 2017 4:44 pm
No mortgage, and house is worth double what we paid in 2004. Ottawa, though, so not likely the market this post is about.
Keep in mind a 50% crash wipes out a %100 gain.
Newbie
May 18, 2015
49 posts
48 upvotes
Thornhill, ON
Applesmack wrote:
Mar 9th, 2017 1:47 pm
Simply put if I bought real-estate I would never sell at a loss no matter what. I'd rather keep the house and permanently use it as rental income than sell at a loss. Large dips will not happen because people would never sell their home at that price.
Bear in mind, It only takes one person on your street who is forced to sell at a loss (over-leveraged family in a rising rate environment, speculator getting out, homeowner lost his/her job, etc), to bring the entire street down in value, your house included.

I can understand keeping your primary residence no matter what, but here's the rub: Speculators - and there are thousands upon thousands of them - will dump their investment properties the instant this market turns. Why? Because cap rates are no longer yielding a positive ROI anywhere in the GTA. They are now only in it for the price appreciation - once that's gone, so are they.

I'm not making this up. I personally know people with literally dozens of investment properties. They won't be sticking around if it goes south, it would bankrupt them.
Newbie
Aug 20, 2016
32 posts
31 upvotes
house is not an investment
when you are 80 you have to live someone
people with 800k mortgages will never pay them off
CMHC, home capital, all the banks are uneasy about the market
do you realize the amount of interest you are paying?
big window to get in small window to get out
i know most of you have no money but today buy a stamp, write your mortgage company on an envelope and put it away
in a few months, years you can mail in your keys
i will be there the next day to throw your junk on the streets
just like the movie 99 homes
Deal Addict
Aug 30, 2011
2481 posts
486 upvotes
Ottawa
fdl wrote:
Mar 9th, 2017 5:03 pm
Keep in mind a 50% crash wipes out a %100 gain.
True, but we never plan to sell anyway. This is our retirement home. (We only paid $270,000.)
Deal Expert
User avatar
Mar 18, 2005
15911 posts
732 upvotes
Niagara Falls
I got a great deal on my house less than a year ago, $250 000. This year houses on my street have been listed for between $340 000 and $430 000(still remains to be seen if the house for $430 000 will be sold). My wife and I plan on staying in this house until retirement so realistically there would need to be an 80% drop for my to be concerned, but if we were to try and sell I think I could handle between 40 and 50% crash before we'd loose money. (ignoring realtor fees and such)
Newbie
Feb 23, 2009
61 posts
36 upvotes
Oshawa
Applesmack wrote:
Mar 9th, 2017 1:47 pm
Simply put if I bought real-estate I would never sell at a loss no matter what. I'd rather keep the house and permanently use it as rental income than sell at a loss. Large dips will not happen because people would never sell their home at that price.
You will not have a choice if you have no equity left and the bank owns your home.
Landlords that are under water will sell sooner or later.
Speculators evaporate.
Are you talking about your primary residence? Rent it out? Where will you live?
What if the rent doesn't cover the mortgage?
A lot of factors will not be your choice.
Member
Apr 14, 2008
223 posts
23 upvotes
Toronto
Bought Feb 2015 for 454k. House next door sold yesterday for 800k. My place is nicer and more upgraded...a crash would need to be quite substantial to worry me.
Newbie
Feb 23, 2009
61 posts
36 upvotes
Oshawa
Repooc wrote:
Mar 9th, 2017 2:41 pm
An interesting (and somewhat expected) trend observed, based on the comments so far, is that people who bought several years ago, can weather a far greater "crash"/correction and still be ahead of the game.... Let's say a 20% to 30% crash.

Can someone comment on how much the market dropped during the late 80's/early 90's crash (I saw the chart posted a couple times the past few days)? For those that keep on with the rhetoric of "This time it's different, except its not".

So, in reality, if today's renters/sideliners are praying for a crash so that they can finally buy; they may actually be in for a rude awakening because they still have to compete with:
A) people that refuse to sell in a depressed market (thus limiting supply, with ever increasing demand)
B) richer locals and/or foreigners that will continue to buy additional homes in the depressed market for the purposes of renting out (investment)
C) bidding wars with other like-minded renter/sideliners who have been waiting for this moment
The fact that nobody has answered this tells a lot...most posters here have no idea about what happened or are too young to know.
Bought my first home in 1987.
It's true, many things are the same with this boom as in the late 80's/early 90's:
- Bidding wars.
- Quick sales.
- Line ups for new builds that won't be ready for years.
- Builders mostly only offer large 2 storey, poorly built homes on small lots to maximize profit/acre.
- Over-paying for crappy homes in crappy locations.
- High leverage.
- Tons of condos being built in the GTA.
- Speculation.
- People think it will never end.
What's different:
- Interest rates are historically low.
- Income increases are low.
- There is some more foreign investment (how much more is debatable).
- There is greater general wealth, with most Boomers having some equity.

I was happy to get a 12% mortgage in 1989 because rates were increasing weekly or monthly 1/4% to 1/2% at a time. Rates peaked at about 14.75%.
The idea of 2-3% for such a long time with 1/4% change in a year would not be normal...but this is considered normal now.
Historically 5-6% would be considered a good rate. It allows for some actual savings accounts and GIC's that paid interest.
Can you imagine a $1mil mortgage at 6%?
So when people finally realized they were paying too much (or couldn't pay) for their crappy house on a crappy lot in a crappy location the business plan started to fall apart.
You couldn't sell because there was nobody to buy.
The bank took your home if you couldn't pay. You can't "refuse to sell in a depressed market".
You left your home to the bank and walked away because your equity was gone and you had to keep paying the bills.
People lost jobs making things worse.
Rich locals and foreigners don't "just buy and support prices"...that's called "catching a falling knife". They wait for the bottom or near bottom.

What is never different in human nature is that there is always a herd mentality with fear and greed.
We are currently in a situation which is unsustainable.
We will see how strong this bull market is when the Fed raises rates and fear creeps in.
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