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: 110. You have voted on this poll.
5% Drop
 
5
5%
10% Drop
 
3
3%
20% Drop
 
14
13%
30% Drop
 
15
14%
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%
Jr. Member
Feb 23, 2009
144 posts
103 upvotes
Oshawa
Anikiri wrote:
Mar 10th, 2017 10:00 am
First of all, you gotta be drinking some badly spiked coolaid if you think the RE market is going to correct south of 60%. You may as well leave the country, because there may not be a country left.

Second of all, you are assuming anyone in the household loses a job or has a kid. You are also assuming that we cannot simply rent the house out and live elsewhere.

Third of all, you clearly don't know how homeownership works. It's not a financial instrument, it's a home. The financial gains are just kosher. Most people buy homes as a means to live, not as means to make money.

Fourth of all, do you understand that you can pay a mortgage down? In effect, it is something akin to around 20% - 30% of your mortgage per 5 years, depending on how aggressive you are. The more you pay it down, the more likely you are to weather a harsher decline. But I digress, you have gotta be living in some sort of alternate reality if you think this market is going to tank 60-70-80%, are you on glue?

Fifth of all, if I bought a house for 1.5mil and I carry a mortage of 1mil, I would be earning close to 200k per year. I am not your little guy barely making ends meet, I am part of the top income bracket in this country. I am certainly not going to sweat over losing some equity that I can gain back later.

For your situation to truly unfold, I would have to lose at least a significant part of my household income, have a kid, carry a significant amount of mortgage, my renewal would be up at the time of the crash, the crash would be extremely severe, and that it won't bounce back.

Why live in this country if you think that's gonna happen? Go move elsewhere.

1. I never said the market would correct "south of 60%". You did. I used 50% in a simple example for you to understand. The fact that RE in many places around the GTA is up 50% in a short time means it can come down also. Like the stock market, it's not a one-way street. The fact that all this actually happened in the last crash with less of a drop to trigger it also means it can happen again.

2. Wow. More Fake News.
I was not suggesting all these things need to happen or will...you just did. Again, the last crash (and any "crash") was only triggered by a few of these conditions.

3. Sadly, you would be incorrect again. I own 3 homes and have been a landlord for decades. Maybe your mortgage lender never explained things to you, but if you don't make your monthly payments you will sooner or later not own your house any more. When you can't (or don't want to) make payments any more, they don't lend you money. Contrary to your statement "Most people buy homes as a means to live, not as means to make money...", lots of people do when prices go up 25% YoY.

4. When you have no equity left in the equation you can keep making payments but you never gain anything because the value of the property is going DOWN. I know this is a difficult word for many since all they know is property values that go up. More Fake News. Sorry to break it to you, they do go DOWN. People who are already at the max with a huge debt load are barely making the payments...they are not paying much of anything off. Go check the current CDN debt/income ratio and get back to me.

5. Many people today will have 2 incomes that qualify the mortgage which could be affected in any downturn. People walked away from properties with less leverage and much better ratios in the last crash. Go tell them they should have kept paying into a sinking ship.

The great thing is that the situation I described wasn't made up (unlike your response)...it actually happened.
Sure this time may be somewhat different, but most of the ingredients are already here.
The numbers are also much bigger this time.
Deal Fanatic
May 1, 2012
5789 posts
1871 upvotes
Markham
pkrash wrote:
Mar 10th, 2017 3:19 pm
1. I never said the market would correct "south of 60%". You did. I used 50% in a simple example for you to understand. The fact that RE in many places around the GTA is up 50% in a short time means it can come down also. Like the stock market, it's not a one-way street. The fact that all this actually happened in the last crash with less of a drop to trigger it also means it can happen again.

2. Wow. More Fake News.
I was not suggesting all these things need to happen or will...you just did. Again, the last crash (and any "crash") was only triggered by a few of these conditions.

3. Sadly, you would be incorrect again. I own 3 homes and have been a landlord for decades. Maybe your mortgage lender never explained things to you, but if you don't make your monthly payments you will sooner or later not own your house any more. When you can't (or don't want to) make payments any more, they don't lend you money. Contrary to your statement "Most people buy homes as a means to live, not as means to make money...", lots of people do when prices go up 25% YoY.

4. When you have no equity left in the equation you can keep making payments but you never gain anything because the value of the property is going DOWN. I know this is a difficult word for many since all they know is property values that go up. More Fake News. Sorry to break it to you, they do go DOWN. People who are already at the max with a huge debt load are barely making the payments...they are not paying much of anything off. Go check the current CDN debt/income ratio and get back to me.

5. Many people today will have 2 incomes that qualify the mortgage which could be affected in any downturn. People walked away from properties with less leverage and much better ratios in the last crash. Go tell them they should have kept paying into a sinking ship.

The great thing is that the situation I described wasn't made up (unlike your response)...it actually happened.
Sure this time may be somewhat different, but most of the ingredients are already here.
The numbers are also much bigger this time.
I also own 10 homes and rent them out as a landlord. Furthermore, I make enough money to be in the top 0.5% of incomes in Canada. I also drive an <insert exotic car>. I can claim whatever I want on the internet.

Having said that, please make a tl;dr of your diatribe. Until then, no you're wrong.
Jr. Member
Feb 23, 2009
144 posts
103 upvotes
Oshawa
Anikiri wrote:
Mar 10th, 2017 3:24 pm
I also own 10 homes and rent them out as a landlord. Furthermore, I make enough money to be in the top 0.5% of incomes in Canada. I also drive an <insert exotic car>. I can claim whatever I want on the internet.

Having said that, please make a tl;dr of your diatribe. Until then, no you're wrong.
Oh, I see...you are one of those "trolls" the kids talk about.
Also lacking any ability to have a rational discussion.
I'm too old to know what "tl;dr" is. I guess I could Google it, but I'm guessing it along the lines of "meh", :), :(, or any other language other than plain English.
Carry on.
Jr. Member
Jun 24, 2011
114 posts
41 upvotes
West Lafayette, Indi…
When a crash happens, nobody is immune. Even if you own your houses. With the economy tanking, so goes your livelihood.
Deal Addict
Mar 15, 2005
4792 posts
350 upvotes
Bought back in 2011 for ~$300K

Current value seems to be roughly $600K, maybe as high as $650K for comparable, have ~$200K on the mortgage

At the end of the day I would love a 60% drop in housing prices. My salary has gone up significantly since I purchased this home and have wanted to trade up for a while, so a 60% drop on a 1M home benefits me far more than the pain of a 60% drop on my 600K home.
Sr. Member
Feb 15, 2012
678 posts
224 upvotes
Toronto
the only reason one would sell their house at a loss is if they can get a similar house on the street for even cheaper.

eg in a real severe crash, bought at 1.5M, sold at 1.3M then buy a similar house for 1M
Member
Dec 30, 2006
426 posts
148 upvotes
Toronto
Bought a preconstruction2012 for just under 600k, recently sold for just under 1.1 million.

In between completed 1 other RE transaction for profit. But a preconstruction in 2015 for 1.1.. Valued now at roughly 1.5 ( in December 2016). Current value is 1.6 safely. 390k mortgage.. Even a 60% drop and I'm ahead.. But a 60% drop and we are ALL screwed beyond belief. Keep dreaming.
Sr. Member
Jul 14, 2002
613 posts
75 upvotes
tyrrell wrote:
Mar 11th, 2017 2:11 pm
Bought a preconstruction2012 for just under 600k, recently sold for just under 1.1 million.

In between completed 1 other RE transaction for profit. But a preconstruction in 2015 for 1.1.. Valued now at roughly 1.5 ( in December 2016). Current value is 1.6 safely. 390k mortgage.. Even a 60% drop and I'm ahead.. But a 60% drop and we are ALL screwed beyond belief. Keep dreaming.
you managed to pay off 500k of mortgage in 2 years?
Newbie
Jan 14, 2017
67 posts
10 upvotes
Paid 1.5mil in North York at Bayview village less than 2y ago and now its at 2.5mil+. RE can crash but I am not moving until I die!

Deep down, I wished we would had taken a mortgage more than a half of a mil though cuz that house we loved at 1.8 back then is more than 3mil now...
Member
Dec 30, 2006
426 posts
148 upvotes
Toronto
dantey wrote:
Mar 11th, 2017 3:06 pm
you managed to pay off 500k of mortgage in 2 years?
Kind of but not exactly.

Bought a town in markham pre-construction @ 575 on May 2012. Closed 1.5 years later.. Mortage of 460k.

GF/ fiance bought a pre-construction town in may 2014 for 525.. Sold for 660k.. Used some of that profit for another investment. Put 50k towards mortgage.

Bought in house in Aurora pre-construction for 1.1 million. Sold my house in Markham for 1.1 million.

Aurora house value @ 1.6 million, 390k mortgage.

So i created equity and paid of mortgage as well. Not planning on moving so don't care if crash happens. At least in terms of house values.
Member
Mar 16, 2014
246 posts
69 upvotes
CLAREMONT
Paid 705k Dec 2013,worth 1.2-1.3mil and climbing so can sustain a decent drop.
Deal Fanatic
User avatar
Apr 9, 2006
6545 posts
6733 upvotes
GT-EH
IndustrialKid wrote:
Mar 10th, 2017 4:51 pm
When a crash happens, nobody is immune. Even if you own your houses. With the economy tanking, so goes your livelihood.
Exactly this... why do people WANT a RE crash when RE is the ONLY economy left?

If it were to happen, you may not even have a job as the economy tanks
Jobless rates would sky-rocket, businesses will get spooked and stop hiring.

It would be a vicious feed back loop and it benefits no one.
I just like to collect things! ¯\_(ツ)_/¯
Behold, true glory. #PCMasterRace!
Newbie
May 26, 2008
43 posts
30 upvotes
GiOBoY wrote:
Mar 17th, 2017 2:09 pm
Exactly this... why do people WANT a RE crash when RE is the ONLY economy left?

If it were to happen, you may not even have a job as the economy tanks
Jobless rates would sky-rocket, businesses will get spooked and stop hiring.

It would be a vicious feed back loop and it benefits no one.
If we are in a bubble, there is no reason to believe that there is going to be a soft landing. This is because there is no verifiable instance of a soft landing in the history of asset bubbles.

If a hard landing is inevitable, then we should hope for it to happen sooner rather than later, because the longer the bubble stays inflated, the worse it will be when it pops.

https://en.wikipedia.org/wiki/Soft_landing_(economics)
http://thereformedbroker.com/2010/05/17 ... nt-things/
Deal Addict
Dec 24, 2007
1496 posts
206 upvotes
Toronto
Good old Bayview Village

It was a wonderful area 14 years ago,

A lot has changed and every day getting more congested as Yonge.

Still a great area though, wished I still kept my house as a rental it was very convenient.

Cheers!
ChanelJ12 wrote:
Mar 11th, 2017 3:09 pm
Paid 1.5mil in North York at Bayview village less than 2y ago and now its at 2.5mil+. RE can crash but I am not moving until I die!

Deep down, I wished we would had taken a mortgage more than a half of a mil though cuz that house we loved at 1.8 back then is more than 3mil now...
Thread started in 2016 - 1927 fully gutted and renovated 2 storey detached home in the big T.O. - small projects still in progress.

RFD priceless!
Deal Addict
May 31, 2007
3413 posts
395 upvotes
Need about a 90% crash to be under water on the value to mortgage. However I can pay mortgage now easily but would have to cash out stocks.
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