Personal Finance

Locked: Housing Market is HOT!

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Dec 5, 2009
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Which is why I have considerable investment in stocks right now as well. It's called diversifying , and not having all your eggs in one basket. Both RE and stocks have their upside and downside risks. So best to be in both or try to get lucky timing the market which rarely works out.
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Jan 4, 2009
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on the links!
Donnie740 wrote: Cash flow is king, Cervix.
Donnie740 wrote: At last that PF4RedFag guy
Really? trying to get cute with slipping in F**. Let's denigrate the gay community and disguise it as a typo.

Maybe it's time for another ban, eh Donnie boy.
Shaner wrote: While being condescending towards a mod didn't exactly earn him any praise, it wasn't what got him banned. Constant attacks towards another user did, despite repeated warnings.
Penalty Box
Aug 11, 2005
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fdl wrote: Which is why I have considerable investment in stocks right now as well. It's called diversifying , and not having all your eggs in one basket. Both RE and stocks have their upside and downside risks. So best to be in both or try to get lucky timing the market which rarely works out.
But the housing market is so HOT and has nowhere to go but UP and you can LEVERAGE significantly more. Interest rates will STAY LOW and even if they do rise, you can rent your property out for POSITIVE CASH FLOW.

Have it hit all the buzzwords yet?
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fdl wrote: Which is why I have considerable investment in stocks right now as well. It's called diversifying , and not having all your eggs in one basket. Both RE and stocks have their upside and downside risks. So best to be in both or try to get lucky timing the market which rarely works out.
Of course! The practical problem for Canadians is that they aren't diversified. And they tend to have most of their eggs in one basket. Recently, in the RE and GIC/bonds/cash basket that supports the pricing of RE.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Jan 16, 2009
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Luckyinfil wrote: But the housing market is so HOT and has nowhere to go but UP and you can LEVERAGE significantly more. Interest rates will STAY LOW and even if they do rise, you can rent your property out for POSITIVE CASH FLOW.

Have it hit all the buzzwords yet?
You forgot the keyword...That's the only way to get RICH
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Luckyinfil wrote: The funny thing is that realturds present home ownership in the best case scenarios of historic low interest rates, while comparing them to average case scenarios in the stock market. Why do they never mention that the S&P went up 30+% last year? A comparison would be like stock market investers assuming that they'll get 30%+ returns every single year onwards.
No doubt the S&p went up 30% last year and my stock portfolio was happy to see that. But let's remember that the 30% increase came after significantly disappointing performance since the end of 2008. Remember the crash in 2008? So it's about time. Meanwhile housing has remained far more stable as an asset class, just as it typically does.

I have no doubt that housing prices could fall at some point in the future and a crash outcome is but one scenario, albeit highly unlikely unless there is an exogenous shock. But that's beside the point. A principal residence should never be viewed as the sole source of one's investment portfolio. Increases on paper of the house price are just that - paper gains. There is no realization of those gains until you sell the property but you will still need a place to live. That's not the case with stocks: it's much easier to trade in and out of this asset class to realize capital appreciation. This is why you can't and shouldn't compare home ownership with stock investing.
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Pitz wrote: Their personal fortunes and careers are on the line.
At least all those folks you named have jobs and careers... what is your job again?
Andre Oliveira - Mortgage Agent
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laptop-tech wrote: At least all those folks you named have jobs and careers... what is your job again?
Isn't it kind of funny when you realize you are becoming him?
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Feb 15, 2008
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gomyone wrote: Increases on paper of the house price are just that - paper gains.
Well presumably there is an increase in the amount of rent, imputed or actual, associated with a gain in house prices. Unless of course, its been the past decade, and rents haven't increased very much while P/E, P/CF, etc. multiples have expanded severely. Largely on the back of widespread expansion and weakening of credit standards. Which are completely cyclical over the long term.
There is no realization of those gains until you sell the property but you will still need a place to live.
The realization in the short term is the higher rent, imputed or actual. Just like a good stock presumably will have a higher dividend over time if the firm is successful at growing earnings. The best quality companies can even grow when everyone else in their industry can't.
That's not the case with stocks: it's much easier to trade in and out of this asset class to realize capital appreciation.
Stocks can be treated as long-term investments with people living off the dividends. There are many stocks in my portfolio that have doubled and tripled over the past decade, with dividend growth even greater than such. One doesn't need to adopt a trading mentality to do well in the stock market. In fact, there are studies out there showing that traders don't add value, and that nearly all value is added through the discipline of structured asset allocation.
This is why you can't and shouldn't compare home ownership with stock investing.
As usual, I disagree, they can and should be directly compared as they are alternatives to each other.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Penalty Box
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Aug 19, 2008
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licenced wrote: Donny740, that face resembles your avatar. Is that a Realtor's pic? Lord I hope not.

http://shell.reverse.net/~lordpil/wed01fixed.jpg

That man is in his 30's needs to do some serious housekeeping. The $59.99 on the wall must be a reminder to pay the rent.

Is it that bizarre mouth agape grimace where you're seeing the resemblance?

I noticed the character is wearing an engineer's ring. Wonder if he's a real engineer or just someone who wears a pinkie ring pretending to be one? Sorta like how Mr Lahey wears walkie talkie pretending to be a cop.

But yes, I agree with your comments on how dishelveled and junked out that place looks. Appears to be just what you'd expect from a rental property.
Licenced Realtor and P.Eng
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gomyone wrote: I have no doubt that housing prices could fall at some point in the future and a crash outcome is but one scenario, albeit highly unlikely unless there is an exogenous shock. But that's beside the point. A principal residence should never be viewed as the sole source of one's investment portfolio. Increases on paper of the house price are just that - paper gains. There is no realization of those gains until you sell the property but you will still need a place to live. That's not the case with stocks: it's much easier to trade in and out of this asset class to realize capital appreciation. This is why you can't and shouldn't compare home ownership with stock investing.
When Canadian RE corrects to historic norm, it will always be an exogenous shock as RE accounts very large portion of our GDP.

Or maybe people are hoping that housing price will never return to the historic norm, which I have not seen in modern economics.
Penalty Box
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Aug 19, 2008
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FutureCEO wrote: Hey Donnie,

Can you point me towards the thread? I am assuming that you looked at cash flows due to the investor and not cash flows generated by the enterprise.

Is that really a fair way to compare the two as investments? I used cash flows generated by the enterprise (free cash flows) instead of dividends as any free cash flows not paid out over the long term is expected to be reinvested in the firm and therefore appreciates the value of your investment. Or maybe you incorporated dividends + the net capital appreciation for both RE and stocks.

Anywho, I am a real estate novice (never owned) so I am looking forward to seeing your analysis. The devil is always in the details/assumptions on all of these type of models from my experience.

Thank you!!

I'm on my cell right now do I don't have the capability to search and find the thread. I'll re-post it later this evening when I get in.
Licenced Realtor and P.Eng
Penalty Box
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Sauerkraut wrote: Really? trying to get cute with slipping in F**. Let's denigrate the gay community and disguise it as a typo.

Maybe it's time for another ban, eh Donnie boy.

A ban? Yikes! Sounds very threatening.

In all seriousness, trying to type on a iPhone results in a lot of typos and autocorrects.

My apologies for striking a nerve with you and the gay community. I know I'd certainly be offended to be associated with those ridiculous colourful charts that flooded this forum with meaningless nonsense.
Licenced Realtor and P.Eng
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May 28, 2012
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Saskatoon
Mark77 wrote: As usual, I disagree, they can and should be directly compared as they are alternatives to each other.
This is your response to gomyone's comment that home ownership and stock investing shouldn't be compared. Now, you contend that gains in real estate over the past few years (due to the hot market) are not really earned and it's not right that homeowners should profit from it in that way. What do you say about investment gains? Not "earned" either?
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Jul 21, 2011
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Mars2012 wrote: This is your response to gomyone's comment that home ownership and stock investing shouldn't be compared. Now, you contend that gains in real estate over the past few years (due to the hot market) are not really earned and it's not right that homeowners should profit from it in that way. What do you say about investment gains? Not "earned" either?
Agree, I don't understand why people would compare their primary residence with the stock market, you live in your primary residence not invest in your primary residence, it would only make sense to compare it with the stock market only if you hold more than 1 property.
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Jul 3, 2011
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Luckyinfil wrote: But the housing market is so HOT and has nowhere to go but UP and you can LEVERAGE significantly more. Interest rates will STAY LOW and even if they do rise, you can rent your property out for POSITIVE CASH FLOW.

Have it hit all the buzzwords yet?
Seems the days of it going up are over - we've definitely hit the acquisition substitution demarcation point and after just checking today's price changes for Toronto, I can confirm that.

A house in West Humber just underwent a massive $3,800,000 price drop after only being on the market one (1) day.

It's not just over, it crashed.
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Mars2012 wrote: This is your response to gomyone's comment that home ownership and stock investing shouldn't be compared. Now, you contend that gains in real estate over the past few years (due to the hot market) are not really earned and it's not right that homeowners should profit from it in that way. What do you say about investment gains? Not "earned" either?
Well a house is inanimate, at best, it can just deliver rent. It can't go into new lines of business*. It can't be meaningfully re-tooled from producing one widget to another. And at current valuations, there is very little in terms of retained earnings that can even be re-invested.

Contrast this with an active business. For instance, Bell, BCE. When its long-distance business started to be eroded through regulatory and technological change in the 1990s, it began re-jigging itself to be a long-haul data carrier in a significant way. Its engineers at its Nortel (BNR, etc.) division invented CDMA equipment which allowed it to provide a wireless capability to its customers. Today, "the product" that BCE sells is dramatically different than the product they sold 25 years ago. While rent is still plain old rent.

Now, yes, RE empires can be built, along the principles of re-invested earnings from existing RE ownership, but most empires tend to be built on debt (just ask the O&Y proprietors how well that worked out!!), not retained earnings. I'm sure many of the mini-"empires" amassed by the usual thread participants here were also amassed with large amounts of debt as well!

My comments relating to 'unearned' equity largely stem from the fact that over the long run, leverage does not add to the return of RE, but merely facilitates a consumption levelling/smoothing function for RE. In other words, yes, using a lot of debt allows 20 and 30-something-year olds without the full amount cash needed for a RE purchase to buy RE, but historically this comes at a long term price whereby they're paying the lender a premium for present consumption in the form of reduced future consumption (ie: mortgage payments). If you do the 'math', using long-term interest rates and historic real returns, typically you're paying the lenders/bank 2-3 equivalent "houses" worth of money, for each 1 house you get up-front by the time that the mortgage is fully extinguished and burned.


* yes, there are some very niche situations where this isn't strictly true, but they are few and far between.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Vitalogy80 wrote: LOL, isn't everyone on RFD a stock millionaire?? Sounds more like Pitz just lives in his parents basement and hasn't worked a day in 10 years...his hobbies include trolling and trying to convince himself housing is going down.
The only problem with having that troll Mark77 on ignore is that people still quote him.

I see he's back on his CMHC bashing and predictions of catastrophe. Management estimates, auditor and actuarially reviewed, as well as reviewed by the Auditor General, show CMHC's loss provision as something on the order of $1 billion per their last annual financial statements.

Of course, Chris Pitzel, with the benefit of spending 16 or 18 hours posting on this coupon-clipping site, knows way more about it than any of the aforementioned professionals. :facepalm:

Of course he'll come back with some balderdash answer which only serves to further prove that he is without a clue but while disparaging the aforementioned management, auditors, actuaries, and Auditor General.

To quote an old MacDonald's commercial, this guy "deserves a break today"...and every day. Moderators, please pull the trigger on ridding this board of this troll.
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zilber wrote: Agree, I don't understand why people would compare their primary residence with the stock market, you live in your primary residence not invest in your primary residence, it would only make sense to compare it with the stock market only if you hold more than 1 property.
The inherent problem is that investors, at the margin, control the prices for assets, whether it be RE, stocks, etc. At a P/E of 36, that historically is right off the charts for an asset class that grows at the rate of inflation.

Now if people, especially new buyers, weren't so highly leveraged, this might not be a problem. But since new buyers are highly leveraged, they are extremely vulnerable to finding themselves in a trap where prices go down (as they are recently), while lenders perceive additional risk and cut back on their lending (= higher interest rates as applicable to their specific loans!). This very quickly destroys remaining equity, and puts them into negative equity for which extrication is extremely difficult. As we have been seeing in the United States where a considerable number of families are still "underwater", but are unable to refinance into lower interest rate loans on account of their very poor credit quality.

So to hide behind the "its overpriced, but I don't care, its not an investment" sort of mantra requires quite a bit of financial strength. Which is significantly lacking in Canadians, particularly in the 'crowd' of buyers over the past number of years, typically younger people, who mostly did not purchase with significant financial strength. As evidenced by the almost universal use of subprime mortgage insurance.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Since it's clear this thread is now just about harassing members (on both sides of the RE argument), this thread is locked pending a decision by the Admins.

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