Real Estate

Correction will only happen if a number of marginal owners are forced to sell at a reduced price.

  • Last Updated:
  • Apr 16th, 2022 11:45 pm

Poll: What conditions below will force you to sell your real estate investment properties?

  • Total votes: 144. You have voted on this poll.
BOC Interest rate reaches 2%
 
14
10%
BOC interest rate reaches 3% or more
 
16
11%
Significant reduction in my other incomes from employment or investment other than RE
 
19
13%
Significant regulatory or tax rule changes related to real estate investment
 
18
13%
I am insensitive to interest rate hikes for the next 5 years
 
38
26%
My portfolio is cash flow positive and I am immune to rate or market conditions
 
39
27%
[OP]
Sr. Member
Mar 25, 2018
803 posts
1269 upvotes

Correction will only happen if a number of marginal owners are forced to sell at a reduced price.

Some historical data on interest rate, inflation, and GTA housing price (yearly average) summarized in the graph below. In 1989-90 the interest rate increase (started in 1987) played a secondary role, compared to massive job losses across all industries. The tectonic plate is rapidly shifting and the world we knew even a few months ago will never come back.
Images
  • RE History.jpg
51 replies
Sr. Member
May 10, 2017
639 posts
457 upvotes
I bought 3 properties recently
2 in late 2021 and 1 in 2022

I’m not worried
Time in market triumphs all
Some of my wealthy friends have been just holding real estate and plan to hold them for a long term
Donate to your local food bank today!
Deal Addict
User avatar
Jan 14, 2009
4898 posts
3973 upvotes
Vancouver, BC
I run a lot of what ifs. Even if we went to cash only, I think we'll be fine. There will be some adjustments but nothing catastrophic. Most people are not flippers.
If you buy vgro for a thousand years Vancouver homes will still be out of reach.
Deal Expert
Feb 29, 2008
19630 posts
18170 upvotes
Tarrana & The Ri…
So many threads popping up. Bears are feeling it Face With Tears Of Joy

If you're long term, you'll be fine. If you're banking on short term sky high appreciation then you're in trouble.
Deal Fanatic
Mar 27, 2004
8534 posts
6677 upvotes
Toronto
remember when the bears were talking about a mortgage default cliff...this sounds like the same thing.
Full-time Realtor
Deal Expert
Feb 29, 2008
19630 posts
18170 upvotes
Tarrana & The Ri…
oasis100 wrote: remember when the bears were talking about a mortgage default cliff...this sounds like the same thing.
Any time rates go up these jokers start popping up with the new buzz word of the month.
Deal Addict
Dec 3, 2013
1230 posts
2006 upvotes
Somewhere over the r…
JayLove06 wrote: So many threads popping up. Bears are feeling it Face With Tears Of Joy

If you're long term, you'll be fine. If you're banking on short term sky high appreciation then you're in trouble.
This, I was always taught RE is a long term hold. I could care less what the interest rates are. All my units are were bought somewhere between 10-27 years ago. I will never sell. They will be left in my will for the next generation of greedy landlords
Sr. Member
Nov 10, 2019
661 posts
646 upvotes
oasis100 wrote: remember when the bears were talking about a mortgage default cliff...this sounds like the same thing.
Remember when the bears came out in hordes calling housing crash in March 2020 start of pandemic.
Newbie
Jan 23, 2022
33 posts
133 upvotes
For those that picked "BOC Interest rate reaches 2%", head for the exit now. Don't screw up the market.
Deal Addict
Jun 18, 2020
3000 posts
3615 upvotes
Good grief, if people are that worried, go fixed. If the current fixed rate is unaffordable for you, well, what to say...
Deal Expert
Feb 29, 2008
19630 posts
18170 upvotes
Tarrana & The Ri…
GTA12345 wrote: Good grief, if people are that worried, go fixed. If the current fixed rate is unaffordable for you, well, what to say...
Seriously.
Anyways, I know a number of people in thr lending business and you wouldn’t believe the things people do for minuscule difference in rates. It’s psychological.
Last edited by JayLove06 on Mar 24th, 2022 2:55 am, edited 1 time in total.
Sr. Member
May 31, 2017
609 posts
867 upvotes
The percent that answered affirmative in the poll (rates going to 2% and 3%) is interesting...sure, small sample and all but that's like 20% of investors that bothered to answer. If that was even remotely close to the broader RE investor market it would put downward pressure on prices in a notable way.

If you are a RE investor and you haven't modelled your investments to protect yourself at even 3% rates then you are taking huge risks with relatively illiquid investments.
These are the people that everyone should fear...fools and their money who could drag even more folks down with them. That group of folks got large enough that it caused the market crash in the 90's.

The real question isn't folks like the guy saying he's owned his properties for 10-27 years and he's fine...it's how many are like the above folks who would be forced to sell at what are, frankly, pretty low bars for interest rates. OBVIOUSLY corrections are short term incidents and over a long enough time prices will rise...anyone who thinks corrections mean some permanent lower price is just being wilfully ignorant. Short term asset corrections also obviously carry the risk that they cause a broader recession which could then make it worse by dragging in those who answered the 3rd polling question into the mix of sellers - exacerbating the issue since that would make it about 1/3 of those who answered saying they'd sell.

I am increasingly in the camp that thinks there is some degree of price correction on the horizon. I've haven't been a housing "bear" in the past 25 years...but I'm becoming one now. 40-50% runs in prices over a 18-20 month period are not normal or something to see as likely being permanent gains. RE is not tech stocks...lol
Deal Addict
Mar 30, 2017
1214 posts
975 upvotes
GVA
BatCountry wrote: The percent that answered affirmative in the poll (rates going to 2% and 3%) is interesting...sure, small sample and all but that's like 20% of investors that bothered to answer. If that was even remotely close to the broader RE investor market it would put downward pressure on prices in a notable way.

If you are a RE investor and you haven't modelled your investments to protect yourself at even 3% rates then you are taking huge risks with relatively illiquid investments.
These are the people that everyone should fear...fools and their money who could drag even more folks down with them. That group of folks got large enough that it caused the market crash in the 90's.

The real question isn't folks like the guy saying he's owned his properties for 10-27 years and he's fine...it's how many are like the above folks who would be forced to sell at what are, frankly, pretty low bars for interest rates. OBVIOUSLY corrections are short term incidents and over a long enough time prices will rise...anyone who thinks corrections mean some permanent lower price is just being wilfully ignorant. Short term asset corrections also obviously carry the risk that they cause a broader recession which could then make it worse by dragging in those who answered the 3rd polling question into the mix of sellers - exacerbating the issue since that would make it about 1/3 of those who answered saying they'd sell.

I am increasingly in the camp that thinks there is some degree of price correction on the horizon. I've haven't been a housing "bear" in the past 25 years...but I'm becoming one now. 40-50% runs in prices over a 18-20 month period are not normal or something to see as likely being permanent gains. RE is not tech stocks...lol
those click 2% are trolls or not owners lol.
I literally know no one who cant afford rate to 2%. just cut down travel and a few dine out.
for $100k mortgage, 25yr, monthly payment is $400 @1.5%, $500 @3.5%
for people qualify a $1million loan, tell me who cant squeeze out $1k a month?
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
Member
May 29, 2020
471 posts
791 upvotes
seatiger wrote: those click 2% are trolls or not owners lol.
I literally know no one who cant afford rate to 2%. just cut down travel and a few dine out.
for $100k mortgage, 25yr, monthly payment is $400 @1.5%, $500 @3.5%
for people qualify a $1million loan, tell me who cant squeeze out $1k a month?
Yea has to be trolls, you wouldn’t even qualify for a loan if a couple % increase busts you.

Plus if you can get a 1m loan, you likely have good careers which growth will offset the higher payments comes renewal.
Deal Addict
Mar 30, 2017
1214 posts
975 upvotes
GVA
TheSpaceMonkey wrote: Yea has to be trolls, you wouldn’t even qualify for a loan if a couple % increase busts you.

Plus if you can get a 1m loan, you likely have good careers which growth will offset the higher payments comes renewal.
the real risk is getting fired from job in a recession. thats when demand collapse to bring price down.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
Deal Addict
User avatar
Jul 25, 2015
2141 posts
1900 upvotes
Burnaby, BC
I dont think this poll reflects the Canadians. Of course RFDers will be immune to these changes. A true RFDer wont even budge, they will actually make more money if rates went up since they have cash. If prices went down they will buy more or average down. It's going to be a win win.
Newbie
Mar 11, 2022
80 posts
138 upvotes
YYZ 905
The mortgage default rate has been low in Canada
Our banks have been stress-testing for their mortgage applicants
On paper we are financially sound until the next Black Swan event
The unknown unknown risk may hurt, it is prudent to always have a cash reserve imho
Courage. Temperance. Justice. Wisdom.
Sr. Member
May 31, 2017
609 posts
867 upvotes
seatiger wrote: those click 2% are trolls or not owners lol.
I literally know no one who cant afford rate to 2%. just cut down travel and a few dine out.
for $100k mortgage, 25yr, monthly payment is $400 @1.5%, $500 @3.5%
for people qualify a $1million loan, tell me who cant squeeze out $1k a month?
That's exactly the thing though...eventually FOMO sets into markets and investors feel "they just can't lose" and you get fools with access to easy money (ie. rates have been too low for too long creating a false sense of security).
You may not know anyone like that but it doesn't mean they aren't out there...we all live in our own little bubbles and vacuums thanks to social media - compounded by COVID lockdowns. I am not so certain there isn't a growing group of investors that has been playing a lot more on the risky side of the ledger. Even the good investors may have taken on that "just one more" investment that stretches them, or they take on that one tougher property...it's not just the ones that are being overtly fast and loose.
Deal Addict
User avatar
Jan 14, 2009
4898 posts
3973 upvotes
Vancouver, BC
BatCountry wrote: That's exactly the thing though...eventually FOMO sets into markets and investors feel "they just can't lose" and you get fools with access to easy money (ie. rates have been too low for too long creating a false sense of security).
You may not know anyone like that but it doesn't mean they aren't out there...we all live in our own little bubbles and vacuums thanks to social media - compounded by COVID lockdowns. I am not so certain there isn't a growing group of investors that has been playing a lot more on the risky side of the ledger. Even the good investors may have taken on that "just one more" investment that stretches them, or they take on that one tougher property...it's not just the ones that are being overtly fast and loose.
Stop watching "The Big Short". It's bad for your mental and financial health.
If you buy vgro for a thousand years Vancouver homes will still be out of reach.
Deal Addict
Jan 2, 2021
1369 posts
2204 upvotes
Imo inflation is just getting started... Lots of people who got 20-30% salary increase from jumping ship last year are just getting back into the game. Even if rate hikes trigger a recession, that will only happen in a year's time when prices downtown have gone up another 20% (and low rises probably just stagnant).

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