# Buying a house.....tread carefully.



## MacDoc (Nov 3, 2001)

While Canada is in better shape the numbers here are horrifying for the First world in general



> The global housing boom
> 
> In come the waves
> Jun 16th 2005
> ...












http://www.economist.com/displayStory.cfm?Story_id=4079027



> After the fall
> Jun 16th 2005
> From The Economist print edition
> 
> ...


http://www.economist.com/displayStory.cfm?Story_id=4079458

If you are considering real estate or moving up etc.....caveat emptor big time. 

••••

If you want the entire articles and cannot access the site email me.


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## Melonie (Feb 10, 2005)

Couldn't agree more. Gotta love faith-based economics.

Wonder which pin will burst the bubble of "faith investing". What goes up must come down, right? Stock market crash perhaps? If the stock market goes south, then housing will be hit hard and fast. There will be a huge cascading effect on many aspects of our "modern life" no matter what. The first world lives on borrowed money and greed. The time to pay the piper may well be nigh. Then again, remember Chicken Little?

Mel


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## MacDoc (Nov 3, 2001)

Oil switching to a basket of currencies would do it.

More hits like the GM layoffs - 25,000 good jobs gone.

I suspect it might be a unspooling rather than a steep tailspin - the 82 recession with it's super high interest rates will not re-occur very likely as many portions of the world economy are in deflation offsetting the inflationary ones to a degree.

It's how the financial institutions handle the credit crunch - since they authored the spending boom to a large degree......ask me if I have a lot tears to shed. 

I bailed - I'm renting - one staff is also considering it - anyone else??

As I said I think Canada is in much better position tho we must deal with our power situation in Ontario sooner rather than later.
Damn get on with 3-4th Gen nuclear.  like NOW!!!!


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## TroutMaskReplica (Feb 28, 2003)

> I bailed - I'm renting - one staff is also considering it - anyone else??


i'm renting, mostly because house prices are so _insane_ one would have to literally be _insane_ to buy when we're so obviously at the peak and about to go down the other side (that and i don't have the dough  ) i could buy easily in a small town but tronna?, forget it.

david, does that mean you're not at the same place (the big macdoc house?). will i have to get into an elevator the next time i buy a machine from you?


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## TroutMaskReplica (Feb 28, 2003)

rereading the article, i almost have to blame the fed and the equivalent bodies in other countries for this mess. they alone could have controlled speculation by raising interest rates.


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## robert (Sep 26, 2002)

real estate has always been one of the best places to invest, renting is just throwing money away. The catch is to stay within your means and not risk a lot in this type of maket.


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## Melonie (Feb 10, 2005)

Another slow trigger could be the "new economy" of sourcing work outside of the 1st world. There are only so many service, civil, and white-collar jobs out there folks, and we're losing many blue-collar jobs to China et al, and some service jobs to India et al. More to come...

I bailed a while ago - we rent in TO and have a bought-and-paid-for cottage that will be our retirement home.

Mel


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## Pamela (Feb 20, 2003)

I close on a house on the 15th and couldn't be happier  Personally I don't think the highs and lows are going to be as dramatic as they have been in history because there are some safeguards in place to slow down any possible dramatic drop (other than events like 9/11 of course...but you can't live your life waiting for the next big natural disaster or terrorist attack).

Plus I'm not maxing out my income like most dummies do when they purchase a home AND I'll have someone throwing away their money to ME in the downstairs suite therefore paying half my mortgage hehe


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## MacDoc (Nov 3, 2001)

And those safeguards would be Pamela??? Nice theory but.......



> Has the house price crash finally begun?
> House prices in London have started to fall, says James Ferguson. And history suggests that they soon will in the rest of the country too. The UK house price crash is on the way.
> 
> If it looks like a duck, walks like a duck, swims like a duck and quacks like a duck, as the old saying goes, it most probably is a duck. The same principle applies to the present house price crash in London. In the last two months, the average house price in London has fallen 5%. In the context of the massive rises in house prices over the last few years this doesn’t sound like much, but consider this: if prices in the capital keep falling at this rate, they will have fallen 30% from their peak by this time next year. And that would look rather like a house price crash





> King’s warning is for real
> Does anyone seriously still think that there isn’t going to be a house-price crash? The idea that prices are going to move sideways until earnings rise enough to make the house price/earnings ratio (now at a record 5.4 times) normalise just doesn’t look very realistic. Today, even Mervyn King, the Governer of the Bank of England, is warning that “anyone entering or moving within the housing market should consider carefully the possible future paths of both house prices and interest rates… (as) it is clear that the chances of falls in values are higher than they were a year ago.”
> 
> I’d say that comment alone makes it time for even the most euphoric optimist to start paying attention.


You are relatively safe in the Vancouver area as demand is very high.

•••



> real estate has always been one of the best places to invest,


You mean real estate has been a good source of speculative gains 
It's not wealth producing - development is, speculation is not.
It's one of the single most damaging aspects for cities and communities including farming.
Speculative real estate is an abomination.
France taxes the hell out it - so should we 
•••••

Here's a decent summary for the San Francisco area of the bubble situation.

http://patrick.net/housing/crash.html

••••

Melonie that's a perfect strategy - some friends have done that as well.

Rents in this area are much lower these days and there is a wide choice.

The former Chairman of the Federal reserve thinks there is a 75% chance of a financial meltdown in the next 5 years.
The Governor of the Bank of England is warning about real estate risks.

The speculative numbers are horrifiying..... 100% of national GNPs......in funny money. Unbelievable.


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## kevs~just kevs (Mar 21, 2005)

robert said:


> real estate has always been one of the best places to invest, renting is just throwing money away. The catch is to stay within your means and not risk a lot in this type of maket.



i wouldn't say it's throwing it away... tell me where i can buy a house with mortgage pymts of $850.00/month and not have to pay any utilities or worry about house repairs. I'm only able to do this by renting a place... in Toronto at least...


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## Loafer (Jan 7, 2004)

Yes the house prices in London are insane.....but to be fair on the world market prices in Toronto are still a relative bargain compared to ther 'major' cities around the world. Stories I have heard is consortiums of Brits buying property in Toronto because it's just so damn cheap. 

I still think there is a lot of ground to cover before Toronto reaches the same heady heights of London......and there is still a huge amountof underused property in Toronto compared to alot of the older capitals in Europe. As much as everyone hates them....all those condo's going up do tend to keep the prices competitive.

Wait until the gas prices rocket and people suddenly realise they can't afford to commute an hour back and forth and want to live downtown, near work, on the TTC.....that is when we're going to see some crazy prices!


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## da_jonesy (Jun 26, 2003)

Loafer said:


> Wait until the gas prices rocket and people suddenly realise they can't afford to commute an hour back and forth and want to live downtown, near work, on the TTC.....that is when we're going to see some crazy prices!


Exactly... I think the downtown areas of most major urban centers will be insulated from the "pop" for precisely that reason.


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## robert (Sep 26, 2002)

Hey macdoc, who said anything about speculating?
many people own land which the plan to build on in the fuure or use it as a cottage right now. Just bring up a tent/trailer for the summer. Lets not forget the people who own more than one house and rent it out. I am talking a more secure investment than the banks or stock market. 
Hey kevs, care to read the second sentence? If you have the means. Besides, not everyone here lives or wants to live in Toronto! (there is the rest of the country once you get past the 400/401 highways)


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## kevs~just kevs (Mar 21, 2005)

robert said:


> Hey macdoc, who said anything about speculating?
> many people own land which the plan to build on in the fuure or use it as a cottage right now. Just bring up a tent/trailer for the summer. Lets not forget the people who own more than one house and rent it out. I am talking a more secure investment than the banks or stock market.
> Hey kevs, care to read the second sentence? If you have the means. Besides, not everyone here lives or wants to live in Toronto! (there is the rest of the country once you get past the 400/401 highways)



yup i read it, but i don't see how's it thorwing away your money... some of us live in T.O because we need to - not because we want to...


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## Kosh (May 27, 2002)

Oh no, the sky is falling! The sky is falling!

I don't believe it.



robert said:


> real estate has always been one of the best places to invest, renting is just throwing money away. The catch is to stay within your means and not risk a lot in this type of maket.


Couldn't agree more. In fact it's one of the first recommendations of retirement sessions. Although I'm not planning to make a profit out of mine (if I do, all the better), but I'll have something after paying out all that money.



kevs~just kevs said:


> i wouldn't say it's throwing it away... tell me where i can buy a house with mortgage pymts of $850.00/month and not have to pay any utilities or worry about house repairs. I'm only able to do this by renting a place... in Toronto at least...


Do you have anything after you pay thousands in rent every year. Nope. You have nada, zip, zero, zilch. You have to pay utilities one way or the other, either you pay it in the rent, or you pay it for real.


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## kevs~just kevs (Mar 21, 2005)

Do you have anything after you pay thousands in rent every year. Nope. You have nada, zip, zero, zilch. You have to pay utilities one way or the other, either you pay it in the rent, or you pay it for real.[/QUOTE]


I have a place to live, a place to sleep and eat and enjoy my life every month without worry. If i buy a house chances are I will be paying for it for the rest of my life, fixing it the rest of my life and complaining about the price of gas and electricity and so on. Benifits to both, but don't tell me i'm wasting my money as this is my only option right now and honestly I see it as a pretty good option...


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## Pamela (Feb 20, 2003)

why not buy a condo? Houses aren't the only option...


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## Mrs. Furley (Sep 1, 2004)

Kosh said:


> Do you have anything after you pay thousands in rent every year. Nope. You have nada, zip, zero, zilch. You have to pay utilities one way or the other, either you pay it in the rent, or you pay it for real.


Not necessarily true, Kosh. If you are wise and you use the opportunity to sock money away (in place of paying for house repairs, property taxes, etc.), you can still retire with a nice nest egg.


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## robert (Sep 26, 2002)

Nest eggs are great but where do you put the money until you retire? Bank? Stockmarket?


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## MacDoc (Nov 3, 2001)

There are ONLY two ways out this bubble - either it will inflate the rest of the economy - notice there are already a lot of work issues over income because housing prices are so high.

or

It will deflate and the values will tumble as it has in Japan and brutalize the economy.

If you think this musical chairs game will go on your as foolish as the dot.com bunch.

You think the Bank of England and The Fed are alarmist without good cause!!!! ..........YOU'RE NUTS.
IT IS UNSUSTAINABLE - just as the dot.com bubble - the roaring 20s, the Tulip bubble - 

You are talking inflated values equal to the gross GNP of first world nations. It's not sustainable.

Anyone who was through the 82 recession knows just how immensely devastating it was - areas around here were a business wasteland - with entire strip malls empty.
I threw out a stack of business cards 6" high of failed businesses in just our little segment of the economy.

and it was NOTHING compared to what's looming if it crashes hard.

Every time you fail to learn from history.......it gets more expensive.

Here's a note from one of the savviest real estate people I know.......she read the Economist articles as well over the past few months.



> Very interesting.
> I am already divesting myself of my real estate. *I have sold two out of
> three of my income properties.* I will keep the third one until next
> year.


and this is in "strong growth" Mississauga.

If pros are getting out, if conservative, cautious heads of banking systems are issuing severe warnings........what does it take for people to wake up.

Australia is worst off......



> Houses overvalued by 25pc
> By Turi Condon and David Uren
> June 09, 2005
> From:
> ...


Inflate -deflate - take your pick.........it's in motion.


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## Kosh (May 27, 2002)

kevs~just kevs said:


> I have a place to live, a place to sleep and eat and enjoy my life every month without worry. If i buy a house chances are I will be paying for it for the rest of my life, fixing it the rest of my life and complaining about the price of gas and electricity and so on. Benifits to both, but don't tell me i'm wasting my money as this is my only option right now and honestly I see it as a pretty good option...


I guess what Robert and I are trying to say, is after paying rent for 10 or 20 years, do you have anything for all that money you paid. After 20 years I have a house worth xxx,xxx dollars. Of course for some, having a place to call your own, isn't important. Home Ownership isn't for everybody. I certainly shouldn't be telling you, you have to buy a home. I rented for several years when I was younger.

Pamela is also correct that you can buy a Condo. I thought a Condo was for me, like you I didn't want to have to worry about house repairs, plowing snow, cutting grass, etc., but I just was annoyed by all the rules and regulations and figured I could put up with a few house repairs, cutting a little bit of grass and using the snowblower isn't that bad.


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## Mrs. Furley (Sep 1, 2004)

robert said:


> Nest eggs are great but where do you put the money until you retire? Bank? Stockmarket?


RRSPs?


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## InactionMan (Aug 6, 2004)

Just bought my first house about two months ago knowing it was a very hot market. Bought in downtown Toronto for a very good price. Dumped the requisite amount into repairs and upgrades (Bloody old wiring) I don't care if the real estate market crashes, I know I can afford this place now and will still be able to regardless of the market. This isn't solely an investment, it's my home. 

Renting just pissed me off. You're just throwing your money away, you have to deal with other moron tenants. You have to deal with your landlord. It was crap. 

Having a place that I own is the coolest thing I've done. Screw the market.


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## Melonie (Feb 10, 2005)

And I guess what Macdoc is trying to say is that if you are thinking of buying your first house in a city of any size in Canada, you should think twice. If you are "trading up" and thereby getting into a larger mortgage, think twice. If you are settled and happily paying a mortgage whose payoff value is far below the current resale value of your house, you will be fine. If your house is paid-for, no problemo.

But it constantly amazes me how elastic the North American economy is. Perhaps because it is so diversified.

Time will tell.

Mel


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## Melonie (Feb 10, 2005)

InactionMan said:


> I don't care if the real estate market crashes, I know I can afford this place now and will still be able to regardless of the market.


Really? Maybe so, assuming that a the trigger that causes the collapse doesn't begin with massive job losses. But what if those reports are true? And if you have no job, how do you pay the mortgage? Job or no job, you'll have no fun paying a mortgage that is twice or three times the newly downgraded value of your "investment".

Then again, your home could be worth a million bucks in 5 years.

Who needs VLT's anyway!

Mel


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## MacDoc (Nov 3, 2001)

Melonie :clap:


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## Lawrence (Mar 11, 2003)

We paid $139,900. almost 7 years ago for our 2 bedroom row house and our
next door neighbour just sold their house (A bit smaller than ours) for $229,000.

With the way investments look at the moment...Our house looks like the best
investment we could have ever made, We'll be staying for a few more years for sure.


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## InactionMan (Aug 6, 2004)

Melonie said:


> Really? Maybe so, assuming that a the trigger that causes the collapse doesn't begin with massive job losses. But what if those reports are true? And if you have no job, how do you pay the mortgage? Job or no job, you'll have no fun paying a mortgage that is twice or three times the newly downgraded value of your "investment".
> 
> Then again, your home could be worth a million bucks in 5 years.
> 
> ...


 If there is huge employment losses, you're screwed if own a house or rent a place. Don't pay your mortgage, you'll end up homeless. Don't pay your rent, you'll end up homeless. How would renting protect me from this?

And it would have to be one helluva of crash that would make my place worth less than $100K.


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## Melonie (Feb 10, 2005)

InactionMan said:


> If there is huge employment losses, you're screwed if own a house or rent a place. Don't pay your mortgage, you'll end up homeless. Don't pay your rent, you'll end up homeless. How would renting protect me from this?


I didn't say anything about consequences of not paying your mortgage or rent, or protection from creditors, so what's that all about?

Mel


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## MacDoc (Nov 3, 2001)

So Dave say you cashed out now ending with $100,000 tax free you tuck away and rent.

Housing prices aren't going to climb in the near term. So you can earn some income on the $100k and your "monoply money" is a realized asset not just a figure on paper.

IF housing prices drop - you are a winner big time. You've got your cash and you can step back in whenever it suits you.

IF they stay the same you've got your cash at your likely maximum increase point.

Yeah it's a bit of upheaval BUT you get to realize those gains you only THINK you have made. 

YOU see there is millions of households in North America and Australia and Britain sitting there THINKING they have all this wealth tucked away in their homes and real estate investments.









Did you notice the number of jobs related to the home bubble.......40% - 2/5 of the jobs in the US........
When the music stops..........

•••



> Don't pay your rent, you'll end up homeless. How would renting protect me from this?


Because if you cashout at the top then rent you have money in the bank to cover any downsides in cluding job loss......and rents WILL go down in a recession.


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## (( p g )) (Aug 17, 2002)

Three things you can count on with economists: 
- most of them are dead wrong more often that they're right; 
- people still believe them in spite of their abysmal track record;
- in economics, everything is couched in <i>ceteris paribus</i> (other things being equal)...an absurd caveat for the study of a subject that is anything but predictable.

Let's look at <i>The Economist</i> over the last 10 years. Remember how we were supposed to be doomed to deflation? Stagflation? Or that the Canadian buck would be trading below 50 cents on the U.S. buck within months? Or that the Japanese economic juggernaut was unstoppable (okay that was more than 10 years ago)?

The thing to remember about housing is that it's a *market*--it's as prone to drops as it is to increases. While I take issue with many of the gloomy assessments that have been made about housing--some of which border on the ridiculous--there are practical indicators that suggest that prices may have hit a peak and are due (or overdue) for a correction. The biggest two indicators are, of course, the U.S. budget deficit and trade surplus, which will work together for at least the next decade to keep borrowing rates on an upward curve. But that's not to say that we will with any certainty experience the same spike that we saw in 1981 when interest rates hit 21% :0 

On a less certain scale, there's the boomer effect: aging citizens will no longer need the 2700 square foot homes they purchased between 1995-2005 and could find that there are fewer buyers than sellers. By that measure (along with the risk of higher interest rates), this would be a bad time to buy a big house.

But then there's the boom-echo effect: people in their 20s (and they are a huge segment of society) looking to buy their first house but simply cannot afford the downpayment on a $300k home. They might turn to condos, townhomes or move to a rural area so they can start building equity. So it might be a good time to buy a smaller house (low debt risk and a broader market of buyers, should you decide to sell later on)

Having said that...there's never really a perfect time to invest in real estate, other than when you find the *right* place at a price *you* can afford. You have to treat it like any other large investment: one that you're in for the long haul. Some will do well in the short-term, only to see prices drop before they have the chance to sell. Others will pay premium prices now and have to wait years before they're in a position to see any real returns on that investment. 

The best advice for any market (real estate, stocks, futures) is this: buy what you can afford now. Don't let the bank decide that for you, because they'll want to mortgage you as much as they think you can bear. And that's a sum quite different from affordability. If housing prices are out of reach for you, consider investing in a condo so you can at least build equity while waiting for prices to fall. 

For the record, I think prices *are* going to fall soon. But just not across the board (for reasons outlined above), or at the rate that some have been predicting, thanks to a continental economy that has been making a habit of proving the doomsayers wrong for an awfully long time.


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## (( p g )) (Aug 17, 2002)

Mrs. Furley said:


> RRSPs?


There's an interesting point of view that I've heard a few times about how a homeowner in his/her 20s would be far better served by plowing their savings into paying down the principle on their mortgage instead of annually maxing RRSP contributions and deferring those taxes until retirement. 

This approach (along with low interest rates) reduces the compounding effect of your mortgage, making your principle shrink in a hurry and putting you in a position where you could be mortgage-free well before your 40th birthday. At which point your capacity for risk in investing in the market is greater. 

Ceteris paribus, of course.


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## Loafer (Jan 7, 2004)

The fact of the matter is for most people it won't mean a thing unless...

a. They absolutely have to sell at that moment in time
b. They are lookgin to buy and sell in quick succession to make a buck

Most people tend to buy property and stay in it for a period of time that usually weathers ups and down in the housing market. 
It's only property speculators who will generally be hurt the most, just like it was stock speculators who were hurt the most in the dotcom crash.


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## MacDoc (Nov 3, 2001)

Wrong like in 1982 or the dot.com bust.

They didn't predict either of those very well at all .......your right....they tend to the optimistic side and IF Canada had not gotten it's economic house in order and killed the deficits you are damn right it would have been a trash dollar.
Only ONE guy got Japan' s situation right - he called for economic collapse when Japan looked like it could never fail........and sure enough.........
and why did Japan's economy stop............real estate.

NEVER in modern history has a Fed Chairman predicted a 75% chance of financial meltdown....those are HIS words.....for his own country. 

At SOME point markets correct - there has to be underlying value.....or the rest of the economy inflates around it. ( the Aussie guys 2015 prediction......catch = inflation ).

as the song goes......."One way or another....gonna getcha getcha getcha....one way or another...."

As I said Canada is in a decent position - excellent financials, strong balance of trade tho far too dependent on the US but we are certainly NOT immune by any means and tho Toronto is up it's not stupid like other major cities.

Now cottage country.........that's along term win....they're not making any more of it. Building or improving a cottage there for the long term and enjoyment IS wealth creation.

Of course the ultimate speculative property - buy a lake.


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## MacDoc (Nov 3, 2001)

> just like it was stock speculators who were hurt the most in the dotcom crash.


You MUST be joking- the speculators cashed out long long before it busted....pension funds and small investors got hammered. Retirement savings went up in smoke as did jobs and California which has yet to recover.


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## Loafer (Jan 7, 2004)

MacDoc said:


> You MUST be joking- the speculators cashed out long long before it busted....pension funds and small investors got hammered. Retirement savings went up in smoke as did jobs and California which has yet to recover.


pension funds and small investors are stock speculators no ?


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## Melonie (Feb 10, 2005)

MacDoc said:


> You MUST be joking- the speculators cashed out long long before it busted....pension funds and small investors got hammered. Retirement savings went up in smoke as did jobs and California which has yet to recover.


Absolutely correct. I know some people who got nailed, myself included. Silly me. I guess a lot of us lost sight of the fact that the majority are sitting at the bottom of the totem pole. We were the last to find out, and by then it was far, far too late. Never again.

Mel


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## Melonie (Feb 10, 2005)

Loafer said:


> pension funds and small investors are stock speculators no ?


That's what I call grasping at straws...

Mel


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## MacDoc (Nov 3, 2001)

Pension funds are run for the small investors BY supposed professionals and one of their mandates is to *protect capital * while earning a decent return.

Now indeed some small investors may well have gone to mutual funds that dealt in High tech and some MAY have been told the risks.

But the real speculators are always long gone when the music stops.

Then there is the short sellers also sucking money from bubbles 



> Enron: Could your stock be next?
> November 30, 2001: 6:04 p.m. ET
> 
> We turned to three short-sellers for the stocks that are scaring them most.
> ...


Do you know where Enron was a few days earlier???????// $84.87 THEN........to 28¢ when this went to press - and the short sellers made a killing.

Bottom line TANSTAAFL.


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## Jordan (Jul 20, 2002)

We bought just over a year ago, a house and a duplex (both sides). Both of them cost us $132,000 with about $10,000 in renovations for both. With mortgage payments totalling less than $500 a month (for both) and the rental covering for both mortgages, I think we're sitting in the cat bird seat. 

Now the market is on the rise and our places have almost doubled in price.
We cashed out $35,000 in RRSP's, there is no way the banks could ever match the almost 300% return on our money (so far). But we're not selling, yet.

Our one property (duplex) is our retirement property, .2 acre overlooking the ocean towards Vancouver Isl. and the glaciers around Mt. Washington, perfect place to watch the cruise ships pass and watch the sunset over Vancouver Isl.

This is one of the perks living in a remote community, cheap housing.


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## Fink-Nottle (Feb 25, 2001)

I think Toronto is still a good buy. All the projections show that immigrants will continue to congregate here and everyone needs somewhere to live. And we're still far cheaper than equivalent cities in Europe/Japan/the US. That said, prudence remains a virtue and I certainly wouldn't buy on the assumption that big gains are coming.


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## MacDoc (Nov 3, 2001)

$346,000... current average house price for TO while prrhaps not as insane as other urban centres is still a huge chunk of change to deal with.










It saw $400,000 in 89 only drop to $225,000 in 96.  anyone got a percentage calculator handy.

and I certainly don't recall the kind of worldwide warnings circulating then as there are now.


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## Kosh (May 27, 2002)

(( p g )) said:


> There's an interesting point of view that I've heard a few times about how a homeowner in his/her 20s would be far better served by plowing their savings into paying down the principle on their mortgage instead of annually maxing RRSP contributions and deferring those taxes until retirement.
> 
> This approach (along with low interest rates) reduces the compounding effect of your mortgage, making your principle shrink in a hurry and putting you in a position where you could be mortgage-free well before your 40th birthday. At which point your capacity for risk in investing in the market is greater.
> 
> Ceteris paribus, of course.


True. But wouldn't a better idea be to invest in RRSPs and use the money you get back in your tax return to make a mortgage payment? Hit two birds with one stone.


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## (( p g )) (Aug 17, 2002)

Many choose the option you describe, Kosh. It's not a bad route to go. But it's one of many options. It all depends on the average rate of return on your RRSP portfolio, versus the money you would otherwise save by throwing the full amount at cutting down your principle.

Another nifty trick is to shorten your amortization period when your mortgage is up for renewal. 

Example: take a 20-year mortgage, renewed every five years. When it is up for renewal, rather than doing what the bank wants, which is for you to choose a 15-year amortization, lop off two years and ask for a 13 year amortization instead. Repeat this as many times as you renew (which should be more and more often as the principle gets smaller). By the time your house is paid off, you'll be years ahead of the game and your interest payments could be significantly smaller of your net mortgage--especially if interest rates go up sharply at some point.


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## Vandave (Feb 26, 2005)

MacDoc said:


> While Canada is in better shape the numbers here are horrifying for the First world in general


I don't follow the rest of Canada, but out here in BC, the predictions are that real estate will be strong for quite some time. The so called housing bubble has no merit. Why? Because:

1. Low rate of speculation (% of properties bought and sold within a 1
year period)

The speculation rate has barely changed and is only like 2 or 3% of sales. In the 1980's prior to the crash, 20% of properties were speculation.

2. Affordability (% of income used to pay for home)

Affordability is slightly above average right now (say 60% of max recorded). So, this says people can afford homes.

3. Population trends

Interprovincial migration into BC is up for the first time in a decade after the devastation caused by the NDP.

4. Construction Rate

The construction rate is sustainable based on our population. BC underbuilt over the last ten years. The rate of construction now meets a sustainable demand.

5. Interest Rates

The long term economic predictions (based on yields from 5 to 10 year bonds) are that interest rates will remain low for some time. 

6. Strong economy

The strong economy is good for real estate. The resource sector is strong due to demand in China and India, plus a moderate US economy. High prices are fueling exploration, so our economy should do well for quite some time.


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## Sonal (Oct 2, 2003)

I haven't read this whole thread, but my folks have been in investment real estate for nearly 40 years. I have been in for about two weeks. 

Real estate investment and buying a house you intend to live in are different things. Kind of like getting stock from your company vs. investing independently--your company stock might be a good investment, but you aren't picking the company you work for solely on investment potential. 

You can make the house you live in a good investment, but ultimately, you buy the place you want to live in. The deal with house prices is that you're not buying a house, you're buying how much some one else wants to live there. 

There may be some artificial inflation due to interest rates, but overall, people want to live in Toronto. The population is growing. There are a few neighbourhoods (I'm thinking of Malvern) where prices are dropping, but overall prices are going up. There will be some kind of a readjustment--there always is--but in desirable neighbourhoods, things will eventually go back up. Buying a house isn't a short-term thing.

Dad's advice is always to buy when you want to buy and live where you want to live. Yes, you can look at the market to adjust those decisions slightly, but overall, you have to be happy living there. 

Speaking of crazy markets, though, my brother recently bought in San Francisco. *Opening* bids start at 15% over the asking price--and prices go up from there.


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## thejst (Feb 1, 2005)

The 'Bubble' as we know it is also happening in Winnipeg. Real estate 'values' have been escalating here for the last 7 years, most notably in the last 4 or so. 

The spin-off effect of this here seems to be a lot of people who are, or will be 'house poor' as low interest rates convince them to either 'move up' into properties they can't afford if the rates rise, or put 'first timers' out of luck with the scaling of purchase prices. 

the 'tax value' of our house jumped $25,000 in one year, which is great if the market stays consistent and rising- Bloody awful if the bubble really pops.

Some have said that it is simply Winnipeg catching up to the rest of the world- Housing here has traditionally been cheaper than other Urban Centres due to limited growth and demand. Now, however, the demand seems to have come from out of no where- it was the people who bought 10 years ago and sold recently who might be the only 'lucky ones' when it comes to cash remainder on a sold property today, and in the future. 

The other problem with YWG is that there is limited (almost no) balance in the rental market as well. There seems to be a lot on the high end $1000+/month and some on the low end $300 in a bad part of town but nothing in between- Rent Controls predict that this is not to change anytime soon. 

We bought because there seems to be no alternatives here- and we bought as modest a home as we could. We love our home, but are worried about 2-3 years down the line when it is time to renew.


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## kps (May 4, 2003)

I feel like this whole real estate market is as artificial as one can get. I looked at selling my house in Toronto and moving a little north, but even board and batten shacks, hour and a half from Toronto are going for $400,000. I'd have to move to Tobermorry to find something affordable so I could stash my profit into a nice retirement nest egg.


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## MacDoc (Nov 3, 2001)

> I feel like this whole real estate market is as artificial as one can get


No really....!!! Ya think????? 

Just go down the list of who actually gains in having property values skyrocket. Start with the town for property taxes, the insurance companies, the mortgage lenders, the real estate agents, the reno shops like Home Depot ( gotta spend that windfall somewhere ) and hey it'll just make worth more.......right??
The property tax lawyers - funny how they take a % AND tack it onto the closing docs to make sure they get their cut.

I've said it before - high land values are one of the singe most destructive forces for communities.

No low cost housing for kids or working poor - people end up 4-5 singles to a house or none at all living with MOM.
Costs for all other services end up going up cuz it costs a lot to live there, teachers, schools, want a new park..ouch.....look how much that land is worth.

You tell me why 1 linear foot of serviced dirt is worth $4-5000.

And then it ends up killing family farms - farm kids can't afford additional land - the ills go on and on.

Stupid system. 

2/5s of the work force in the US related to housing.......just how sustainable is THAT


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## thejst (Feb 1, 2005)

sorry that this thread is dwindling...it is very intersting...thought i'd give it a bump in case it gets missed...


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## Paul O'Keefe (Jun 3, 2005)

kps said:


> I looked at selling my house in Toronto and moving a little north, but even board and batten shacks, hour and a half from Toronto are going for $400,000. I'd have to move to Tobermorry to find something affordable so I could stash my profit into a nice retirement nest egg.


Move out East. Live like a king for the rest of your life... just from the money you make from selling your house. No joke.


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## kps (May 4, 2003)

I would if I could...in a heart-beat, but I'm not ready for retirement. Actually I have a ways to go yet.


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## Sonal (Oct 2, 2003)

Took a quick MLS search to get some idea of what house prices were like in Newfoundland. Nearly choked on my coffee. 

Granted, I don't know locations in NL at all, but you could buy a nice 3-bedroom starter home for about the same price as a trailer (as in trailer park) in Pickering. You can't buy a condo in the GTA for the price of some very nice houses there.

Still, I don't think I could leave Toronto, high housing costs and all. Too much of a city girl. Planning to move further into downtown.


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## MacDoc (Nov 3, 2001)

Our topsy turvy world........home owners binge.......corporations *SAVE!!???* 



> Unfinished business
> Jun 23rd 2005
> From The Economist print edition
> 
> ...


Humpity Dumpity n all.


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## Chealion (Jan 16, 2001)

MacDoc - Is that graph adjusted for inflation? Because if it's not the trend would be a heck of a lot more horizontal especially if based on that year's dollars. A dollar in 2005 has a completely different value then a dollar in 1970.

The trend isn't as bad as it appears, but that doesn't mean that house prices are setting out for another fall.


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## MacDoc (Nov 3, 2001)

It's irrelevant for inflation - it's a trend of percentage of GDP as savings.


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## MacAndy (May 17, 2004)

Someone else pointed out a few [dozen] replies earlier that they bought cheap and now have a house worth $80-90K more than they paid for it. That's exactly why you should buy a house rather than rent. Banks and developers are practically falling over each other to give you a house without a downpayment or very little downpayment. Take it!

Our example... we purchased a real fixer-upper at Warden and Kingston Rds in 1995 for $142,500. We worked on it, doing all the renovations ourselves and doing quite a good job I might add - all new electrical, plumbing and insulated exterior walls, and finished basement. We hadn't watched the house values until our neighbour sold a few years ago and got almost $300K. Wow - more than doubled in just 7 years. We felt proud of our little money-pit, er, investment.

An increase of $150K in ten years. The house costs us $12,000 in mortgage payments a year and the value has increased $15,000 each year.

Even IF house prices stall for a decade and they ARE overinflated by about 25%. OK, so our house is only worth $225,000. [$300,000 x .75]. It's still worth much more than we paid into it. Rent doesn't work like that. It's gone.

We are planning to build a second storey at a cost of $70-$80K. I am doing all of the interior finishing so might spend a bit more on the stuff I can't do - major structural, roof, stairs and windows, etc.

We'll stay in this house at least until my girls go move out in 10-15 years, at which point house prices are likely to turn up again. By that point my $142,500 bungalow will be about a $450-$500,000 two-storey home with modern kitchen and bathroom, all new plumbing and electrical. And despite what 'market trends' may dictate, there will ALWAYS be someone who does not want a fixer-upper and wants a finished house that will not require any more work, except maybe a roof every 10-15 years.

And being just 15 minutes from downtown, the aging yuppies and aging X-gens in their 2015 Bimmers will be lined up around the block to outbid each other while I sit back and enjoy the show. Some houses in our area have sold for $10-12K over listing. Them's figures I like to hear.

There's nothing like home-ownership. I know, I rented from 1990-1995. Eck.


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## MacDoc (Nov 3, 2001)

And if you bought at the peak like it is now NONE of those numbers work. Yes they are falling all over to sell you at the peak of a market.

The AVERAGE price is now $400,000 - that's average. 

YOU bought at the bottom of the market and you are advising OTHERS to buy at the top????  How constructive is that??? You bought in 1995 and the market bottomed in 1996.

Where would you be if you bought in 1989 and had to bail in 95.??


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## Chealion (Jan 16, 2001)

MacDoc - My post was about the graph you just posted (the average price of a house). I don't believe it is adjusted for inflation so the trend is increasing more then it is in reality when you compare apples to apples (rather then McIntosh to Granny Smith Apples)


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## robert (Sep 26, 2002)

The sky is falling, the sky is falling.
I advise people to buy what they can afford, not what they want.
In the end, they will be farther ahead than renting.
Life is full of ups and downs, you just have to learn how to ride out the bad.
A friend renovated his basement to rent out as a way of surviving the early 80's low.
Advising not to buy, based solely on the TO/GTA market is fear mongering pure and simple.
If you can swing it, buy and enjoy.


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## MacDoc (Nov 3, 2001)

Chealion - had yours eyes checked?? What's the title of the graph 

••••

How do you know what's "affordable" - interest rates and incomes are both variables and when the AVERAGE house in Toronto is $400,000 ...........

So average house average family - that puts a $350,000 mortage in play. $50,000 down.
That's $2035 a month on a 25 year amortization before taxes at today' interest rates. Add about $300 per month for taxes. ( and climbing )

That needs a family income just shy of $90,000 for an average home.

While in 1995 an average home on the same basis was about $1700 a month needing a family income of around $60k. THAT's affordable.

Taxes go up and then what happens when interest rates rise even a point with today's prices. Ouch.
Do you think incomes have risen 50% in 9 years??? not a chance.

What the average family CAN afford and where houses ARE now are entirely disconnected.
That's the entire point of this thread. It's a very dangerous mix and if the economy stumbles just a bit........another SARs........

You say ........."buy what you can afford".........well.........with house prices where they are and incomes not exactly climbing........what IS affordable????.....not bloody much.

and there are more and more rentals.........












> Market rents have fallen and landlords are now offering large incentives to attract new tenants and even keep existing tenants.


It does not take a lot math to figure sitting out a market peak looks very inviting.


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## Sonal (Oct 2, 2003)

Well, if you're buying real estate with some notion of investment in mind (even if you plan to live there) then you have to keep in mind that making money in real estate is a long term game. Yes, you can make fast money flipping properties, but it's also an easy way to get burned. In the meantime, you have to live somewhere, and you may as well build equity.

But you know, despite the rising house prices and the softening rental market, I just bought a 4-unit rental property deep in the heart of downtown Toronto, solely for investment. Why? It was a great opportunity, it's not going to be there be when the crash comes, and right now is personally a good time for me to buy. 

If your lifestyle allows you to sell property in today's hot market, rent for a while, and then buy when the market falls again (assuming interest rates aren't too high), yes, you could do well for yourself. Lots of people don't want to tolerate that kind of uncertainty and frequent moving, and have reasons why the must buy or sell now.

Keep in mind, though, the value of your house isn't solely affected by the market. You can do a lot to improve its value, or defray its cost--renovations, improvements, renting space, etc. Take landscaping--a nice garden can be very cheap to do, and adds value by improving curb appeal. Improving heating/cooling efficiency lowers the operating cost of your home and increases the resale value. 

Plus, real estate is an investment that you can leverage to make other investments. Granted, it's a risk, but done wisely, it can pay off very well. But once again--that's a long-term game.


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## Chealion (Jan 16, 2001)

MacDoc said:


> Chealion - had yours eyes checked?? What's the title of the graph


I'm going to go hide in a cave now. I really don't know how I missed that.


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## Pamela (Feb 20, 2003)

The type of people that I hear complaining about house prices and the impending doom are the ones that "can't afford" to buy...


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## MacDoc (Nov 3, 2001)

That's a crock Pamela - complete and utter nonsense.

It's a bubble.....a huge one, the largest in modern history and very very dangerous to the world economy.

Do you actually understand the size of the numbers involved and the danger??.....or just making snide comments about "lesser folk" 

Why the hell do you think it's the front cover of the Economist?????
Perhaps you might want to actually READ the first post in this thread.


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## Pamela (Feb 20, 2003)

lol...whatever dude...

All I know is that even if the interest rates hit 10%, a $350,000 over 25 year mortgage is "only" $3000/month. Add $2000/month for living expenses then you still only need $60,000 a year to get by. Rent out your basement suite for a grand a month and you only need $48,000 to get by. Hardly impossible. And for those who can't afford it there is always the renting option...the exact same option that has been a necessary evil/choice for those in the past whether it be a good economy or bad.

So back to what I said, the only people freaking out about the supposed impending doom is those that can't afford to ride through it.....which is fair enough, but don't try to burst the bubble of the rest of us who are staying within our means and happy and comfortable with our decisions. (And I believe this line of thinking matches the heading you gave this thread..."Tread carefully", not "Don't tread at all or you'll all get your balls cut off".)


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## kps (May 4, 2003)

Decisions...decisions...

Quote from the agent: *"In the past 10 years Oakville lakefront properties have averaged a 511% increase in value"* Holy sh!t!!

http://www.invidiata.com/lakefront.html

Checkout Ballymena Estate ...I couldn't afford one half of the _coach house_. LOL!! No price, but I'll guess 12 mil.


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## mrjimmy (Nov 8, 2003)

> Nortel will NEVER go below $100.00 a share


Remember that one?


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## elmer (Dec 19, 2002)

Maybe the housing market will go down, but I'm not too worried about it, and I don't think there's really a bad time to get into it. The sooner the better.

I have a freehold townhouse in the 905. From my point of view, I'm borrowing a house with a really good interest rate, and it's one of the perks of having a steady income. If the housing market goes down, I can either keep living in the home, or I can sell and buy. I'll be selling for a low price, but also buying for a low price, so I don't see where the big loss is if you stay in the market (not necessarily in the same house). And why wouldn't you stay in the market - you need a place to live.

The other thing is that financially, owning is half like renting - a large portion of the costs are somewhat ongoing, fixed and unrecoverable: utilities, taxes, etc.

A mortgage is like the biggest, lowest interest rate loan you can get. Where would you get such a good loan if you wanted to use the money to buy stocks?? And by paying it down, you're improving your credit rating.


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## MacDoc (Nov 3, 2001)

Pretty clear you've not been in a deep recession Pamela.
BTW your numbers you are talking are after tax income. What happens in a bubble is it spirals down incredibly fast as leveraged positions get eliminated and there are forced sales below market.
Now considering 40% of the jobs in the US are housing dependent and say that spiral knocks out 30% of the jobs - down it goes again. It's a house of cards.
You are assuming you can handle $5-6000 a month after tax on two incomes ......how about on one income - are you invulnerable??
And this is just considering an AVERAGE house and an average income.

It's unsustainable as it was in the 80s and WILL correct - it's just a matter of inflate incomes/rents or deflate housing values.

There is nothing worse for society than high artifical housing costs and and values. Just ask the entire Japanese economy.



> Little did I know then, however, that my arrival coincided with one of the most remarkable turning points in economic history - the bursting of the biggest asset bubble the world has seen in more than a century and the subsequent period of financial instability and collapsing confidence that is widely referred to in Japan as "the lost decade".
> 
> After growing at a spectacular rate for almost the entire postwar period to reach the point where it almost overtook the US, the Japanese economy hit a wall some time around 1990 and has since been shrinking even faster than it expanded. You can almost hear the creaking as the world's second biggest economy contracts. *Share prices have fallen by 75%, land values by 80% and prices have declined for four years in a row. The government has the biggest public debt in the industrialised world, worth 140% of GDP. Japan's credit rating has slipped below Botswana's.* With interest rates at zero and the first peacetime deflation since the 1930s, the country appears to have contracted some strange new economic disease with baffling symptoms


Fun gee wow..........bubbles are SOOOOO much fun to play in.







...silly monkies.


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## Lawrence (Mar 11, 2003)

I figure we aren't really buying our house...
Just paying out money to get a big fat return on our investment so that we can
buy the house we really want later on after we grow tired of living in this
disgusting polluted crack infested hell hole district we call home.

Ok...Honey...I'm going to get the lottery ticket with the dog right now...
(Gotta go...Good luck)


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## MacDoc (Nov 3, 2001)

*Tick*



> "It scares the life out of me," admits 29-year-old Vancouver resident Peter Weylie, when asked about the prospect of owing hundreds of thousand of dollars to the bank when he finally finds his "starter" home.
> 
> "You have to have a huge mortgage. It's just one of those things. You don't have any other options," he explains.
> 
> ...


*Tock*



> Canadian dollar soars as central bank signals *higher interest rates coming soon*
> 
> Updated at 15:48 on July 12, 2005, EST.
> 
> OTTAWA (CP) - Indications that the Bank of Canada is set to raise interest rates


"_"I know I sound like a psycho,....."_....indeed !!


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## guytoronto (Jun 25, 2005)

*Wrong...*



robert said:


> real estate has always been one of the best places to invest, renting is just throwing money away. The catch is to stay within your means and not risk a lot in this type of maket.


If you take the differential between the cost of owning a house, and the cost of rent, and invest it in something high-yield, it is possible to get a better return on your money by renting, not owning property.

It doesn't always work, but it can.


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## MBD (Sep 1, 2003)

I find that I am pretty much the minority in these things. I live in my house (in the country with lots of land and trees in a very simple house that many would and have called a 'shoe box' even though it's okay to me - about 1500 sq ft (I think that's the right size - tell me if I've missed a decimal as I'm terrible with that )) but I like living here. I have no intention on moving even though real estate friends insist the land is now worth millions (bah! that's artificial and your home is your home) and we've put money into renovations not because we want to increase the value of the home (which is a load of crap most of the time anyway because "value" is based on someone wanting to buy the house because the like what you've done to it) but because we like it. Because we bought a simple place, not a mansion like I see most buying now, we are done with our mortgage. I see acquaintences buy huge houses that they have to heat and pay the mortgage on that they can barely afford and when a spouse gets laid off, they are in a lot of financial trouble! 

People have been very critical of me because I have extra cash to enjoy vacations or buy the odd expensive gadget I'd like to have (like my new iPod) and they don't even know I have no mortgage to pay (the nastiness would really come out then) but these same people are usually living in monster homes and driving a new car each year. That's fine if that's what makes you happy, but don't be nasty to me if I choose to put my money elsewere.

Sonal is right - there are big differences between houses as investments (and really, you should cash in on that if it's an investment so you aren't just rich on paper) and houses as places you live in. I know the bust is on its way and even if you hope to rent out a house, often people can't afford that so you either don't get much for your rental or people start moving away in search of work and you can't rent it out. I'd probzbly feel pretty bad putting some family out on the street that couldn't pay, but I'm kinda a sucker.


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