No, not at all. All of the money that I have is invested in mutual funds. I don’t really think of my home as an investment. However, all of the people that I know who have bought and held real estate have done very well, often without actually investing a lot of cash. I don’t know enough about it except that all of the other little hassles which are associated with it don’t interest me. It seems like it’s taking a helluva a long time for my egg to grow into something that will support life, after work.

Thank you for the links.

http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html

That’s one article I found rather quickly, but over the past few years I’ve seen various articles regarding which is the better investment. This particular article references a study done by a finance and economics professor in New York, Jack Clark Francis.

Anyhoo, it seems that you might disagree on this subject. As a realtor, do you have some things you’d like to add? (Aside from our bizarre real estate trend that doesn’t follow predicted economics – keep in mind Canada’s real estate boom is now starting to show signs that it’s over, and some corrections are already happening) Do you think personal real estate is a better investment compared to stocks? Of course I realize you can’t live in a mutual fund, but you also can’t sell your only residence and live in limbo with all your gained equity wealth.

Except that you can’t live in a mutual fund.

Can you refer to a couple of those studies? I’d really like to read them. Thanks.

Thanks, I’ve already filled out the application form! I was distraught to find out they changed the ratio of builder to invididual lots, they said it would be 50/50… now builders get 2 lots to every 1 lot for individuals! That’s the city for you, doing absolutely nothing to help it’s citizens but always scratching the builder’s backs. Looks like the builder’s have the upper hand… again. It’s no wonder why we’re the 3rd most expensive place for new construction in Canada.

Jedi, Robin, Alex, Mike C., etc.

40 year mortgages obviously aren’t ALL bad. Some people, like Alex, go into it with a decent salary, have lower payments, but aren’t scraping by on every penny just to buy groceries etc. Most also plan on making extra payments, and/or renegotiating the duration of the mortgage later on. These are the “smart” ones.

The biggest problem with the 40 year mortgages are people who want to get into the real estate market so bad but should NOT be qualifying for any mortgage. These same people may also have debt on credit cards, cars, school, etc. There are definitely situations where people should be turned down.

Earlier this year a rep from FirstSask Mortgages was on the news saying how 60+ year olds can qualify for a 40 year mortgage… who exactly is that helping?!?! The individual? Absolutely no way!!! Personal real estate should NOT be chosen as a strong investment, it is more like a savings account. The increasing equity is “supposed” to be marginal (with exception to 2007) and with that your estate grows in value. However, studies PROVE that investments in mutual funds, stocks, RRSPs, etc. have a MUCH better rate of return than personal real estate. That’s why it’s NOT a good idea to put ALL your cash into your home. So many people in Canada aren’t even saving for retirement!

It’s easy to throw out these rent vs invest historical comparisons, but ask investors in bre-x, nortel, the tech bubble and and the current correction about this? (granted that is why you diversify and invest long term)

We can also argue that generally housing over time is a good investment but only need to look south to see negative consequences.

Clearly there are risks with both. There can be advantages to both. Our mortgage lets us pay up to 20% per year, up to that total 5 times a year, and can make double payments whenever we like. We opted to have a place and invest (there can be a happy medium). We want 2 solid foundations, and once we have a nice little pot to grow will very aggressively pay off our mortgage.

A couple of other people have also provided how 40 year mortgages are benefitting them. I am not an advocate for them, but if we really want to get into it, why is a 25 yr mortgage good? Ideally no mortgage is the best, and I think as long as people have a plan as to how to get there, that is most important.

Ps. Heather, looks like willowgrove lots draws are coming, money in due May 9. See today’s paper

I guess I mean that I don’t want to be one of those entry level buyers who is forced to settle for a grossly overpriced (and small) home, in a less than stellar area–just because the market is overinflated. On top of that, I don’t enjoy the thought of having to pay for that overpriced home for 40+ years. Especially if/when the overpriced home I just bought dips in value.

I’ve said this before, but these prices do not reflect the reality of Saskatoon-living. At least, not yet (and it will be a long time before they do). There is no way in hell that these homes are worth 300+ thousand when we live in the middle of the cold, windy prairies. Sure, commute times are short, and I’m not trying to rag on prairie living per se (and Saskatoon’s river area can be beautiful in the summer), but Saskatoon is an oversized town when it comes to amenities, lifestyle, and other urban options. We are not a large city–not yet. I wish someone could blow the “WHOA!” whistle so we could all come to our senses here.

That’s why comparing prices to other cities in Canada (which are much larger and offer much more in terms of amenities, public transit, etc) is getting so very old. You cannot compare Vancouver (or even Calgary) to Saskatoon. You just can’t. Commute times? Sure–we got ‘em beat on that one maybe. But that’s about it.

There may be some people reading my comments who are thinking “if that’s how you feel, then perhaps you should leave!” Believe me–I’m considering my options. Because if this city does not return to its senses, I may have no choice but to leave. Wages are not catching up to inflation here. If our building does not end up being converted to condos, our rent will probably increase to at least $1,000.00 a month (one bedroom downtown). Where am I living??? It certainly can’t be Saskatoon!

One of the biggest draws to even living on the prairies used to be the lower cost of living. If we don’t have that anymore, well…what DO we have (besides shorter commute times)?

I really wasn’t trying to give the impression that buying a house in this market was a good idea. I personally own but if I had no equity I don’t know what I would do. I just think that to say a 40 year mortgage is a stupid decision, you’re not looking at the full story.

As far as the actual 40 year mortgage argument, let me break the numbers down. The difference on a 300k mortgage betwen 25 and 40 years at 5% is about $300 per month. If you take that $300 and invest it, have it compound at 8% a year you end up with $285K after 25 years. After 25 years you own less than $200K on the mortgage so you could pay it off and be $85 K ahead of somebody with a 25 year mortgage.

Historically the stock market has returned 9%+ over most 25 year periods and public pension funds use 8% as a target rate of return so I don’t think this is unrealistic.

I think my argument is fairly clear, if not let me know. Otherwise, if you are going to argue with me any more on this, please do me the respect of arguing with the numbers I put forth or some fundamental flaw in the argument.

Miska

My wife and I bought a fixer up in Nutana this past fall after getting completely wiped out during the spring. The worst part was that we had been looking the previous fall, months before the surge, and we decided to wait for the spring for more options. Woops.

When we bought, we went with a 40 year mortgage. Why? Well, when we went to negotiate our mortgage the first time we had been looking at a house considerably more expensive and when we went back to do the paperwork on the house we eventually bought, I never bothered to negotiate a shorter amortization period, which I would have qualified for. First time buyer, nevetherless, Woops again.

We also went without a down payment. Why? well as I mentioned it was a fixer-upper. We used the downpayment we saved to renovate the house. We hope the renovations along with our “sweat equity” have added enough value to the home to see a return on our money. If not, its moot, as my wife and I are both happy in our home. ALthough it may prove to be a little small over the long term.

Why I am not worried about a 40 year mortgage with no down payment. Well I have a very secure decently paying job where I see decent yearly increments in my salary. When I finish my graduate degree in the next couple of months I will see a major increase in salary in addition to my regular ones. Also, since my wife has been at her job less than a year, she is not on the mortgage at all, and she has a humble yet helpful income. FInally, I do contract work outside of my regular work, some of which was taken into account in my negotiations, some of which was not. The portion that was not, is again humble yet contributes to our income. When our term is up in three years, I will negotiate a shorter term, but for am not worried about. We are putting another 200 per month toward our principle, and hopefully more in the future.

Just wanted to tell my story, which in retrospect is slightly short of Tolstoy sized post.

Mike

The idea that you may be “screwed out of a house forever” is probably an impossibility. No real estate market can function over the long term if there are no options for entry level buyers.

I know exactly how you feel. I don’t want to be stuck with an overpriced shack; yet I don’t want to be screwed out of a house forever.

But I am usually a victim of Murphy’s Law; and in this case, I know that if I buy something now, prices *will* fall and I’ll be stuck with an overpriced home, and stuck with a 40+ year mortgage

Not everybody could afford to buy a house 4 years ago, or even 2 years ago, I was one of them. If I had known what I knew today, I would have bought a house with a minuscule downpayment, because in the end it would have made up for the increased interest payments with equity EASY!

What would you say to the young people trying to buy into our real estate market now on $12/hr jobs? Tough luck? Or… pull out $200K on a 40 year mortgage for a 700 sq ft condo and you’ll be just fine?… What happens when they’re in up to their eyeballs in mortgage and the market drops? Are you going to tell them to doggy paddle faster? How long can they hold their breath underwater?

P.S. Saskatoon’s real estate may have skyrocketed, but the whole prosperity thing isn’t quite here yet. We’re all waiting with bated breath.

Ooh, callum Captcha: recession mint

Kind of like double-mint gum, but ten times the fun!

6 straight weeks of increasing inventory? That has to mean the market here is weakening, either people cashing in and retiring to condos they can now afford in BC, investors leaving at the peak, or just less demand from students settling in more affordable communities, which I think I’ve seen posted on here as well.

“Saskatchewan is truly the land of milk and honey.We have waited along time to see a turn around in this province and now that it is here we still sit at the side lines watching and wondering what to do with it. This is truly a time of prospertity and overflow and I hope that saskatchewan residents will benefit from it.” I don’t think what we’re waiting for is here yet, I just see a lot of people who can’t afford housing and are back to talking about moving to Alberta to make more.

“Yes if you take your mortgage out over 40 years you will pay more interest. At the same time, if you invest that 17% less you pay, let it compound at 8-10% in the stock market, you will actually have more money at the end of the day. At least that is true while you can get a 5% mortgage rate”

That’s a wonderful idea — provided the stock market always gives you an 8-10% return. But if it always will, why not just rent and invest the difference between renting and owning?

Seriously, you don’t just pay ‘more’ interest: you pay twice as much interest.

After 20 years, you still owe 75% of your principal. After 25 years, you still owe 63% of the original loan.

That’s a big honking difference for a couple of hundred dollars a month — which is typically what you save.

The ‘virtue’ of a lifetime mortgage is that it allows you to buy a house you’d not qualify for with conventional financing — which allows first-time buyers to keep buying houses even when the houses are out of reach of their income, which allows prices to rise still higher.

The Japanese wound up with 60 year mortgages by the time their bubble burst.

I’ll rent for the next little while, thanks .

I’d happily buy if the price was close to renting, but it’s not, and it’s only going to get worse.

to keep the fire going. United we stand ,divided we fall. As far as affordable homes goes , four years ago

people could of bought homes in ,

for approx $120k that were in very good shape,and people still did not buy then. These same

people are now looking at the market and saying that buying a house today is not affordable, that the market has gone wild. Friends, I have to say, that if you do not jump in the water, you will never learn how swim. Saskatchewan is truly the land of milk and honey.We have waited along time to see a turn around in this province and now that it is here we still sit at the side lines watching and wondering what to do with it. This is truly a time of prospertity and overflow and I hope that saskatchewan residents will benefit from it.

We can either be spectators or participants, that I can not decide for you, but I know that I will not wait and allow this hour go by without reaping the rewards. This is only my opinion.. Thanks for reading

I didn’t mention a financial advisor because I think they are prescient – I actually think most are idiots about markets. What they are fairly good at explaining to people though is basic budgeting and financial skills. As easy as a debt service ratio is to calculate, it’s amazing how many people can’t do it. And they would probably also find a nicer way to say it than “you can’t afford to buy a home”.

But you make some good points. The slippery slope argument does go both ways (if a 40 year mortgage is stupid, why not a 25 then). To me, a 25 year mortgage pushes the limits of the upside of home ownership with the downside of borrowing money to do it.

I’m curious though which of my numbers are not practical?? Please explain.

“how is advising someone to wait a smart decision?”

Very easy. There is a saying that in the absence of information, no trade is the best trade. Right now, even the most bullish people will admit that there are some strange signals coming out of the housing market (in Saskatoon, Canada, and the world in general). A lot of conflicting opinions. I don’t think waiting a year or two until you have a better financial cushion to weather any possible downturn is a bad idea. The idea that first time homebuyers will be priced out of the market is the greatest lie ever put forth by the real estate industry. It cannot happen. So it comes down to a simple risk assessment of the current upsides vs current downsides. People should ask questions like

- is it cheaper to rent than buy?

- am I buying because I want a home, or because I expect to make a profit?

- will a recession affect my region?

- will a recession affect me personally?

- etc, etc

Geoff said it very well with:

“If you can’t afford to lose money, or need your house to make money to get by, you probably should stay out of the market.”

That is why I would tell people to wait if they are not in a strong financial situation.

http://rentingvsbuying.chadstown.com/default.aspx

I am not saying it justifies anything. I am just saying your statement about housing prices in relation to economic growth isn’t valid as it applies equally to Edmonton. I think you conceded the point.

As for getting a job in a suburb well that is great if you can do it. If that works for you congrats, have fun. However, for a lot of couples it is not possible for both to get good-paying job in a suburb location. So while your point may be valid in your case, I don’t think it constitutes a general rule.

Warren,

Yes if you take your mortgage out over 40 years you will pay more interest. At the same time, if you invest that 17% less you pay, let it compound at 8-10% in the stock market, you will actually have more money at the end of the day. At least that is true while you can get a 5% mortgage rate. If interest rates go back to 7-8% then I would agree with you but for now 40 year mortgages do make a lot of sense.

Your numbers make sense. but are not practicle. Some people like 40 year mortgages to give flexability, and have no intention on taking the full term to pay off the mortgage. Why stop with 40 year mortgages being stupid, why not say 25 year mortgages are stupid too, or perhaps 20 year, 15 year…. you get the point. Every mortgage has a cost, and no matter what term you choose someone will say you are wasting your money for taking such a long term.

how is advising someone to wait a smart decision? Do you know what the future will bring. Nobody knows, we all have guess, but that’s all they are is guesses