Take a look at this blog exchange from Bob Truman's blog from March 2008, archived here. This is not about Bob, but Mike from the comments.
There will always be people who say "homes are unaffordable", or make up a vault of excuses not to try to buy one "they will go down... it's better to rent... I didn't buy at the ""right time"" etc".
On getting into the market (in March 2008):
With 40 year mortgages, and 5% down, you CAN get in, work hard, save hard and that home ownership dream is yours. The ney-sayers will say "40 year mortgage, forget it", "5% down? CMHC fees are too much!!". If you start with a 40 year mortgage remember it doesn't mean you have to wait 40 years to pay it off.Advice to a renter saving up for a down payment:
Buy vs. rent
Tips. I eat noname Mr. Noodles for lunch daily, my wife makes and packs her lunch daily. We go out to eat 2 times a month but spend $20 on a meal for 2 (Entertainment Guide). Walk or transit all we can. Buy gas at discount stations only. Drive an economical car (Aveo). Use energy eff lights, have the heat set lower, etc. It all adds up. :)
More buy vs rent and price drops:
(note the below example is very rough, but its a good "general" example)
EG; Take a $350,000 mortgage, 25 year, fixed at 6%. Payed Monthly.
You take 25 years to pay it off. You'd pay $321,800 in just INTEREST. In 25 years, that $400,000 home would be worth, say, $1.5 million. So you net out $778,200 at the end of the day. That's a good investment, honestly. You made $778,200 TAX FREE baby!
Take the same $350,000 mortgage, 25 year, fixed at 6%. BUT payed Weekly and DOUBLE your payments.
You'd pay $89,514 in just INTEREST. In 8 years (you just chopped off 17 years in payments too). Sell your home for $1.5 million in 25 years (you did live mortgage free 17 years of them too).
You made $1,010,485 TAX FREE baby, Oh ya! Sign me up!
The best part is not only did you pay LESS in total buy paying MORE in payments, you also made $232,285 for your dedication AND lived 17 years with NO MORTGAGE payments.
Response after Radley challenges the assumed appreciation of $400,000 to 1.5 million.
For me, If I rent the same home I'm in now, it's $4,000 a month (that's what the smaller home goes for next door to me). And some suggest rent for 36 months then buy... that would be $144,000 in rent. That home is worth $800,000 thus that home would have to lose 18% over 3 years and then you'd "break even" with the renter.
Do I think Calgary RE will go down 18% in 3 years?? Of course not; but even if I said yes, you would still be no better off renting. You could say "your paying 4.6% interest on your mortgage that would make a difference" yup. But on the flip side, I'd wager the rent will easily go up by 4.6% a year too. ($1000 = $1047 next year).
It's about an increase of 5% a year for 27 years. 5% isn't much a year. If your making, say $60,000k a year, and your keeping up with inflation of 5%, then in 27 years, you would be making: $224,000 a year and rent would be: $7,500* a month as well. Although we know that rent increases FASTER than both home appreciation and wages, so expect rent to be $10,000 a month. (*based on $2,000/mo rent today). Wow, think how much a renter would throw away in home equity.Another anecdotal example supposedly representing the market in March 2008.
Well, there is NO information like up-to-the-date accurate, real-life information on what's happening in the market and I can give you some of that now:I challenged the notion of the overbid being representative of the market in general
Yes, it indeed occured (I have no reason or desire to lie) and no my initial asking price wasn't low at all; It was fair market value. In fact, if we only had the inital offer we would have accepted it. As its a private sale it won't show up on the MLS or Bob's stats (although Bob, if I give you the stats can you use them?). It was most definately over 4% list. The important thing was starting at an accurate market price.Another poster Warren posts up even older information regarding this sale
I'm curious about your anecdotal story. Is this the same house you were selling last year? On August 30, 2007, Mike wrote:More from Warren:
"Our home was listed for 5 months, we went from $999k to $825k. We took it off because at $825k we couldn't find a 3,200sq/ft dev, inner-core, blue blood neighbourhood, 50x120' lot, reno'd, solid home with views for that price. Our issue (doesn't all homes have at least one?) is that we are on 17th ave SW, unfortunately I can't move the street.
Will we relist? Yes. Lower? Yes. I was thinking $775-799k. Everything is indeed coming down so if I loose a little on my sale I'm betting I can pick up a home right now for less too. Works out in the wash."
Unless I am mistaken, in less than a year you went from a $999,000 list price to (according to yourself) an asking price of $675,000. Isn't that a reduction of 32.4%?
So even with a 19.5% overbid, you still sold it for 2% less than than you were asking last summer and 20% less than you were asking a year ago? Is this a different house, am I getting the story confused?
There is a lot more in the thread. So what? This is old news. Who cares? I think it is useful because this same poster is now using similar misleading anecdotal examples or observations to represent the current market as a bear. As before these examples are inaccurate, insincere or some combination of both.
I was going to write this really long review of all the contradictions Mike has made (which year his house was bought; whether it sold for $807,000 or $835,235; his proud claims of a 19.5% overbid after he slashed the asking price 32.4%, etc, etc).
But then I realized it's a waste of my time. RJ laid out excellent rebuttals point and point again to no use. Mike has no concept of the effect of inflation on asset values, or the opportunity cost of money, or the effect of leverage, or any of a dozen other basic principles of finance. Is this why you mock higher education??
Recently Mike has commented on some sales in the Scarboro area in Calgary on the Alberta Bubble Blog.
Wow, look at this, just came up today:Notice how this was taken to represent the market more accurately than CREBs numbers. But he didn't mention the lot subdivision and development which played a role in this sale as DaBull points out.
That's a $600k purchase 15 months ago plus new kitchen, flooring, bath and paint, now for sale at $339,900.
Who said RE always went up? And considering Calgary CREB is touting "increasing prices"...right! That's 240k lost there.
I knew the 93 year old who sold that house as they were 2 doors down from my old house.
If you look at the titles, from the Spin II system, they actually bought 2 lots with houses for a total of $632K in Dec 2007. They subdivided into 3 lots. Sold the one to the left for $340K, are currently selling the one to right for $339K and either keeping or selling the new empty lot they created in the middle. Made their money back and either have a lot which didn’t cost them anything or are going to sell it for a tidy profit. Not everyone is a stupid as you think they are.Another example here
Sold for $1m 14 months ago.
Who says Calgary RE is going up?
I've been in the house many times before as I knew the renters in there. Nice house, built in 2001, but built very cheaply and "feels small" for it's size. Has had nothing but problems (plumbing mostly). The developers bought it for the land but looks like they are ditching their holdings.After pointing out the example it turns out the loss (if it existed) is the result of development and subdivision risk and not representative of the general market.
Horrible to backout on 17th ave from the garage as well.
Just goes to show how easy it is to lose $300,000 on a market that, according to CREB, is going up.
They were assembling a 3 block stretch of land along 17th Ave SW to build brownstones. I am guessing they ran into land zoning issues that could not be resolved (ie. R1 to R1 or RM-4)Also he has been "monitoring" some neighborhoods in Calgary and noticed some inventory spikes. Link.
17th Ave is not as busy as 14th street and it's the most trendy street in Calgary IMO.
CM asked on Garth’s site, thought I’d post it here to help others as well:
#55 CM “if you’ve seen this marked increase in listings in any other community?”
I follow the true $1m+ communities,
Yes, quite a few like:
Scarboro 10-14 listings, usually 2-4. 500% increase
Eagle Ridge has 4 listings now, they usually only have 1 or 0. A 400% increase.
Bel-aire 4, usually 1 or 2, a 200% increase.
River Park/Elbow Park (south side of river), they have 6, usually 2, 300% increase.
Roxboro, usually 2-3, they have 6. 200% increase.
Mount Royal has 10. Usually 8.
Lakeview Village, 6, usually 3.
Pumphill, 9, usually 4.
Maybe the $1m+ prestige communities are not selling and starters are? Inventory here has never been so high.
Mike F can look into these stats and verify if he likes, I’ve been following these communities closely (almost daily) for 5 years now.
Bob Truman runs some numbers regarding $million dollar sales. Just like in the past market statistics contradict Mike's examples.
Regarding the addiction, Bob is referring to when Mike stated that he doesn't look at his blog because it is "udder crap" then later submitted a comment on it under a different name. I have proof but this post is getting long....
Anyway bull or bear I would not trust anything this guy says.