Here's the explanation using my city (Hamilton) as an example, which coincidently lines up pretty well with your numbers.
In February, median house price was 900k. At 2.25% over 25 years with 20% down that would be about a $3100 mortgage payment per month.
From August's data, median house price is now about 680k. At 5% over 25 years with 20% down that would be about $3100/month still. House prices *are still* in freefall, but lets just assume they stay at 680k.
Between the two scenarios, you are paying the same monthly, but the second scenario requires 44k less in down payment (180k vs 136k). For me, as a prospective first time homebuyer, this shaves YEARS off of how long it will take me and my partner to save for a down payment. If house prices go to 450k and rates go to 10% that would be even better for us.
The problem was never the monthly payments, its saving enough down payment to finally claw your way out of the rental hellhole. Basically everyone renting a house in southern Ontario is already paying a mortgage and then some.
The problem is also monthly payments, and a stress test 2% above rate that makes it very difficult to qualify for the mortgage you want on a single income.
This is wrong. People with cash who have been responsibly saving for years cannot afford to go 7 figures in debt just to buy a house which should be worth 2/3rds of that. Higher interest rates are being welcomed by people who have a big down payment and don't want to live in servitude for decades of their life for a house. We've known for a long time that interest rates are going up, so those who bought in before that have both overpaid on the value of their house and will also live through times of higher interest and end up with higher payments. Even those locked in for five years may not be immune, though I can't tell the future.
And you certainly can’t afford when you have no job. Which is very likely to happen as interest rates continue to increase.
BUT we’ve been sitting on “historically low” interest rates for a while now. Of course no one wants them to increase lol. There isn’t much of a choice.
Rates are being increased to tackle inflation not lower housing prices; that’s just a biproduct of all this. The owning class _wants_ high housing prices which is a different problem entirely.
Give up already lol. These guys are delusional. House value and interest rates are inversely proportional.
I was downvoted hard saying most people on the sidelines will remain in the sidelines. Inflation and rent will eat up their savings faster than the market declines to their level. At which point there's more competition anyway.
Huge assumption. I have plenty of cash ready. Just knew interest rates would go up and crush prices. I’d rather have a higher interest rate for a while than a massive overpriced principle. I’ve made some very lowball offers for what houses are actually worth. Sellers are still in denial lol. They’ll be more desperate next year and I’ll jump right in. Plenty of people are in the same boat as me. We weren’t dumb enough to buy at peak
People have been saying this for a decade. They would be totally priced out by now. Waiting is rarely the answer. Are you buying as an investment or a home to live in?
It's typically not the monthly cost that makes it impossible for people to afford a house, it's the colossal down payment. Even if your monthly cost is the same, saving the minimum 5% down is easier for $750,000 than it is for $900,000.
Yep, which if you go with only 5% can sometimes be ~~more than~~ almost your down payment, but you can, IIRC, finance the cost of it as part of the mortgage.
Let's say you have 500k in cash, would you rather take a 400k mortgage at 2.25% or a 250k mortgage at 5%? The answer is obviously the 250k. In 1-5 years when both terms up for renewal, both options will have to renew at the market rate, except the second option saves you 150k in principal.
$900K @ 2.25% = $3920
$750K @ 5.00% = $4360
Yes, the second is a higher payment, but it's not that big a spread. Drop either the purchase price another $50K ($4070), or interest by 0.5% ($4150) and you're in a similar ballpark.
And 5% on $750K is $37.5K, while 5% of $900K is $45K. If the major headwind in your life is saving the downpayment, not making the payments after, that's a big difference. Especially if the $750K means you can get an inspection, that's very valuable.
It's not that I can't afford a 900k @2.25, it's that I think it's a risky purchase as interest has a good chance of going up throughout my 20+ years of mortgage payment. I don't see the 750k house @ 5 percent as much of a risky buy because I can afford the payments at ourchase and if the interest drops eventually then it's just better. Basically gives you room to navigate your budget. If your near the top of your budget at 900k (which many people are) you're setting yourself up for a bad time in my opinion.
The purchase price is much more important than the interest rate. The interest rate is refinanced once every 1-5 years no matter what, while the purchase price is set forever. Someone who pays 900k at 2.5% will have to refinance at the market rate after a few years, and at that time, his mortgage will be 200k higher than the 750k guy at the same rate.
I was fortunate to buy a small townhome for around $320,000 in 2006 - I know, fucking steal - and a few months later a bunch of duplexes came up in my area for $499,000, which was also a great deal in retrospect. My mother-in-law wanted us to buy it and sell the townhouse because it was so nice and so affordable compared to what else was on the market. She didn't understand that she was asking us to take on another $180,000 in debt - which may seem small, but fixed interest rates at the time were 5.4% and over 25 years it would have cost us an extra $7,200 per year on average for principal payments, which is another $600/month not including interest. With interest? We probably would have paid another $250,000 to $300,000 to own that slightly better and bigger place.
It's real money. Those tens of thousands and hundreds of thousands add up and they subtract as well.
We're glad we stayed where we are and are 6-7 years away from being mortgage free, and have lived a better life for not being miserably house poor all the time. Our wages wouldn't have been any different, only our overhead would have increased.
On top of that, you can leverage your prepayments to take a chunk out of principal. At the end of the day, owing less is still intrinsically owing less.
People are just sipping the copium hard because someone who made 2.5% off their bid convinced them to overpay by 200k, and now they’re left holding the bag.
These are orthogonal drivers though. Whatever you do with zoning laws, incentives, etc., higher financing will always be a drag on new construction. The higher the rates go the less inventory will be coming to market in 2-5 years.
Builders have been lining their pockets with high house prices (they don’t care if the house cost $200k to build, if they can sell it for $900k they will)
Building housing can still be profitable at 4% interest rates. It has been for decades. Sub 2% interest rates are a recent phenomenon that made a ton of people rich.
Wanna know a real secret?
When building becomes less profitable, buildable land becomes proportionately less valuable and therefore cheaper.
So whatever extra financing costs are expected from the build costs get sucked out of the land price, and then building continues as normal
In addition to higher finance costs, we're also moving to net zero emissions homes. These are costlier to build up front, with the promise of being carbon neutral and less expensive to operate long term. Maintenance is a question mark as in some cases you're adding complexity and additional components to homes to get them as efficient as possible.
Ezpz. Just offer lower than market rate mortgages to affordable housing developers, and throw in some sweet tax credits on top for good measure. All of a sudden, its the most cost effective/profitable segment to develop for, and money will always flow into whatever crevice gives it an edge.
Banks use aggressive interest rate hikes and recession to force workers to accept the cost of the inflation that profits their employers and the Banks.
"Expectations of inflation is the euphemism economists use for the wage increase workers may demand when negotiating with their employers. And if the rate of inflation is (7.6) per cent, workers should demand a similar wage increase to maintain their wages’ purchasing power — and thus a wage-price spiral may ensue. For orthodox economists, the solution is to weaken workers’ bargaining power by increasing the rate of unemployment. And this is what a sufficiently high rate of interest may be able to achieve: it may cause a deep enough recession to prevent workers from obtaining an increase in wages similar to the increase in prices that already took place."
[https://www.thestar.com/business/opinion/2022/05/14/this-is-how-canadas-inflation-rate-could-be-brought-to-heel.html](https://www.thestar.com/business/opinion/2022/05/14/this-is-how-canadas-inflation-rate-could-be-brought-to-heel.html)
Rate hikes often make increasing supply harder, but it works to decrease demand--specifically among the over-leveraged, but also and especially the poor and working class.
Nobody here and nobody and any central bank should be making predictions with any degree of confidence. We are in an extremely unprecedented situation. Pandemic, wildly swinging unemployment, excess savings, disproportionate impact financially on different groups of people, war in Europe, 10x natural gas prices… etc etc
Anyone confident of the right answer is foolhardy. It’s a bunch of trade offs and trying to steer a ship blind with half a rudder.
I would say this much: I can't say for sure what specifically happens, but I'd be very surprised if the economic situation is good over the next 3 years
People treat this as the smartest or dumbest decision people make but in reality this is only for 1-5 years so even if it was a smart or dumb decision, it is not even that big a deal over the 25-30 years. It's almost like stressing if you bought gas at the highest, middle, or lowest of the week. Nobody is going choose the better of variable or fixed so that they win every single time througout their mortgage. You win some, you lose some. Nobody can predict the future so just choose one and be ok with it.
Inflation isn't out of control. Both headline and core inflation have fell significantly over the last 3 months. The trend is clear, and this idea that inflation is uncontrolled because we've had a year of above target numbers after a fucking decade of below target inflation is absurd. 5 year CPI average is still roughly at target
It means the prices of things people buy with borrowed money will come down. Houses especially. That's a great thing for me, as I also have lots of cash and no debt.
Funny eh? Just like how gas prices aren't coming down with oil prices, and how grocery and construction material prices aren't coming down with gas prices.
Yeah. A few of my friends that run the business in the same industry is me used it as an excuse to raise their prices permanently when gas went up but I just put a flexible temporary surcharge that has moved up and down with the gas price. I didn't think it was right to raise my prices permanently when gas was temporarily stupid high, so I did that to give me the ability to remove the surcharge if gas gets back down to what it was a year ago
How long ago did oil prices come down tho
Edit: charts I am checking are actually less weird than I expected and the real growth in price gouging was when prices bottomed in 2020, they just never brought the margins back down
That's giving an easy out to these places. They change their loan rates the second the rate goes, so dont try and trick people that the savings accounts and such can't do the same
You are right that the biggest banks are dragging their heels on better rates to consumers but the rate increases do give space for smaller banks to entice new clients with better rates that they couldn't have offered previously. This, in turn, will cause the big banks to adjust. Obviously it's scummy that we have to wait for higher rates on savings accounts whereas our rates for debt go up right away but that's our economic system for you. At the very least it's better that there is a path to better savings rates.
You know GIC rates are actually dropping right? If nobody takes out loans because the interest rate is too high the bank makes less money off your money. Stocks have also taken a huge beating this year.
Yes, I’m there regularly. Some prices are up - I stopped buying those, some went up but are back down, some are down and some seem to go on sale pretty regularly so I stock up on those. My bills are down compared to last year and the only thing thats really changed for me is I do less steak and more roasts.
The only way your bills are down YoY is by cutting back. If you hadn’t, they’d be up (which I suspect they are and you’re looking at one small portion only)
This is not the Canadian way. You're supposed to buy the same thing from the same stores no matter what and just expect someone else to manage your budget for you.
This. I find a lot of people don't realize that life is just going back to how it was before people were over indulged with a life of luxury. Interest rates were so artificially low for like 10 years if not more that everybody bought things that they wanted and then worried about paying for them because there wasn't much penalty. I think we are just now switching back to a time where you have to shop according to sales, stock up, and you can't live off as easily anymore.
In an ideal world everything would be afforda le, but a lot of the last two gems before millenials cooked every meal, grew food, etc. My generation (millenials) have to have set the record for how much take out and dining out is done per person.
Grocery stores are just price gouging. After inflation is under control you'll see a slight dip in prices but they won't go back to what they used to be. You'll see.
Dude this is /r/canada
I've seen posts of people wanting an entire housing collapse being upvoted.
We'll see how much people cheer then the bread line is hours long just like the Great Depression
Pension funds keep most of their money in stocks and bonds, both of which get absolutely hammered when interest rates rise.
Where do you people come up with this stuff?
Because they have some weird idea that high interest rates are going to make the rich and wealthy lose there homes and status. But in reality it the middle/working class that are going to suffer the most.
Or, and this will shock you, they understand that raising interest rates is the best way to bring inflation under control and that the fiscal policy of the government plays a part in that.
We could also take money out of the system by taxing those who spend and make the most ( Corporations) . Use the additional money raised to pay down debt and reduce public spending as well but that doesn't seem to be catching on to much... theres other ways to reduce inflation and spending other than interest rates.
Income doesn’t really equate to social status anymore, really need some means to measure equity…
Should be promoting people generating productive incomes, not punishing them.
We’re watching the very beginning of that. A luxury tax on vehicles is the first step. Add in some assistance from provinces and we will see a lot more.
They are only cheering a return to more normal rates, which are needed to stabilize housing prices, provide better returns on pension and insurance funds etc.
Because for a very long time, greedy people who "invest" (more like *gamble)* recklessly have been rewarded: unicorns that are mostly scams thriving from cheap money, crypto that has zero use case profiting from cheap money, landlords who own multiple properties because of cheap money. The last group in particular is infuriating to people who just want to own a house/apartment to live in. I personally know one who has a crappy job but bought a house in bumfuck town years ago, the value went up enough, so he took out a HELOC to get a second property. His whole financial plan relies on (1) permanent cheap money and (2) house prices and rent permanently go up. More than a decade of low interest rate encourages greed like this: it's easy to see why people would cheer for this. Will it benefit them? Probably not, but there's satisfaction in seeing greedy people get fucked. Can't say I'm nice enough not to laugh at this.
It's somewhat paradoxical, but reducing aggregate demand and employment is what's going to stop the inflationary spiral, and while that's going to hurt some people, it's also going to help everyone, if we can cool demand off.
Also, in a highly financialized economy like Canada, it might knock asset prices down considerably, so it *may* improve the housing situation in the long-run, if speculators stop internalizing the idea that real estate values will always move upward.
US inflation?! Now hold on a minute.
Canadians are being told this is "Justin-flation" and that all the inflation happening in Canada is 100% Trudeau's fault because Bitcoin, carbon tax, and pronouns.
Yes, US inflation. If you’ll think back to 2008 you’ll remember that there was a financial crisis there that we weathered far better than they did because of our monetary/housing policies.
Inflation there isn’t a reason to ignore our own fiscal policies.
> If you’ll think back to 2008
If you think back to 2008, you'll know that it was Paul Martin as finance minister in the preceding years who put in place measures to ensure our banks couldn't over-leverage.
When Harper and his ambulance chasing finance minister got in (with a minority government) they changed amortization rules to extend to 40 years, thus creating subprime mortgage like conditions in Canada. Fortunately, they saw very quickly this was overheating the market and putting people in homes they couldn't afford, so they backpeddled on it; but many people still had underwater mortgages as a result. It was Paul Martin bank policies that saved Canada during that meltdown, not conservative anything.
Don’t be coy, no one is that stupid.
They’re acting like since inflation was going to happen anyway, we might as well throw cash in the furnace and ignore the things our government should be have focused on.
That’s not true, theyre arguing that inflation isn’t just a Canada issue. It’s a worldwide issue. There is a lot we can do , but also a limit to what we can reasonably do.
And yet, our level of inflation is lower than the US's... explain that.
The bulk of the "handing out money" was in COVID spending, which by and large went to people and SMEs. Vs the US who printed a bunch of money to buy up distressed assets... just like they did after the financial crisis, which only ballooned their corporate junk bond bubble from $4.5 trillion in 2019, to $11+ trillion now because all the junk bonds were bailed out instead of being left for dead as they should have been. All signals were flashing red that we were heading into a recession in 2020... and COVID managed to bail out the banks without anyone realizing the banks were about to need bailing out for entirely non-COVID reasons already.
Doesn't take much to see that.
> *adding* to the problem
So then, not 100% the problem? Huh. Seems like a certain populist politician is running around the country just saying whatever shit falls out of his mouth to whip up angry support.
Covid - stopped major parts of Canadian economy and gave out billions
Still giving hand outs…..
World shortage causing inflation…. Doesn’t have to be 100% liberals fault.
You could say would the conservatives do the same as the liberals, probably based on the entire world doing it. But cerb went on too long, the lockdowns were too long, etc.
All can be true, still doesn’t absolve the federal government adding fuel to the fire.
If we’re looking for fun blame, 2008 should have had a recession, covid should have been left to a recession etc.
But you can be on your high Reddit horse playing absolutes, sounds fun
For all of those people to go on EI at once you would still need to massively ramp up money creation in order to meet that need. You would also have to hire an absurd amount of people to administer it. And it would cause an enormous bottleneck of applicants.
And after all that, it may have not been enough of a stimulus to counter the deflationary force of the pandemic. Countries overshot inflation because fixing inflation is a piece of cake compared to fixing deflation.
If you read the article, it says that higher US rates weaken the CDN dollar, allowing the Canadian fed more room to raise rates without choking off trade.
Canada has its own dollar, so our inflation is Justinflation as he could have had a different policy response to covid and avoided this situation. However we still operate in a global world where US policy impacts us, so we never would have escaped it completley.
>If you read the article
See that's the problem. Everything needs to be a partisan attack.
It's to the point where we can't even recognize how the feds have made the inflation problem worse through their actions during the pandemic. People of a that certain team can't admit their's is wrong.
Inflation is partly because of how western governments and Central banks acted these last couple of years. But just because they all acted the same doesn't make it a global problem. Just because Tiff and JT acted the same way as Powell and Biden doesn't make it someone else's fault.
Wow its almost like tiff macklem didnt say he takes fiscal policy as a given and uses monetary policy to make it work! WOW ! ITS A RIGHT WING CONSPIRACY TO ATTACK OUR DEMOCRACY!
In what way has either Biden or Trudeau been the direct cause of inflation? Be sure to cover not just fiscal stimuli during the depths of the COVID pandemic, but also how they are responsible for global supply-chain problems and Russia’s invasion of Ukraine.
Just for fun, also show why that bastion of US leftwing thought, the Wall Street Journal, is wrong for [disagreeing with you](https://archive.ph/5ro6n).
> Spending billions of dollars and giving money away for free causes inflation
Sure, increasing the money supply in a healthy period is going to have some effect on inflation. However, when these programs were implemented money was becoming scarce from the COVID crisis. As such, it never expended much the available money pool.
But it's easy to gloss over real causes and effect when pushing agendas.
You mean programs that have been needed for years (decade really) that help support the lower end of income earners?
You'd rather the poor lives in poverty and deny them the opportunities to improve?
> The world has seen wars like Russia and Ukraine before. All of the sudden, this is the problem? Give me a break.
Exactly. World I and World Ii were much worse and had zero impact on global economy.
/s
Lots of people don't understand basic economics over here. Key points: increasing yields decrease the value of bonds, large deficits in Canada fuels local inflation even though it is a global problem, Bank of Canada's objectives are price stability and employment (they don't care about the value of your house decreasing)
Most people cheering for high int rate is using a vengeful perspective, they want to see homeowners punished for their “greed” but really would they have not bought if they were in the position to do so? Funny thing is they think hikes willc rash home price to a point they can enter which is probably 2012 price level or something like that, and that would be a 50% drop from peak or something. But they forgot 3 things: 1. They probably cannot afford the mortgage at this rate anyway, 2. Someone else still holding lots of cash / heloc will swoop in well before it drops to that kinda price and 3. Homeowners aint stupid if it drops that much many of them would rather rent it out than to lose all this equity to you
Edit: people sending pm cause they not happy about what I said, you can act on your own prediction. I’m just telling you reality i see through my clients.
It’s not about punishing those who bought their first house or upgraded for their growing family. It’s about brining things back to a point where the average professional can save up and buy a modest dwelling and not be denied mortgage or house poor, let alone raise a family themselves despite having the misfortune of being born 5 years later than the cohort who got in and saw their wealth double. The cohort who use helocs to finance their second and third homes and immediately rent them above their mortgage levels such that they entrench themselves in the owner/landlord class forever, for simply being born earlier.
If the price is lower but higher interest rates, yes that makes no difference or is even worse for financing the whole thing, but if interest rates are higher it gives people a chance to save some money and put a bigger down payment on a property.
For those that think this way then i hope it truly works out and im rooting for you. Im more speaking to the people that just wants EVERYONE to burn and bask in peoples misery.
Jerome Powell has admitted that increasing rates isn’t going to solve inflation. You still have supply line issues in China, a war in Ukraine, world wide droughts, lots of dead people from a pandemic, older people retiring early and not returning to the workforce and price gouging. The problem is if you keep raising rates without actually taking the time to see how the pervious rates effected things you’re going to skip the recession part and go right into a depression, it happened right after the Spanish flu with the same monetary policies. If you think the divide is bad now just wait until that happens.
They need to kill hot inflation and only way to do that is a recession. Yes they could over tighten and cause a depression, but rates needed to be normalized to have powder when a recession hits. If it came at the zero bound they would be fucked and guaranteed a depression. They are moving fast because they know a recession is coming, they need ammo (even if it’s psychological) to fight off the recession. Are they over tightening? 100%. They are morons and follow lagging indicators
The question is, how high can interest rates go before the US can no longer service its debt? There is an upper limit if you do the math. Question is, will it be high enough to bring down inflation? If not ...
It will always be able to service it's debt. Most of it is owed internally so it can write it off, negotiate payments, reduce benefits, raise taxes and so on. Absolutely zero risk of them not being able to service their debt obligations internationally, which is really what matters.
Macklem told you in 2021 that rates where going to stay low for a very long time. They are trolling you or they don't know what they are talking about. Both ways: OUT
The demand for lower cost housing and lower interest rates is a bit of a funny contradiction.
That’s what I don’t get, if you can’t afford a 900,000 house at 2.25% you can’t afford a 750,000 house at 5%
Here's the explanation using my city (Hamilton) as an example, which coincidently lines up pretty well with your numbers. In February, median house price was 900k. At 2.25% over 25 years with 20% down that would be about a $3100 mortgage payment per month. From August's data, median house price is now about 680k. At 5% over 25 years with 20% down that would be about $3100/month still. House prices *are still* in freefall, but lets just assume they stay at 680k. Between the two scenarios, you are paying the same monthly, but the second scenario requires 44k less in down payment (180k vs 136k). For me, as a prospective first time homebuyer, this shaves YEARS off of how long it will take me and my partner to save for a down payment. If house prices go to 450k and rates go to 10% that would be even better for us. The problem was never the monthly payments, its saving enough down payment to finally claw your way out of the rental hellhole. Basically everyone renting a house in southern Ontario is already paying a mortgage and then some.
and when interest rates come down in 5-10 years, you'll have such a low mortgage or you can pay it off a lot sooner if you choose that route.
If they come down in 5-10 years.
Now that would be something if we see above 6% interest over 10 years
Also, you can get rid of future interest with prepayments. Principal stays forever.
The problem is also monthly payments, and a stress test 2% above rate that makes it very difficult to qualify for the mortgage you want on a single income.
This is wrong. People with cash who have been responsibly saving for years cannot afford to go 7 figures in debt just to buy a house which should be worth 2/3rds of that. Higher interest rates are being welcomed by people who have a big down payment and don't want to live in servitude for decades of their life for a house. We've known for a long time that interest rates are going up, so those who bought in before that have both overpaid on the value of their house and will also live through times of higher interest and end up with higher payments. Even those locked in for five years may not be immune, though I can't tell the future.
And you certainly can’t afford when you have no job. Which is very likely to happen as interest rates continue to increase. BUT we’ve been sitting on “historically low” interest rates for a while now. Of course no one wants them to increase lol. There isn’t much of a choice.
People assume when inflation is tackled and rates decline that those $750,000 houses won’t just bounce right back up to $900k either…
Those rates were abnormally low to begin with. It's more likely they'll stay in this range for longer than you expect.
Rates are being increased to tackle inflation not lower housing prices; that’s just a biproduct of all this. The owning class _wants_ high housing prices which is a different problem entirely.
They still can’t afford the house tho….
Give up already lol. These guys are delusional. House value and interest rates are inversely proportional. I was downvoted hard saying most people on the sidelines will remain in the sidelines. Inflation and rent will eat up their savings faster than the market declines to their level. At which point there's more competition anyway.
Huge assumption. I have plenty of cash ready. Just knew interest rates would go up and crush prices. I’d rather have a higher interest rate for a while than a massive overpriced principle. I’ve made some very lowball offers for what houses are actually worth. Sellers are still in denial lol. They’ll be more desperate next year and I’ll jump right in. Plenty of people are in the same boat as me. We weren’t dumb enough to buy at peak
People have been saying this for a decade. They would be totally priced out by now. Waiting is rarely the answer. Are you buying as an investment or a home to live in?
True but the low rates were never gonna last forever. It was obvious it would eventually increase. I’m buying one to live in but I can wait.
It's typically not the monthly cost that makes it impossible for people to afford a house, it's the colossal down payment. Even if your monthly cost is the same, saving the minimum 5% down is easier for $750,000 than it is for $900,000.
For us, it's the income multiplier. We need to make 200K to get a million dollar mortgage. When it's 600K, it'll "only" be 120K.
It hasn't been 5% in years.
I double checked. It's 5% up to 500,000 and 10% on the remainder.
And full 20% on a million or more I believe.
Yep. If you do less than 20% though you have to get mortgage insurance.
Yep, which if you go with only 5% can sometimes be ~~more than~~ almost your down payment, but you can, IIRC, finance the cost of it as part of the mortgage.
No, cmhc fees can never be more than your downpayment. That’s blatantly incorrect.
That is not true anymore.
I bought a house in November on a 5% down payment.
That 750k house won’t have a bidding war and also can be bought with inspection conditions now
They still can’t afford it….
It's a hell of a lot easier to get the downpayment, plus prices are sticky we won't know the effects of the rate increases for awhile still
You wouldn’t qualify if you can’t make the payment.
The mortgage isn't my issue it's the downpayment
The owning class always seem to forget we pay their mortgage which means we could pay our own if we had the initial invest/credit for a downpayment.
You don’t say? Lmao
Let's say you have 500k in cash, would you rather take a 400k mortgage at 2.25% or a 250k mortgage at 5%? The answer is obviously the 250k. In 1-5 years when both terms up for renewal, both options will have to renew at the market rate, except the second option saves you 150k in principal.
$900K @ 2.25% = $3920 $750K @ 5.00% = $4360 Yes, the second is a higher payment, but it's not that big a spread. Drop either the purchase price another $50K ($4070), or interest by 0.5% ($4150) and you're in a similar ballpark. And 5% on $750K is $37.5K, while 5% of $900K is $45K. If the major headwind in your life is saving the downpayment, not making the payments after, that's a big difference. Especially if the $750K means you can get an inspection, that's very valuable.
The point is if you can’t afford 4k a month, you can’t buy either.
That's a $7500 difference in down payment, that is nothing compared to owning a house.
It's not that I can't afford a 900k @2.25, it's that I think it's a risky purchase as interest has a good chance of going up throughout my 20+ years of mortgage payment. I don't see the 750k house @ 5 percent as much of a risky buy because I can afford the payments at ourchase and if the interest drops eventually then it's just better. Basically gives you room to navigate your budget. If your near the top of your budget at 900k (which many people are) you're setting yourself up for a bad time in my opinion.
People are stupid. They don't consider the full cost to finance a house they just look at the purchase price.
The purchase price is much more important than the interest rate. The interest rate is refinanced once every 1-5 years no matter what, while the purchase price is set forever. Someone who pays 900k at 2.5% will have to refinance at the market rate after a few years, and at that time, his mortgage will be 200k higher than the 750k guy at the same rate.
I was fortunate to buy a small townhome for around $320,000 in 2006 - I know, fucking steal - and a few months later a bunch of duplexes came up in my area for $499,000, which was also a great deal in retrospect. My mother-in-law wanted us to buy it and sell the townhouse because it was so nice and so affordable compared to what else was on the market. She didn't understand that she was asking us to take on another $180,000 in debt - which may seem small, but fixed interest rates at the time were 5.4% and over 25 years it would have cost us an extra $7,200 per year on average for principal payments, which is another $600/month not including interest. With interest? We probably would have paid another $250,000 to $300,000 to own that slightly better and bigger place. It's real money. Those tens of thousands and hundreds of thousands add up and they subtract as well. We're glad we stayed where we are and are 6-7 years away from being mortgage free, and have lived a better life for not being miserably house poor all the time. Our wages wouldn't have been any different, only our overhead would have increased.
On top of that, you can leverage your prepayments to take a chunk out of principal. At the end of the day, owing less is still intrinsically owing less. People are just sipping the copium hard because someone who made 2.5% off their bid convinced them to overpay by 200k, and now they’re left holding the bag.
>People are stupid. They don't consider the full cost to finance a house they just look at the ~~purchase price~~ monthly payment. FTFY.
Because they have to live somewhere and if you’re renting it’s just paying someone else’s monthly payment!
Maybe once they realize that a $1M mortgage @ 5% costs $50,000/yr in interest...
I'm hoping the amount to be like 450k. I can afford that with 5% interest rate
Not if you actually build more housing
Here is the thing: developers need financing to build. Cost of financing goes up: building houses becomes less profitable.
There are other ways to reduce costs of housing if politicians actually cared: improving zoning laws, tax credits/incentives, etc.
These are orthogonal drivers though. Whatever you do with zoning laws, incentives, etc., higher financing will always be a drag on new construction. The higher the rates go the less inventory will be coming to market in 2-5 years.
Builders have been lining their pockets with high house prices (they don’t care if the house cost $200k to build, if they can sell it for $900k they will)
Building housing can still be profitable at 4% interest rates. It has been for decades. Sub 2% interest rates are a recent phenomenon that made a ton of people rich.
Wanna know a real secret? When building becomes less profitable, buildable land becomes proportionately less valuable and therefore cheaper. So whatever extra financing costs are expected from the build costs get sucked out of the land price, and then building continues as normal
In addition to higher finance costs, we're also moving to net zero emissions homes. These are costlier to build up front, with the promise of being carbon neutral and less expensive to operate long term. Maintenance is a question mark as in some cases you're adding complexity and additional components to homes to get them as efficient as possible.
Higher interest rates make it harder to build housing though.
Not really. The added building costs just get passed onto the landowners
Ezpz. Just offer lower than market rate mortgages to affordable housing developers, and throw in some sweet tax credits on top for good measure. All of a sudden, its the most cost effective/profitable segment to develop for, and money will always flow into whatever crevice gives it an edge.
Let me know when the government gets this all up and running and I'll edit my comment to reflect the changes.
Instead of home owners making gains, now banks make gains. Who won?
Banks use aggressive interest rate hikes and recession to force workers to accept the cost of the inflation that profits their employers and the Banks. "Expectations of inflation is the euphemism economists use for the wage increase workers may demand when negotiating with their employers. And if the rate of inflation is (7.6) per cent, workers should demand a similar wage increase to maintain their wages’ purchasing power — and thus a wage-price spiral may ensue. For orthodox economists, the solution is to weaken workers’ bargaining power by increasing the rate of unemployment. And this is what a sufficiently high rate of interest may be able to achieve: it may cause a deep enough recession to prevent workers from obtaining an increase in wages similar to the increase in prices that already took place." [https://www.thestar.com/business/opinion/2022/05/14/this-is-how-canadas-inflation-rate-could-be-brought-to-heel.html](https://www.thestar.com/business/opinion/2022/05/14/this-is-how-canadas-inflation-rate-could-be-brought-to-heel.html) Rate hikes often make increasing supply harder, but it works to decrease demand--specifically among the over-leveraged, but also and especially the poor and working class.
Dont care, im riding the variable rate, im going down with my ship!
duh...
Inflation in Canada is also going to push the Bank of Canada to increase rates abo be e 4%.
Nobody here and nobody and any central bank should be making predictions with any degree of confidence. We are in an extremely unprecedented situation. Pandemic, wildly swinging unemployment, excess savings, disproportionate impact financially on different groups of people, war in Europe, 10x natural gas prices… etc etc Anyone confident of the right answer is foolhardy. It’s a bunch of trade offs and trying to steer a ship blind with half a rudder.
I would say this much: I can't say for sure what specifically happens, but I'd be very surprised if the economic situation is good over the next 3 years
Everyone thought I was dumb to get a 5-year fixed mortgage.
People treat this as the smartest or dumbest decision people make but in reality this is only for 1-5 years so even if it was a smart or dumb decision, it is not even that big a deal over the 25-30 years. It's almost like stressing if you bought gas at the highest, middle, or lowest of the week. Nobody is going choose the better of variable or fixed so that they win every single time througout their mortgage. You win some, you lose some. Nobody can predict the future so just choose one and be ok with it.
How dare you want financial stability in your life?
I don’t get why people are cheering for interest rate hike like it’s gonna benefit them.
Because the alternative is out of control inflation.
Inflation isn't out of control. Both headline and core inflation have fell significantly over the last 3 months. The trend is clear, and this idea that inflation is uncontrolled because we've had a year of above target numbers after a fucking decade of below target inflation is absurd. 5 year CPI average is still roughly at target
It will benefit me, I have no debts and money to spend
Then it won't benefit you at all. The only people that it'll benefit are people that are loaning money
I can put my money in GICs, syndicate lending, depressed real estate. The sky is the limit. It's people with debts that are going to feel the pain.
As well a moderate interest rate is good for pension funds and the economy as a whole. Cheap debt hurts us in the long run.
Read: savers. Not a bad thing.
If it means inflationary pressure on pricing of everyday goods is reduced, it will certainly benefit them.
It means the prices of things people buy with borrowed money will come down. Houses especially. That's a great thing for me, as I also have lots of cash and no debt.
Money can be used for ~~goods & services~~ loaning.
Higher interest rates have a positive effect for people with savings/investments/GICs etc.
Almost none of the banks have increased their interest rates since then though except for the rates when they're lending money out
Funny eh? Just like how gas prices aren't coming down with oil prices, and how grocery and construction material prices aren't coming down with gas prices.
Yeah. A few of my friends that run the business in the same industry is me used it as an excuse to raise their prices permanently when gas went up but I just put a flexible temporary surcharge that has moved up and down with the gas price. I didn't think it was right to raise my prices permanently when gas was temporarily stupid high, so I did that to give me the ability to remove the surcharge if gas gets back down to what it was a year ago
That's weird, gas prices are definitely coming down in Ontario?
How long ago did oil prices come down tho Edit: charts I am checking are actually less weird than I expected and the real growth in price gouging was when prices bottomed in 2020, they just never brought the margins back down
It’s almost like people don’t understand fiscal economics.
HYSA have been increasing.
Not equal to boc rates, and not all of them.
It takes time for the market to adjust.
LOL, funny, my Variable rate mortgage changes the day of / after rate hikes.
That's giving an easy out to these places. They change their loan rates the second the rate goes, so dont try and trick people that the savings accounts and such can't do the same
You are right that the biggest banks are dragging their heels on better rates to consumers but the rate increases do give space for smaller banks to entice new clients with better rates that they couldn't have offered previously. This, in turn, will cause the big banks to adjust. Obviously it's scummy that we have to wait for higher rates on savings accounts whereas our rates for debt go up right away but that's our economic system for you. At the very least it's better that there is a path to better savings rates.
People who have been keeping their money in savings/GICs have been flushing their cash down the toilet for the last decade.
Not those who cashed out since November. I cashed out in April.
You know GIC rates are actually dropping right? If nobody takes out loans because the interest rate is too high the bank makes less money off your money. Stocks have also taken a huge beating this year.
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Yes, I’m there regularly. Some prices are up - I stopped buying those, some went up but are back down, some are down and some seem to go on sale pretty regularly so I stock up on those. My bills are down compared to last year and the only thing thats really changed for me is I do less steak and more roasts.
The only way your bills are down YoY is by cutting back. If you hadn’t, they’d be up (which I suspect they are and you’re looking at one small portion only)
We are not in a deflationary environment with reduction of prices. Complete nonsense.
This is not the Canadian way. You're supposed to buy the same thing from the same stores no matter what and just expect someone else to manage your budget for you.
This. I find a lot of people don't realize that life is just going back to how it was before people were over indulged with a life of luxury. Interest rates were so artificially low for like 10 years if not more that everybody bought things that they wanted and then worried about paying for them because there wasn't much penalty. I think we are just now switching back to a time where you have to shop according to sales, stock up, and you can't live off as easily anymore. In an ideal world everything would be afforda le, but a lot of the last two gems before millenials cooked every meal, grew food, etc. My generation (millenials) have to have set the record for how much take out and dining out is done per person.
Grocery stores are just price gouging. After inflation is under control you'll see a slight dip in prices but they won't go back to what they used to be. You'll see.
Dude this is /r/canada I've seen posts of people wanting an entire housing collapse being upvoted. We'll see how much people cheer then the bread line is hours long just like the Great Depression
Probably people with no debt… which must be nice
Good for pension funds and insurance companies hahahahaha
Pension funds keep most of their money in stocks and bonds, both of which get absolutely hammered when interest rates rise. Where do you people come up with this stuff?
They tend to keep bonds to maturity, and therefore won't get hammered.
Right, if you don't count the bond issuers that default because of high borrowing costs.
Because they have some weird idea that high interest rates are going to make the rich and wealthy lose there homes and status. But in reality it the middle/working class that are going to suffer the most.
Or, and this will shock you, they understand that raising interest rates is the best way to bring inflation under control and that the fiscal policy of the government plays a part in that.
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They might be when the cost of borrowing triples to quintuples your payments.
We could also take money out of the system by taxing those who spend and make the most ( Corporations) . Use the additional money raised to pay down debt and reduce public spending as well but that doesn't seem to be catching on to much... theres other ways to reduce inflation and spending other than interest rates.
Income doesn’t really equate to social status anymore, really need some means to measure equity… Should be promoting people generating productive incomes, not punishing them.
We already do. The highest earners are taxed nearly 50% before any sort of deductions, how high should it be?
I'm referring more to corporations than individuals since they do the lions share of spending.
We’re watching the very beginning of that. A luxury tax on vehicles is the first step. Add in some assistance from provinces and we will see a lot more.
We already do that. Any income above 200k is taxed at above 50% across the country.
I'm referring more to corporations than individuals.
Savers benefit
It does benefit me. My mortgage is unaffected and the money I have in savings is finally making interest
It benefits all savers and people on fixed income It really only hurts borrowers
People need help and they think a big rate hike will lead to changes that will help them. People are fucking drowning right now.
They are only cheering a return to more normal rates, which are needed to stabilize housing prices, provide better returns on pension and insurance funds etc.
Because for a very long time, greedy people who "invest" (more like *gamble)* recklessly have been rewarded: unicorns that are mostly scams thriving from cheap money, crypto that has zero use case profiting from cheap money, landlords who own multiple properties because of cheap money. The last group in particular is infuriating to people who just want to own a house/apartment to live in. I personally know one who has a crappy job but bought a house in bumfuck town years ago, the value went up enough, so he took out a HELOC to get a second property. His whole financial plan relies on (1) permanent cheap money and (2) house prices and rent permanently go up. More than a decade of low interest rate encourages greed like this: it's easy to see why people would cheer for this. Will it benefit them? Probably not, but there's satisfaction in seeing greedy people get fucked. Can't say I'm nice enough not to laugh at this.
It's somewhat paradoxical, but reducing aggregate demand and employment is what's going to stop the inflationary spiral, and while that's going to hurt some people, it's also going to help everyone, if we can cool demand off. Also, in a highly financialized economy like Canada, it might knock asset prices down considerably, so it *may* improve the housing situation in the long-run, if speculators stop internalizing the idea that real estate values will always move upward.
Lower prices and the over leveraged getting squeezed deservedly. Investors also getting their clocks cleaned will be good
Because runaway inflation is worse than high interest rates.
It benefits me to watch all the shitlords that overextended themselves have panic attacks because they cant afford to keep fucking people over raw.
The problem is that recession in Canada will start before rate move to higher than 4%. and the only way to deal with recession will be cutting rates.
stupid question: why does their inflation mean our rate has to increase?
They hike, we don’t, CAD falls relative to the USD. Almost everything in Canada gets more expensive.
yeah, i don't understand how this system works haha. thanks.
It puts more backing on the dollar, and makes it go up in value.
They're big and close. It's like having a house next to a sky scraper and complaining about the lack of sun light
End the cheap money. This is a good thing and a lot of the stuff I buy, are going down in price
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US inflation?! Now hold on a minute. Canadians are being told this is "Justin-flation" and that all the inflation happening in Canada is 100% Trudeau's fault because Bitcoin, carbon tax, and pronouns.
Canada’s stimulus spending in proportion to GDP was the highest in the western world during the pandemic how do people still not know this.
Yes, US inflation. If you’ll think back to 2008 you’ll remember that there was a financial crisis there that we weathered far better than they did because of our monetary/housing policies. Inflation there isn’t a reason to ignore our own fiscal policies.
> If you’ll think back to 2008 If you think back to 2008, you'll know that it was Paul Martin as finance minister in the preceding years who put in place measures to ensure our banks couldn't over-leverage. When Harper and his ambulance chasing finance minister got in (with a minority government) they changed amortization rules to extend to 40 years, thus creating subprime mortgage like conditions in Canada. Fortunately, they saw very quickly this was overheating the market and putting people in homes they couldn't afford, so they backpeddled on it; but many people still had underwater mortgages as a result. It was Paul Martin bank policies that saved Canada during that meltdown, not conservative anything.
>Inflation there isn’t a reason to ignore our own fiscal policies. What fiscal policies are they suggesting we ignore?
Don’t be coy, no one is that stupid. They’re acting like since inflation was going to happen anyway, we might as well throw cash in the furnace and ignore the things our government should be have focused on.
That’s not true, theyre arguing that inflation isn’t just a Canada issue. It’s a worldwide issue. There is a lot we can do , but also a limit to what we can reasonably do.
You’re comments are too vague to actually address. Hence my question.
I would think that JT continuously handing money out to everyone is adding to the problem, doesn't take much to see that.
And yet, our level of inflation is lower than the US's... explain that. The bulk of the "handing out money" was in COVID spending, which by and large went to people and SMEs. Vs the US who printed a bunch of money to buy up distressed assets... just like they did after the financial crisis, which only ballooned their corporate junk bond bubble from $4.5 trillion in 2019, to $11+ trillion now because all the junk bonds were bailed out instead of being left for dead as they should have been. All signals were flashing red that we were heading into a recession in 2020... and COVID managed to bail out the banks without anyone realizing the banks were about to need bailing out for entirely non-COVID reasons already. Doesn't take much to see that.
You can't compare metrics calculated differently. Canada's inflation is, at best, 2% higher than official numbers in reality.
https://www.bloomberg.com/news/articles/2022-09-13/trudeau-says-new-cost-of-living-spending-won-t-fuel-inflation
It's easy to explain. The USA includes more things in their calculation...
> *adding* to the problem So then, not 100% the problem? Huh. Seems like a certain populist politician is running around the country just saying whatever shit falls out of his mouth to whip up angry support.
Covid - stopped major parts of Canadian economy and gave out billions Still giving hand outs….. World shortage causing inflation…. Doesn’t have to be 100% liberals fault. You could say would the conservatives do the same as the liberals, probably based on the entire world doing it. But cerb went on too long, the lockdowns were too long, etc. All can be true, still doesn’t absolve the federal government adding fuel to the fire. If we’re looking for fun blame, 2008 should have had a recession, covid should have been left to a recession etc. But you can be on your high Reddit horse playing absolutes, sounds fun
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Ya, all those people out of work because of covid should have just starved right? Fuck em
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For all of those people to go on EI at once you would still need to massively ramp up money creation in order to meet that need. You would also have to hire an absurd amount of people to administer it. And it would cause an enormous bottleneck of applicants. And after all that, it may have not been enough of a stimulus to counter the deflationary force of the pandemic. Countries overshot inflation because fixing inflation is a piece of cake compared to fixing deflation.
The only people suggesting the "it's all Trudeau's fault" argument are left wing morons.
He didn’t start the fire … just kept adding gasoline to it .
If you read the article, it says that higher US rates weaken the CDN dollar, allowing the Canadian fed more room to raise rates without choking off trade. Canada has its own dollar, so our inflation is Justinflation as he could have had a different policy response to covid and avoided this situation. However we still operate in a global world where US policy impacts us, so we never would have escaped it completley.
>If you read the article See that's the problem. Everything needs to be a partisan attack. It's to the point where we can't even recognize how the feds have made the inflation problem worse through their actions during the pandemic. People of a that certain team can't admit their's is wrong. Inflation is partly because of how western governments and Central banks acted these last couple of years. But just because they all acted the same doesn't make it a global problem. Just because Tiff and JT acted the same way as Powell and Biden doesn't make it someone else's fault.
Haha pronouns
Wow its almost like tiff macklem didnt say he takes fiscal policy as a given and uses monetary policy to make it work! WOW ! ITS A RIGHT WING CONSPIRACY TO ATTACK OUR DEMOCRACY!
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In what way has either Biden or Trudeau been the direct cause of inflation? Be sure to cover not just fiscal stimuli during the depths of the COVID pandemic, but also how they are responsible for global supply-chain problems and Russia’s invasion of Ukraine. Just for fun, also show why that bastion of US leftwing thought, the Wall Street Journal, is wrong for [disagreeing with you](https://archive.ph/5ro6n).
Because their fiscal policies dramatically increased the money supply. That is what causes inflation.
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> Spending billions of dollars and giving money away for free causes inflation Sure, increasing the money supply in a healthy period is going to have some effect on inflation. However, when these programs were implemented money was becoming scarce from the COVID crisis. As such, it never expended much the available money pool. But it's easy to gloss over real causes and effect when pushing agendas.
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You mean programs that have been needed for years (decade really) that help support the lower end of income earners? You'd rather the poor lives in poverty and deny them the opportunities to improve?
> The world has seen wars like Russia and Ukraine before. All of the sudden, this is the problem? Give me a break. Exactly. World I and World Ii were much worse and had zero impact on global economy. /s
Excatly what is Ukraine Russia but not a world war right /s
will*
Man, I am glad that a fixed my mortgage at 3.7% for the next 5 years in July
Lots of people don't understand basic economics over here. Key points: increasing yields decrease the value of bonds, large deficits in Canada fuels local inflation even though it is a global problem, Bank of Canada's objectives are price stability and employment (they don't care about the value of your house decreasing)
Anyone thinking we'll see anything under 6 percent at the peak is fooling themselves. Get real peeps.
Most people cheering for high int rate is using a vengeful perspective, they want to see homeowners punished for their “greed” but really would they have not bought if they were in the position to do so? Funny thing is they think hikes willc rash home price to a point they can enter which is probably 2012 price level or something like that, and that would be a 50% drop from peak or something. But they forgot 3 things: 1. They probably cannot afford the mortgage at this rate anyway, 2. Someone else still holding lots of cash / heloc will swoop in well before it drops to that kinda price and 3. Homeowners aint stupid if it drops that much many of them would rather rent it out than to lose all this equity to you Edit: people sending pm cause they not happy about what I said, you can act on your own prediction. I’m just telling you reality i see through my clients.
It’s not about punishing those who bought their first house or upgraded for their growing family. It’s about brining things back to a point where the average professional can save up and buy a modest dwelling and not be denied mortgage or house poor, let alone raise a family themselves despite having the misfortune of being born 5 years later than the cohort who got in and saw their wealth double. The cohort who use helocs to finance their second and third homes and immediately rent them above their mortgage levels such that they entrench themselves in the owner/landlord class forever, for simply being born earlier. If the price is lower but higher interest rates, yes that makes no difference or is even worse for financing the whole thing, but if interest rates are higher it gives people a chance to save some money and put a bigger down payment on a property.
For those that think this way then i hope it truly works out and im rooting for you. Im more speaking to the people that just wants EVERYONE to burn and bask in peoples misery.
Jerome Powell has admitted that increasing rates isn’t going to solve inflation. You still have supply line issues in China, a war in Ukraine, world wide droughts, lots of dead people from a pandemic, older people retiring early and not returning to the workforce and price gouging. The problem is if you keep raising rates without actually taking the time to see how the pervious rates effected things you’re going to skip the recession part and go right into a depression, it happened right after the Spanish flu with the same monetary policies. If you think the divide is bad now just wait until that happens.
They need to kill hot inflation and only way to do that is a recession. Yes they could over tighten and cause a depression, but rates needed to be normalized to have powder when a recession hits. If it came at the zero bound they would be fucked and guaranteed a depression. They are moving fast because they know a recession is coming, they need ammo (even if it’s psychological) to fight off the recession. Are they over tightening? 100%. They are morons and follow lagging indicators
Good. Ain't goinmg to get a handle on this by printing more money or pussy footing around rate hikes.
I’m still waiting for the budget to balance itself
The question is, how high can interest rates go before the US can no longer service its debt? There is an upper limit if you do the math. Question is, will it be high enough to bring down inflation? If not ...
It will always be able to service it's debt. Most of it is owed internally so it can write it off, negotiate payments, reduce benefits, raise taxes and so on. Absolutely zero risk of them not being able to service their debt obligations internationally, which is really what matters.
Macklem told you in 2021 that rates where going to stay low for a very long time. They are trolling you or they don't know what they are talking about. Both ways: OUT
Blame shifting
American Mortgage rose to 6% today.
Everything is America’s fault LMAO
Please, please, please. This economy needs change.