Variable Rates going to 2%!

[luckyluciano]

Word from the Mortgage Industry is that the Variable rates will be at prime minus .25% within the next 90 days. What are they trying to do, burn the house down? What`s yoy prediction? How is this going to unfold? Is this the New Economic Paradigm or is this going to end bad with mortgages doubling and borrowers losing their houses? I`m at a loss for words!

 

[Thomas Beyer]

QUOTE (luckyluciano @ Sep 16 2009, 08:51 PM)
Word from the Mortgage Industry is that the Variable rates will be at prime minus .25% within the next 90 days. What are they trying to do, burn the house down? What's yoy prediction? How is this going to unfold? Is this the New Economic Paradigm or is this going to end bad with mortgages doubling and borrowers losing their houses? I'm at a loss for words!


yes .. many a real estate "investor" will buy an overpriced asset that works only with such a low mortgage rate ! So yes, ensure you're not overlevered and it cash-flows even with a 6% mortgage !



It will stabilize teh economy and keep house prices high enough for consumers to not feel uncomfortable ..



Imagine the economy with interest rates at 6-7% .. house prices and thus, economic spending would plummet 20-40% .. thus the central bank will leave short-term interest rates low until the economy shows real signs of improvement in late 2010 or 2011 !



It also shows that banks can make money with no almost risk i.e. borrow @ 0.25% .. and lend it to you @ 2% secured by an asset that is worth 33% more ..



It also shows that on average a variable rate is cheaper than a fixed term which is now around 4% .. 100% higher !



Related posts to read:



LOC vs. mortgage: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2302-What_is_better_a_mortgage_or_a_line-of-credit_.html



Are you too levered ? http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10823-When_are_you_too_levered_.html

 

[luckyluciano]

I don't understand governments' obsession with stimulating the economy. Refusing to allow markets to be cyclical seems like a dangerous plan. Driving interest rates down to the point of no return and then yanking them up inevitably just delays what must happen but multiplies the problem by creating an even worse recession down the road. Home buyers are

lured into these attractive rates an forced into borrowing the biggest motgages ever seen by consumers all the while acknowledging that rates are going to go higher but not truly living by that belief. If the variable rates go from 2% and end up around 6%, homeowners will be loosing their houses. Everywhere we turn.






QUOTE (thomasbeyer2000 @ Sep 17 2009, 12:05 AM)
yes .. many a real estate "investor" will buy an overpriced asset that works only with such a low mortgage rate ! So yes, ensure you're not overlevered and it cash-flows even with a 6% mortgage ! It will stabilize teh economy and keep house prices high enough for consumers to not feel uncomfortable .. Imagine the economy with interest rates at 6-7% .. house prices and thus, economic spending would plummet 20-40% .. thus the central bank will leave short-term interest rates low until the economy shows real signs of improvement in late 2010 or 2011 ! It also shows that banks can make money with no almost risk i.e. borrow @ 0.25% .. and lend it to you @ 2% secured by an asset that is worth 33% more .. It also shows that on average a variable rate is cheaper than a fixed term which is now around 4% .. 100% higher ! Related posts to read: LOC vs. mortgage: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2302-What_is_better_a_mortgage_or_a_line-of-credit_.html Are you too levered ? http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10823-When_are_you_too_levered_.html

 

[JoefromTO]

QUOTE (luckyluciano @ Sep 17 2009, 05:57 AM) I don`t understand governments` obsession with stimulating the economy. Refusing to allow markets to be cyclical seems like a dangerous plan. Driving interest rates down to the point of no return and then yanking them up inevitably just delays what must happen but multiplies the problem by creating an even worse recession down the road. Home buyers are
lured into these attractive rates an forced into borrowing the biggest motgages ever seen by consumers all the while acknowledging that rates are going to go higher but not truly living by that belief. If the variable rates go from 2% and end up around 6%, homeowners will be loosing their houses. Everywhere we turn.


I see that as a distinct possibility as well. Also, with the HST being introduced, the 2 combined (higher interest rates and the HST) could kill the economy. At the same token, it would provide investers an incredible opportunity to buy up property at record lows...

Wether its good or bad, people always get what they deserve.

 

[Thomas Beyer]

QUOTE (luckyluciano @ Sep 17 2009, 04:57 AM) I don`t understand governments` obsession with stimulating the economy. Refusing to allow markets to be cyclical seems like a dangerous plan. Driving interest rates down to the point of no return and then yanking them up inevitably just delays what must happen but multiplies the problem by creating an even worse recession down the road. Home buyers are
lured into these attractive rates an forced into borrowing the biggest motgages ever seen by consumers all the while acknowledging that rates are going to go higher but not truly living by that belief. If the variable rates go from 2% and end up around 6%, homeowners will be loosing their houses. Everywhere we turn.
We live in democracies, remember !

Not the best form the government .. but the best available alternative.

Politicians like to get re-elected. Thus: do what the majority wants !

As long as we live in democracies we will have government debt, and as such, INFLATION (i.e. erosion of money value) to deflate the debt. Thus hard asset with income (aka real estate or oil firms or gold mines or potash producers) are a sure path to wealth !!

 

[housingrental]

A few thoughts Luckyluciano:

There are still many Keynesians around!

The alternative might have been much worse. Stability with risk of inflation isn`t that bad compared to non-functioning markets with risk of deflation!

Canada`s demographics suggest reasonable scenario`s where we won`t be seeing those types of interest rates any time soon.


QUOTE (luckyluciano @ Sep 17 2009, 06:57 AM) I don`t understand governments` obsession with stimulating the economy. Refusing to allow markets to be cyclical seems like a dangerous plan. Driving interest rates down to the point of no return and then yanking them up inevitably just delays what must happen but multiplies the problem by creating an even worse recession down the road. Home buyers are
lured into these attractive rates an forced into borrowing the biggest motgages ever seen by consumers all the while acknowledging that rates are going to go higher but not truly living by that belief. If the variable rates go from 2% and end up around 6%, homeowners will be loosing their houses. Everywhere we turn.

 

[mcgregok]

QUOTE (luckyluciano @ Sep 17 2009, 04:57 AM) Home buyers are
lured into these attractive rates an forced into borrowing

I think you underestimate the average homeowner. There not stupid. You make it sound like all homeowners can be taken advantage of. I don`t think so.

 

[luckyluciano]

I don`t underestimate them at all. I know exactly what the average home buyer is thinking.....not thinking at all. They are keeping up with the "JONSES" and counting on the rates not doing anything too crazy. We really are at the mercy of the interest rates. The average mortgage being take out in the GTA is $400k and carries for $2000/ mth at 4% but most buyers are gambling and going with the variable rates because their friend told them that variable rates outperform fixed during the last 10 years, during during the longest running real estate cycle ever, created by stimulating the markets with ever decreasing interest rates. The average buyers have had little choice, they have had real estate cyclles artificially hidden from them. You don`t believe variable rates will go to 4 and 5%? Well the same money lenders telling me that variable is going to 2% tell me you are wrong! I can go on and on about this. I know full well what the average buyer is doing as I have been sucessfully selling real estate in the GTA for 24 years and I am ranked in the Top 1% and most collegues agree that what is going on is recipe for disaster.

QUOTE (mcgregok @ Sep 17 2009, 04:48 PM) I think you underestimate the average homeowner. There not stupid. You make it sound like all homeowners can be taken advantage of. I don`t think so.

 

[luckyluciano]

The demographic argument was used in 1989. I boght it the but I won`t buy it now. The current stability is bein created by luring consumers further into debt with cheaper credit and becoming desensitzed to large debt is the whole issue. The only alternatve I see to what is going on is massive inflation out of the current massive government and consumer debt loads so.
QUOTE (housingrental @ Sep 17 2009, 02:45 PM) A few thoughts Luckyluciano: There are still many Keynesians around! The alternative might have been much worse. Stability with risk of inflation isn`t that bad compared to non-functioning markets with risk of deflation! Canada`s demographics suggest reasonable scenario`s where we won`t be seeing those types of interest rates any time soon.

 

[invst4profit]

Would you care as much if you were not in the business of selling real estate.
Personally since I am not buying it is difficult to get very excited about individuals not being able to afford high mortgages in the future. As already mentioned many investors in the right position will get richer if there is a fire sale in the future and you will continue to make more money. Win/Win.
The one thing I have learned in life is that everything will eventually work itself out.

 

[JohnS]

QUOTE (luckyluciano @ Sep 17 2009, 06:46 PM) but most buyers are gambling and going with the variable rates because their friend told them that variable rates outperform fixed during the last 10 years,

Offhand, I`m pretty sure you`re wrong on at least this one point. I did a quick search for the stats, but didn`t have them handy, so hopefully another REIN member or somebody else will have them.

Yes, by and large, variable rate mortgages are cheaper than fixed, and have been about 90% of the time over the last 80-some odd years if not more, but most people don`t choose them. Most people choose having a fixed rate, as they`re scared of the bogeyman of "What if interest rates sky rocket?" I think the number of variable rate mortgages in Canada is something like 25% overall...possibly up to 33%, but not more than that. (I actually think it`s a lot less than that, but I`ll wait until someone can back me up with the actual numbers.)

Have a good one!

JohnS

 

[EdRenkema]

QUOTE (luckyluciano @ Sep 17 2009, 03:46 PM) I don`t underestimate them at all. I know exactly what the average home buyer is thinking.....not thinking at all. They are keeping up with the "JONSES" and counting on the rates not doing anything too crazy. We really are at the mercy of the interest rates. The average mortgage being take out in the GTA is $400k and carries for $2000/ mth at 4% but most buyers are gambling and going with the variable rates because their friend told them that variable rates outperform fixed during the last 10 years, during during the longest running real estate cycle ever, created by stimulating the markets with ever decreasing interest rates. The average buyers have had little choice, they have had real estate cyclles artificially hidden from them. You don`t believe variable rates will go to 4 and 5%? Well the same money lenders telling me that variable is going to 2% tell me you are wrong! I can go on and on about this. I know full well what the average buyer is doing as I have been sucessfully selling real estate in the GTA for 24 years and I am ranked in the Top 1% and most collegues agree that what is going on is recipe for disaster.Isn`t luckyluciano the nickname of a former organized crime boss? - interesting pseudonym. I`m comfortable enough I don`t have to hide my identity.I might point out the GTA is not the centre of the universe altho when I`m on the 4nothing1 at 8am on a weekday (about once every 5 yrs) it feels like the better part of Canada is sitting in their cars on the same road. Point is there are other places than the GTA and those outside of the festering masses probly think a little differently. My view is most consumers are debt averse, with lower rates they pay down more principal (or not).
Financial education is what the average consumer lacks and the lower interest rates are a huge advantage if you are educated.

Financial success does not equate financial intelligence - Robert Kyosaki

luckyluciano if you and your colleagues agree this is a recipe for disaster then why do you continue to sell these hugely expensive homes to the average home buyer who as you so aptly put it `is not thinking at all` ???

Perhaps it is YOU who is concerned with `keeping up with the JONSES`.
Just a thought

 

[housingrental]

So wouldn`t your alternative support price level stability? ..... which argues against your previous post?


QUOTE (luckyluciano @ Sep 17 2009, 06:58 PM) The demographic argument was used in 1989. I boght it the but I won`t buy it now. The current stability is bein created by luring consumers further into debt with cheaper credit and becoming desensitzed to large debt is the whole issue. The only alternatve I see to what is going on is massive inflation out of the current massive government and consumer debt loads so.

 

[JoefromTO]

QUOTE (luckyluciano @ Sep 17 2009, 05:46 PM) I don`t underestimate them at all. I know exactly what the average home buyer is thinking.....not thinking at all. They are keeping up with the "JONSES" and counting on the rates not doing anything too crazy. We really are at the mercy of the interest rates. The average mortgage being take out in the GTA is $400k and carries for $2000/ mth at 4% but most buyers are gambling and going with the variable rates because their friend told them that variable rates outperform fixed during the last 10 years, during during the longest running real estate cycle ever, created by stimulating the markets with ever decreasing interest rates. The average buyers have had little choice, they have had real estate cyclles artificially hidden from them. You don`t believe variable rates will go to 4 and 5%? Well the same money lenders telling me that variable is going to 2% tell me you are wrong! I can go on and on about this. I know full well what the average buyer is doing as I have been sucessfully selling real estate in the GTA for 24 years and I am ranked in the Top 1% and most collegues agree that what is going on is recipe for disaster.

Holy crap I just realized who you are! Are you the agent that has a picture on bins around the city dressed in a superman outfit? By the way, this is NOT meant as a stab even though it may sound like it. Your add is very effective, I see them all the time! It`s like Brad Lamb, his face on a lambs body!

I agree with you LL, alot of home owners have gone way over their head. I feel horrible for them because many people have lost their homes. I think of the children and what they have to go through. Unfortunately, many people speculate that everything will be "ok"... when things change with interest rates. Interest rates (In my opinion) are the leading influence in the real estate world.

Variable rates are nice, but dangerous. The banks are hugely responsible for lending too much money to those who wouldnt qualify if the terms were different. Putting little down, amortizing for 40 years, using a variable rate...gives a false sense of security. The homes owners who are not prudent, don`t manage their other homes expenses wisely, don`t save enough, live life to the fullest (cars, trips, material stuff). Then when the s..t hits the fan...

Intelligent investors think differently and when you have people like thomas beyer who recommend calculating an investment with hard numbers (I forget how he refers to it...using higher interest rates...) is a smart way to calculate potential future costs and prepare for them accordingly.

The average home owner doesn`t think that way. A 40 year mortgage means they have smaller monthly payments, they qualify for more money to buy a bigger more expensive home, and their superficial better quality of life is what they live for...the today instead of tomorrow mentality.

Like I said, I feel bad for the children.

 

[luckyluciano]

Hi Eddi from Beamesville! Trust me, my real name is no more exciting than yours. As far as selling high priced houses, well this is my carreer! I actually benefit from these inflated prices! I` m not going to stop my carreer. So I can change the world. That`s what we elect government for. As far as keeping with the Jonses, I am actually far surpassing them with this sizzling market PUS I am good at it. I just don`t like to see people losing their homes. Shoot me for caring! I prefer a more level type market without such greedy swings. I am not sure about beamsville, but many markets have doubled in price scince 1995. QUOTE (EdRenkema @ Sep 18 2009, 05:46 AM) Isn`t luckyluciano the nickname of a former organized crime boss? - interesting pseudonym. I`m comfortable enough I don`t have to hide my identity. I might point out the GTA is not the centre of the universe altho when I`m on the 4nothing1 at 8am on a weekday (about once every 5 yrs) it feels like the better part of Canada is sitting in their cars on the same road. Point is there are other places than the GTA and those outside of the festering masses probly think a little differently. My view is most consumers are debt averse, with lower rates they pay down more principal (or not). Financial education is what the average consumer lacks and the lower interest rates are a huge advantage if you are educated. Financial success does not equate financial intelligence - Robert Kyosaki luckyluciano if you and your colleagues agree this is a recipe for disaster then why do you continue to sell these hugely expensive homes to the average home buyer who as you so aptly put it `is not thinking at all` ??? Perhaps it is YOU who is concerned with `keeping up with the JONSES`. Just a thought

 

[Thomas Beyer]

QUOTE (JoefromTO @ Sep 18 2009, 11:23 AM)
..

Intelligent investors think differently and when you have people like thomas beyer who recommend calculating an investment with hard numbers (I forget how he refers to it...using higher interest rates...) is a smart way to calculate potential future costs and prepare for them accordingly.

..


I called is "stress test your portfolio at 6 or 7% interest, possibly higher" or "are you too levered".. see this post here:



http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10823-When_are_you_too_levered_.html

 

[EdRenkema]

QUOTE (luckyluciano @ Sep 18 2009, 07:40 PM) Hi Eddi from Beamesville! Trust me, my real name is no more exciting than yours. As far as selling high priced houses, well this is my carreer! I actually benefit from these inflated prices! I` m not going to stop my carreer. So I can change the world. That`s what we elect government for. As far as keeping with the Jonses, I am actually far surpassing them with this sizzling market PUS I am good at it. I just don`t like to see people losing their homes. Shoot me for caring! I prefer a more level type market without such greedy swings. I am not sure about beamsville, but many markets have doubled in price scince 1995.


Oh no! you know my name and where I`m from, where did you find out?? (BTW do you have spellcheck? do you proof read?)
Congrats on surpassing the Jonses - you win the Pee contest. You are obviously so good at it there is no need for modesty false or otherwise!
I see no need to shoot someone who is firing wildly into their own foot.
If you were so concerned about people losing their homes you might council your clients to purchase something more affordable, perhaps you are, are you not professionally obligated to do so?
Government intervention does nothing but increase taxes and beauracracy, ask anyone living/working under the extreme left David Miller regime.
Stick with the GTA I think thats the place for you.

 

[luckyluciano]

QUOTE (EdRenkema @ Sep 18 2009, 11:19 PM) Oh no! you know my name and where I`m from, where did you find out?? (BTW do you have spellcheck? do you proof read?)
Congrats on surpassing the Jonses - you win the Pee contest. You are obviously so good at it there is no need for modesty false or otherwise!
I see no need to shoot someone who is firing wildly into their own foot.
If you were so concerned about people losing their homes you might council your clients to purchase something more affordable, perhaps you are, are you not professionally obligated to do so?
Government intervention does nothing but increase taxes and beauracracy, ask anyone living/working under the extreme left David Miller regime.
Stick with the GTA I think thats the place for you.

I apologize for the grammar. Many of my posts are done one my blackberry while on the run keeping ahead of the "JONSES" I will do better-thanks for pointing that out. Actually I don`t think I do fall into the category of keeping up with the masses as I am debt free except for my car lease. I truthfully thought this market was going to blow off steam in 2005, or at least I felt it should have! Similarly many in the U.S. are now blaming Greenspan for being the catalyst the the housing/banking crisis in the U.S. and providing far too much liquidity beyond what was necessary or reasonable. I was waiting for this bubble to burst and surely it has in the U.S. but not here in Canada. I was waiting because I remembered buying real estate in 1989 and watching it decline by as much as 40-50% and I did not want to time it wrongly the second time around.

This time I am thinking the global game plan has changed and history does not necessarily need to repeat itself. Now I am thinking the paradigm is shifted and it is a global agreement for governments to inflate themselves out of these huge debts. Therefore I am beginning to load up and buy rental properties. I prefer to buy brand new or under 5 year town homes (freehold as maintenance fees are a blackhole) so I can buy and hold for 10-15 years and then just before maintenance issues are about to come up, exchange them for newer homes once again. I find the newer properties in prime locations attract the better tenants, better rents and are practically maintenance free, which I like.

Ed, I disagree with you that MOST consumers are debt averse. I suppose a lot depends on ones profession and what you are exposed to. (eg. some doctors feel everyone gets cold sores because they see mostly sick people etc) It doesn`t matter if one is from the GTA, Barrie or Beamsville, consumers are still buying houses with 5% down, taking conventional mortgages with 20% down instead of the old 25% standard, utilizing 35 year mortgages, L.O.C., don`t pay for 1 year furniture events, carrying unpaid credit card balances etc etc etc. It`s just on a smaller scale in smaller cities and towns. (I could be wrong here. Things could be totally different in really small towns where the population may be around 10,000.)

 

[EdRenkema]

QUOTE (luckyluciano @ Sep 19 2009, 06:44 PM) Ed, I disagree with you that MOST consumers are debt averse. I suppose a lot depends on ones profession and what you are exposed to. (eg. some doctors feel everyone gets cold sores because they see mostly sick people etc) It doesn`t matter if one is from the GTA, Barrie or Beamsville, consumers are still buying houses with 5% down, taking conventional mortgages with 20% down instead of the old 25% standard, utilizing 35 year mortgages, L.O.C., don`t pay for 1 year furniture events, carrying unpaid credit card balances etc etc etc. It`s just on a smaller scale in smaller cities and towns. (I could be wrong here. Things could be totally different in really small towns where the population may be around 10,000.)

Once again I must point out you are in the GTA-that is not reality, it is beyond me why anyone would want to live and work there but to each their own, I`m speaking more of the masses of people on the highways than yourself.
Easy to see you are using your large income to buy instead of analyzing cashflow properties in areas of good appreciation, not to say you don`t have those variables, with a large enough down anything will cflow, appreciation will happen with demand, I know with my low income I need to find older well maintained tnhomes in areas poised for growth due to economic fundamentals. My investors like to see that and so do I. I use 20% down and 100% financing and test the cashflow through different scenarios.
You simply have different values and training than I. I will say that I find it reprehensible when individuals refer to the beauracratic infrastructure (aka the `government`) to save people from themselves. You see I believe in individual responsibility not social responsibility for the individual. That is what people should be taught and that they are responsible for their own actions.
35 and 40 year amortizations are the greatest tools to have in the mortgage market, once again people need to learn they are responsible for their actions - are you telling your clients this??

 

[invst4profit]

I can not believe that a new townhome in the Toronto area is capable of positive cash flow in real dollars.
When Toronto investors talk of cash flow it is mainly smoke and mirrors. The real numbers are never shown to support there claims. They seldom look at real numbers and mostly depend on appreciation to make money.