There are many upper end properties affecting the median of 410k that would not enter the rental market.”

Hi Jimmy,

I’ve thought about this, and I tend to agree with you for the most part.

But when I look at rental properties listed on rentfaster (SFH) and compare them with what it would cost to buy the equivalent property, it still seems to always come up to the same ratio (approximately 250X rent)

But I do hear what you’re saying… the fact remains though that the median SFH for rent in Calgary is $1600, and the median SFH for sale is $410,000.

Are the houses for rent worth less than the houses for sale, on average? Could be I suppose.

I’ve noticed the median rent for SFH has really started to soften these last few weeks…

http://tinyurl.com/y87t2lo

It had remained pretty solid at $1600 for the last few months. I’m thinking it could be at $1550 (3% decrease) by mid December.

“Owning is not renting from a bank. ”

I usually use this statement to educate people who always come up with the statement ‘renting is throwing your money away’ without actually considering the calculations involved.

You don’t get the interest you paid your bank back either!

The fact is, owning is NOT always the smarter decision financially.

Kevin over at EHB has an excellent rent/buy calculator designed…

http://edmontonhousingbust.blogspot.com/2009/11/rent-vs-buy-calculator-v10.html

It factors in everything, including the opportunity cost of the money that you’ve placed into your down payment, realtor fees, property taxes, insurance.

There is a ‘premium’ that comes with the emotional satisfaction of home ownership.

I’m not against home ownership in any way. And I think for most people it is an excellent savings vehicle that forces them to be responsible.

For me personally, I just feel there are certain fundamentals in the marketplace right now that are *completely* out of whack.

Funadmentals that, for me, make putting a large sum of money back into Calgary real estate vs renting a similar property a no brainer.

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Mike Fotiou says: I contacted RentFaster.com last month regarding getting some statistics from them & they responded: “We currently do not offer a stats package, however we are tracking them in various forms and working on launching something in the near future.”

That would certainly be helpful!

You are looking at apples and oranges when you compare the median 410k price to rental properties. I would bet that most rental properties do not cost that much.

There are many upper end properties affecting the median of 410k that would not enter the rental market.

Mike F what do you think the average rental property in Calgary costs?

Owning is not renting from a bank. It’s more like a large loan with a house you live in as collateral. The bank can’t kick you out if a lease expires and you get to pick what you do to your house.

And like Mike F says, when you pay down a mortgage, that amount is built up as equity and comes back to you when you sell. You don’t get the rent you paid your landlord back!

Second, from the CAAMP report which is the organization representing the Canadian Mortg. industry only 27% of mortgages registered up to now this year have been variable rate and 5 year terms are most popular. Compare that with 80% variable rates which was the situation in the U.S. – those are the people who defaulted!

Third, the report states “this analysis indicates
that most mortgage borrowers will be very able to cope with any changes in interest
rates that occur at their next renewals.” I can concur personally. I have a crappy mortg. rate that i’m stuck with for a few more years (much more than the average 4.5% now), and i have an average house, and we have one good (not rich) income and we’re doing just fine. If rates do go up most people feel confident they can still make their payments. Not to mention that income is rising fast in Canada which may help out by the time rates increase.

Fourth, if unemployment occurs: •The duration of unemployment (which is “as important as unemployment rate”) is much lower in Canada. That means Canadians can more easily get replacement jobs to pay their mortgage if they lose work. These points are from a CIBC economist. He also says:
•“It’s all about (consumer) confidence,” •Canada will outperform all other G7 countries in GDP growth in 2010.

Fifth, as for foreclosures occuring because of unemployment, well we’ve had lots of unemployment in this RECESSION (which we are getting OUT of) and the arrears rate is at half a percent, yes it’s doubled in recent years, but we’ve been through a RECESSION keep that in mind, and still no crash.

Sixth, I agree the CMHC should be very closely watched but the fact they are a crown corporation, not private, is yet another way we differ so much from the U.S. (fanny mae/mac were private); this is a good thing people. CMHC is not out to get us. If a crisis should even begin to occur, the government is in control, not some private corp. They have a lot of money to cover arrears.

Lastly, as for Garth Turner, he’s been bashing real estate for 20 years! In that time holders of real estate have become extremely wealthy! Poor you (literally) if you listened to him years ago. I believed he also encouraged investing in stocks. LOL. He had it all backwards! Not to mention is crazy political career switching from Conserv. to Liberal, not getting re-elected…what a character. In a recent interview Thursday you could hear him backpedaling saying he does NOT fear a meltdown like that of the U.S. That’s from the biggest fearmonger around. He now predicts (now remember, start believing the exact opposite) a 15% decline over the next several years…hey wait, didn’t we already see a drop in house prices 15% between 2007-2009? If that’s his definition of a being “as bad as the United States”, well you’ve lived through it, just like me and we’re fine. He’s still giving misleading information because 30% decline is what the U.S. has been through, not 15, which is more of a large market correction, and as I pointed out, their situation was in FACT (not fear) quite different. I just wrote and deleted the names I really wanted to call him. Not going to go there.

If you keep real estate (especially rental ones) as LONG TERM investments history and mathematics say you will eventually come up a winner even if your house prices appreciate little. You’ll have a paid off home and if you’re really smart rental income from those who unfortunately may have been scared out of buying a home for their family. Buying is not an if but a when in my opinion; think how much do you expect prices to go down, rates to go up, how much rental will you throw away while you wait, just play with the numbers. Canada is an awesome country economically and culturally and personally, I will own as much of it as I possibly can

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Mike Fotiou says: Gulsen, I appreciate your well thought out points. I can’t comment on all of them right now, but this bit of news was interesting (regarding your points 1 & 2): Even those with fixed rate terms are defaulting in the US. Americans with solid credit ratings comprised 33% of this quarter’s foreclosures. (Source: Globe & Mail)

Interesting article today: “Canadian real estate prices are inflated, but they’re unlikely to correct themselves in the short term, a Bank of Nova Scotia report suggests.” Scotiabank Hints at a Housing Bubble.

Instead of comparing the median sale price with the median rental price, it would be best to find a property you are interested in buying and then find a comparable one for rent and begin the comparison process that way.

Second, equity would be built up over time with the eventual paying off the mortgage. Now I understand this would be difficult to calculate – how much appreciation (or depreciation) do you account for? However, regardless of what the market was doing, you should have less remaining on your principal as time goes on.

Thirdly, 7% is too high for real estate commissions. Real estate commissions are completely negotiable but for the best example: 7% of the first $100k and 3% of the balance of sale price would be a better estimation for Calgary. Or $995 + 3.5%/1.5% if you sell through me. Or no fees if FSBO.

Fourth, if money is saved by renting, calculate how much return would be gained by those savings if invested.

I’m trying to show the girlfriend what the premium cost is for renting from a bank (aka owning) versus renting from a landlord, for an average Joe in Calgary, ‘owning’ vs renting an average home.

RentVsBuy.xls
http://www.mediafire.com/?jjygwny1uma

Just wondering if anyone had any feedback on the calculations, or anything else I could add?

Here’s what I’ve come up with for the average Joe in Calgary so for…

price: $410k (median price right now)
downpayment: 10% or 41k
mortgage rate: 4%
+ property taxes + insurance + maintenance + realtor fees (all per month)
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rental price: $1575/month (current median price)
=
premium of ownership: $456/month

If the mortgage rate is 5%…
premium of ownership: $763/month

If the mortgage rate is 6%…
premium of ownership: $1071/month

If the mortgage rate is 7%…
premium of ownership: $1378/month

cM

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Mike Fotiou says: No more Nikki comments, please.

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Mike Fotiou says: If you want to talk to Nikki, please do it elsewhere

http://edmontonhousingbust.blogspot.com/2009/11/whos-to-blame.html

Secondly I resent being referred to as “Poor little Nikki”. That is suggesting that I’m young and silly. I have been involved in real estate for many years and am not remotely naive nor am I even trying to predict the future of real estate in Calgary.

“C” you said: A realtor, should not be advising a client on the future of real estate, and should only help to facilitate a sale. Just because a realtor takes a weekend course for a license does not make them an expert. Just because a realtor has done well this last decade of easy sales, does not make them an expert.

First – a weekend course? Are you serious? Look into it. I agree that those of us in real estate over the last 10 years are experiencing a new market, but to say that anyone with that many years experience is not an expert… well what is your definition of expert? An expert in economics, or real estate? I would argue that most realtors who have been working full time in real estate over the last 10 years have a fair amount of expertise in facilitating real estate deals…

I was simply a victim of a cyber bully who is a real estate Extremist trying to sell a book based on nothing but his skewed interpretations. The people that read his blog were not even remotely interested in discussing the article that was posted, instead they developed a mob mentality focused entirely on how I look.

Whether people think I’m “sexy” or dressing like a “vamp” is also based on opinion. The fact that this clown took a small picture of me and blew it up over 100x its size is evidence he was only looking for a piece of text to place below it to accuse me of being some air headed young tart trying to sell herself instead of real estate.

Any of my past or present clients would tell him quite the contrary. Oh, and if 42 years old is considered “young” then I guess I’m guilty.

Mike, except for a few misguided and uninformed opinions here, it is nice to see that you have following that are intelligent and have viable opinions based on a topic other than just my clothes.

Keep it up.

Cheers,
Nikki Harrison