so spend money now. Gotcha. THAT I can do. Since long covid has grounded any significant handyman stuff, we’re having to pay people to do some home reno stuff. I imagine I’m not alone in this predicament. hiring is a pain in the ass though. People make more riding out extra unemployment benefits until they’re expire, why would they take a job? Housing market down here is insane too. It looks to me like a bubble, but we’ll see.
You are far from alone. I'm telling my folks to liquidate anything they wouldn't mind getting rid of while prices are astronomically high for things like used cars, toys, tools, etc. I think the housing market isn't a bubble, but there's not the supply there should be. In a few more months, it should stabilize, especially once lumber and gas prices drop to "normal". However, around here the raw cost to build some of these homes is well under $100k in materials/labor, land is $80k, and they are selling for $500k....that kind of price is divorced from reality, driven by scarcity, and can't last too long. The moratorium on evictions will end, banks will proceed with foreclosure sales that will push some of the prices back down to normal and that will help. Also, I'd expect interest rates to pick up, which should scare off the investor class from buying properties. It'd be a bubble if folks kept believing the prices would continue to rise, but I don't see that. Lastly, any shock to the system that affects consumer confidence will keep buyers out of the market, and that would theoretically cause a price correction. In the DC area, that sort of thing looks like Amazon announcing their HQ2 shit show will house far fewer people than expected, because of an increase in remote work...that would force some investors to bail on marginal investments, re-size expansion plans for a lot of folks, and eventually amount to a "market correction". Along those lines, however are thorny issues, such as how many folks are 100% remote moving forward, and how do companies (especially smaller ones) address a workforce that is more widespread. The hiring thing is...complicated. A lot of folks who were in those jobs spent the pandemic learning new skills, finishing college, etc. and are angling for higher level jobs. The restaurant industry as a whole is looking at a reckoning, because very few of it's employees earn a true, taxed & on the books living wage (and most of the ones that do can't sustain that career for decades). So, imagine the waitress that was going to work another 18 months at Chili's until she finished college is already done, and applying for jobs in her academic field: she no longer needs or wants to work at Chili's. Her rent is either cancelled or she moved home to do classes online, so she doesn't really need the additional income Chili's provides, and the risk of getting COVID with her health insurance (lol) isn't worth it at all: she might make $15k a year, but her health plan has a $6k deductible....That math doesn't add up, especially not factoring in her padded savings. So, she'll linger on unemployment, but that's not really the deciding factor between working at a restaurant or not at all. Retail is in for similar waves, but if anything retail had to staff up for the pandemic, and given the timing of things, probably won't trim down much before beefing up for the end of the year boom (about 40% of retail happens between October and mid-January). I think the unemployment benefits did more to prop up spending, I don't think it's keeping a ton of people on the sidelines. There are thousands of jobs out there with heavy levels of competition, but the jobs and firms that can't find staff seem to rely on desperation, captive audiences (college aged or retiree labor force that is now either too risky or too high-skilled for the gig), or similar exploitative labor practices. The folks who are legitimately earning more on the unemployment benefits are damned near nonexistent, because few places are constrained to just paying minimum wage (for the record, $7.50/hour X40 hours is $300). The labor that usually fills this gap is immigrant labor, and....sigh. Well, that's not likely to happen, and it's going to remain a highly politicized issue for the foreseeable future. So, enough folks coming in to take some of these jobs simply isn't going to happen, and firms will be leery of hiring them and becoming front page news.
Some context to housing price increases...a few houses down from mine sold last November for $675k. An identical house to it three houses over; same exterior, sq footage, comparable finish inside, etc., listed in April for $720 and sold for $760. The house accross the street from me is ~500sq ft smaller than the two above listed five days ago for $720 and within two days had a pending contract. I'd bet it went for at least $20k over asking. It sold for $555 when built in March 2019. A comparable house in the neighborhood sold for $649 in December. I think the housing shortage isn't going anywhere soon, but there's no way the market can sustain that kind price increase.
People are going to be so fucked when the interest rates start to climb. On a 600k house, going from 2 to 5 percent interest raises your monthly payment like $1100.
The market isn't...March saw a huge increase in the number of home starts, but they got pounded by the price of lumber, the price of labor, and shortages/delays in various supplies and materials. April saw the number of housing starts go down, but it's still well above the low posted in 2020. It's going to take a few months to stabilize, and when it does, I have no doubt there will be people underwater on homes they had to buy right then and there. I think the actual bubble isn't in DC or Austin, TX or even the SF Bay area, but in the rural to light suburbs, where a 15 year old McMansion is supposedly worth $500k and the closest metro area is Fuckinghamburg, and the closest airport is a 5 hour round trip. Even my hometown in SC boasts a $40k median salary, but an average home price of $279k....and rising. I fail to understand how your average person in the US is going to pay a $300k+ mortgage off working for Jiffy Lube, especially not when shit starts to break.
I’d be curious though to see how many mortgages fall through on these bidding war houses. People can be willing to pay 20-100k over asking just to get the house, but if they don’t have that kind of cash to bring to the table, and if the appraisal doesn’t match the fought-over price, then the deal falls apart. I also think a lot of lenders are going to be much more careful this time around to not give loans to people with shitty credit/no credit or people who clearly can’t afford the house they want. Only a moron would determine whether or not to make a huge purchase based on a percentage point of interest.
You have to realize that those of us working remote spent the last 14-15 months saving literal fucktons of money. It's estimated we have saved nationally $3 trillion over the past year or so. Think about it: $4-5k on a vacation you couldn't take. $100/week on the commuting and eating lunch at the office you're not doing. $300/month on the concerts, baseball games, and live events you're not going to. $1000 for the holiday bullshit you normally do that you avoided. Hell, $300-500/year on the car maintenance you didn't need to do, because you weren't driving. Sure, you spent some of it on Amazon, GME stock and a Netflix subscription, but most folks socked away a ton of cash. It's one reason the stock market is astronomical right now: folks have little else to do with their savings but invest it. In my world, the IT guys we let be permanently remote last year....most of them moved back home with family, cancelling their $2500/month rent payments. Putting up with mom for 6 months means an extra $15k for a down payment on a house, in a hometown that's likely to be far more affordable than the DC area. If you were looking at a $300k house in the DMV (not atypical at all), then switching to a market in a more rural area, with your same salary, an extra $20k on the house doesn't bother you, since you A) have an extra $20k in savings, B) so does your spouse, and parents, and C) it beats the fuck out of rent. Folks who'd normally be working with a miniscule down payment are now working with a lot more cash, not to mention the folks borrowing from the bank of Mom and Dad. A standard couple, with some help from either (or both) families makes it within range. Also, a house provides some tax incentives that other shit does not, so you might be willing to take a bath on a home purchase and save yourself $10-20k/year in taxes for the next decade. I've seen/heard of folks backing out of a bidding war once they sobered up and realized they were offering something absurd over asking. I've yet to hear of lenders doing anything to dampen this market. If anything, they are hurting because there's just not enough houses to sell. The folks who are buying now aren't a credit risk at all.
I am not even talking about a variable. Say you take a 5 year fixed now, and in 5 years it goes up to 5 percent. Now you are fucked.
In retrospect I should have done that. My nest egg is nothing to sneeze at, but fuck the last year was a waste of rent payments.
Also add in the stimulus payments for people who didn't need it. My brother and his wife just skated under the income threshold and they have four kids. So far, they've bought a $4,000 wine cooler, new 65-70" TV, Traeger smoker, baddest of the bad washer and dryer, several home projects and some wood working power tools. 100% funded by stimulus money. Makes for a spending boom.
Say no more. If these kids who watched their parents lose it all in 08 due to variable rates are willing to take it on themselves, the sooner we separate these fools and their money the better.
Never mind that rates are so low right now. I just landed a 1.3% mortgage. It HAS to adjust up, at which point some people will not be able to keep up with the payments. People tend to buy what they can barely afford.
There are various terms, fixed or variable. You can get a 3 year mortgage fixed/variable that you’d then have to refinance after that 3 years.
That's... a variable rate mortgage. A fixed rate mortgage doesn't change over the duration of the note. There are multiple types of variable rate mortgages, but they are all variable rate mortgages.
Damn. So, about that whole "children are reservoirs for Covid" thing. My child had a GI follow up today. The GI and main ped seen are room mates. They were both vaccinated in November, and both caught covid in March. The main ped apparently got pretty damned sick from it. The GI is so frustrated, as she is from Venezuela where her parents are practically begging for a vaccine while waiting out this mess in their house, and she works in a county, where the vaccine is easily obtained, and that has around a 33% vax rate. Patients have told her the vaccine is from the devil.
1.3% fixed? Because I'm just not smart enough to understand why you'd ever risk taking on a variable rate.
There really isn't any locking in a rate over the life of the mortgage in Canada. You can only lock in for certain periods of time. Most common are 3 and 5 year fixed rate periods. but you can generally get anything from 1-5 years easily, there are a few oddball options for 7 or 10 year terms. The reason for choosing one term over another comes down to your risk tolerance and price. Generally the shorter the locked in term the lower the interest rate ( for instance a quick google search of the posted rates right now shows it would be 0.95% higher interest to go from a 5 to 10 year term. The mortgages are still amortized over a 25 year (or less) period. Longer amortization periods are only available on non-insured mortgages. So for example when I bought my house in 2012 I took out a 25 year mortgage with a 2.99% fixed rate on a 5 year term. So in 2017 my term came due. At this point you can either pay off the remaining balance or agree to another term with the bank (or come to terms with a different bank to move the balance of the mortgage there.) In my case I stayed with the current bank but at a new rate of 2.94% for another 5 years. The next renewal for me comes up in late 2022 which is looking like rates will be much higher by then so I am starting to run some numbers to see how much interest rates have to go up for it to be worthwhile to refinance early and eat the fees. Also should note that floating interest rate loans are available here as well.
A lot of commercial real estate gets financed like that here, 10 year term with 30 year amortization and refi sometime before the 10 is up. It's not common for private residences.
I have to admit I would have tuned it to watch. https://www.businessinsider.com/boris-johnson-dominic-cummings-covid-infected-on-tv-kung-flu-2021-5
There's a big difference in how Canada and US do mortgages: 1. We can't deduct our mortgage or our mortgage interest from our taxes. Unless we run a business from home, and then only the percentage of the square footage of the house that's dedicated to the business. 2. We don't have 30- or 40-year fixed mortgages like the US. Any contract longer than seven years isn't legal. So a mortgage will be amortized over a certain number of years (ie how long you want to take to pay it back), but I do believe it caps at 30. It might even have been cut down to a 25 year max after the last housing swing. The mortgage itself is six months, or 1, 2, 3 or five-year fixed or variable. With fixed, you lock in the interest rate. With variable, it fluctuates an agreed-upon percentage over/under the prime rate set by the Bank of Canada. So if prime is at 2.5%, and you're at prime + 0.25%, that's your mortgage rate that month. If prime jumps to 2.85, then so does your rate. That being said, your payment does not change. If you're paying $1000/month, you still pay that amount. Just less of it goes to the principle. Also, when they calculate your mortgage payment they amortize it over less years just in case this situation occurs. You have some wiggle room. At the end of your term (three or five or whatever years), you renegotiate the mortgage. Also, if rates start to go squirrelly and you have a variable term, you can lock in your rate and make it fixed. Hope that wasn't too nerdy. Edit: Sorry, my original point was to reply. 3. It's super common to pick a variable mortgage. The money you save in interest usually dwarfs the perceived risk you may assume by picking a variable over a fixed. The Bank of Canada always gives loads of time before a rate jump, and historically the jumps have been small. So if it fluctuates 0.5-1% over the three years until you renegotiate, it's much better for you than swallowing a mortgage term that was 2.5% higher to begin with.