Comments on: This and That http://www.canadiancapitalist.com/this-and-that-85/ Helping you invest and prosper Sat, 11 Feb 2012 12:40:17 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: David http://www.canadiancapitalist.com/this-and-that-85/#comment-127711 David Tue, 15 Apr 2008 00:35:34 +0000 http://www.canadiancapitalist.com/?p=921#comment-127711 "In the U.S., it may be worth noting, the states that have the highest unemployment rates—states like Alabama, Michigan, Mississippi—are also among those with the highest homeownership rates." Alabama and Mississippi are two states which have "right to work" legislation, which also has an effect on employment rates, and wages, as workers are less protected from actions of their employer. DAvid “In the U.S., it may be worth noting, the states that have the highest unemployment rates—states like Alabama, Michigan, Mississippi—are also among those with the highest homeownership rates.”

Alabama and Mississippi are two states which have “right to work” legislation, which also has an effect on employment rates, and wages, as workers are less protected from actions of their employer.

DAvid

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/this-and-that-85/#comment-127627 Canadian Capitalist Mon, 14 Apr 2008 17:46:07 +0000 http://www.canadiancapitalist.com/?p=921#comment-127627 telly: Thanks for the interesting link. The article does have a point that homeowners might be more reluctant than renters to move in search of jobs and provides a nice counter-point to the usual rah-rah about home ownership. Still, I think that, on balance, home ownership does seem to be a good thing... (assuming that we don't live miserable lives just to own a home) <a href="http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B2F344F23-BDE9-4CA9-91D2-2A8DF6051194%7D&siteid=mktw" rel="nofollow">Link</a> telly: Thanks for the interesting link. The article does have a point that homeowners might be more reluctant than renters to move in search of jobs and provides a nice counter-point to the usual rah-rah about home ownership. Still, I think that, on balance, home ownership does seem to be a good thing… (assuming that we don’t live miserable lives just to own a home)

Link

]]> By: telly http://www.canadiancapitalist.com/this-and-that-85/#comment-127618 telly Mon, 14 Apr 2008 16:51:54 +0000 http://www.canadiancapitalist.com/?p=921#comment-127618 I don't believe it's a known fact that Canada is going to have a labour crunch in the next couple decades. Nonetheless, in regards to home ownership, I'm not sure that Canada should be proud of it's home ownership levels. There was an interesting study that showed the correlation between home ownsership and unemployment: "found a strong relationship between increases in homeownership and increases in the unemployment rate; a ten-per-cent increase in homeownership correlated with a two-per-cent increase in unemployment. (In the U.S., it may be worth noting, the states that have the highest unemployment rates—states like Alabama, Michigan, Mississippi—are also among those with the highest homeownership rates.) And reluctance to move not only keeps unemployment high in struggling areas but makes it hard for businesses elsewhere to attract the workers they need to grow." The full article is here: http://www.newyorker.com/talk/financial/2008/03/10/080310ta_talk_surowiecki I don’t believe it’s a known fact that Canada is going to have a labour crunch in the next couple decades. Nonetheless, in regards to home ownership, I’m not sure that Canada should be proud of it’s home ownership levels. There was an interesting study that showed the correlation between home ownsership and unemployment:

“found a strong relationship between increases in homeownership and increases in the unemployment rate; a ten-per-cent increase in homeownership correlated with a two-per-cent increase in unemployment. (In the U.S., it may be worth noting, the states that have the highest unemployment rates—states like Alabama, Michigan, Mississippi—are also among those with the highest homeownership rates.) And reluctance to move not only keeps unemployment high in struggling areas but makes it hard for businesses elsewhere to attract the workers they need to grow.”

The full article is here:
http://www.newyorker.com/talk/financial/2008/03/10/080310ta_talk_surowiecki

]]> By: Jon D. http://www.canadiancapitalist.com/this-and-that-85/#comment-127224 Jon D. Sat, 12 Apr 2008 02:17:31 +0000 http://www.canadiancapitalist.com/?p=921#comment-127224 Umm... Because most young couples starting out (or wanting to start a family) don't have 6 figure trusts funds or oodles of cash laying around? Canada should be proud of it's home ownership levels, and should be supporting families to go this route. In the next couple decades, Canada is going to have a labour crunch, so either we're gonna need tonnes of babies right now or increased immigration in the future. So if families don't feel secure enough to have an extra kid or two, we're going to have some big issues. Umm… Because most young couples starting out (or wanting to start a family) don’t have 6 figure trusts funds or oodles of cash laying around? Canada should be proud of it’s home ownership levels, and should be supporting families to go this route. In the next couple decades, Canada is going to have a labour crunch, so either we’re gonna need tonnes of babies right now or increased immigration in the future. So if families don’t feel secure enough to have an extra kid or two, we’re going to have some big issues.

]]> By: Phil S http://www.canadiancapitalist.com/this-and-that-85/#comment-127223 Phil S Sat, 12 Apr 2008 02:01:07 +0000 http://www.canadiancapitalist.com/?p=921#comment-127223 The two mortgages I've had in my life were 6-yr amortizations and I paid them both off in 3 yrs. I can't even conceive of taking out a 10-yr mortgage much less a 40-yr mortgage! My employment situation is usually so volatile that to take a 6-yr amortization was worrying enough having that debt hanging over my head. Why would anybody want to hold a non-tax deductible debt for 40 yrs? The two mortgages I’ve had in my life were 6-yr amortizations and I paid them both off in 3 yrs. I can’t even conceive of taking out a 10-yr mortgage much less a 40-yr mortgage! My employment situation is usually so volatile that to take a 6-yr amortization was worrying enough having that debt hanging over my head. Why would anybody want to hold a non-tax deductible debt for 40 yrs?

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/this-and-that-85/#comment-127190 Canadian Capitalist Fri, 11 Apr 2008 19:34:30 +0000 http://www.canadiancapitalist.com/?p=921#comment-127190 Traciatim's situation is perhaps the only one when a long AM makes sense. When we purchased our current home, we went with a 25 year AM, despite our plans to pay it off in 15. The longer AM gave some cushion in our budget in case one of us was laid off (and I was actually laid off within months of purchasing our home but that's another story). But Aleks says my suspicion is that the current popularity of longer AM's is due to deteriorating affordability and not for cash flow purposes. I agree with Telly that people buying a home today in hot markets are likely to face stagnating or worse real estate markets. Traciatim’s situation is perhaps the only one when a long AM makes sense. When we purchased our current home, we went with a 25 year AM, despite our plans to pay it off in 15. The longer AM gave some cushion in our budget in case one of us was laid off (and I was actually laid off within months of purchasing our home but that’s another story). But Aleks says my suspicion is that the current popularity of longer AM’s is due to deteriorating affordability and not for cash flow purposes. I agree with Telly that people buying a home today in hot markets are likely to face stagnating or worse real estate markets.

]]> By: Traciatim http://www.canadiancapitalist.com/this-and-that-85/#comment-127187 Traciatim Fri, 11 Apr 2008 19:16:29 +0000 http://www.canadiancapitalist.com/?p=921#comment-127187 Ben, your assessment on the use of the 40 year AM is exactly why I went with a 35 year AM. My family income in 2006 was right around 60K or so, and we purchased a home for 102K in April of 2007. That summer my spouse decided to start her own business rather than go directly to work after school. This meant our income dropped and things are less structured. The 35 year AM really puts us in a better position to maneuver (even if it isn't THAT much different). Our actual aggressive goal is to pay off the home in under 10 years, the real goal is 12 years. Since I am 28, that would put me house payment free at 40. Hopefully the universe and lady luck play fair for that long. Ben, your assessment on the use of the 40 year AM is exactly why I went with a 35 year AM. My family income in 2006 was right around 60K or so, and we purchased a home for 102K in April of 2007. That summer my spouse decided to start her own business rather than go directly to work after school. This meant our income dropped and things are less structured. The 35 year AM really puts us in a better position to maneuver (even if it isn’t THAT much different).

Our actual aggressive goal is to pay off the home in under 10 years, the real goal is 12 years. Since I am 28, that would put me house payment free at 40. Hopefully the universe and lady luck play fair for that long.

]]> By: Aleks http://www.canadiancapitalist.com/this-and-that-85/#comment-127181 Aleks Fri, 11 Apr 2008 19:01:29 +0000 http://www.canadiancapitalist.com/?p=921#comment-127181 I think it makes perfect sense to take a 40-year mortgage as long as you can pay it off as if it were a 20 or 25 year mortgage. Most mortgages let you pay extra up to 25% of the principle per year, so you can pay it off as fast as you are able. But in the event you lose your job, your actual required monthly payment is much lower. However, the majority of people taking out 40-year mortgages are not doing that. They're getting it because it's the only way they can afford to buy a house. They not only can't afford to pay extra, they're just barely able to make the payments as it is. There was a story on CBC about a young couple in Vancouver who stretched their budget to the absolute max to squeeze into a 500 sqft condo for $300,000. Those people are screwed. I think it makes perfect sense to take a 40-year mortgage as long as you can pay it off as if it were a 20 or 25 year mortgage. Most mortgages let you pay extra up to 25% of the principle per year, so you can pay it off as fast as you are able. But in the event you lose your job, your actual required monthly payment is much lower.

However, the majority of people taking out 40-year mortgages are not doing that. They’re getting it because it’s the only way they can afford to buy a house. They not only can’t afford to pay extra, they’re just barely able to make the payments as it is. There was a story on CBC about a young couple in Vancouver who stretched their budget to the absolute max to squeeze into a 500 sqft condo for $300,000. Those people are screwed.

]]> By: Ben http://www.canadiancapitalist.com/this-and-that-85/#comment-127168 Ben Fri, 11 Apr 2008 17:51:53 +0000 http://www.canadiancapitalist.com/?p=921#comment-127168 Quick thought on 40-year mortgages: Many people do use longer amortization periods as a tool to qualify for a house that they otherwise could not afford to buy, and probably should not buy. This places them in a very tenuous position, as the slow reduction of principle makes them more susceptible to the possibility of negative equity. However, consider the case of a young couple that would qualify for a 25-year mortgage and choose instead a 40-year mortgage. I would play devil's advocate for one reason to take an extended amortization: income considerations when children are very young. It can be difficult to afford a house on one income. At the time of qualifying, typically both incomes are required to qualify against the mortgage with today's prices. Choosing lower monthly payments can act as a buffer during these 3-5 years of disrupted income while one parent is acting as caregiver. In this scenario, I would recommend that the couple get accustomed to making payments at the 25-year rate, and use the optional 40-year rate as a last-resort fall-back plan during periods of income disruption. This plan does require financial discipline to direct excess funds to the mortgage instead of consumption. As discipline may not be all that common among young couples, it is hard to fully advocate this approach for all, but it could certainly work for some - kind of an insurance policy to be used only in dire straits. Anyhoo, this could be one, perhaps small, reason why extended mortgages have become popular. Quick thought on 40-year mortgages:
Many people do use longer amortization periods as a tool to qualify for a house that they otherwise could not afford to buy, and probably should not buy. This places them in a very tenuous position, as the slow reduction of principle makes them more susceptible to the possibility of negative equity.
However, consider the case of a young couple that would qualify for a 25-year mortgage and choose instead a 40-year mortgage. I would play devil’s advocate for one reason to take an extended amortization: income considerations when children are very young. It can be difficult to afford a house on one income. At the time of qualifying, typically both incomes are required to qualify against the mortgage with today’s prices. Choosing lower monthly payments can act as a buffer during these 3-5 years of disrupted income while one parent is acting as caregiver. In this scenario, I would recommend that the couple get accustomed to making payments at the 25-year rate, and use the optional 40-year rate as a last-resort fall-back plan during periods of income disruption.
This plan does require financial discipline to direct excess funds to the mortgage instead of consumption. As discipline may not be all that common among young couples, it is hard to fully advocate this approach for all, but it could certainly work for some – kind of an insurance policy to be used only in dire straits. Anyhoo, this could be one, perhaps small, reason why extended mortgages have become popular.

]]> By: telly http://www.canadiancapitalist.com/this-and-that-85/#comment-127158 telly Fri, 11 Apr 2008 17:01:24 +0000 http://www.canadiancapitalist.com/?p=921#comment-127158 Ellen Roseman's article is interesting. Owing more than your one's home market value is a distinct possibility for many newer Canadian home owners. In a tight cash situation or job loss, it could spell disaster if homes don't continue to rise 10% / yr (which is unlikley). Just ask our neighbours to the south. Ellen Roseman’s article is interesting.

Owing more than your one’s home market value is a distinct possibility for many newer Canadian home owners. In a tight cash situation or job loss, it could spell disaster if homes don’t continue to rise 10% / yr (which is unlikley). Just ask our neighbours to the south.

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