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Many rappers write autobiographical songs detailing hardships they’ve experienced. ‘All That I Got Is You’ was particularly moving, painting a vivid picture of what it is like for a child growing up in poverty.”Sometimes I look up at the stars and analyze the sky, and ask myself was I meant to be here, why?” – damn, this is a kid!Mary J. Blige’s hook and verse compliments beautifully.Happy or sad, what are your favourites and why? via /r/Music https://ift.tt/3BPkMt3

Everyone here that is potentially a first time home buyer is incredibly frustrated, and I am too. In this post I try to reason what is currently happening, and what could happen in the future. Property values have increased massively across Canada in the past year, although I will mostly be focusing on Ontario in this post because that’s the only province available on HouseSigma.Here is some sample data for all property types (obtained from HouseSigma):AreaSept 2016 Median Price ($)Sept 2020 Median Price ($)Sept 2021 Median Price ($)London305,000485,403603,000Kitchener349,900565,000728,000Guelph520,000617,500750,400Hamilton463,250625,500770,000Mississauga588,000830,000896,250Barrie422,000565,000740,000GTA630,000839,000980,000Toronto608,150891,354910,000Peterborough350,000476,500617,500Belleville390,000*399,750510,000Ottawa320,500541,000622,000\not many data points, may be inaccurate*And just to make sure everything is relative, here is the most recent data I can compare on Consumer Price Index (CPI), vs median wage for 25-34 year olds in Ontario.Fig 1: Comparing inflation with median salary for 25-34 year olds in Ontario. [1][2]I chose to compare this age group because historically, they are the age group of first time home buyers. When taking into account the above, there are a few issues:median income is not outpacing inflation, meaning everyone has less buying power over time even if housing prices were to plateau and keep pace with inflation (this was inflation before COVID too, it is worse now)housing has increased by at least 10% in the past year alone, with many towns in the GTA seeing increases of 35% or morefor first time home buyers, the price-to-income ratio is rising fast. Assuming a couple buys a home together, the price-to-income ratio has gone from about 8:1 in 2016, to 12:1 now in the GTA. A healthy price-to-income ratio is below 3! \one caveat to this is the median income is for all of Ontario, and the local income in the GTA could make this different, however the general trend is likely the same**These factors already put first time home buyers at a huge disadvantage and make it incredibly difficult for the younger generation to buy a house, leaving only wealthy families or investors to enter the market. What about current owners?Lets take a look at the historical household mortgage debt as a proportion of household disposable income.Fig 2: Household debt as a proportion of disposable income from 2000-2020 [3]With people allocating more of their income towards their mortgages, they are taking on much more risk if rates increase before their renewal date. Rates are also at an all time low (shown in Fig 3 below), and cannot get much lower without the government paying you to borrow money. They can only go up from here.Fig 3: Mortgage rates from 2016 to the end of 2020 [3]In the StatCan report released earlier this year, they said:”Disposable incomes rose 12.7% on a seasonally adjusted basis in the second quarter of 2020 from the fourth quarter of 2019, with government transfers up 103.4% over the same period; mortgage credit rose a more modest 3.3%. If mortgage borrowing remains robust and income decreases back to pre-pandemic levels, then households may find themselves with record levels of mortgage debt relative to their current disposable income in subsequent quarters.” [3]In the past year, a lot of people were calling for a crash due to the pandemic and with how many people lost their income. This didn’t happen since the BoC lowered rates further, the government printed billions of dollars to give out wage subsidies, mortgages payments were allowed to be deferred at no penalty, and people were able to just barely scrape by.Consider the situation we are currently in. Inflation is rising rapidly, wages are stagnant, people are taking on more debt, government wage subsidy programs will be tapered off, and most importantly the Bank of Canada will likely be forced to raise rates in 2022. [4]If wages do not keep up with inflation, people will need to allocate more of their disposable income towards food, reducing the amount they can pay towards their mortgage. Coupling this with interest rates increasing and therefore debt servicing cost, this will put an insane amount of pressure on home owners.Many investors also bought a home this year and did renos when materials and construction services were in high demand. These reno costs aren’t even factored in, and they could add hundreds of thousands of dollars to homeowner debt.Not only home owners will have difficulty paying for shelter too. With increased inflation tenants will need to allocate more of their income towards food, meaning less is available for rent. Feeding yourself takes priority over shelter. I don’t have much hard data on the increase in rent, but anecdotally in my area it has gone up about 50% in the past 3 years. People will not be able to pay for these increases indefinitely, especially after moving or being evicted incurs the current raised rental rates on people with previously lower cost leases. Investors who rent out their houses and rely on that income to pay off their mortgage, will start to default on their loans when tenants can’t pay.Fuel will only be added to the fire when the Liberals implement their First Home Savings Account, giving buyers more purchasing power without solving supply. I also doubt any meaningful policies will be enacted from the Liberals to calm the market from investors either, as members of their own party profit off it [5].Unfortunately in the short term, prices are likely to increase more. However, I strongly believe that there are many indicators for a crash coming as soon as rates increase and sentiment worsens. In the 2017 bubble, it only took 4 months for prices to correct 18% due to change in sentiment alone. This bubble was fueled almost entirely by speculation [6]:buyers were much more willing to take on cash flow negative homes due to potential future property value gainsinvestors believed they could make huge gains on riding the increase. For example, if an investor bought a $1M house, put down $200,000, and it appreciated in a year to $1.2M, the initial investment of $200,000 has doubled in value ($200,000 gain before taxes and other costs).fear of being priced out, people would buy homes for their family in anticipation of values rising outside their means, increasing demandpopulation growth rates remained relatively stable around 1%, and were not abnormal (immigrants were not a main driving force)new construction rates was increasing in the years leading up to 2017 (supply was not an issue)people tuned out the talk of bubbles, for nearly 10 years a bubble had been predictedthe rate of homeowners selling increased 29% from the 10 year average, meaning people were capitalizing on the premiuminventory then started to increase through Spring of 2017when offers started to slow (going from 20 offers on first day, to none) people started to panic. They would be carrying the house they just bought, in addition to the old house they can’t sell. This drove them to sell their old house below market value to have the capital to pay for the new one on closing day.when banks appraised the value of a home near closing day, the price had dropped drastically. The mortgages were approved for values less than what people committed to buying the house for, meaning the buyer had to come up with the difference. This caused some buyers to walk away from their deposits, and the owner had to relist the home. The owner also had to drop the price because they had already committed to a new place and needed the cash, putting more downward pressure on the market.All of these characteristics leading up to the 2017 bubble are here again, but unlike 2017 where mortgage rates remained relatively stable, they are likely to go up. When the housing market corrects this time, I would not be surprised if values drop further than 18%, as people are more leveraged, price-to-income ratios are higher, mortgages payments take up more disposable income, and FUD will cause massive sell offs from investors cashing out. In the 2008 housing bubble in the states, some of the hardest hit cities saw drops of 50% from the peak value [6]. In Canada, we are also more sensitive to rate hikes as fixed rate mortgages are renegotiated at least every 5 years. US fixed rate mortgages span the lifetime of the loan and don’t change.One argument against a crash is that the market will be propped up by people waiting on the sidelines, and any drop in price will be filled by them. I don’t believe this will happen when large quantities of houses come on the market, as this group is a minority compared to people who already own homes. In the 2016 census (2021 isn’t available yet), 1,411,900 households in Ontario were paying over 30% of their income towards their shelter [7]. This is a HUGE amount of homes (that is likely larger now in 2021) that would eclipse demand waiting on the sidelines, flooding the market. Normally, only about 225,000 households are sold every year in Ontario [8]. Even if a fraction of the 1.4M households mentioned previously get put on the market, it would increase supply substantially.I strongly advocate everyone who is trying to save up for a home to know their rights as a tenant, as investors will likely try to force their increase in debt payments on their tenants. If you are paying your rent and do not damage the property, you cannot be evicted without compensation. Keep waiting and save as much as you can. Home owners who have been in the market for a long time have nothing to worry about, as they already have a huge unrealized gain in their house. Home owners who have entered recently and are allocating 30%+ income towards mortgage payments need to tread carefully.References:[1]: Government of Canada, Statistics Canada. (2021, January 20). Consumer price index, annual average, not seasonally adjusted. Consumer Price Index, annual average, not seasonally adjusted. Retrieved October 16, 2021, from https://ift.tt/3B1mhTP Government of Canada, Statistics Canada. (2021, March 23). Income of individuals by age group, sex and Income Source, Canada, provinces and selected census metropolitan areas. Income of individuals by age group, sex and income source, Canada, provinces and selected census metropolitan areas. Retrieved October 16, 2021, from https://ift.tt/3j7DEw4 Trends in the Canadian mortgage market: Before and during COVID-19 (2021). Retrieved October 16, 2021, from https://www150.statcan.gc.ca/n1/pub/11-621-m/11-621-m2021001-eng.pdf.[4]: News, B. (2021, September 30). Bank of Canada may be forced into early rate hike: Fidelity’s David Wolf. financialpost. Retrieved October 16, 2021, from https://financialpost.com/news/economy/fidelitys-wolf-sees-bank-of-canada-forced-into-early-rate-hike.[5]: CBC/Radio Canada. (2021, August 31). Vancouver liberal candidate flipped dozens of homes for profit, records show | CBC News. CBCnews. Retrieved October 16, 2021, from https://www.cbc.ca/news/politics/vancouver-liberal-homes-flipped-1.6158955.[6]: Move Smartly Powered by Realosophy Realty Inc. (n.d.). Special report: Lessons learned from Toronto’s 2017 real estate bubble. move smartly. Retrieved October 16, 2021, from https://www.movesmartly.com/lessons-learned-from-toronto-2017-real-estate-bubble.[7]: Government of Canada, S. C. (2019, August 9). Census profile, 2016 census ontario [province] and canada [country]. Census Profile, 2016 Census – Ontario [Province] and Canada [Country]. Retrieved October 16, 2021, from https://ift.tt/3viGenE Vecina, E. (2021, January 19). Ontario’s home sales activity sets a new December record. Canadian Mortgage Professional. Retrieved October 16, 2021, from https://ift.tt/2Z3Cj2f. via /r/canadahousing https://ift.tt/2YWzEHc

Have I ever been more annoyed by all the characters in a book? Probably not. Have I ever sympathised more with all the characters in a book? Also probably not. This book created such situations when I didn’t know what I should feel for someone, one page I was enraged with them, the next one I was crying for them and the other one I was laughing at their decisions.Without trying to give spoilers, the scene when the burglar takes hostages is a clown fest and a drama all in one, and I felt bad for laughing at some if the lines.As a side note, I really like books which make me interested in little things, things I wouldn’t care about in real life, such as ordering a pizza.It’s a pretty easy read which manages perfectly in my opinion to balance the tears, the laughs and the introspection. 8/10Now I’ll go back to softly sob in a corner! via /r/books https://ift.tt/3lJHzRk