Part 6 * Inflation & Interest Rates – Friend or Foe? TREB 1969 – 2018. The very ‘real’ component of appreciation that gets you nuthin’ except a bigger number. 2) Low interest rates, a “leveraged” investment and Tax-Exempt Principal Residence appreciation

Everyone’s gotta “live somewhere” AND most people gotta “save money” for retirement/Family Legacy

Canada is the GREATEST country on earth and (despite shenanigans and vote-buying with the Crown’s Revenue & Expenditures by generation after iteration of gov’t-parties & Individual stewards) this GREATNESS is paid for by Taxes, Royalties, Tariffs, User Fees and whatever this years re-purposing wants to call it.

Inflation has historically been higher than it is now.

Interest Rates have historically been higher than now.

Taxes (and Birth and Death) are permanent features of Life under the Sun

So if … the two “gottas” are Primary Objectives for you, if … you agree with the 3 points immediately above, and if … Canada is your home, then … putting your Money to work in the most Least-Taxed way is my recommended path for achieving the 2 Primary Objectives,

Take a Look at Inflation and its role in the Price of Goods/Services over time

To see the simplest version of inflation I use the Consumer Price Index and use it to recalculate past prices into Current year Prices this Chart was done in July of 2017 using The Bank of Canada Inflation Calculator to Adjust TREB Annual Average Prices to a common year (I’ll have to do it again soon too) and the current month’s Ave Price for 2018

The First chart is Adjusted to 100=1989

This was the previous Peak for TREB prices and is now sort-of the last-best PRICE base-point in the time-frame under examination — 1969-2018

5-1989-equals-100-JUNE2018

 

Here’s the same adjusted TREB Price PLUS the not-adjusted (Nominal) Annual Price except both are in Dollars and this one comes with a few Circles and Arrows drawn upon it for emphasis (credit:Arlo Guthrie’s Alice’s Restaurant at about 6:25 )

4-CPI-adjTREBpricesVsNominal-JUNE2018

 

Lastly we look at Interest Rates  & Monthly Payments

Most People buy a house with part of the price repayable in Blended Monthly Payments including both Principal and Interest based on a 10-30yr Amortised Plan with interest calculated semi-annually, not in advance and they lease a car, buy other big-ticket items with monthly payments of some kind. They look at whether they can afford the payments and then they investigate whether a reasonable lender agrees with them on the affordability aspect.

This chart shows Monthly Payments

It uses Nominal Prices (not adjusted) and the then-current 5 year Mortgage rate and calculates the corresponding blended monthly payment based on 75% of the not-adjusted Price.

At 1989 a “typical buyer” was paying $2,140.26 per month for a 75% Mortgage at 13.24%

With TREB Annual Average Prices UP in 2018

–at 4.99% a 5 year Rate buyer would pay $3,505 on 75% Mortgage (63% more/mth)

–at 2.35% a Variable Rate Buyer paid $2666 monthly – just 24% more  – the lower mortgage rate compensating for much of the increase in prices. 

Remember these are Nominal 1989 ($273,698) prices, Nominal 75% ($205,274) Mortgage, Bank of Canada recorded Annual Interest Rates (12.05%) and the buyer using 30% GDS 40% TDS would have needed a Pre-Tax Family Income of about $85,000

The Variable Buyer today would need about $135,000 in Pre-Tax Family Income due to qualifying at the +2% Stress Test (so I based it in 4.99%- the 5 yr)

But if you wish to buy at $767,818 … with a $575,864 First Mortgage, your family probably brings in that much Pre-Tax

So thats why the price escalation carried on/accelerated after the Global Financial Crisis – Rates were very low

6-Mth-Pymts-5y25Ann_Mtge-JUNE2018

 

 

Part 1 — 7 or 9 rarely-noted points that absolutely must be discussed

Part 2 *Inventory, New Listings, Days on Market, Months of Inventory & Sales as%

Part 3 * More about Point of View – using The School Year Sept 1-Aug 31, 

Part 4 *Why didn’t we Stop the Boom before it Busted?

Part 5(i) * -The Two Solitudes of the GTA/GGHA

Part 5(ii) 905 vs 416 — A closer look (5 yrs) at the Price Dichotomy

Part 6 * Inflation & Interest Rates – Friend or Foe? 

Part 7 * The Adjustment Lag – the 3-phased time it takes 

Part 8 It’s demand that drives Realty Prices – supply is a by-product of Price engendered Fear, Greed &/or Opportunity 

Part 9 (and again in Late March of 2018) I’ve been wondering about the “Hot Market” Sales Spikes that occurred in Q1 of 1991 & 1994

 

 

 

Don’t read the bit below here

It’s not finished

 

So given that every $100/1,000/10,000 you contribute in taxation/etc gets distributed sort-of like this :

I. 20-35% to pay Interest on already-spent Public Money. Yes, 2(sometimes 4) levels of government have financed programs, subsidies, grants, previous-years interest chargres via “perpetual’ Bonds i.e. an interest-bearing Liability that: a) is guaranteed by the gov’t unlimited ability to i) issue currency and ii) tax its subject-called-citizens; b) that always ‘rolls-over’ and has no sinking-fund or amortisation plan to retire the principal.

Don’t panic it’s a world-wide problem, which is being “solved” in ‘modern ‘democratic (and otherwise)’ countries by stealth-fully devaluing their local currency and thereby “inflating themselves out” of their locally-denominated debt problem.

Will this work? partially, but NOT if all countries do it (because who would lend, without inflation-protection/interest rate premium for the principal sum the lender advanced?) But dont fret, we are fortunate in Canada that we possess the capacity to attempt a far preferred solution, that no one as brought to the forum of Public Discussion, except I did in the London North By-Election Part A is within Point #7 -October 29, 2006 Platform

– Hint – it involves: Our Sovereignty, Citizenship vs Subject-hood, the Canadian Crown, our Land Title System,

II. 10-15% is transfer to Provinces, Municipalities that you DON’T live in and or people in voting-block groups that you DON”T belong to

chart for ?????? transfer payments

 

III. Personal Income Tax represents about _______% of General(aka Federal) Budget and about ________% of Ontario’s Budget.

Believe me or Don’t, An amount just-about equal to the Total of all the General(aka Federal) and Provincial PERSONAL INCOME TAX is spent between those two Orders of Stewardship on Healthcare.

Ain’t it a shame than 40% of the Population doesn’t very much pay Income Tax see two charts below w small font (to fit 11″ into 8.5″)

Examine the Quintiles of Canada, StatsCan’s way of compartmentalising us into 20% Chunks of Family Income earned, Gov’t Transfers received, Rate of Transfer/Income$, Dollars Paid in Taxation and Rate of Taxation on Income

FAMILY INCOME RANGES in 20% Blocks for:  Highest Quintile (Silk Collar©), Fourth Quintile (White Collar), Third Quintile (Blue Collar), Second Quintile (Company Collar©) and Lowest Quintile (No Collar©)

Min Max
No Collar© $0 $41,943
Company Collar© $41,944 $65,889
Blue Collar $65,890 $94,137
White Collar $94,138 $155,613
Silk Collar © $155,614 unlimited

a related post (using same chart) Jan 25/2018 on Affordability 

This Quintile examination also sort-of identifies the Middle Class – ?

QUINTILES of Canada-page-001

 

IV. Based on how our GREATEST country’s tax money flows and the direct and indirect and buying-off-the-scofflaws, gangsters and miscreants who would go crazy-in-the-streets if the gov’t stopped paying for their afflictions, hardships and other results/outcomes of the decisions they have made and decisions previous generations of people (yours, mine and theirs) made.

Most bad government decisions came about when some bright spark decided to manage the economy and/r that same omniscient ideologue decided to manage the populations outcomes and encourage results s/he thought best irrespective of anything other than political gain as a rationale.

WHAT is started out about REAL ESTATE?

Yes

Buying a principal residence and trading up and up and up by refinancing and renting out your previous property (interest is deductible, appreciation(after the 1 bonus +4yrs added Election you can take) are at 50% Capital Gains Rate)and using the proceeds of your #1 principal residence to buy #2 with a mortgage etc etc

Then as time and events permit continue to AGAIN refinance your earlier homes/now investment properties ( until you have taken-out 100% of the deemed and adjusted value of that property as a residence) and then plunk the “equity-take out amount on the mortgage you took to buy your current PrinRes (until it is paid off) and then re-finance your current principle residence (interest is now deductible) to buy another investment home ….  15 years before you’re ready to wind up your affairs start managing the amortizations of the loans so that you have retired all the loans on your principal residence (its tax free) and are ready to liquidate your investment portfolio (or syndicate it to friend family) after having already cashed-out and maxxed out all the capital cost allowances (claimable only once, on disposition- against the gain) that will make it worth top value because its in perfect condition.

Who needs a hobby – 2-5 properties should keep you busy?

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4 thoughts on “Part 6 * Inflation & Interest Rates – Friend or Foe? TREB 1969 – 2018. The very ‘real’ component of appreciation that gets you nuthin’ except a bigger number. 2) Low interest rates, a “leveraged” investment and Tax-Exempt Principal Residence appreciation

  1. Pingback: Part 1 * 7 or 9 rarely-noted points that absolutely must be discussed re Toronto/GTA Real Estate 2018 – or we’ll never get anywhere. Not now … and not then … First of 5 sets of charts below and on 9 more numbered-posts | unclebobex

  2. Pingback: Part 5(ii) 905 vs 416 — A closer look (5 yrs) at the Price Dichotomy | unclebobexplains

  3. Pingback: Part 7 –The Adjustment Lag – the 3-phased time it takes for a) registered practitioners, b) active Buyers/Sellers and then c) commentators/pundits &media shills to catch onto New Conditions and refocus their formerly useful “Lenses&#

  4. Pingback: Part 9 (and again in Late March of 2018) I’ve been wondering about the “Hot Market” Sales Spikes that occurred in Q1 of 1991 & 1994 – Looking now using “Time Excerpts” from the Fabulous Charts at Paul Zammit Realty

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