Canadians have commented on how expensive their real estate is, but I don't think their market ever popped (their banks were apparently conservative in mortgage lending, requiring the traditional 20% down). Sounds like they may still have a developing bubble, from comments I've seen posted by others.
Sort of yes and sort of no. The lending rules before the bubble were:
-minimum 5% down payment, but you require loan default insurance if your down payment is less than 20%
-maximum mortgage is 30 years
In response to the housing crash of the US:
-maximum mortgage changed to 25 years
-minimum of 20% down payment before investment properties can get loan default insurance through the government
-maximum refinance is 90% instead of 95%
-the government will not insure homes over $1,000,000
This effectively deflates the bubble without crashing. 25 years instead of 30 years means you can't borrow as much money, so housing prices should go down IMO. My coworker is a real estate guy and he thinks it will go up by 10% for some reasaon; I didn't think his explanation made any sense. Boosting the down payment up to 20% for investments should deter some investors, and that too would bring the prices down more IMO. I know a lot of people were upset about these rule changes, but I think it beat the alternative - a hard market crash.
Regarding property taxes, if your local government has gotten used to all that extra revenue and can't or isn't willing to cut spending, then they will just increase the rate to offset decreased assessments. You can probably just realistically hope that property taxes go up more slowly going forward.
This is true. Can you imagine how incredibly unstable the government would be if taxes wildly fluctuated with the market? One year everything is ok, real estate prices drop 20%, suddenly the whole city is completely fucked and cancels all road construction for the next 5 years. The taxes on the property were part of the calculations you did before buying the house, so they
know you can keep paying that much. Market drops 20%? You still owe us $3,000 taxes and it doesn't matter what percentage of your land value that works out to.
If you are planning on buying with a mortgage, I think there is some sort of rule (forgot specific numbers, but I think it is something like 1% change in mortgage rates is equivalent to 5% effective change in price, when viewed from the point of affordability). Assuming no hyper-inflation down the road, seems like mortgage rates might creep up slowly to more normal 6% range (still low by historical standards), if economy starts to pick up speed in a few years.
I did a shit load of Excel spreadsheets a couple months ago when before jumping into a mortgage. Some of the things really surprised me:
when making the minimum payments for the same $100,000 property:
-Cost of borrowing (interest on the loan) and length of the loan are extremely linear. Taking 10% longer to pay off 100k will cost you 10% more in borrowing costs, the R^2 of the graph was 0.998
-Cost of borrowing and interest rate are extremely linear. The interest on a 4% loan is twice as much as the interest on a 2% loan. R^2 is 0.9991 for a 25 year loan.
-Interest rate has a larger effect on loans with longer terms. For every 5 years, a 1% interest increase is equivalent to a 1.28% jump. It's hard to put into words what I'm trying to explain. Let's say you have a loan at 1% interest for 10 years. If the interest goes up by 1%, that 10 year loan now costs 2% for 10 years. If you had a loan for 15 years instead of 10 years, going from 1% to 2% interest over 15 years is the same cost increase as jumping from 1% to 2.28% for 10 years. I didn't put an R^2 on this graph, but it's very linear and the trend line passes through all of the data points. The formula I wrote at the bottom of the page is:
relative cost of borrowing = (interest rate) * (mortgage years / 5) * 1.28
When making fixed payments (paying $900/mo regardless of what the minimum payment is):
-Cost of borrowing increases exponentially with time. Using my own information and a very pessemistic interest rate of 5%, every $1 worth of property above $108,000 will cost me $2.08 and it gets worse as the value goes up. This means it makes a lot of sense to buy properties in a series of small steps. A series of short loans will have a linear cost of borrowing. You start at 100k, pay it off, then move up to 200k. If I start at a 200k property, the cost of borrowing is just horrendous.
If you have some time to kill, put your own numbers into here and start plotting data points:
http://www.ratesupermarket.ca/mortgage/rate_calculator/