Author Topic: Living in a place where house values have gone crazy  (Read 14932 times)

GuitarStv

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Living in a place where house values have gone crazy
« on: June 01, 2016, 09:14:54 AM »
My wife and I purchased a home in our neighbourhood about six years ago for just under 400,000.  We got the new home value estimate yesterday in the mail . . . and they're trying to tell me that our house is now valued at 650,000.  I thought it was total bullshit, but I've been combing through the available information of nearby homes and it actually appears to be about right.  I'm not super happy since our property taxes are going to go up by more than 30% over the next couple years due to this.

We like lots of stuff about where we live . . . but an extra couple hundred grand would make a big difference to our retirement options and plans.  What's the tipping point for you regarding when it makes sense to sell a home that has appreciated a whole bunch?

CmFtns

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Re: Living in a place where house values have gone crazy
« Reply #1 on: June 01, 2016, 09:20:13 AM »
It depends on if you have somewhere else to go with lower housing cost that you are happy with.

Spork

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Re: Living in a place where house values have gone crazy
« Reply #2 on: June 01, 2016, 09:23:46 AM »
It depends on if you have somewhere else to go with lower housing cost that you are happy with.

This was going to be my answer as well.  If you have long term plans to move to a LCOL area or near family... this seems like a great opportunity to jump.  If you're moving across town and buying another house at market high... I'd stay put.

nereo

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Re: Living in a place where house values have gone crazy
« Reply #3 on: June 01, 2016, 09:31:06 AM »
Toronto is insane these last few years.  Around here home values are just putzing along, 2-3%/year... probably like they should.

If I were in your situation I would be seriously tempted to realize those gains but it would depend on what my ultimate plan was, and on my ISP (which convienently says I shouldn't have >20% of my NW tied into my home).

You could do nothing, and just hope housing values continue to go up or not care if they come crashing down
You could sell, but then you'd need to go somewhere else (as comfyfutons aptly pointed out)
You could refinance, locking in some of those gains, but you'd need to be ok with a longer mortgage and/or a higher monthly payment.

Personally I'd take door #3, pulling out ~$200k in equity and investing it into my index funds... especially with 5 year fixed terms currently around 2.4%.  But I'd make sure I can handle the payment first...

Frugal D

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Re: Living in a place where house values have gone crazy
« Reply #4 on: June 01, 2016, 09:48:11 AM »
I'm in the same boat right now, but in Seattle. My house has appreciated 25-30% since I bought it in 2014.

It's definitely going to play a big role in our FIRE plans when the time comes.

TrMama

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Re: Living in a place where house values have gone crazy
« Reply #5 on: June 01, 2016, 09:55:31 AM »
It depends on if you have somewhere else to go with lower housing cost that you are happy with.

This. You also have to be absolutely certain you never want to come back to the high priced place. Because, once you cash in, it can be extremely difficult to ever buy again. As crazy as the Vancouver and Toronto RE markets are, I don't think they're done yet.

Tyson

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Re: Living in a place where house values have gone crazy
« Reply #6 on: June 01, 2016, 09:55:42 AM »
I'm in the west part of Denver (Slo-Hi in real estate speak), we bought at $450k 2 years ago (with $100k downpayment), and it's up to $615k right now.  Crazy.  It took us 3 years to find this house, so we are not moving.  So in a way, it's not "real" money.  We just keep plugging away at our 60% savings rate and Vanguard investing.  We will retire here. 

nereo

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Re: Living in a place where house values have gone crazy
« Reply #7 on: June 01, 2016, 10:14:05 AM »
I'm in the west part of Denver (Slo-Hi in real estate speak), we bought at $450k 2 years ago (with $100k downpayment), and it's up to $615k right now.  Crazy.  It took us 3 years to find this house, so we are not moving.  So in a way, it's not "real" money.  We just keep plugging away at our 60% savings rate and Vanguard investing.  We will retire here.

But it could be "real money".  There's always refinancing...

GrOW

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Re: Living in a place where house values have gone crazy
« Reply #8 on: June 01, 2016, 10:15:05 AM »
Its all speculation and should be considered such but that doesn't mean its not worthwhile to consider options. For me personally, if and its a big if, I feel like I am ahead of a normal steady growth market by 5+ years, I would sell and not think twice about it.

Fudge102

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Re: Living in a place where house values have gone crazy
« Reply #9 on: June 01, 2016, 10:27:47 AM »
Housing prices... AKA how to artificially raise your net worth while screwing over the next generation from buying property...  I'd be okay buying a place and not having the value change.  Or at least change by something reasonable.  So many places are just impossible to live in these days, i.e. San Fran or many major cities where the price of a one bedroom apartment is through the roof!

nereo

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Re: Living in a place where house values have gone crazy
« Reply #10 on: June 01, 2016, 10:57:35 AM »
Housing prices... AKA how to artificially raise your net worth while screwing over the next generation from buying property...  I'd be okay buying a place and not having the value change.  Or at least change by something reasonable.  So many places are just impossible to live in these days, i.e. San Fran or many major cities where the price of a one bedroom apartment is through the roof!

But how do you, as an individual homeowner, 'artificially raise' the value of homes in your area?
I don't see much that a single homeowner can do to change the situation.

For the record, I've lived in SF and while I could not afford to buy a home there, it was not 'impossible' to live there.  Just expensive. Such has been the story of desirably and affluent cities throughout the last several hundred years.

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Re: Living in a place where house values have gone crazy
« Reply #11 on: June 01, 2016, 11:08:00 AM »
If you could really net a $250k profit I would be very tempted.

abiteveryday

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Re: Living in a place where house values have gone crazy
« Reply #12 on: June 01, 2016, 11:34:15 AM »
I'm in the west part of Denver (Slo-Hi in real estate speak), we bought at $450k 2 years ago (with $100k downpayment), and it's up to $615k right now.  Crazy.  It took us 3 years to find this house, so we are not moving.  So in a way, it's not "real" money.  We just keep plugging away at our 60% savings rate and Vanguard investing.  We will retire here.

But it could be "real money".  There's always refinancing...

But unless you are willing to leave the area entirely, you still have to live somewhere at the current prices.    I think about the "profit" from potentially selling my house but don't have anywhere I want to go.   Instead I just think of it as being lucky to live a place I couldn't come close to affording anymore.

JJsfr

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Re: Living in a place where house values have gone crazy
« Reply #13 on: June 01, 2016, 11:43:01 AM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

Axecleaver

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Re: Living in a place where house values have gone crazy
« Reply #14 on: June 01, 2016, 11:58:09 AM »
Quote
I'm not super happy since our property taxes are going to go up by more than 30% over the next couple years due to this.
That's not necessarily true. The way assessments and taxes work, is the county (or school, whomever) decides how much money they want. The taxable rate is generally not very flexible, while assessments are completely open to manipulation. Then the assessments, as a whole, get manipulated against a minor rise in tax rate to make the total budget come out right. They may also play around with the "assessed value to taxable value" ratio - some regions use 100%, others use 75%, and so on.

When this happened to us in Virginia, our housing value went up 30%, but our property taxes only went up 5%. We bought for 335 in 2003, went up to 700, subprime crash happened, then we sold at 475 in 2010. We asked the same question when we got to the 6's - if we sold, where would we go? We talked about renting, but it was a booming market, and a rental would have meant moving another 30-40 minutes away from work/school. Didn't make sense for us at the time.

The question you have to answer is, what would we do if we sold? That will lead you to the right decision.

nereo

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Re: Living in a place where house values have gone crazy
« Reply #15 on: June 01, 2016, 12:07:52 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

Ok - here's an example

In 2010 you take out a $300k 30 year, 3.5% mortgage on a property worth $375k (20% down).  Ignoring property taxes your monthly payment is $1,350 and it will be paid off in 2040.

In 2016 that same home is valued at $550k.  Your remaining mortgage in June 2016 is $258k. Mortgage rates in this example remain the same.

Option a: you refinance your home, taking out a $440k mortgage (leaving 20% down) with a new 30 year term.  Your new mortgage payment is $2,562.  You essentially "pull out" $182,000 of equity, which you can invest.

Option b: you refinance your home, but instead take out another $375k mortgage.  You "pull out" $117k in equity which you can invest, and your mortgage payment stays the same at $1,350 but you will keep the mortgage through 2046

note: the scenarios above ignore refinancing costs, which can add a few $k.
You get

elaine amj

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Re: Living in a place where house values have gone crazy
« Reply #16 on: June 01, 2016, 12:11:54 PM »
For the first time in the 10+ years we have lived in our home, prices have gone up beyond what we paid for it. As recently as 1-2 years ago, our home was still valued around our purchase price! (depressed economy). Granted we live in a LCOL and have a simple place that we bought for $160k so nothing like the crazy gains you have in front of you. Houses on our street are selling for around $240k! About a 50% increase so I'm super tempted to just lock in the gains by selling. Prices could easily drop again by the time we are ready to sell in about 4+ years.

If we sold, we would downsize and either rent an apartment or buy a little starter house-type place (or move into a trailer for permanent travel LOL!). My teen DD has begged us not to think about it until she's grown and gone. So I'm tempted (I keep eyeing little houses near us), but it's unlikely we will do anything for now. We live a block from the school and she does NOT want to switch schools.

Good luck with your decision!

Vilgan

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Re: Living in a place where house values have gone crazy
« Reply #17 on: June 01, 2016, 12:21:47 PM »
Similar gains here, 50% in 4.5 years. We occasionally bat around the idea of selling and moving somewhere cheaper, but we love where we live and have no desire to make a choice that will reduce happiness in order to have more money in the bank. Once we are in a position to retire and no longer want to be close to downtown Seattle for work reasons, selling will be a lot more tempting.

VaCPA

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Re: Living in a place where house values have gone crazy
« Reply #18 on: June 01, 2016, 12:22:02 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.

GuitarStv

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Re: Living in a place where house values have gone crazy
« Reply #19 on: June 01, 2016, 12:31:30 PM »
We have no real intention of moving any time soon . . . we live in a great location.  It's bikable to work, we're close to the library, the beach, a huge protected greenspace (with lovely road cycling routes), not too far away from any of the big city amenities, etc.  The area was known as a bit of a rough place crime wise five or six years before we moved in, but it has been good for quite a while now.

Our original plan was to keep working for another four and a half years, then I retire and renovate the house (gut the kitchen/bathrooms, replace the upstairs flooring) for a couple years until the house is in shape to sell.  Then we sell the house and move to a smaller home a bit further out of the city and my wife retires.  The original plan was designed around steady 2-3% gains on the home.

The amount that people want to pay for a house in our area right now is a bit unexpected, and has me wondering about trying to accelerate things.
« Last Edit: June 01, 2016, 12:42:52 PM by GuitarStv »

rocklebock

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Re: Living in a place where house values have gone crazy
« Reply #20 on: June 01, 2016, 12:48:25 PM »
Similar situation here. Looking at comparable properties in our neighborhood, we have at least $200k of equity in our place, and probably more. I include it in NW calculations using the Zillow estimate, which seems very conservative. But we don't have any intention of moving, plus I think it's all a crazy speculation-based bubble. It reminds me of when my parents bought a house in CA in the early 2000s, watched the value double within a few years, then dive back to what they paid for it by 2007-2008.

However, if things keep spiraling upward for another couple years, there would be a time at which selling the house and relocating somewhere a bit cheaper could make us instantly FI, which could change our considerations.

A friend of ours bought a house many years ago in what was once a blighted neighborhood, and is now right on the main drag in a huge nightlife/shopping/condo district. I suspect the land alone is worth ~$1M or more, and if he sold, a developer would just tear down the house and build a big condo block. I think he's done the cash-out refi thing at least a couple times. In that case I think I'd just sell, and cash out entirely.

JJsfr

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Re: Living in a place where house values have gone crazy
« Reply #21 on: June 01, 2016, 01:17:19 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

Ok - here's an example

In 2010 you take out a $300k 30 year, 3.5% mortgage on a property worth $375k (20% down).  Ignoring property taxes your monthly payment is $1,350 and it will be paid off in 2040.

In 2016 that same home is valued at $550k.  Your remaining mortgage in June 2016 is $258k. Mortgage rates in this example remain the same.

Option a: you refinance your home, taking out a $440k mortgage (leaving 20% down) with a new 30 year term.  Your new mortgage payment is $2,562.  You essentially "pull out" $182,000 of equity, which you can invest.

Option b: you refinance your home, but instead take out another $375k mortgage.  You "pull out" $117k in equity which you can invest, and your mortgage payment stays the same at $1,350 but you will keep the mortgage through 2046

note: the scenarios above ignore refinancing costs, which can add a few $k.
You get

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.

Ah, thanks.

nereo

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Re: Living in a place where house values have gone crazy
« Reply #22 on: June 01, 2016, 01:20:50 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.
actually it does - see example above.  You can keep the same mortgage payment but extend the term, or increase the payment.  Either way your removing paper equity from your home in exchange for actual cash.  It also re-leverages your home, which has both positive and negative aspects to it.

It's conceptually its similar to balancing one's portfolio.  You're reallocating home equity to something else (like into an equity index fund).

VaCPA

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Re: Living in a place where house values have gone crazy
« Reply #23 on: June 01, 2016, 01:32:44 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.
actually it does - see example above.  You can keep the same mortgage payment but extend the term, or increase the payment.  Either way your removing paper equity from your home in exchange for actual cash.  It also re-leverages your home, which has both positive and negative aspects to it.

It's conceptually its similar to balancing one's portfolio.  You're reallocating home equity to something else (like into an equity index fund).

Sorry, it doesn't lock in gains.  You still own the house and your tax basis is still the same. You're just fiddling with the mortgage. Home values go up and down, so just because you pull cash out doesn't mean the value won't drop and you'll have to put cash back in(to sell it). This happened to many people during the last housing crisis.

neo von retorch

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Re: Living in a place where house values have gone crazy
« Reply #24 on: June 01, 2016, 01:42:15 PM »
Sorry, it doesn't lock in gains.  You still own the house and your tax basis is still the same. You're just fiddling with the mortgage. Home values go up and down, so just because you pull cash out doesn't mean the value won't drop and you'll have to put cash back in(to sell it). This happened to many people during the last housing crisis.

In a way it does. It transfers equity into investable cash. It could be a useful "rebalancing" strategy to remove value from real estate and put it in stocks (or bonds, etc.) Of course you may have to dump money back into the house when selling, and it could be up or down... so like any other investment with that sort of uncertainty and risk, you don't want to do it if it's a short term plan. Stocks could go down alongside the home value, and you'd be selling down on both the house and the stocks. Over a longer timeline, it's less risky, and you could realize healthy gains from non-real-estate investments, so even if you did have to "put money back in the home" you're still better off than if you'd never taken the equity out.

Spork

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Re: Living in a place where house values have gone crazy
« Reply #25 on: June 01, 2016, 01:49:21 PM »
Sorry, it doesn't lock in gains.  You still own the house and your tax basis is still the same. You're just fiddling with the mortgage. Home values go up and down, so just because you pull cash out doesn't mean the value won't drop and you'll have to put cash back in(to sell it). This happened to many people during the last housing crisis.

In a way it does. It transfers equity into investable cash. It could be a useful "rebalancing" strategy to remove value from real estate and put it in stocks (or bonds, etc.) Of course you may have to dump money back into the house when selling, and it could be up or down... so like any other investment with that sort of uncertainty and risk, you don't want to do it if it's a short term plan. Stocks could go down alongside the home value, and you'd be selling down on both the house and the stocks. Over a longer timeline, it's less risky, and you could realize healthy gains from non-real-estate investments, so even if you did have to "put money back in the home" you're still better off than if you'd never taken the equity out.

I don't think you're locking in gains, but I don't think it matters to most of us.

My understanding is that for a married couple the max gains on a house sale is $500k.  Since houses around here don't even sell for that amount, it's hard to imagine making $500k GAIN on the sale.

Anyway... refinancing does not in any way lock in your gain.  It's not like you sold 100 shares of Google stock, waited a month and re-purchased them to lock in the gain.  You bought a house 10 years ago.  You refinance it today.  You sell it in 5 years.  You still are looking at gains for the entire run: 15 years.   But it likely doesn't make a difference.  You're probably not making over $500k in profit on the sale.

nereo

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Re: Living in a place where house values have gone crazy
« Reply #26 on: June 01, 2016, 02:07:11 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.
actually it does - see example above.  You can keep the same mortgage payment but extend the term, or increase the payment.  Either way your removing paper equity from your home in exchange for actual cash.  It also re-leverages your home, which has both positive and negative aspects to it.

It's conceptually its similar to balancing one's portfolio.  You're reallocating home equity to something else (like into an equity index fund).

Sorry, it doesn't lock in gains.  You still own the house and your tax basis is still the same. You're just fiddling with the mortgage. Home values go up and down, so just because you pull cash out doesn't mean the value won't drop and you'll have to put cash back in(to sell it). This happened to many people during the last housing crisis.
ah, again, no.  you are refinancing the home, which is other way of saying you are re-leveraging the same home.  You are trading off having the cash from home equity now for extending your term.
It's not so different from selling the home and purchasing a new one with a new mortgage.  You gain the equity and then you

A hypothetical to illustrate the point:
Taking "option b" from above.  You now have a 30yr note at 3.5% with the same $1,350 monthly payment
10 years passes.
Scenario 1: Home prices taper off, just keeping up with inflation (2%). The market returns its historical 9% (7% after inflation)
Compared to not remortgaging: Home price of $670k, remaining mortgage = $117.9k.  Net profit: $552k or $460.2k in 2016 dollars
Result: you have a mortgage of $231k. Home is now valued at $670k. The invested $117k is now worth $276k. Net profit: $715k or $596 in 2016 dollars.
You win!

Scenario 2: Home prices continue at 5%/yr after inflation (insane!).  Market returns more lackluster 6% (4% after inflation)
Compared to not remortgaging:  Home price of $899k.  Remaining mortgage = $117.9k.  Net profit $781.1k or $651.2k in 2016 dollars
Result: Remaining mortgage of $231k.  Home price of $899k. Invested $117k now worth $173k.  Note profit: $841k or $701 in 2016 dollars
You win!

Scenario 3: Housing collapse (home value drops 20%!!!).  Oh no!!  Market returns are also flat - 2% or 0% with inflation. Double oh no!!
Compared to not remortgaging: Home price: $440.  Remaining mortgage = $117.9k.  Net profit: $322.1k or $268.6 in 2016 dollars.
Result: Remaining mortgage: $231.  Home price: $440k. Invested $117k now worth $142.6k.  Net profit: $351.6k or $293.1k in 2016 dollars
You win!

you can play all sorts of scenarios, and you can certainly find ways where not remortgaging will come out ahead.  However, those seem incredibly pessimistic to me - for example, calling for a 30% drop in home prices and a flat or negative return on the market over a 10 year time frame.  You would also be better off (for obvious reasons) if the value of your home continues to outpace the market for the next 10 years... but given the long-term historical trends of homes this seems unlikely too.
Change whatever parameters you want - inflation, market returns, resale value.  mortgage interest deduction (hint, there is none in Canada)... if you are pessimistic on the future of equities but optimistic on the future of home prices in Toronto you will be convinced to do one thing.  If you think home prices will stop going up (or even retreat somewhat) the scenarios suggest you refinance.
YMMV.

JJsfr

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Re: Living in a place where house values have gone crazy
« Reply #27 on: June 01, 2016, 02:11:06 PM »
The way I think I understand is that instead of locking in actual gains to deal with, you're just getting a really cheap (e.g., 3% APR) loan. It's up to you to make an extra 2-3% elsewhere (like the stock market), etc. I can understand where a lot of people got into trouble with this by spending it on _____insert toys here____.

VaCPA

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Re: Living in a place where house values have gone crazy
« Reply #28 on: June 01, 2016, 02:27:44 PM »

But it could be "real money".  There's always refinancing...

It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?

It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.
actually it does - see example above.  You can keep the same mortgage payment but extend the term, or increase the payment.  Either way your removing paper equity from your home in exchange for actual cash.  It also re-leverages your home, which has both positive and negative aspects to it.

It's conceptually its similar to balancing one's portfolio.  You're reallocating home equity to something else (like into an equity index fund).

Sorry, it doesn't lock in gains.  You still own the house and your tax basis is still the same. You're just fiddling with the mortgage. Home values go up and down, so just because you pull cash out doesn't mean the value won't drop and you'll have to put cash back in(to sell it). This happened to many people during the last housing crisis.
ah, again, no.  you are refinancing the home, which is other way of saying you are re-leveraging the same home.  You are trading off having the cash from home equity now for extending your term.
It's not so different from selling the home and purchasing a new one with a new mortgage.  You gain the equity and then you

A hypothetical to illustrate the point:
Taking "option b" from above.  You now have a 30yr note at 3.5% with the same $1,350 monthly payment
10 years passes.
Scenario 1: Home prices taper off, just keeping up with inflation (2%). The market returns its historical 9% (7% after inflation)
Compared to not remortgaging: Home price of $670k, remaining mortgage = $117.9k.  Net profit: $552k or $460.2k in 2016 dollars
Result: you have a mortgage of $231k. Home is now valued at $670k. The invested $117k is now worth $276k. Net profit: $715k or $596 in 2016 dollars.
You win!

Scenario 2: Home prices continue at 5%/yr after inflation (insane!).  Market returns more lackluster 6% (4% after inflation)
Compared to not remortgaging:  Home price of $899k.  Remaining mortgage = $117.9k.  Net profit $781.1k or $651.2k in 2016 dollars
Result: Remaining mortgage of $231k.  Home price of $899k. Invested $117k now worth $173k.  Note profit: $841k or $701 in 2016 dollars
You win!

Scenario 3: Housing collapse (home value drops 20%!!!).  Oh no!!  Market returns are also flat - 2% or 0% with inflation. Double oh no!!
Compared to not remortgaging: Home price: $440.  Remaining mortgage = $117.9k.  Net profit: $322.1k or $268.6 in 2016 dollars.
Result: Remaining mortgage: $231.  Home price: $440k. Invested $117k now worth $142.6k.  Net profit: $351.6k or $293.1k in 2016 dollars
You win!

you can play all sorts of scenarios, and you can certainly find ways where not remortgaging will come out ahead.  However, those seem incredibly pessimistic to me - for example, calling for a 30% drop in home prices and a flat or negative return on the market over a 10 year time frame.  You would also be better off (for obvious reasons) if the value of your home continues to outpace the market for the next 10 years... but given the long-term historical trends of homes this seems unlikely too.
Change whatever parameters you want - inflation, market returns, resale value.  mortgage interest deduction (hint, there is none in Canada)... if you are pessimistic on the future of equities but optimistic on the future of home prices in Toronto you will be convinced to do one thing.  If you think home prices will stop going up (or even retreat somewhat) the scenarios suggest you refinance.
YMMV.

I understand the point you're trying to make. But you're not locking in gains on your house. You're just pulling out equity. Selling the house, investing the cash and renting would be locking in gains

nereo

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Re: Living in a place where house values have gone crazy
« Reply #29 on: June 01, 2016, 02:38:29 PM »

I understand the point you're trying to make. But you're not locking in gains on your house. You're just pulling out equity. Selling the house, investing the cash and renting would be locking in gains

ok.  I think I understand your point, and it seems to be one of how I am using the term "locking in".  I still think its acceptable, as I take "locking in" to mean that you convert equity to cash for a profit, and renting would add another layer of complexity to the equation.

Fine:  to rephrase my earlier statement... "GuitarStv, you could realize some of those gains now by pulling out equity from your home via refinancing, allowing you to keep your current home while converting some of the increase in your homes value into another investment".

Would that be acceptable terminology?

VaCPA

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Re: Living in a place where house values have gone crazy
« Reply #30 on: June 01, 2016, 02:41:48 PM »
I'm not trying to be difficult or split hairs. I understand the point you're trying to make. Perhaps we're just arguing semantics.

nereo

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Re: Living in a place where house values have gone crazy
« Reply #31 on: June 01, 2016, 03:00:04 PM »
I'm not trying to be difficult or split hairs. I understand the point you're trying to make. Perhaps we're just arguing semantics.
No offense taken.  I have occasionally incorrectly used a term, and its good to know if I'm making such a mistake here.

My ultimate point here is that its possible for the OP to convert some of the increased value in his/her property without having to sell and move someplace else.  On that we seem to agree.

Frugal D

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Re: Living in a place where house values have gone crazy
« Reply #32 on: June 01, 2016, 03:02:25 PM »
Locking in gains means to no longer allow the market to impact the value of an asset. If you refi, the value of the home can still be impacted by the market.


Mr. Green

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Re: Living in a place where house values have gone crazy
« Reply #33 on: June 01, 2016, 03:08:57 PM »
We have no real intention of moving any time soon . . . we live in a great location.  It's bikable to work, we're close to the library, the beach, a huge protected greenspace (with lovely road cycling routes), not too far away from any of the big city amenities, etc.  The area was known as a bit of a rough place crime wise five or six years before we moved in, but it has been good for quite a while now.

Our original plan was to keep working for another four and a half years, then I retire and renovate the house (gut the kitchen/bathrooms, replace the upstairs flooring) for a couple years until the house is in shape to sell.  Then we sell the house and move to a smaller home a bit further out of the city and my wife retires.  The original plan was designed around steady 2-3% gains on the home.

The amount that people want to pay for a house in our area right now is a bit unexpected, and has me wondering about trying to accelerate things.
If you're not planning on moving just yet and you think prices might be a bubble, I would be hesitant to do a cashout refi. It could pop and leave you underwater when you're looking to move. If you're close enough that the appreciation puts you over the amount needed to make the move then I guess it just depends on whether you want to keep working. I can see how a sudden decrease of several years could catch you off guard in that respect. If you're not planning on moving at all then it's a moot point. Just like waterfront property, there's only so much and it is what it is. The extra property taxes suck if you don't want to move but there's basically nothing you can do about it unless they get so high it changes your mind about moving.

nereo

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Re: Living in a place where house values have gone crazy
« Reply #34 on: June 01, 2016, 03:10:44 PM »
Locking in gains means to no longer allow the market to impact the value of an asset. If you refi, the value of the home can still be impacted by the market.
i concede that point, and have rephrased (as above).
One can still come out well ahead by refinancing, as explained earlier.  That was my main point.... sorry if I used misleading or incorrect terminology.

GuitarStv

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Re: Living in a place where house values have gone crazy
« Reply #35 on: June 01, 2016, 03:48:41 PM »
We have no real intention of moving any time soon . . . we live in a great location.  It's bikable to work, we're close to the library, the beach, a huge protected greenspace (with lovely road cycling routes), not too far away from any of the big city amenities, etc.  The area was known as a bit of a rough place crime wise five or six years before we moved in, but it has been good for quite a while now.

Our original plan was to keep working for another four and a half years, then I retire and renovate the house (gut the kitchen/bathrooms, replace the upstairs flooring) for a couple years until the house is in shape to sell.  Then we sell the house and move to a smaller home a bit further out of the city and my wife retires.  The original plan was designed around steady 2-3% gains on the home.

The amount that people want to pay for a house in our area right now is a bit unexpected, and has me wondering about trying to accelerate things.
If you're not planning on moving just yet and you think prices might be a bubble, I would be hesitant to do a cashout refi. It could pop and leave you underwater when you're looking to move. If you're close enough that the appreciation puts you over the amount needed to make the move then I guess it just depends on whether you want to keep working. I can see how a sudden decrease of several years could catch you off guard in that respect. If you're not planning on moving at all then it's a moot point. Just like waterfront property, there's only so much and it is what it is. The extra property taxes suck if you don't want to move but there's basically nothing you can do about it unless they get so high it changes your mind about moving.

Toronto is a great city, and it has been steadily growing for quite a while.  That said, this change in price is a bit of an eye opener to me.  It wouldn't surprise me if housing prices dramatically slow or level off over the next couple years, but I'd still be surprised if there was any significant price drop over the short term.

Our property taxes in TO are very low percentage-wise . . . but the change in valuation of our home will mean that we end up paying about 4 grand now instead of 3 which is annoying.  We can afford it, but it's like a brand new nice bike every year.  :P

Brokenreign

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Re: Living in a place where house values have gone crazy
« Reply #36 on: June 01, 2016, 04:19:52 PM »



The amount that people want to pay for a house in our area right now is a bit unexpected, and has me wondering about trying to accelerate things.
If you're not planning on moving just yet and you think prices might be a bubble

Toronto is a great city, and it has been steadily growing for quite a while.  That said, this change in price is a bit of an eye opener to me.  It wouldn't surprise me if housing prices dramatically slow or level off over the next couple years, but I'd still be surprised if there was any significant price drop over the short term.

Our property taxes in TO are very low percentage-wise . . . but the change in valuation of our home will mean that we end up paying about 4 grand now instead of 3 which is annoying.  We can afford it, but it's like a brand new nice bike every year.  :P

We sold recently to capture some gains and rented a place. Would that be a possibility in Toronto? We're in Alberta so the decision was a little easier as a decline in property values was clearly imminent and the vacancy rate in rentals is very high right now.

A rapid short-term rise in the price of anything is pretty nerve-racking. Are you at all worried that some draconian measures will be introduced to cool down Vancouver and Toronto? The issue seems to be getting a lot of attention, both within Canada and internationally. I'm not sure they can target a specific market though and the rest of Canada is in pretty rough shape.

Besides, you could get a new bike. That makes any decision pretty easy in my books...

CanuckExpat

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Re: Living in a place where house values have gone crazy
« Reply #37 on: June 01, 2016, 05:06:49 PM »
We recently sold  (locked in roughly $150,000 in gains, much less after fees) and are using it a catalyst to pull the plug earlier than we planned. Renting back the same home for now, then we are getting the hell out of dodge and hitting the road.

If we were staying in the city/area, we wouldn't have sold. House price gains mean nothing if the next house you are going to buy is also crazy more expensive.

Maybe relevant article for you, given the area:
How a house can become a prison after it soars in value

(Ignore the standard sensationalized headline)

cerat0n1a

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Re: Living in a place where house values have gone crazy
« Reply #38 on: June 02, 2016, 02:55:19 AM »
our house is now valued at 650,000. 

C$650k is just under 350k. A quick search of the online estate agencies says 43 of the 232 homes currently for sale within 5 miles of the rural location where I live are available that cheaply. I bet salaries in Toronto are higher than in the UK too. These bubbles can inflate for longer than you think.

GuitarStv

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Re: Living in a place where house values have gone crazy
« Reply #39 on: June 02, 2016, 06:10:44 AM »



The amount that people want to pay for a house in our area right now is a bit unexpected, and has me wondering about trying to accelerate things.
If you're not planning on moving just yet and you think prices might be a bubble

Toronto is a great city, and it has been steadily growing for quite a while.  That said, this change in price is a bit of an eye opener to me.  It wouldn't surprise me if housing prices dramatically slow or level off over the next couple years, but I'd still be surprised if there was any significant price drop over the short term.

Our property taxes in TO are very low percentage-wise . . . but the change in valuation of our home will mean that we end up paying about 4 grand now instead of 3 which is annoying.  We can afford it, but it's like a brand new nice bike every year.  :P

We sold recently to capture some gains and rented a place. Would that be a possibility in Toronto? We're in Alberta so the decision was a little easier as a decline in property values was clearly imminent and the vacancy rate in rentals is very high right now.

A rapid short-term rise in the price of anything is pretty nerve-racking. Are you at all worried that some draconian measures will be introduced to cool down Vancouver and Toronto? The issue seems to be getting a lot of attention, both within Canada and internationally. I'm not sure they can target a specific market though and the rest of Canada is in pretty rough shape.

Besides, you could get a new bike. That makes any decision pretty easy in my books...

We have solar panels on the roof that generate about 3000$ for us each year, and our taxes are going to 4000$ now.  The house is generally in good shape, but I think we would get much more money for it if the kitchen and bathrooms were renovated (they're pretty damned ugly), and while I've got the skills to do that on my own I don't have the time at the moment.  Our mortgage will be paid off in October.

It's not super easy finding a place to rent in Toronto at the moment.  It looks like it would cost a little over two grand a month to rent a place quite a bit smaller than where we currently live.  I think it would be quite an uphill battle to convince my wife that this is a good plan.

Real estate prices in Toronto are high because it's desirable.  There are plenty of jobs in lots of different fields, it's a nice city to live in, the property taxes are low, crime is generally pretty low, and we have a steadily increasing population year over year.  I look at prices in large cities around the world, and it doesn't really seem that Toronto is way out of line.  Not sure if the government has any measure that they could take to slow housing sales.  When interest rates raise they'll naturally put a brake on real estate.

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Re: Living in a place where house values have gone crazy
« Reply #40 on: June 02, 2016, 06:28:52 AM »
Hi GuitarStv,

I'm really just commenting to follow! We live just outside Toronto and I think about 'cashing out' on our home every single day. We bought for $330, and house is now valued at $650-700 - only 5 years later! I always consider downsizing to a cheaper home, but we love our area.

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Re: Living in a place where house values have gone crazy
« Reply #41 on: June 02, 2016, 08:20:05 AM »
Off topic a little, but I just want to rant about how the whole property tax thing has become a croc. In some places, what they do is decide how much they'll spend each year and then divide that out by property values. That way, increasing property values generally do not affect the amount people pay, and the town doesn't go through so much of a boom-bust cycle with the rest of the economy. If subdivision becomes more attractive than the rest, it will pay higher property taxes and everyone else will pay less, but overall town-wide increases do not change things.

Unfortunately, most places just set a "millage rate" and budget based on that. This is garbage and it makes for a situation where they are always trying to say that your property is worth more than last year. We need to reform the system, especially in places where property values are constantly going up.

alsoknownasDean

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Re: Living in a place where house values have gone crazy
« Reply #42 on: June 02, 2016, 09:04:29 AM »
Of course there's the high risk option, using the equity in your house to borrow more and buy another house or two to rent out (with the assumption of continued appreciation).

But yeah, that could leave you in pretty deep doo-doo if the market takes a turn for the worse.
« Last Edit: June 02, 2016, 09:06:56 AM by alsoknownasDean »

VaCPA

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Re: Living in a place where house values have gone crazy
« Reply #43 on: June 02, 2016, 09:35:10 AM »
Of course there's the high risk option, using the equity in your house to borrow more and buy another house or two to rent out (with the assumption of continued appreciation).

But yeah, that could leave you in pretty deep doo-doo if the market takes a turn for the worse.

Housing market like most markets is cyclical, e.g. peaks and valleys. I think it's far more likely we're closer to a peak than a valley in most areas so I would not want to double down on housing right now.

Shinplaster

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Re: Living in a place where house values have gone crazy
« Reply #44 on: June 02, 2016, 11:04:20 AM »
I'm just popping in to say I envy your property taxes.  We live down the road in London.  Our house is valued at about $290,000, and our property taxes are $3700.  For which we get abysmal services!   Every time I hear someone complain about city taxes in Toronto, I shake my head a bit.  I wish our house had appreciated like yours - I have house envy now.  : D   

brooklynmoney

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Re: Living in a place where house values have gone crazy
« Reply #45 on: June 02, 2016, 08:45:56 PM »
My apt has doubled in value in 4 years I feel like an idiot for not selling but don't know where I want to go

FerrumB5

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Re: Living in a place where house values have gone crazy
« Reply #46 on: June 02, 2016, 09:33:25 PM »
I'm just popping in to say I envy your property taxes.  We live down the road in London.  Our house is valued at about $290,000, and our property taxes are $3700.  For which we get abysmal services!   Every time I hear someone complain about city taxes in Toronto, I shake my head a bit.  I wish our house had appreciated like yours - I have house envy now.  : D

Heh.. Naperville, Illinois. House valued at $380,000, and property tax is $8400

Gerard

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Re: Living in a place where house values have gone crazy
« Reply #47 on: June 03, 2016, 05:56:31 AM »
GuitarStv, my brother's in the same situation as you (and, at a guess, the same neighbourhood). One option you *might* eventually consider is to step sideways into renting an apartment, rather than a house. Yeah, it's a lifestyle change, but the value proposition on apartments in Toronto is much, much better, especially in the east end, where you benefit massively from the "used to be crime-y, but isn't any more" thing that you mention.

I agree with you that Toronto single-family-home prices aren't going down soon, for the reasons you bring up. Things cost a lot because they're kinda worth it. However, I think there's the political will to increase property taxes (especially if the money goes to transit), so that might be worth factoring into your planning.

For Americans looking for a point of reference on all this, there's an article in the new Walrus that says that Vancouver tech firms are having trouble retaining workers because they're attracted by the cheaper housing available in San Francisco. :-)

DeltaBond

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Re: Living in a place where house values have gone crazy
« Reply #48 on: June 03, 2016, 05:59:59 AM »
It depends on if you have somewhere else to go with lower housing cost that you are happy with.

This same thing has happened to me, actually.  I'm in Nashville, TN, and bought a house at $191K 2 yrs ago.  Now its worth $350K and houses nearby are selling for around that much.  Nashville government has solicited national and international businesses to move here, for the low cost of living... since the county Nashville is in is so low income that taxes weren't enough to support the needed services.  So they got what they wanted, but now the houses cost so much people are leaving the county.  Right now, I dno't have another place to go, since I work near downtown and don't want to commute through hellish traffic in every direction... but once my wee one is out of school, I'll most likely leave the state altogether.

So, yeah, property taxes will go up a little, but start thinking about other places you might like to go... or you can downsize in your same area to stay with the place you love and maybe have lower taxes.

ShoulderThingThatGoesUp

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Re: Living in a place where house values have gone crazy
« Reply #49 on: June 03, 2016, 06:07:45 AM »
I'm just popping in to say I envy your property taxes.  We live down the road in London.  Our house is valued at about $290,000, and our property taxes are $3700.  For which we get abysmal services!   Every time I hear someone complain about city taxes in Toronto, I shake my head a bit.  I wish our house had appreciated like yours - I have house envy now.  : D

Heh.. Naperville, Illinois. House valued at $380,000, and property tax is $8400

My house in Montgomery County, PA near Philadelphia was worth $315k and had $11,000 a year in taxes.