How Much Will House Prices Fall?

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Lately, my google newsfeed has been filled with scary headlines like

Nearly 1 in 4 homeowners say they’d have to sell home if interest rates rise more, according to survey

Canadian Real Estate Prices Expected To Drop 24%, Can Crash 40%: Oxford Economics

B.C. home sales drop 35% as rising mortgage rates bite: ‘The housing correction has started

But on the flip side, there are also articles saying the exact opposite, like:

Home prices could rise 15% in 2022 despite efforts to cool market: Royal LePage

Some experts say prices could fall as much as 40%, while others think it’s going to go up 15%? That’s a 55% range in predictions! What gives? Who’s correct?

Well, here at Millennial Revolution, we don’t care about feelings (*kicks puppy*), we only care about math.

So, let’s find out by…Mathing Shit Up!

Salary to Interest Rate Comparison

As interest rates rise, mortgage payments also go up. On a variable-rate mortgage on the national average home price of $711,316, if rates rise to above 4% from the current 2.8% by the end of the year, those paying $3,203/month would see their mortgage payments jump to $3,639/month. That’s a scary increase of $436/month!

But interest rate hikes aren’t just going to affect people’s monthly payment. It also has profound impacts on the price of houses themselves.

Here’s why:

You see, banks use something called the TDS ratio (Total Debt Service ratio) to determine your loan eligibility.

Typically, this ratio needs to be below 40% to qualify for a mortgage. This is a safety check from the bank to prevent lenders from gorging on too much debt and not being able to pay it back. 

With interest rates pushing up mortgage payments and other debts, without your salary going up to compensate, less and less buyers will be able to meet this ratio and qualify for a mortgage. As a result, demand goes down, and housing prices follow.

Let’s go back to that average house in Canada, costing $711,316 in June 2022 (almost double the average of the United States). That mortgage at the current variable rate at 2.8% would be $3,203 per month. Assuming no other debt, in order for a family to stay within that 40% TDS cap, they would have to have to earn…

…$113,872.50 to be able to afford the $711,316 price tag at the current 2.8% variable interest rate.

With a 0.5% increase interest rates (expected in July this year), the monthly payment would increase to $3,381. Therefore, the salary would need to increase to…

Here’s a table showing how much salaries need to increase by as interest rates rise to meet the same 40% TDS cap.

Interest RateMonthly Mortgage PaymentSalary Required to Qualify

As you can see, there’s a direction link between interest rates and gross salary needed to qualify for a house at a certain price. With interest rates expected to rise to 4.80%, salaries would need to jump 20% from the current rate for buyers to qualify for the same mortgage amount.

But as we know, salaries aren’t keeping up with inflation, let alone the jump needed to offset the interest rate increase.

So what happens if salaries can’t keep up?

House Price Changes in Relation to Interest Rate Hikes

To put it as simply as possible, house prices have to drop.

To understand how this happens, I used this mortgage calculator to reverse engineer the housing price by changing up the interest rate and house price to get back to the target monthly payment of $3,203/month.

Here’s a table showing the results…

Interest RateMonthly Mortgage PaymentHouse PricePrice Drop

As you can see, for each 0.5% increase in the mortgage interest rate, the house’s price needs to drop by around 5% to for the same family earning the same amount of money to be able to afford it.

And seeing as how the interest rate on a variable rate mortgage is expected to hit 5% by the end of the year, the housing price would need to drop from $711,316 to $577,500, or 19% if salaries don’t materially change.

I used variable rate mortgages as an example, but the exact same math applies for fixed rate mortgages as well.

Interestingly, after I derived this relationship, I was curious as to whether the rate increases that have already happened follow this rule. I bet you’re curious too, so let’s dive in!

The Bank of Canada raised interest rates by 0.25% in March, 0.5% in April, and 0.5% in June. A 1.25% increase in rates, according to my math, should result the average home declining by about 12.5%. How did the Canadian housing market do so far this year?

Turns out the national average housing price has dropped by 13% (or $100,000) in just the past 3 months. Spot on!

So that means, given that we know the BoC is expected to raise interest rates at least 3 more times this year at least, at 0.5% each time, we should be looking at another 15% drop in housing prices going forward.

That means a total national average housing price drop from peak of 28-32% in less than a year. YIKES!

In Conclusion

Those who bought at the peak in Feb 2022 are in for a world of pain. Because not only have their houses decreased in value (and expected drop by at least 27% in total peak-to-trough), their monthly mortgage payment will also increase when they renew. In some cases, they’ve even had to back out of the deal since their appraised value has gone down and banks are no longer willing to lend them the amount they bid. On top of losing their deposit, if the seller sells for lower price to another buyer, they can sue the original buyer for the difference, which means they’d have to cough the money anyways. There’s no escape.

So, who’s winning in this rising interest rate market? Well, the banks, obviously. In fact, the banks are now winning so hard, they’ve posted record profits in the past quarter and as a result have passed those profits on to shareholders (like us) in the form of increased dividends.

And secondly, people who rent and invest. Because even in a bear market, our Yield Shield continues paying us dividends and interest to cover our expenses so we can sleep easy at night. In fact, we’ve had some sweet dividend hikes recently and are now making more money than we expected. We might have to (gasp!) increase our spending as a result!

So for those of you who rent and have been incessantly mocked for “paying your landlord’s mortgage”, and “missing out on all the housing gains”, know this.

Spending all your time arguing with indebted homeowners over the benefits of renting & investing versus home ownership is a waste of time. Here’s what you should be doing instead.

Thanking them.

Thank them for paying their mortgage. If you’re properly invested and diversified, their mortgage interest should come back to you as dividends from your bank stocks. You can’t live in a stock, but you can live in a place whose rent is paid for by the dividends from said stocks. So, thank those hard-working home owners for paying your rent. Plus, when they’re saddled with a massive mortgage and can’t afford to travel anywhere like these house-poor Canadians, be grateful that they aren’t crowding your underrated travel spots. Show some gratitude! Thank all those indebted homeowners for working their butts off to support your lifestyle.

And then gently remind them to get back to work.

Regardless of which way the housing market goes, if you structure your investments so that it pays you to own them, fluctuations in the capital value doesn’t matter. You win either way because you’re being paid a passive income to exist. Use that income to live life on your own terms and you won’t have any regrets.

What do you think? Do rising interest rates worry you? How much do you think the housing market will fall?

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60 thoughts on “How Much Will House Prices Fall?”

  1. It will have to fall 80% for me to afford one. There’s no way this market will be like that forever. People can’t afford these craps anymore and a civil revolution will happen soon if damn landlords keep doing that. It will be really bad when you have people living under bridges and landlords have to maintain their expensive houses from their own pocket because nobody can afford rent much less buying…this is the future if things keep this path

  2. Are all mortgages in Canada variable? Here in the USA, most mortgages are fixed. Does the same math apply for fixed mortgages? Seems like a fixed mortgage at 2.75% for 15 years is potentially a smart financial move in a high inflationary period. It gives you a fixed lodging expense so you don’t have to deal with rising rent cost (which is a big problem lately) or deal with rising variable interest rates for your home. Housing prices will still follow the same purchase power math though (0.5% increase in interest rates equals a 5% reduction in purchasing power). So if you just bought a home at the peak, you are likely to see your home value decrease on paper…but your monthly mortgage amount would stay the same. If you plan to live in that house for awhile, a lower paper value should mean lower property taxes, which could actually lower your monthly lodging expenses. In any case, thanks for an interesting article that has me thinking about more math.

    1. Same here. I got in when mortgage rates were stupid low. We are in CA and we could get a MUCH nicer place by owning versus renting at the time, so it didn’t make sense since we needed to get out of a crappy place and everything else available was crappier, and have now locked in any of these ridiculous fluctuations in the market. Since I don’t like to live my life constantly thinking how to make a buck or play with banks, and have a steady source of income – we’re pretty set for a while. I even travel enough for my tastes, since that is a fools paradise from where I sit. Now I don’t even expect to get my full return on my house necessarily, because I morally feel the market should come down even below what I paid for mine so there is that as well. And I have multiple retirement funds elsewhere. All this on school teacher’s salary in CA nonetheless.

    2. I too live in US and have a great low fixed interest rate and my payments are fine thank you and my house is one of my best investments. Currently estimated worth in the market here is over $500k and I owe less than $120 and it will be paid off in 7 years I think. Yes there is upkeep and taxes and insurance(all included in my monthly mortgage payment). Still if you are smart (and don’t do a variable interest rate) a house can be an ok investment. Timing has a lot to do with it though. At this time it is too expensive to buy here but there is also almost no housing to rent, we have a real shortage of housing here. The housing shortage here is not going to be resolved any time soon. I could currently rent my house out for more than my monthly payment or if I did short term rental, even 10 days would probably pay my mortgage. I suck at math….but am happy with my current situation.

    3. Canada has fixed-rate mortgages too. They entail significantly higher interest rates than variable mortgages. Variable rate mortgages are probably more popular when interest rates are super low. But the disadvantage of variable rates is that they increase immediately when the central bank increases its rates. Fixed mortgages retain the same rate for the entire term of the contract; typically 1 to 5 years. At the end of the term, borrowers are faced with higher interest rates.

      No, property taxes do not fluctuate directly with property values. If everybody’s home increases (or decreases) in value at the exact same rate, property taxes will remain about the same for everyone — or go up by the same rate to account for inflation or an increase to the city budget. Municipalities use property values to determine everyone’s fair share of the tax revenue that they need to run the city. So if your property value goes up by 10% but everyone else’s property goes up on average of 15%, your tax bill will likely go down while everyone’s else’s will go up. But those people with higher tax bills will not pay 15% more tax than the year before, unless the city budget goes up by that amount.

      1. Nope. REAL fixed mortgages have the same rate all the way until you pay off the whole mortgage. It means 15, 20 or even 30 years. At least this is what we have in Europe. So if you happen to buy your house when the interest rate is low, you don’t care how much the rate goes up in 5 or 10 years.

        1. That’s interesting, Barbara. That is certainly not the case in Canada. Five years is typically the longest term. Maybe 10 years is available, but I don’t think anybody would want to make such a long commitment at a significantly higher rate over the 5-year rate. It may be the same in the U.S. but I am not sure.

          From what you are saying, if I committed to a 25-year mortgage at 5.85% in 1999 when I bought my home, I would have missed out on the super-low rates of under 2% that came about duringt the financial crisis of 2008.

          1. Sorry for the late reply. Where I live (Italy) you can change mortgage for free (totally no expenses) whenever you want. You just apply with a different bank, they do the paperwork and if it’s ok with them, you change at no expenses for you. Of course it makes sense at the beginning of a mortgage, when you are still paying a lot of interest.

            We decided to do it after 2 years, because the fixed rate had gone much lower compared to when we had bought the house. In our case we decided to switch from a 30 yrs mortgage to a 20 yrs one, and the lower rate meant that even if we were paying a bigger chunk of principal each month – to be able to repay it in 20 yrs – we were able to keep almost the same amount per month. Of course the years count resets to 0, since you start a totally new mortgage, so in the end we will have a mortgage for a total of 22 years.

            1. Barabara, thanks, that’s interesting. So what you are saying is that you can have a mortgage with a 30-year term at the same interest rate, and break the term to go with another bank at a lower rate. Would it not make sense for the current bank to just match the lower rate in order to keep you as a customer for the entire 30-year period?

              In Canada, you generally have to wait until the end of your fixed term to change banks or interest rates which is anywhere between 1 and 5 years. There are huge penalties if you break the term early in order to get a lower interest rate. The penalty eats up all the savings of the lower rate.

    4. Yes, I had this question as well. This sentence in particular confused me: “I used variable rate mortgages as an example, but the exact same math applies for fixed rate mortgages as well.”

      In the US, if you get a fixed rate, the mortgage is for the loan balance you need… as in, if you bought a house for $100,000, paid a $20,000 down payment, you’d need a loan of $80,000, which would be your mortgage. At least, that’s my understanding of the situation (as someone who admittedly has not ever bought a house :)). And obviously I’m ignoring any fees, taxes, commissions, etc.

      But does “fixed rate” mean something different in Canada? I get the idea that it does. Or maybe I’m just confused! 🙂

  3. hi, I’m interested in your current views on bonds, I’ve been invested in an 80/20 Vanguard product, and I’m slightly disillusioned by how the ‘safer’ vanguard bond blended products have done so much worse in this downturn than 100% shares. I’m now considering switching to 100% shares to make the most of any upturn. Bonds have performed worse than shares over the last year (even though both have fallen), and I don’t know whether they are likely to rebound, I suspect not? it would be great to have your views on this strange state of the world…..

    1. I’ve switched to using covered call etf’s in place of bonds. During a downturn, they retain their value better than the index they hold and produce much better dividends too. The one I’m using is XYLD.

        1. Has there been a miscommunication? I’m running a 60/40 portfolio and rebalancing as appropriate.

    2. Bonds are a better investment today than they were a year ago.

      Actual yields are 3% (2 years maturity and above), while they were under 1% last year (5 years term). So, they were almost guaranteed to lose money. The pace of the decline (rise in interest rates) is more surprising. But the loss on investment is not.

      That doesn’t mean they cannot decrease in value even more. If inflation stays higher than 3%, the central banks will have no choice but to raise rates even more. But, with a 3% yield, at least there is a chance that this will be enough. At 1%, it was clear this would eventually be a problem.

      Short-term bonds like VSB as mentionned by fomotina may still be a better option until inflation stabilizes.

      If you think inflation will be contained under 3% in the coming years, then bonds are a good investment at actual yields of 3%+.

      For my part, I am still 100% equity. But that is not for the faint of heart.

    3. Although popular opinion tells us to have a balanced portfolio between stocks and bonds, I will go on the limb and ask, “why would anyone want to own bonds for the mere reason of diversification?” If I know that bond values will fall, why would I invest in bonds?

      You see, bond values drop when interest rates rise and vice versa. So since we know that interest rates are heading up (and staying high for years to come), we know where bond prices are going as well. Down.

      I would be more inclined to buy good quality dividend-paying ETFs (like banks) and take advantage of the dividend tax credit (applicable in open accounts) even though stock prices are declining.

      Yes, dividends can get cut too but not likely by bank stocks. If you are a Canadian investor, Canadian bank stocks have great value right now. But be prepared to buy more at even lower prices for the duration of the year. As far as I know, dividends have been increased twice this year for all the big banks except TD.

      1. I forgot to mention that according to a recent article in the Globe and Mail, the last time a Canadian bank cut its dividend was in 1992; National Bank.

      2. The relationship is not that simple.

        Bond prices have already priced in an expected amount of interest rate increases.

        For example Vanguard Total Bond Market Index started the year at a price of 11.1, dropped all the way to 9.67 on June 14, and then increased 9.8 by June 17.

        A certain amount of future interest rate increase expectation is already baked into the price. That’s why the price dropped steadily starting in Jan as those expectations for future inflation/ interest rates increased and solidified.

        So now Bond investors will enjoy higher yields and a chance that bond prices will stay the same or even improve slightly, if inflation and interest rates grow less than currently expected.Or bond prices could continue to go down. We don’t know what will happen.

        If you knew the bond price direction with 100% certainty you could do a leveraged short position on a U.S. Bond market ETF. If your bet that bond market prices will decrease is right, you could make a killing and retire rich. But you could be wrong and lose your shirt.

        Not saying people should own bonds necessarily but bonds are in a better position now than 6 months ago.

        1. Even though the rising interest rates have a negative impact on bond prices, I believe you when you say that the relationship is not that simple. That’s why I would not do a “leveraged short” as you mentioned. For the same reason, I prefer to be in a more straightforward bank dividend-paying ETF/stock rather than a bond (as a Canadian investor).

          Moreover, even though you say that the market has already reduced bond valuations in anticipation of higher interest rates, we do not know how high those rates will end up going. So more downward pressure will be put on bond values for as long as inflation sticks around.

          That’s not to say that I think that an investor should dump their bonds if they feel comfortable with them. However, the writer above was not pleased with the performance of their bond ETF. So, I gave them another idea to consider that would be more tax-efficient in an open account.

          If you think that a bond strategy is better for the writer, I am sure they would appreciate your views to stay the course.

          I’ll say this: Although I don’t hold any bond funds, the balanced funds I hold all lost about 15% on the year. Meanwhile, Canadian bank stocks have lost between 6% and 11% (depending on the bank) while their dividends have increased. Moreover, banks perform better with higher interest rates. I expect bank stocks to recover sooner than bond valuations. So, you can see where my biases lean toward.

  4. why so concerned with house prices if you folks are renters?

    shouldnt you be more concerned with balanced portfolios?

    next week’s blog title; ‘how much will the market fall further’ ?

    with bonds acting positively correlated with stocks , are you concerned?

    are you still assuming a 6% return yearly ? why no more ‘let’s math this shit up’?

    1. Talking about housing and house prices are good clickbait. Marketing, marketing, marketing. All marketing is good marketing and they know it. Good for them.

      Are bonds dropping at the same rate as equities? If you’re smart, you’re holding short term bonds like VSB. If so, there’s plenty of opportunity to rebalance against the equity portion of a balanced and diversified investment portfolio.

      As for the 6% annual return, that’s based on an average over time. Of course some years will be negative. And some years will be blow it out of the water years. Which gives you…an average.

      Lastly, they did mention mathing shit up in their article.

    2. shouldnt you be more concerned with balanced portfolios?

      next week’s blog title; ‘how much will the market fall further’ ?

      with bonds acting positively correlated with stocks , are you concerned?

      are you still assuming a 6% return yearly ? why no more ‘let’s math this shit up’?


      I’m glad you brought this up!!

      I have been wondering the same things.

      Why all the FIRE bloggers have gone silent on this ??

      1. ha, yeah noticed the same- FIRE Bloggers talking about other topics mostly . I’d imagine many don’t even open account statements anymore. lol.

        These two are getting consumed about real estate, meanwhile they own none.

        lots of these FIRE Bloggers are quite young, recency bias can do a number. It has.

    3. pissed Landlord alert… hope they all get screwed worse than 2007. Hate them all. If you have a house I hate you too…

        1. Save and buy? in what world do you live? Normal workers would need to work 200 yrs to be able to buy something.
          Let’s just hope the tide turns soon…it will have to. It will be worse than 2007 and we’ll laugh last..enjoy while it lasts

    4. Cmon Fred, the 6% is an average, and how much did you make the last few years? We should be able to go negative for a while and still meet 6%.

  5. Your formula for TDS is accurate. The way you’ve done your examples though is considering GDS (Gross Debt Service Ratio). You’re comparing apples to oranges doing that.

    TDS is supposed to consider a ratio of 40% however the banks have upped this into the 48% range (which, by the way, is shameful).

    GDS on the other hand, should not exceed 32% of your gross income however, here too, the banks have upped this towards the 40% range.

    Before I retired, I worked for a bank. It’s always important to distinguish the difference between GDS and TDS ratios. And at a TDS of 48% and a GDS approaching 40%, homeowners are chocking on their own vomit.

  6. LOL. Interest rates going up and the value of your stock portfolio down at least 20% in 6 months .
    Real inflation running 15-20% and if you’re Canadian, Trudeau/provinces are confiscating your income with higher taxes and fees. Your landlord is jacking up your rent to compensate.
    And travel ? LOL, in addition to travel chaos , massive fuel surcharges your destination and accommodation are going up at least 20% and airline tickets at least double from last year.
    So even though your dividends are being raised 5%, inflation will take that and eat away at your principal of your steadily decreasing stock portfolio.

    1. But, if you made the right investments, then you are ok. My dividend increased +123% compared to last year – Suncor. Hahaha ! 😉

      1. LOL. Congrats one of your stocks went up while everything else went down 25%.
        There’s a difference between total value of your portfolio and the fact that your dividends from Suncor went from $30 to $60 a year

        1. I have 1110 shares of Suncor. My dividends went from 932$ to per year to 2087$ per year … I agree with you, this is not that much and this is only one stock.

          I have a few others that are doing well. TC Energy, Thales, McKesson for example.

          Overall, my portfolio is down -6% in 2022. My dividends are up 25% compared to last year. This is not only from dividend increases, but also from new purchases, portfolio rebalancing and some companies that have reinstituted their dividends after a pause during the pandemic.

          I wish I had 100% in Suncor …. that would be awesome ! LOL.

  7. Thanks for the article.

    Just to be clear, this statement is not necessarily true: “On a variable-rate mortgage on the national average home price of $711,316, if rates rise to above 4% from the current 2.8% by the end of the year, those paying $3,203/month would see their mortgage payments jump to $3,639/month. That’s a scary increase of $436/month!”

    Rates have increased but my payments are actually the same. My monthly payment is stable and I’m just paying less off the principal each month. But my payment has not changed. Those with 2-5 years left on their Variable mortgages are not stressing.

    1. Your payments have stayed the same because you have fixed payments. But as a result, you will be making those payments for a longer length of time until you catch up with the extra amount of what you owe. However, if interest rates go up to the extent that your payments are insufficient to cover the interest that you are incurring, your fixed payments will be increased. That is to prevent you from going deeper into debt on your mortgage.

  8. I can see a 15%-20% decrease in home values from February 2022. I just saw a new listing near my house and the amount is sooo big it’s hard to believe …

    But at the same time, the number of transactions is very low (shortage of listings). And I don’t think there is a lot of first-time home buyers in this market. If purchases are mainly done by people buying their second or third home (ie. moving), then they also sold at a very big price prior to buying. If you buy and sell at very elevated levels, the price of the home becomes almost meaningless. As a result, it is very possible that the number of people being in a distressed situation will be very low.

    There are two main reasons why it’s hard to predict house prices. First, there is a lot of variables entering in the equation (like supply and demand, building costs, availability of lands, etc.), and interest rates is just one of them. Second, the psychology of buyers and sellers can interfere with math.

    In the case of a 30% drop, I think people (including banks) could become really scared to lose more money and stop buying (lending) outright, which would cause further decline in prices. Foreclosures and bankruptcies could even kick-in and push prices down -50%.

    Personally, I don’t think this scenario will happen. I think we will have a milder decline, maybe between 10-15%. Housing shortage combined with population growth will put a floor on declining prices due to affordability (rise in interest rate + increase in prices). This would allow prices to stabilize at a more healthy level than they are right now.

    I can also see a scenario where prices continue to go up mildly after a very small pullback. Most Canadians have a lot of equity in their houses (since many people bought 20-30 years ago or more). And, like I said, very few transactions occured in the last 3 years compared to historical averages. With almost nobody in a distressed situation, it’s possible house prices will remain very elevated.

    But, this is all speculation. The reality is that nobody knows. Remember in March 2020, when the CMHC predicted that house prices would decline by -20%. After the fact, we can say they increased +30% two years after this prediction was made. Who could have predicted this ?

    The best is to take a decision that best suits your situation considering your means, goals and preferences, and to take a decision that you will be happy you made five years, ten years from now, no matter what happened with the real estate market.

    Exceptionally, in the current market, I would understand anyone who would like to pause their purchase for a year or two to see what prices will be in 2023 or 2024… Financial conditions have been extraordinary in the last two years. Maybe it’s better to let things stabilize before taking any big financial decision.

  9. It seems the US should be on the same trajectory as Canada, but right now I don’t get the sense that prices are dropping. I’m in California and where I live most sellers won’t consider anything other than cash offers. Of course, this is mostly driven by RE agents suckering sellers into cash only, being that it speeds up the process which means receiving commissions in a matter of weeks rather than months.

    Potential homeboners in the US are a panicky bunch. They’ll do anything to get into a house. The latest scam is finance companies that act as a cash buyer proxy for the individual/family as a means of getting around the cash-only dilemma (also forgoing inspections). If housing continues rising, I believe this type of financing will replace traditional mortgage purchases in the not too distant future.

    All I know is that something’s gotta give… my guess is that US will follow Canada but maybe delayed by six months or a year.

    1. In Canada, we have a supply shortage coupled with excessive demand from very low interest rates. Though not much can be rectified on the supply side, the demand side is addressed by rising interest rates (returning closer to traditional levels) that disqualify many people from buying into over-priced markets like Toronto and Vancouver.

  10. Like many have already commented, it is very hard to predict a market with so many inputs, like the housing market.

    Your mathing-shit-up is very helpful, and I love seeing the engineering brain at work. But I think that not every system can be reverse-engineered easily.

    Emotions play in this market big time.

    Also, while I know you do not believe this is a factor, foreign or corporate ownership is moved by different factors. Maybe the banks won’t lend to first-time local buyers, but REITs can still get money to pour into the market. So a 5-10% decline, which might still make it hard for first time buyers to get their first home, might be a buying bonanza for REITs which are moving into residential properties these days…

    How do you model this?

    I just know that predicting the future is a fools errand, especially with houses.
    Buy one if you want one and can afford it. That’s pretty much it.

  11. I wonder what all these anti-FIRE commenters are doing in a blog like this. Go read the “mighty landlord” magazine! If you own a house you’re not FIRE, you’re outright st#pid even if this past year doesn’t look like that, in the long run it always is or 99% of the time at least!

    1. why are we ‘stupid’ for owning property?

      Ku, take it easy. Just keep renting. That’s what you want , isn’t ?

      why so angry? 🙂

  12. Both the article and the diverse reader responses are helpful, the latter mostly being existing home owners. The takeaways will be very useful for those planning to buy their first home OR those wanting to refi their mortgage to a fixed or variable rate one. Regardless of whether one is a first-time buyer or one is planning to add to their portfolio of houses, they better have a solid cash position and a reliable source of revenue/income to afford the mortgage payments, property taxes and insurance costs vs. cost of renting.

  13. How about worrying about your own choices.. and not be hating on home ownership. If you are a renter and crying about how rents are going up.. consider that the landlords are also paying higher property taxes, utilities, maintenance costs to up keep the property. If you renters don’t like it, then perhaps you should look at buying a home? Stop bitchin and crying and acting like pussy-arse victims. If you are investing properly and your investments are helping you pay for your rent, then good for you. Do you go down to Starbucks or to restaurant owners and bitch at them when their prices go up? All I’m saying.. stop blaming people for your problems.

  14. The emotional value of buying a home can be displayed here too though. If not buying a home means being constantly obsessed about the price of housing, then that’s an added rent you pay too in the form of mental real estate. It lives rent free in your head.

  15. Dividend stocks need to increase dividends in a rising interest rate environment to keep investors from swapping out to safer alternatives in bonds which are now yielding more. The drop in stock prices also naturally corrects for the higher yield. The same eventually applies to housing and rents with higher rental yields reflected either through house price declines or rents rising or bit of both.

  16. Thank you for your always informative articles.

    In Japan, interest rates are still rising only slightly, but the price of new real estate continues to rise.

    However, the population is decreasing and the number of old vacant houses is increasing very rapidly.

    I purchased a 44 year old property with a lump sum cash payment at a very low price, so interest rates will continue to have no impact on me.

    I am a bit worried because many people in Japan are struggling with mortgages.

  17. Housing market is a nuanced thing – one area is highly different from another. Where I live rents have only gone up since 2008, and so did house prices. So, if we’re locked into a fixed mortgage payment, we get to keep our housing costs constant (not includin taxes, but they rise far slower than rent).

    If we factor in stuff like raising a child in a stable environment and no huge appetite for travel, owning gives you a better deal. And that’s before we talk appreciation, so if we were to downsize at some point (I doubt that I’d ever want to live in a bigger house than our current one), we get a nice cushion for retirement.

    Now – this is us, with our emotional preferences, and the real estate reality of a high tech metro area. I fully realize this approach doesn’t work for every situation.

  18. I didn’t have any expectations concerning that title, but the more I was astonished. The author did a great job. I spent a few minutes reading and checking the facts. Everything is very clear and understandable. I like posts that fill in your knowledge gaps. This one is of the sort.

  19. OMG, why has this FIRE blog become so concerned about real estate?

    can we get an update on ‘balanced portfolio’? are you concerned at all? any regrets on allocation? are you opening statements?

  20. I would love it if you could write a blog on your current portfolio performance. I took your course and did exactly what you said and my portfolio is not performing well. I invested $300,000 and was hoping to draw 4% but it is not even generating 1% right now.
    I did not incorporate your Yield Shield strategy and I am now regretting it. Is it too late? Should I just wait for the market to recover? Thankfully I don’t really need the money so I can ride the storm but I have no idea what to do next.
    I just sold off some real estate (at the peak of the market!!) and have $1,000,000 ready to be invested. This time, I am choosing individual dividend stocks (Enbridge, Bell, National Bank, Great West Life and a few others).
    I would love to hear your thoughts!

    1. I’m sure the advice will be similar. Invest in ETFs not individual stocks. Buy the dips, spacing out that cash over the year, etc.

      Personally I do believe in following macro-trends (a type of timing yes). Markets are typically lower mid-month than around turn of the month. Lowest day of a week is “usually” Thursday. The monthly trends are a bit more complicated but putting it all together mid-September should be a good time to dump cash in the market. But splitting it to monthly investments in middles of each month should work well.

  21. I do believe prices will come down however your analysis makes one mistake and overlooks another point. The mistake is saying that the price of the home is $711k. You’re only calculating mortgage payments for the mortgage amount, not the the home price. If the mortgage is $711k and we’re using a standard 20% down payment, the home value that your calculations refer to is closer to $880k.

    The part that was overlooked is the stress test introduced a few years ago in which banks made sure buyers could make mortgage payments if interest rates increased to above 5%. If they couldn’t the lender would reduce the mortgage amount or deny the buyer altogether. At least in theory, this means that most current home owners can afford to pay higher mortgage rates and new buyers hoping to qualify would have had to meet this threshold before buying anyway.

  22. Feel bad for anybody who missed the boat and doesn’t own their home and only owns equities.

    Equities down 20% in 2022 and home prices up at least 7% year to date. Huge outperformance while enjoying your home.

    Homes could drop 10% and still way outperform equities.

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