Chan's Personal Blog - Money

Yahoo Microsoft Search Deal

nospam@example.com (CHaN) — Sun, 02 Aug 2009 23:59:00 -0700

Well, this last week has been an emotional roller coaster at work due to the Yahoo Microsoft deal. I have to say, the night before the deal was announced, I was reading the rumours from various tech websites, and I didn't like what I was seeing. There was obviously some anxiety over how much longer I would be able to stay in Silicon Valley, and whether my job would still be here. The idea of becoming a Microsoft employee wasn't very palatable either.

Day break came, and the deal was announced super early in the morning (4:30am ish?). My immediate reaction was, oh my goodness, the stock price is sinking like a rock. I should have seen it coming though, speculators were piling into the stock, driving the price up to $17/share which wasn't sustainable. When the deal finally came, these people were piling out of the stock. It seems like investors in general didn't like the deal because Yahoo didn't get cash upfront for the deal. I have to admit that the deal is fairly complicated. The next two days, I spend several hours sitting through meetings that explained the deal, and its implications. I understand what the deal entails now, but the merits of the deal were definitely not apparent at first glance.

In either case, I was glad to hear that my job wasn't going to be transferred to Microsoft. I will continue be fighting on the side of Yahoo, and my job should be safe. My team should be unaffected by the deal, so I thank God for that.

Anyway, I'm still digesting this deal, and pondering what the future holds, and what change shall come.

My Gripes With TurboTax

nospam@example.com (CHaN) — Tue, 07 Apr 2009 23:25:56 -0700

So, this is the first year that I've done a US tax return by myself. I did mine online this year with TurboTax. Overall, it worked but I do have some gripes over it.

User Interface

It was hard to navigate to specific parts of my tax return. They start you off with five tabs, Home, Personal Info, Federal Taxes, State Taxes, etc. Under each tab, there's sub-tabs, but the sub-tabs are far too generic. For example, under Federal Taxes, you get Wages/Income, Deductions & Credits, Others. If I wanted to modify my donations, I would have to go through Deductions & Credits, and scroll through a bunch of questions that I already answered. There's no way to jump directly to donations, and edit that number.

Price Hike

It seems that TurboTax charges a certain rate for people who file before March 28th, and they charge a higher rate for after March 28th. I had my taxes mostly done, but not submitted yet, but when I found out that they were increasing prices, I rushed to get them done before midnight. It feels like price gouging when you jack up prices a few weeks before taxes are due.

Editions

TurboTax has several different editions, Basic, Deluxe, and Premier. Each one costs more than the last. I initially didn't know which edition I needed, so I filled out their questionnaire. Based on their questionnaire results, they recommended that I use the Premier version because I had stocks and mutual funds. After filling out all the forms, I realized I didn't need the Premier version because none of my stock transactions this year triggered a tax event. I could have done my taxes with the Basic version which would have cost a lot less. So, I tried to downgrade my TurboTax to Basic, but there's no way to do it. The only solution is to delete all your data, and start again. That's pretty bad.

Payment

At the end of the whole process, you have to pay in order to get your tax return. I was going to pay by credit card but I ran into problems. They needed me to fill in the address that I use for the credit card, but that address is tied to an international address. Unfortunately, there's no way to enter an international address into the system because it will not validate.

My second gripe with payment was, you can tell them to take the payment out of your tax return. The problem with this is, they charge a $20 fee for this service. This service doesn't seem to be worth $20 in my opinion

Random Thoughts

On a completely separate note, there's something kind of scary about TurboTax. It seems like every employer has an EIN (employer identification number). If you punch that in, TurboTax can query a database, and fill in all your income information. The paranoid in me thinks it's not cool that third parties have a way of querying some database for my employment income information.

In either case, I'm debating whether I'm going to use TurboTax next year. Intuit (the makers of TurboTax) seems kind of evil at this point. In addition, I really prefer the online tax filing systems like UFile which I used for my Canadian taxes. Also, Canadian taxes are so much easier to deal with, I miss doing them. /tear

An Ode To Wall Street

nospam@example.com (CHaN) — Mon, 16 Mar 2009 22:33:52 -0700

With each passing day of this recession, I find myself increasingly annoyed by these bankers and money men of Wall Street who basically ruined the economy for the rest of us. The latest outrage of course is A.I.G. trying to pay out $165 million in bonuses to its executives.

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year. [...]

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the governments efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses which are now being operated principally on behalf of American taxpayers if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury, he wrote Mr. Geithner on Saturday.

It's just infuriating that a company who recklessly bet the house on housing mortgages and failed could even consider rewarding its executives with bonuses.

I think it's also quite remarkable how the mistakes of this sector has such massive ramifications on all of us. I mean, a lot of us did nothing to deserve this, yet somehow, I find my salary being frozen because businesses are in cost-cutting mode. I see round after round of layoffs from companies all around me. I have friends struggling to get enough work in order to pay the bills. A quick look at my retirement and investment accounts will reveal something synonymous to a large impact crater. I looked at my savings account, and interest rates have come all the way down to 1% which makes holding cash a pretty poor return on investment, even though it's one of the few safe havens left (it's practically a disincentive to save). All of this is happening to everyday people, and yet we're rewarding those who engineered this financial disaster.

And so, I salute Wall Street for creating such a glorious housing bubble, and making off with a ton of cash, and then having the balls to pat themselves on the back with bonuses after they burned down that house. Kudos.

/end rant.

Frontline: Inside The Financial Meltdown

nospam@example.com (CHaN) — Tue, 24 Feb 2009 22:33:57 -0800

This weekend, I watched PBS Frontline's - "Inside The Financial Meltdown." (Link takes you to the full video).

Here's an excerpt from the introduction:

On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. "There was literally a pause in that room where the oxygen left," says Sen. Christopher Dodd

"I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems," says former Lehman board member Henry Kaufman. [...]

Paulson was thunderstruck. "This is the utter nightmare of an economic policy-maker," Nobel Prize-winning economist Paul Krugman tells FRONTLINE. "You may have just made the decision that destroyed the world. Absolutely terrifying moment."

In response, Paulson and Bernanke would propose -- and Congress would eventually pass -- a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.

"Many Americans still don't understand what has happened to the economy," FRONTLINE producer/director Michael Kirk says. "How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? Those are the questions at the heart of Inside the Meltdown."

I really enjoyed watching this documentary because they presented this complex problem in a very easy to understand manner. The documentary provides some incredible insight into former treasury secretary Paulson. Secretary Paulson is this wall street guy who used to work at Goldman Sachs. There's this incredible moment where he seems to put his personal agenda for vengeance ahead of the public good. He seemed intent on letting one of his former competitors in Wall Street fail, and he makes an example out of his competitor. It seems to be partially based on personal animosity towards this former adversary. This act sends shockwaves across the stock market.

I think the other remarkable thing is just how quickly these financial titan corporations fell in a matter of days. Billions of dollars of market capitalization literally evaporated over night.

The Dow Jones Industrial hovering over 13,000 seems like such a distant dream these days. We're barely holding onto Dow 7,000 right now.

Comparing Bear Markets

nospam@example.com (CHaN) — Mon, 27 Oct 2008 23:11:00 -0700

I've been hearing a lot of rhetoric in the news about how bad the current financial crisis is. A common phrase being thrown around is that this is a once in a century event. The New York Times has a very informative chart which illustrates how bad the stock markets are going, and how they compare to other bear markets.

I remember a couple months back, I was pondering if I was being bearish and pessimistic enough. Basically I wasn't. The scary thing is, it appears I'm still not bearish enough when you look at the chart. We've lost 50% of the stock market so far; however, during The Great Depression, the stock market lost 80% of its value.

Of course, there is a silver lining in all of this. A market crash is actually a boon if you're investing for retirement, ie you need your money in 40+ years. In the long-run, this is the ultimate play on "buy low, sell high" if your time horizons are long enough. That is why, I'm still doing some buying for my retirement fund.

What's Making Money In The Market?

nospam@example.com (CHaN) — Fri, 10 Oct 2008 01:39:24 -0700

With a full blown financial armageddon upon us, I pondered to myself, what stocks could possiblely be up after massive drops everyday? It turns out there are stocks that actually move up. Observe the UltraShort S&P500 ProShares (SDS)

This is a fund that makes money whenever the markets go down. This is known as shorting which is where you're betting that the market is going down. If you read the chart, this fund has been doing extremely well this month. Today it was up more than 10%. Looks like the bears are winning big time.

Note: I am not advocating shorting the market or investing in the UltraShort fund. I'm merely highlighting that whether the market is up or down, someone is making money in the market.

Iceland Is Imploding

nospam@example.com (CHaN) — Thu, 09 Oct 2008 23:59:00 -0700

I got this article from Myron entitled, "The party's over for Iceland, the island that tried to buy the world." I was kind of shocked by this article because it was completely off my radar and it's not being covered by any of the mainstream media down here.

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.

People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.

This North Atlantic volcanic island, which is the size of Cuba, with a population of 320,000 - the size of Coventry's - is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN's 2007 'best country to live in' poll. But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the past eight years have been, for most of them and by their own admission, one long party.

The nation's celebrated rags-to-riches story began in the Nineties when free market reforms, fish quota cash and a stock market based on stable pension funds allowed Icelandic entrepreneurs to go out and sweep up international credit. Britain and Denmark were favourite shopping haunts, and in 2004 alone Icelanders spent £894m on shares in British companies. In just five years, the average Icelandic family saw its wealth increase by 45 per cent. [...]

Outside the city's Hofdahollin car showroom, looking a little rumpled for men trying to sell new and used cars for £35,000 and up, owner Runar Olafsson and his top salesman are sharing a Marlboro. They are not expecting any customers today. 'A few years ago we couldn't get enough top-end cars and we started importing them. We were selling 120, 140, a month. But it turned around so fast,' says Olafsson. 'It's so dramatic, just in one month. We have already seen two dealers go down.

'Customers would come in and we would apply for credit online for them, a 100 per cent loan, and they can drive away in their new Range Rover. It took ten minutes, it was very easy. But 60 to 70 per cent of those loans were in foreign currency, Japanese yen or Swiss francs, and they have gone up 90 per cent as the krona burns. A car worth 5 million krona now has a 9 million loan on it; how are people going to make those payments?'

I think it's quite remarkable how quickly this credit crisis has spread all around the world. The shockwaves are being felt everywhere. If you need proof, anyone see the Toronto Stock Exchange plunging 11% on Monday? In either case, I don't even bother looking at my RRSP/stock account balance anymore, it's too scary.

Bjork! Save your country!

Money As Debt

nospam@example.com (CHaN) — Sat, 04 Oct 2008 22:43:53 -0700

With the banks imploding all around us, and talks of an $850 billion bailout of the banks, many people have suddenly become interested in the banking system, and why are these awful things happening around us.

There's a short film that's circulating on the internet entitled "Money As Debt" which helps explain some of these things. This film answers questions such as:

What is the role of the central bank?
Where does money come from?
What is a "run on the bank"
etc.

The documentary is pretty accessible to even people with basic understandings of economics and such. It's also completely animated and not too complicated.

To the Ron Paul fans, you've probably heard the congressmen lament how bad our monetary system is currently. One of his solutions is the return to using the gold standard for our money, but this documentary highlights the problems with the gold system.

The first half of the documentary I enjoyed as it gave the history of how banking was created. However, I can't vouch for the second half of the documentary. It suddenly becomes very conspiracy theorist like. An example of this is when they quote from two American presidents who opposed the money system, and they imply that they were assassinated because of their opposition. In addition, I find the documentary's proposed solution of solving the money system's problem to be a bit naive or impractical. Some of the solutions, they wave their hands and say, oh alternative energy could save us money problems without explaining why.

Some of the solutions are very naive. For example, they suggest that if government had complete control over the money system, that would solve all our problems of evil bankers manipulating the system. However, giving absolute power to government is just replacing one problem with another in my opinion. Do we not remember that government has corruption and scandals as well?

I was debating whether to post this or not due to the duality of my opinion of this film. However, there are some nuggets to be sifted out of this. I'll let you decide which parts of this film is true, and which parts are conspiracy theories.

One interesting tidbit of information, apparently this film was created in Cowichan, British Columbia.

Armageddon On Wall Street

nospam@example.com (CHaN) — Tue, 16 Sep 2008 23:22:05 -0700

Yesterday was an absolutely historic day in the stock markets as two financial titans fell; Lehman Brothers went bankrupt, and Merill Lynch was sold to Bank of America. Panic ensued, and the Dow dropped 500 points. As a recap, this chain of events started with the subprime mortgage meltdown. Greedy banks were basically giving home loans to a lot of people who simply couldn't afford them. Interest rates moved up, and people couldn't keep up with their mortgage payments anymore, so people defaulted on their loans. You multiple this situation a couple million times, and you have this blackhole in the financial markets where a ton of money has disappeared. Now the government is trying to step in and bail out these banks which are failing, which ultimately means the taxpayers are picking up the tab. It's quite a dire situation since America's debt is already huge, and it's only going to get bigger.

There are two main things that really tick me off about this situation.

It's insanity to give mortgages to people who can't even afford down payments on houses. The outcome is not unpredictable at all, and there were warning signs as early as last year that the financial markets would be in trouble. A lot of this was avoidable.
People who are financially prudent are being punished for the mistakes of greedy banks, and people who were financially reckless.

This morning I just discovered that one of my stocks in the solar business dropped about 50% in value because they had a business connection to Lehman Brothers, and because Lehman is going bankrupt, the company is going to be losing money. This was quite an unfortunate revelation, and it shows how there's going to be a lot of indirect ways for people to get financially hurt because the large banks are failing.

This morning, Cramer had some dire warnings of other financial organizations that are on the brink of failing as well, such as AIG and Citigroup.

This evening, it looks like the government is bailing out AIG by giving it an $85 billion loan.

You may be asking, why do banks fail? Well, generally this is how it works. You and I deposit our money into the bank, and we assume that money is going to be safe. The bank makes money by loaning that money out to people. Typically a bank might take all of their money, and loan out somewhere between 80-90% of the money it has. They try to loan out as much money as they can because money sitting in their vaults isn't going to generate as much money. This works well in theory, as long as the people you're careful in who you loan money to. There will always be the possibility of bad loans, where someone can't pay back, but you weigh your risks. The problem arises when you have way too many bad loans, and you've basically lost your money. Now when you and I go to the bank to withdraw cash, the bank says, uhhh..... we don't have your money, we lost it. Epic fail for the bank.

There's an excellent 45 frame comic called "The Subprime Primer," that explains exactly how subprime mortgages got us into the mess. Very entertaining to read, and very informative. (Caution: some foul language).

Epic Downfalls Of Shoe Companies

nospam@example.com (CHaN) — Sun, 03 Aug 2008 17:37:27 -0700

Last year I served as a volunteer in kids and preteen ministries at my church. Being completely fashion agnostic, I always paused to reflect whenever I saw some kid wearing some ludicrous piece of attire. I must be getting old because I openly wondered what passed for clothing these days. On top of that, I think I hated kids fashion even more, because the stuff was expensive, and you know that they're going to outgrow the clothes, or hate the fad in a very short time.

This leads me to two fads that I thought were absurd. Crocs and Heelys. Crocs are those ridiculous plastic shoes which claim to be the most comfortable shoes in the world, while Heelys are those shoes with a wheel on the bottom of them. What could possible go wrong with a wheel on the bottom of your shoe??

In either case, I tend to stay far away retail/clothing stocks because they're momentum stocks that have meteoric rises in stock prices, but also epic downfalls. May I present to you two stock charts:

Crocs (CROX)

Heelys (HLYS)

These stock charts tell me that the trend is dying off. I know Crocs has been having problems with other companies making cheap knockoffs, so it's hard for them to continue selling them at a premium price.

Anyone know if the trend is truly dead yet for these two shoe companies? Or are they staging a turn around? At the time of this post, CROX stock price is $4.44/share, while HLYS is $4.40/share. Any guesses who will win the race to $0.00/share?

A New Menace

nospam@example.com (CHaN) — Thu, 15 May 2008 10:32:11 -0700

Just when you thought the Yahoo/Microsoft merger was over, a new menace has emerged. Activist/Corproate Raider Carl Icahn has thrown his hat into the ring, and is declaring war on the Yahoo board of directors. For those unfamiliar with Icahn, he's a billionaire investor who buys up shares of struggling companies, and install directors to do his bidding. Recently he installed a puppet regime in BEA Systems (who didn't want to merge with Oracle), and steered the company towards the merger.

Here's an article from TheStreet.com entitled, "Icahn Targets Yahoo! Board of Directors."

Carl Icahn is treading over familiar ground, formally launching a proxy fight in a move to replace 10 seats on Yahoo!'s board of directors.

In a letter to Yahoo!'s Chairman Roy Bostock Thursday, Icahn said the Internet search giant "acted irrationally" and has lost the faith of shareholders and Microsoft, which tried to acquire the company at a price of $33 a share, an offer that Yahoo!'s management said was too low.

Icahn said that many investors have expressed dissatisfaction with Yahoo! for failing to reach a merger agreement with Microsoft, pushing him to lead a proxy battle against the company's board. Microsoft has given no indication that it would be interested in reviving talks with Yahoo!, as many shareholders have been hoping. Still, a vote to oust the Internet giant's current board could at least get the conversation going again.

"It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis," Icahn wrote to Bostock. "I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer."

Basically how this works is, he'll propose his directors, and if shareholders hold his view, they'll elect his directors onto the board. The more of them he has on the Yahoo! board of directors, the bigger the pain in the butt he can be. Some of the things he can do can include forcing Yahoo! to reopen talks to Microsoft, or even get the CEO/Founder fired.

More coverage at Silicon Alley Insider.

Canadian Housing Bubble Popping

nospam@example.com (CHaN) — Sat, 19 Apr 2008 23:51:41 -0700

The National Post is running an article entitled, "Canada's Housing Boom Is Officially Over."

The Canadian housing boom was declared officially over Thursday.

A slide in existing home sales that started in the West late last year spread to Toronto in the first quarter of 2008, taking the heat out of prices nationwide and driving the ratio of new listings to sales to a nine-year high, figures released Thursday showed.

"Canada's six-year housing market boom is officially over," said Douglas Porter, deputy chief economist at BMO Capital Markets. "There's no question the numbers were probably distorted by a few feet of snow in the first quarter of the year, but I think there's some very real underlying cooling underway here."

The Canadian Real Estate Association reported 75,476 homes changed hands in the first quarter of 2008, down 13% from the first quarter of 2007. In March, sales dropped 18.7% from the same month the year before, including a 39.7% slide in Calgary, a 34% drop in Edmonton and a 22.2% drop in Toronto.

Average prices rose just 5.5% to $327,620 in the first quarter over the first quarter of 2007, the smallest price increase since the fourth quarter of 2001. Prices rose 11% last year and 10% on average in each of the prior five years.

I am quite happy about this news, and it further lends ammunition to us who don't believe the lies that real estate people say, like housing prices will keep going up. In this report, price rises are decelerating, and it's only a matter of time before they start declining.

People looking for houses, stay strong, it will be a buyer's market soon. Lets hope we return to a time where housing is actually affordable.

Down here in California, the real estate market is a slaughter. One of my friends who bought a house as an investment, way the heck in the middle of no where, has already seen the bank foreclose on three of her neighbours. Forests of "For Sale" signs are cropping up all over the place.

Check out this map of foreclosed properties in California.

Battle of The Titans

nospam@example.com (CHaN) — Thu, 10 Apr 2008 23:01:11 -0700

As you may or may not know, Microsoft has been trying to buyout Yahoo. The plot has thickened immensely in the last week. A disclaimer before we start, the opinions expressed in this article do not reflect the opinions of Yahoo; these are my opinions and mine alone.

Lets start by introducing the actors of this plot.

Jerry Yang, CEO of Yahoo
Google, needs no introduction
Steve Ballmer, CEO of Microsoft (featured in the video below)
Rudolph Murdoch, Evil Emporer and CEO of News Corp. Owner of the Fox Network and MySpace
Time Warner, who owns AOL (I'm surprised that they're still around too.)

Steve Ballmer in action, no this video has not been doctored.

So a few months back, Yahoo had already rejected Microsoft's bid of $31/share for Yahoo. On the weekend, Microsoft sent a letter to Yahoo telling us to stop dragging our feets and accept the offer. The letter says that Yahoo has no other viable alternative. The offer would expire in three weeks. This threat was supposed to scare us into submission because many believe that Yahoo's stock will plunge from $28/share now to $19/share if Microsoft pulled the plug on the deal.

At this point, things were looking kind of dark since it looked like Yahoo was out for the count, and resistance against Microsoft was futile. It was inevitable that they would take us.

That's when Jerry Yang of Yahoo launched the counter attack.

Continue reading "Battle of The Titans"

Real Estate: Bulls VS Bears Pt2

nospam@example.com (CHaN) — Fri, 04 Apr 2008 23:36:00 -0700

So in my last blog article, I was talking about this blog article from the Royal Bank (RBC) blog entitled, "Just Give Me Four Walls" where they're talking about how students can get a mortgage. The discussion was about what a great investment housing currently is, and how we can take out mortgages with no down payments. One of the RBC bloggers responded by saying how great real estate was because in the last 10 years, housing value has increased by 65% (or 5.3% per year). I responded that it wasn't that great considering the Canadian stock market in the same amount of time had increased by 296% (or 11.1% per year).

A new guy named Scott decided to counter my arguments:

Home ownership is with out a doubt one of the best investments you can make. [...] What I present as my argument for the home ownership is this:
1 - Not only do you have the value of your house increasing over time, providing more cash in your pocket when you sell, but you also have to factor in the money that is not going to rent as savings in your pocket. Sure you dont see it until you sell, but future you will be happy.

2- As for Chris' point about a mutual fund being better, I must argue against that. Yes, investment products such as mutual funds are great, and you should have these as well (consult your local RBC banker for your own tailored plan), however the housing market is no where near as volatile as an index linked fund (find me a year in the last 10 where the average home price has dropped in Canada? The same cannot be said for an index fund). And if you can only afford one option, if you take your hard earned money and put it into that fund, you are still needing to pay for somewhere to live (unless you are ok with your parents basement, thought it does make meeting girls harder)so there goes any profits you could have seen in the way of rental payments to a landlord you probably don't even like.

There were several points that are completely untrue:

The housing market is no where near as volatile as the stock market.
Home ownership is the best investment you can make.
The average home price has not dropped in the last 10 years.

I keep hearing similar arguments over and over, and they're just plain wrong. I decided it was time to bring in the big guns. Please help me welcome our guest blogger, Myron, who's my senior housing bear correspondent. (Housing Bear denotes someone who's negative on housing).

Continue reading "Real Estate: Bulls VS Bears Pt2"

Real Estate: Bulls VS Bears

nospam@example.com (CHaN) — Thu, 03 Apr 2008 23:59:00 -0700

It was brought to my attention that Royal Bank has recently started a number of blogs which feature a bunch of hip young adults trying to juggle life and money. There was a blog post entitled "Just Give Me Four Walls", which talks about how students can get a mortgage to own a place to live.

The Mortgage Question

I had the opportunity to speak with Bernice Dunsby. Shes RBCs Senior Manager of Client Acquisition, Home Equity. Basically, she knows Mortgages. She assures me that purchasing a home (or apartment or condo or loft, etc.) is still a stable investment in todays market.

Over the past ten years, theres been a 65% increase in the value of homes, she says. If you think about increase value, does it mean a good investment? Yes. [...]

I wanted to know whether it was even a possibility to for a University student to think about signing him or herself up for a mortgage.

Its Possible. Even individuals with little income can qualify for mortgages nowadays. In the past, banks required a minimum of 20% on the down payment of a mortgage, Bernice tells me, but today you can own a home with no money down. You can literally purchase with no down payment.

While this may seem like a gift, Bernice heeds warning that 'no money down' means you are financing more over the term of the mortgage, which means it's going to cost you more in the long run. But, that may be ok depending on the way you look at it: when you start paying off your mortgage, you build equity. Equity is the value of your home in the market, less what you owe in mortgage payments. So, every time you make a payment, your house increases in value because there's less money owing on it.

This article really rubbed me the wrong way because getting a mortgage with no money down is exactly the reason that fueled the Subprime Crisis in America, and pushed them to the brink of recession. Basically you're lending money to people who you really can't afford to buy a place! They obviously can't afford it because they can't even pay the downpayment on a house.

Continue reading "Real Estate: Bulls VS Bears"