Corner of Berkshire & Fairfax Message Board

General Category => General Discussion => Topic started by: Liberty on February 24, 2012, 06:39:30 PM

Title: Garth Turner - Real Estate in Canada
Post by: Liberty on February 24, 2012, 06:39:30 PM
Hey,

I've recently discovered Garth Turner's blog. I'm probably the last one here to find it, but just in case...

http://www.greaterfool.ca/

I thought it might interest those who want to hear the case for the "big real estate bubble about to burst in canada". If you read his past 4-5 posts you should have a good idea of what his arguments are.

He can be a bit over the top, but in general, I find the thesis pretty convincing. It's just impossible to know how long it'll take before there's a day of reckoning (but I'd be surprised if it took longer than 2-3 years)...
Title: Re: Garth Turner - GreaterFool
Post by: Viking on February 24, 2012, 09:53:33 PM
I have read Garth's stuff for the past 10 years. He certainly is entertaining (must have been fun sitting beside him when he sat in Parliament as an MP in Ottawa). I think he is generally correct in his assessment (i.e. housing is at historic highs) but I am not sure about his conclusions (a bust is just around the corner). Will Canadian residential real estate be a great investment moving forward? I doubt it; with prices at historic highs there is no margin of safety.

My guess is real estate prices go sideways for the next 10 or 15 years. With inflation running at 2 or 3 percent per year, real prices will correct over time to a more reasonable level.

Should China get ugly (causing the resource part of the Canadian economy to tank like 2008 & 2009) then Canadian real estate could be in for a hard landing. Should the Canadian ecomony sputter along the next few years I am not sure what the catalyst would cause a precipitous fall.
Title: Re: Garth Turner - GreaterFool
Post by: Liberty on February 24, 2012, 10:57:55 PM
My guess is real estate prices go sideways for the next 10 or 15 years. With inflation running at 2 or 3 percent per year, real prices will correct over time to a more reasonable level.

I often hear this (in fact, it seems to be as far as anyone from banks or the government is willing to go in newspapers). Can you elaborate on what makes you think this "sideways" scenario is more likely than a bust?

My understanding is that markets generally tend to overshoot both ways and rarely find some stable middle path, especially when there's leverage/government intervention/irrational beliefs among market participants/hot money pouring in/people think something is safer than it truly is/etc (I know this describes almost everything everywhere, but that's my point -- this isn't different). With everybody in debt to their ears, interest rates at historic lows and random economic shocks bound to hit the Canadian economy at some point or other, I kind of have trouble seeing how this would just result in prices stabilizing rather than in a panic-bust like we've seen in so many other places in the past.

I used to kind of accept the "generally accepted wisdom" that seems to be repeated everywhere on how Canada doesn't have the subprime/bad lending standards that the US had, which is why we'll be ok. But after reading this, I'm not so sure:

http://www.greaterfool.ca/2012/02/20/canadian-subprime/
Title: Re: Garth Turner - GreaterFool
Post by: EdWatchesBoxing on February 25, 2012, 07:42:18 AM
I've been reading the blog since 2008!

I like Garth's humour and his choice of pictures. I don't think housing will travel sideways while we wait for salaries to catch up to housing prices. In the GTA, where the average house is about 5.5 times average salary, I don't see how there won't be some sort of correction. Vancouver's in worse shape. I wonder what the house price/salary ratio was in the late 80s/early 90s. 

I just looked it up: http://www.torontohomes-for-sale.com/4a_custpage_2578.html (http://www.torontohomes-for-sale.com/4a_custpage_2578.html)
So current home owners are not as screwed as those that were buying back then. But looking back to the mid 1970s, I'm sure that type of drop wouldn't be out of the question these days. Even a 10% will be really bad any one who put less than 10% in the last few years will have their equity wiped out. Well, except the one's that got the zero down/40 year ams. They'll just carry a mortgage much higher than the value of their house.

They may not call it subprime lending in Canada, but people that can't afford the houses they are "purchasing" are being approved for mortgages. They just slap mortgage insurance on it up front and dump the guarantee on the tax payer through CMHC/CHT.

EDIT: wow, they must have been smoking some really good stuff in the 80s.
Title: Re: Garth Turner - GreaterFool
Post by: Liberty on February 28, 2012, 03:26:29 PM
Been reading the archive.. On page 20 I found this overview of the main thesis:

http://www.greaterfool.ca/2012/01/08/in-the-end/
Title: Re: Garth Turner - GreaterFool
Post by: SharperDingaan on February 28, 2012, 04:07:26 PM
The 24 yr old with the massive mortgage goes bankrupt, moves back in with mom/dad, & CHMC covers the bank against loss. Highly visible, but there are not many of these, & the CMHC/Bank/BoC have more than enough capital to hold houses off the market, en masse, if needs be.

Financing for mortgages this big is usually by LOC. Rates increase, the house(s) get sold at a deep discount, & the new buyer finances via conventional mortgage (or the bank/BoC doesn't give the mortgage. Prices drop, but they don't melt down 30%+, en-masse. Financing goes from unstable to stable, with monthly amortization continuously lowering the risk going forward.

Victoria McMansions may lose 40% of their value, but they dont drag down the nation overall.

   
Title: Re: Garth Turner - GreaterFool
Post by: Liberty on February 28, 2012, 05:26:18 PM
Doesn't sound realistic to me. In a country where 30% of the economy is now real estate and 70% of people are home-"owners", with debt levels  over 150% (a lot of it financed with HELOCS), will affordability measures and rent ratios all in extremely bubbly territory, lots of speculation and over-building, hot foreign money, loose lending standards and "cash-back" mortgages, baby boomers retiring with most of their savings locked up in their houses, interest rates at historic lows bound to go up eventually, etc, I don't see how CHMC is going to help. It may protect banks from a direct hit, but it won't protect the country's economy when this thing bursts, IMO. The only reason why things went as far is because - like in all bubbles - people have started to believe that prices doesn't matter because what they're buying is going to be worth more in the future anyways (I hear it all the time - this time it's different!). As soon as that's not true anymore, the spell is broken and we'll look like the USA. No other way to explain why crappy suburban shacks are now worth millions while salaries haven't kept up with inflation...

The average person seems to think that real estate is totally different from bonds or stocks or gold or whatever. It isn't. Sure you are living in it and it's a lot less liquid (which is another problem when things go south), but aside from that, value and price are two different things. The more I learn, the farther away I would stay from a business's stock that had the characteristics of the Canadian real estate market.

I sure am glad we're renting.
Title: Re: Garth Turner - GreaterFool
Post by: Labrador on February 28, 2012, 06:27:11 PM
Agree 100% and am glad I am renting too!
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 29, 2012, 06:21:21 AM
I have been told by real estate people that they a lot newer large houses where several rooms are sparsely furnished or bare simply because the home owners are at the limit of their budget.
If you think that is scarey, read on.

I am involved in the credit end of the building supply industry. When customers come in to set up a line of credit for the construction of a new home the conversation often goes like this.

A well educated, well employed young couple are sitting in front of me and I say...

“ Hi folks, so you are going to build a new home and all your financing is all arranged?”

“Yes, everything is ready to go and our contractor is starting next week.”

“Well that’s that’s great. So what is your new house going to cost?”

They look at each other with a blank look on their faces and say “ Well we don’t know, but our payments will be $x,xxx per month.”

“Yes well that’s fine, but do you know what the actual cost of the house will be when finished?”

“Aaaaa... no, but our mortgage is $xxx,xxxx and our payments will be $x,xxx”

“But what is the cost of the house?”

‘Aaaa, well I guess we never asked.”

“So you really have no idea of what the house will cost?”

“No, I guess perhaps we should ask, but we do know that our mortgage payments will only be $x,xxx ”

“Well folks, you realize that your 3% mortgage rate could increase in five years from now when you renew your mortgage and your payments could jump substantially?”

“Hahaha, well that better not happen, hahaha”

This is NOT an isolated incident.

The only reason I can see for this frame of mind is that these people have been brought up in a world where leasing is a way of life. They seem to equate a five year lease with a five year mortgage term. A mortgage is not a car lease. When rates rise you don’t ease into a cheaper model or walk away at the end of five years.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 06:45:47 AM
wow, cwericb. Thanks for sharing that.

I see it all around me. People spend more time thinking about xmas gifts than about the house they're buying.

They don't consider it an investment in real estate, just something they're entitled to do when they're old enough and have a "real job". Renting is universally considered to be a waste of money "because at the end you've got nothing".

They don't realize that for most people the choice is between renting an apartment/house/condo or renting money from the bank (to buy a house/condo).

People who would never borrow to invest in stocks are leveraged 10-to-1 or 20-to-1 on a potentially very illiquid asset.

Owning a house is not seen as something you achieve (by saving a lot and then waiting for the right bargain), it's seen as something you have a right to (price doesn't matter, it'll go up anyways!). That's dangerous.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 29, 2012, 12:23:07 PM
"Owning a house is not seen as something you achieve (by saving a lot and then waiting for the right bargain), it's seen as something you have a right to (price doesn't matter, it'll go up anyways!). That's dangerous."

If you mention the idea of "saving up" to buy something, people tend look at you as if you were out of touch with reality. The idea today is that you use other people's money so that you can get what you want - now - and worry about paying for it later. That is when the problem comes in - later. Eventually later comes around. Then, when they find themselves in deep it's everyone else's fault, the bank, the government, the credit card companies, etc.

Here is another scary scenario. I have had people actually say to me, "We doing pretty good, we are making the minimum payments on all our cards and we still have enough credit to buy that new ....... we want.

First off, I cannot believe people think of their credit capacity as an asset rather than a pending debt.
Secondly, I received this month's Visa bill. Hidden on the last page (and required now by law), is the statement "if you only make the minimum payment it will take you 37 years to pay the amount owing".   And my Visa bill was for only $1,770.
 
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on February 29, 2012, 12:34:32 PM
You cannot prevent people from hurting themselves, it is their choice. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 01:10:02 PM
You cannot prevent people from hurting themselves, it is their choice.

Indeed, but you can sure make it easier or harder to do so. (ie. remove all seatbelts from all cars)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Hester on February 29, 2012, 01:14:35 PM
So what do we short, guys. What securities are going to get killed when Canadian RE prices fall.

Probably not the banks. Damn CMHC...
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 29, 2012, 02:52:20 PM
Speaking of CMHC, does anyone have any idea of total potential liability that CMHC and the Canadian taxpayer has if a meltdown occurred in housing prices?
Title: Re: Garth Turner - Real Estate in Canada
Post by: EdWatchesBoxing on February 29, 2012, 02:56:41 PM
It's awful to see people voluntarily harm their financial health.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Hester on February 29, 2012, 02:59:19 PM
Speaking of CMHC, does anyone have any idea of total potential liability that CMHC and the Canadian taxpayer has if a meltdown occurred in housing prices?

I had the same thought a little while ago. Here's their 2010 annual report. http://www.cmhc.ca/ar-ra/2010/en/mda/

Of course a potential meltdown has to be modeled out by the investor.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Kiltacular on February 29, 2012, 04:31:07 PM
Buffett in the just released shareholder letter:

Homeowners everywhere felt richer and rushed to “monetize” the increased value of their homes by refinancings. These massive cash infusions fueled a consumption binge throughout our economy. It all seemed great fun while it lasted. (A largely unnoted fact: Large numbers of people who have “lost” their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender.)

Yet, the "scandal" is robosigning.  Comical.

It likely that the biggest "winners" in the Candaian version will also be those most irresponsible.  The key is that you have to be unimaginably irresponsible to win big.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 04:34:42 PM
So what do we short, guys. What securities are going to get killed when Canadian RE prices fall.

Probably not the banks. Damn CMHC...

That's a good question. The way I'm playing my conviction is by being ready to continue renting for a few years. We'll try to be really patient because if (when) it happens, it could take a while to reach bottom line in the US, and it won't bounce back quickly, so no need to hurry up. Would suck to be right about this but buy way above the bottom...

But as for shorting stocks, I'd look at companies that are heavily leveraged and closely tied to construction in Vancouver or Toronto. No idea what the best company to short would be, though.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 04:36:53 PM
Buffett in the just released shareholder letter:

Homeowners everywhere felt richer and rushed to “monetize” the increased value of their homes by refinancings. These massive cash infusions fueled a consumption binge throughout our economy. It all seemed great fun while it lasted. (A largely unnoted fact: Large numbers of people who have “lost” their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender.)

Yet, the "scandal" is robosigning.  Comical.

It likely that the biggest "winners" in the Candaian version will also be those most irresponsible.  The key is that you have to be unimaginably irresponsible to win big.

I think this was a better deal in most US states because the creditor of the mortgage can't go after you personally. The way I understand it, in Canada they can. Unless they spend all that HELOC money on intangibles, they'll get repossessed.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 04:48:55 PM
http://business.financialpost.com/2012/02/29/canadas-home-prices-drop-for-second-straight-month/
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on February 29, 2012, 05:52:14 PM
http://business.financialpost.com/2012/02/29/canadas-home-prices-drop-for-second-straight-month/
This is probably just seasonal weakness.  Look at the chart - those markets demonstrate weakness from November through about March every year.

I think this was a better deal in most US states because the creditor of the mortgage can't go after you personally. The way I understand it, in Canada they can. Unless they spend all that HELOC money on intangibles, they'll get repossessed.

This is exactly right.  Mortgages are non-recourse in the US, which is why "it's different" in Canada.  You have to declare personal bankruptcy to get out of your poorly devised home ownership plan.  The result is that downward price trends are throttled because home owners can't just walk away like they did in the US.  I think RE prices will be forever buoyed by two things that people are loathe to do: one declaring bankruptcy and two selling at a loss.
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on February 29, 2012, 06:24:06 PM

Mortgages are non-recourse in the US, which is why "it's different" in Canada.  You have to declare personal bankruptcy to get out of your poorly devised home ownership plan.  The result is that downward price trends are throttled because home owners can't just walk away like they did in the US.  I think RE prices will be forever buoyed by two things that people are loathe to do: one declaring bankruptcy and two selling at a loss.

Wait until the stigma wears off once people start looking at the economics of their situation.  Or maybe you were being sarcastic, sorry if I couldn't tell.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on February 29, 2012, 06:35:11 PM
Wait until the stigma wears off once people start looking at the economics of their situation.  Or maybe you were being sarcastic, sorry if I couldn't tell.

No, I'm serious.  I think that real estate prices correct downwards more slowly because of the bankruptcy requirement and an unwillingness to sell at a loss.

If the economics of their situation dictate a change in lifestyle, you will see the impact in credit card debt, auto loans, rv loans, lines of credit, etc. well before you see the impact in housing.   It's like Maslow's hierarchy of needs for debtors :P
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 06:44:57 PM
http://business.financialpost.com/2012/02/29/canadas-home-prices-drop-for-second-straight-month/
This is probably just seasonal weakness.  Look at the chart - those markets demonstrate weakness from November through about March every year.

Possibly. Possibly not.

Quote
This is exactly right.  Mortgages are non-recourse in the US, which is why "it's different" in Canada.  You have to declare personal bankruptcy to get out of your poorly devised home ownership plan.  The result is that downward price trends are throttled because home owners can't just walk away like they did in the US.  I think RE prices will be forever buoyed by two things that people are loathe to do: one declaring bankruptcy and two selling at a loss.

States in the US that had that exact same legal system didn't fare much better than others (Arizona and Nevada among others, iirc). Garth Turner has addressed that point fairly convincingly, IMO. I suggest you read a dozen of the most recent posts and see how it tickles your fancy, as most of the counter-arguments that I heard everywhere are addressed.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on February 29, 2012, 07:02:18 PM
Wait until the stigma wears off once people start looking at the economics of their situation.  Or maybe you were being sarcastic, sorry if I couldn't tell.

No, I'm serious.  I think that real estate prices correct downwards more slowly because of the bankruptcy requirement and an unwillingness to sell at a loss.

If the economics of their situation dictate a change in lifestyle, you will see the impact in credit card debt, auto loans, rv loans, lines of credit, etc. well before you see the impact in housing.   It's like Maslow's hierarchy of needs for debtors :P

You don't need ppl to throw away their houses to get prices coming down quickly. When there is no bid, a few sell will do the wonder.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 07:16:22 PM
I think the lesson of the past few years is that when people speculate and take on an unsustainable level of debt and leverage, there's absolutely no way to make the risk disappear. The law of economic gravity won't be suspended. Problems will find a way to come to the surface one way or another, and the longer it takes, the worse it'll be.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on February 29, 2012, 07:23:00 PM
"So what do we short, guys" You don't. Park your $ in Canada's. If/when a particular property falls far enough for you - buy it.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 07:51:11 PM
"So what do we short, guys" You don't. Park your $ in Canada's. If/when a particular property falls far enough for you - buy it.

I wonder what a RE crash would do to the Canadian dollar, actually. Might be a better deal on foreign exchange rate after such an event, if it were to take place.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on February 29, 2012, 08:33:18 PM
I haven't read Turner's blog.  Did see him speak many years ago.  He puts on a hell of a show and makes alot of money on the circuit.  Worth considering why he says what he says. 

I recently went through the circus of getting a Heloc, for an addition, and a renovation.  My mortgage is held by a mortgage company, that doesn't do Helocs.  We went to TD where all of our brokerage accounts are held.  They assessed the house, conservatively, IMO, wanted to see pay records, tax assessments, the first lien mortgage paperwork.  They ultimately agreed to give us a HEloc up to 80% of their assessed value minus the first lein mortgage owing.  Imo, it was pretty stringent.  We got no credit for the assets in the brokerage account which would cover the HEloc by at least 3 x in a down market. 

IMO, the big 5 will not lose much in a housing downturn.  I really have no idea where people are getting this speculative money from.  I am guessing it is financing through developers, and non-bank mortgage companies, and of course the CMHC. 

There seems to be an overbuild of condos in Toronto.  Ultimately, there may be a correction but it will in no way equal what happened in parts of the US.  The market is so tiny, and so much of the population just does not participate.  Prices have risen faster than average the last few years but not enough that you could make money flipping properties.  Prior to the recent runup prices here were stagnant from 1990 until 2003. 

As for housing as an investment, it is just not something that ever turned my crank.  The frictional costs are too high, and I am not keen on being a landlord.  For me the house we live in is a place to live, not an investment.  I never hoped to do better than inflation.  If the shit hits the fan in a big way it is nice to have a roof over your head thats mostly paid for. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on February 29, 2012, 08:35:42 PM
Great discussion everyone. As a Canadian, I also see the bubble we are currently experiencing.  Knowing with any reasonable level of certainty whether the bubble will burst or growth will remains flat the next 10 years would be way above my capabilities.  It is obvious however, that with the current market fundamentals and the previous 10 yr. track record, real estate as an investment at this point would not have an adequate MOS. On the other hand, I do think that this applies mostly to larger cities (as far as high prob. of significant capital losses anyway). 

As an example, I live about 1.5 hrs. west of Toronto, close to 401 in a small village between London and Woodstock. It's in a new subdivision of about 30 houses so far on a about 1/3 acre lot. The house is a 2-storey, about 2100 sq./ft, 2 car garage. We paid $275,000 in March of 2009 and the property taxes are about 2800/yr. You can buy the same house today for $295,000.  Noting the overvaluation in Canada's big cities, I have always thought to myself: what is my downside on this place?

Lets say the replacement value of just the building is $200,000.  This means I paid $75,000 for a 1/3 acre serviced lot.  Ok...off to Toronto.  I'm guessing the same house, on a much smaller lot would cost around $600,000 (someone correct me if they think this is way off..just a guess). So the replacement cost of the house is $200,000...same as my house. The land therefore cost $400,000.  Assuming we don't see significant deflation, that replacement cost isn't likely to change drastically. Therefore, it is land value decreases that we have to worry about the most I think. With a 20% decrease in residential land values nation wide, I would think I have a lot less to lose on both a absolute and relative (return) basis.  This is because the portion of the asset that is most likely to decrease in value is a lot smaller piece for me than the guy in Toronto. But its quite possibly less liquid.

I don't think a lot of Canadians realize this....they think real estate just goes up forever. Over the very long term, they are right...but I believe the long term averages are only slightly above the inflation rate. After 15 yrs of huge growth, the probability of losses has to be much higher than say after a 15 year period of 3% growth.  Real estate is so difficult to value. Theoretically, rental rates for any given property, should determine the value.  However, if the rates are not predictable with a high level of certainty...it makes it pretty tough.  I think the only true "investment" in real estate is 1) buying distressed ( i.e., paying significantly less that the replacement value of the building plus getting the land free) and waiting  2) buying a property for a "good" price that has some sort of a competitive advantage or moat ( ie due to prestige, geographic location..etc.) I also think it would be much easier from an investment standpoint to stick with #1.  Buffett is on #2 so is Brookfield



Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 08:42:07 PM
I haven't read Turner's blog.  Did see him speak many years ago.  He puts on a hell of a show and makes alot of money on the circuit.

I suggest you read at least this one, if only for the graphs that are based on data from other sources:

http://www.greaterfool.ca/2012/01/08/in-the-end/

It doesn't 'prove' anything - no one can predict the future - but those data points (and others elsewhere) are certainly cause for great concern, IMO.

Quote
Worth considering why he says what he says.

Absolutely true. Make sure to apply the same standards to all those economists working for banks, realtors, gov't officials, etc, though. For each Garth out there, there are thousands of people inflating the bubble. And that's not counting the millions of homeowners who just won't see any problems with real estate because they have huge sunken costs.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on February 29, 2012, 08:52:34 PM
@Liberty   Couldn't agree more. Even without those charts...after the 15yr run we've had it's a no brainer that one would have to be very careful looking at real estate in Canada's big cities..as an "investment" anyways.  As far as the exact way things play out the next 6 months or 5 yrs its hard to say.  But I doubt will see the same growth the next 10.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 29, 2012, 08:58:11 PM
But I doubt will see the same growth the next 10.

Unless wages more than double in a very short period of time and interest rates never go back up to historical averages, I just don't see how people who make 60K can afford these 800k+ bungalows and condos, or how the average house in Canada can cost twice the average house in the US... It just doesn't make any sense. Who knows how long it'll last, though.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on February 29, 2012, 09:07:24 PM
I know its crazy.  I'm not one for shorts but it would be interesting to find a publicly traded land developer who is sitting on a lot of serviced residential land in Toronto or Vancouver. A company with a huge debt load and low margins when things were good.  The land isn't likely to be reverted to farm land if it has been serviced.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on February 29, 2012, 09:09:38 PM
Timing is the hard part though. Better off finding assets on sale!
Title: Re: Garth Turner - Real Estate in Canada
Post by: WideMoat on March 01, 2012, 05:58:22 AM
I really have no idea where people are getting this speculative money from.  I am guessing it is financing through developers, and non-bank mortgage companies, and of course the CMHC. 

This is the crux and where we need an answer.  Unless developers and non-bank mortgage cos also hold the loans for investment, they are just a conduit. 

Is it really true that no lender will grant more than 80% LTV in Toronto and Vancouver?  In the US, during the bubble, there were mortgage brokers popping up everywhere, from strip malls to commercial towers.  They were all offering loose terms, and offloading the loans as quickly as they could churn them. 

I see stuff like this--http://www.notapennydown.com/--and it all starts to look very familiar.

Most specifically, what do we know about places like Verico?

On their quite amateur website, they list the following as "preferred lenders":   

AGF Trust   
Bridgewater Bank
    Capital Direct
    Cove Mortgage
    First National Financial LLP
    Firstline Mortgages
    HomeTrust Company
    Industrial Alliance Pacific
    ING Direct
    Laurentian Bank
    MCAP
    Merix Financial
    National Bank
    Optimum Mortgage
    Resmor Trust
    Scotia Mortgage Authority
    Street Capital
    TD Canada Trust
    VERICO Mortgage
    XCEED Mortgage Corporation
 
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 01, 2012, 06:34:07 AM
Change the game.

ie: Buy a house/condo in city X, sell a long lease (25-40yr) on the land inclusive of property tax. Lessee lives in the shelter (house) on top of the land, pays the utilities, & maintains the property if desired. Lessor hands over the shelter keys, pays the annual property tax, walks away, & re-leases or levels/re-develops the property at the end of the lease.

The lease is a bond, valuing at the PV of the remaining CF. Maximum value is at initiation & in a low risk environment. Lease value declines every year & terminates at zero. Shelter cost between yr X & Y is the difference in lease value, identical to depreciation in a vehicle purchase. Shorter the lease, the lower the price, & the less/no need for mortgage financing.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Kiltacular on March 01, 2012, 08:23:42 AM
Quote
This is exactly right.  Mortgages are non-recourse in the US, which is why "it's different" in Canada.  You have to declare personal bankruptcy to get out of your poorly devised home ownership plan.  The result is that downward price trends are throttled because home owners can't just walk away like they did in the US.  I think RE prices will be forever buoyed by two things that people are loathe to do: one declaring bankruptcy and two selling at a loss.

I'm not sure you all fully appreciate what happened in the U.S. 

First, not all U.S. states have the protection you describe above.  While California does, some other large states -- I believe Florida -- for example do not.  I'm not going to go check but others here can.  Ultimately, it hasn't mattered which type of state you live in.  The biggest risk-takers have suffered the least relative the those that didn't take the risks.

Second, even in a state with such protection -- California as an example (which I'm familiar with and which is huge...12% of the U.S. population -- the protection DISAPPEARS once you refinance the loan.  And, of course, in order to "get cash out" you have to refinance the loan.  Naturally, this stipulation was to discourage people from doing excatly what they did do -- take out all their new "equity" and spend it.  Since most of the people that got in the largest amount of trouble had given up their non-recourse status, they should have suffered.  Yet, the banks -- by and large -- haven't gone after people.  Moreover, of course, most people didn't (don't) have any signifcant recoverable assets.  This rule -- where it applied -- had little practical effect on preventing the bubble.

Third, an additional discouragement was that if a homeowner engaged in a short-sale -- where the effect was that the lender "forgave" a large amount of the loan balance -- the dollar amount difference between the loan balance at the time of the short sale and the ultimate amount the bank accepted from the borrower was treated as income by the taxing authorities.  This law was summarily changed after the fact to protect those that had made idiotic decisions.  There were / are a lot of voters in this group, ya know.

Considering all three of these factors have gone out the window, the people taking the largest risks have suffered the least relative to their folly.

Moreover, those of us who warned about what was happening, while it was happening, and pointed out these negative aspects while the bubble grew ever larger, now see that as long as enough voters suffer together, the rules will be changed after the fact.  We're the chumps.

To now add insult to injury, those of us who stewarded our capital and, say, put it into the equity of a bank rather than into a home, have to listen as the banks are blamed for loaning money to these fools: "They should have known better", and then, when the fools (voters) can't pay (even though many of them took out all their gains -- my original point), the banks are blamed for not "properly foreclosing" (aka: robosigning).  As if poor foreclosure practices were the cause of these people not paying their contractual obligations in the first place.

Like I said: Comical.

But, and I mean this not in jest, I have no idea if this is likely what is going on in Canada.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 01, 2012, 08:35:28 AM
You don't need ppl to throw away their houses to get prices coming down quickly. When there is no bid, a few sell will do the wonder.
As I said, people are unwilling to sell at a loss, generally speaking.  The situation you're suggesting requires some kind of forced sale.  The vast, vast majority of people who have mortgages in Canada today are able to make payments with their current income streams.  The forced selling scenario is one of unemployment.  Which means we're not forecasting an independent real estate bust, we're forecasting a sustained rise in unemployment.  Which we just went through.  House prices weakened for a year and then shot back up again.  Granted, it was a pretty mild spike - from 6% to 8.5%.  The unemployment spikes from the 80's and 90's were much more severe and resulted in much more drastic drops in real estate prices.

how the average house in Canada can cost twice the average house in the US
I think these are two major contributors to that conundrum:
 - CAD/USD exchange - typically the Canadian dollar trades at a > 20% discount to the US dollar, but more recently the Canadian dollar has been trading at par.  If the dollar corrects itself (i.e. a US recovery is in full swing), then the price gap between Canadian and US real estate will narrow.  If it doesn't then maybe real estate values will do the correcting.
 - Urbanization - US and Canada have similar urbanization rates, but Canada's is much more concentrated at the high end.  About 7.5% of the US population lives in cities with a population > 1mm.  In Canada, this number is 50%.  That's crazy.  As a comparison, for cities of populations > 100,000, you're looking at only 28% of the 300mm people that live in the US.  That means that 75% of Americans live in cities smaller than Waterloo.  So that's another major contributing factor for why real estate prices are so comparatively high.

I am somewhat regretting wading into this discussion about house pricing because it's kind of pointless.  It's like trying to forecast the price of gold or any other non-producing asset.  The price of real estate depends too much on other factors - it can't be forecasted independently.  It is fun to get a better understanding of the real estate picture, though.  My fundamental belief is that homes are not normal assets.  They are romantic, reusable, and they have significant utility for the buyer.  I would never view a home as anything other than an expense and I encourage everyone I know to consider homes this way.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 01, 2012, 08:40:45 AM
States in the US that had that exact same legal system didn't fare much better than others (Arizona and Nevada among others, iirc). Garth Turner has addressed that point fairly convincingly, IMO. I suggest you read a dozen of the most recent posts and see how it tickles your fancy, as most of the counter-arguments that I heard everywhere are addressed.

I'm not sure you all fully appreciate what happened in the U.S. 

...

Like I said: Comical.

But, and I mean this not in jest, I have no idea if this is likely what is going on in Canada.
Thanks Liberty and Kiltacular.  I was misinformed regarding the non-recourse nature of loans in the US.  I had read that it was the default for all mortgages, but I've since gotten a nice little education on the law of the land ;)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 01, 2012, 09:02:00 AM
Quote
I think these are two major contributors to that conundrum:
 - CAD/USD exchange - typically the Canadian dollar trades at a > 20% discount to the US dollar, but more recently the Canadian dollar has been trading at par.  If the dollar corrects itself (i.e. a US recovery is in full swing), then the price gap between Canadian and US real estate will narrow.  If it doesn't then maybe real estate values will do the correcting.

That's a good point, but I think it only accounts for a small fraction of it. Canadians earn incomes in Canadian dollars, so the exchange rate has very little to do with their ability to pay for their houses, and wages have lagged inflation for many years while house prices have surged very rapidly. I also think that historically, even when the FX difference was wide, houses in both countries have mostly tracked inflation and each other, unlike now.

Quote
- Urbanization - US and Canada have similar urbanization rates, but Canada's is much more concentrated at the high end.  About 7.5% of the US population lives in cities with a population > 1mm.  In Canada, this number is 50%.  That's crazy.  As a comparison, for cities of populations > 100,000, you're looking at only 28% of the 300mm people that live in the US.  That means that 75% of Americans live in cities smaller than Waterloo.  So that's another major contributing factor for why real estate prices are so comparatively high.

Here again, this isn't a new trend afaik, yet the major discrepancy between the two countries is pretty recent. Despite this difference in urban density averages, house prices in both countries have fairly closely tracked in the past. And I'm pretty confident that if you compare just cities to cities, Canadian prices are out of whack compared to US prices, to rent prices, and to incomes.

I don't pretend to be an expert on the intricacies of real estate, but I think I can recognize when people are living dangerously beyond their means. It could last a while longer, though. We'll see.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Olmsted on March 01, 2012, 09:51:58 AM

...To now add insult to injury, those of us who stewarded our capital and, say, put it into the equity of a bank rather than into a home, have to listen as the banks are blamed for loaning money to these fools: "They should have known better", and then, when the fools (voters) can't pay (even though many of them took out all their gains -- my original point), the banks are blamed for not "properly foreclosing" (aka: robosigning).  As if poor foreclosure practices were the cause of these people not paying their contractual obligations in the first place.

Like I said: Comical.

But, and I mean this not in jest, I have no idea if this is likely what is going on in Canada.

"Comical" really isn't the first word that comes to my mind.
Title: Re: Garth Turner - Real Estate in Canada
Post by: RichardGibbons on March 01, 2012, 07:05:04 PM
I am somewhat regretting wading into this discussion about house pricing because it's kind of pointless.  It's like trying to forecast the price of gold or any other non-producing asset.  The price of real estate depends too much on other factors - it can't be forecasted independently.

Real estate is a producing asset.  That's how you know that it's overvalued.  I think it has fewer influencing factors than most stocks.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 02, 2012, 02:03:38 PM
And what happens < 3yrs of the crash ...

http://www.icenews.is/index.php/2012/02/29/iceland-property-prices-increased-fastest-in-europe-last-year/

Property prices in Iceland increased faster last year than in any other European country surveyed. The increase in par value of houses was higher even than in Norway, where a property boom is in progress

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 02, 2012, 03:15:55 PM
And what happens < 3yrs of the crash ...

http://www.icenews.is/index.php/2012/02/29/iceland-property-prices-increased-fastest-in-europe-last-year/

Property prices in Iceland increased faster last year than in any other European country surveyed. The increase in par value of houses was higher even than in Norway, where a property boom is in progress

Sharper, do you work in real estate? Just curious.

Iceland's such a small market (320k people for whole country) that I'm not sure I would extrapolate too much from it. Especially if the numbers are nominal units of currency rather than inflation adjusted. And even after fast growth, you can still be underwater for a long time if the peak was inflated enough. Took 13 years to get back to the same level after the 1989 GTA crash, and the current bubble seems much bigger and widespread.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 03, 2012, 04:54:37 AM
We have european family who are Quantity Surveyors.

Iceland is an indicator canary, & this one has been having serious discussions around adopting the $C as its currency. Additionally, were an investment made it would be done at todays lows & not the historic highs. An investment today would exploit the capital controls on purchase, rely on them for interim appreciation, & use Krona conversion to cash out - over the short term.

Notable are the rejected currency choices of Euro & $US, & why. Aberdeen, Inverness, & St John's mansion prices before the development of off-shore o&g. 4 hours flying time from Toronto.
 
 
 
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 03, 2012, 06:57:28 AM

http://www.nea.is/oil-and-gas-exploration/
"Exploration for oil and gas on the Icelandic Continental Shelf is in an early phase"

With Canada's Hibernia, Beufort, & other northern offshore fields, it is not hard to see why there is interim interest in the $C. The Dreki field alone will turn them into a petro currency, Gammur is bonus.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 03, 2012, 08:54:34 AM
Took 13 years to get back to the same level after the 1989 GTA crash, and the current bubble seems much bigger and widespread.

You have to look at the factors that moved real estate prices into negative territory, and what kept them there for thirteen years.  Here are three important factors that I looked into:
1) Real estate prices prior to 1989 shot up much more quickly.  They more than doubled in a period of 4 years - from ~200k to ~425k (real).  Prices came down by 40% over the course of 7 years.  The current rise in housing prices has taken much longer to culminate.  If we assume that real estate prices are overvalued by 40%, then you're looking at a cohort of about 10-12 years of buyers.  A 40% drop over the course of the 90's only captured about 3 years worth of buyers.

2) Interest rates and first-time buyers.  Lending rates came down steadily through the 80's.  Initially in the 12-19% range in the early 80's, potential home owners saw some relief in the form of 9-11% rates through the mid 80's.  The economic events leading to a real estate bubble were three-fold:  relatively low interest rates, a period of rapid economic growth from 86-90, and the baby boomer cohort reaching home buying age.  The eldest baby boomers were 40 in 1986 and the youngest baby boomers were ~ 25 in 1989.  Approximately the entire cohort was in the first time home-buying age at this time.  Combine that with good economic prospects and interest rates come down from 19% to 10%, and the result is a crazy buying spree.  This buying spree came undone when interest rates shot up in 1989 and 1990 to 13% and 14%.

3) 1990's recession.  Even after interest rates started to come down in the 90's, real estate dropped unabated.  At this point, the recession and resulting unemployment had taken over as the driving force behind lower home prices.  Unemployment jumped from < 8% in 1990 to 12% in 1992.  Even as employment figures improved, overall average earnings didn't recover to their 1989 levels until 10 years later, in 1999.

So, it definitely took a long time to work back up to those levels, but I don't think we are mimicking the same scenarios today:
1) Price rise is much slower.  The bubble mentality / bursting activity requires a faster rise and fewer individuals "caught in the bubble".
2) The boomer cohort is saturated.  Current housing prices are not being pushed up by a pent-up glut in housing formation.
3) I can't predict the future, unfortunately.  We did just go through a mild recession, but there was little impact on real estate pricing, which I think is strange.

The biggest shared risk factor between the 1990's real estate weakness and today is recessionary.  We've seen that the debt to income ratio has come up steadily in the past 10 years.  This is a combination of low interest rates, as well as a significant increase in home ownership rates - from 62% to about 70% today.  A lot of what we're seeing is younger families with bigger mortgages, which is both a good and bad thing.  The bad is obvious - interest rate impact on these families is much greater because they have the full mortgage on their books and a long time horizon to pay the mortgage off.  The good side is less evident.  Younger families have a lot more flexibility to adjust to interest rate increases.  For example, a 3% interest rate increase is offset by a 2% per annum rise in earnings, assuming 5 year fixed on a mortgage valued at 5x net income.  Younger families can expect greater wage increases as they attain experience and seniority.  Older earners tend to plateau earlier, but are less exposed to interest rate shocks.

If we enter another recession, then there's a good chance that we'll see some serious price decline.   Interest rates are about as low as they can go, so using them to prop up demand is not an option.  From what I can tell, there are very few tools that the government has left to maintain or incent economic growth.  This is extremely concerning for all markets, including real estate.

I guess the question of real estate pricing really centers around interest rates, and I think we're stuck on the low end for quite a while.  Canada can't really raise rates, because doing so will push the dollar up, causing further economic pain to our exports.  Plus, given all of the debt that people have taken on, doing so would probably cause additional harm in terms of bankrupties, etc.  It's politically unsavoury.

It could be that the political choice is to just keep rates really low for a long time.  The resulting exchange rate impacts and inflation will help Canadian asset prices enter more normal territory.  In addition, a few years of high inflation will help push down nominal debt obligations, which would help out.  Eventually rates would have to rise, but this would be when the economy is firing on all cylinders.  Perhaps in 2-3 years?

Does anyone have a macro argument centering around why we would raise our interest rates?  Why we would be forced to?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 03, 2012, 09:55:50 AM
You have to look at the factors that moved real estate prices into negative territory, and what kept them there for thirteen years.  Here are three important factors that I looked into:
1) Real estate prices prior to 1989 shot up much more quickly.  They more than doubled in a period of 4 years - from ~200k to ~425k (real).  Prices came down by 40% over the course of 7 years.  The current rise in housing prices has taken much longer to culminate.  If we assume that real estate prices are overvalued by 40%, then you're looking at a cohort of about 10-12 years of buyers.  A 40% drop over the course of the 90's only captured about 3 years worth of buyers.

I don't see how that would change anything in a RE bubble bursting panic. Please elaborate.

Quote
2) Interest rates and first-time buyers.  Lending rates came down steadily through the 80's.  Initially in the 12-19% range in the early 80's, potential home owners saw some relief in the form of 9-11% rates through the mid 80's.  The economic events leading to a real estate bubble were three-fold:  relatively low interest rates, a period of rapid economic growth from 86-90, and the baby boomer cohort reaching home buying age.  The eldest baby boomers were 40 in 1986 and the youngest baby boomers were ~ 25 in 1989.  Approximately the entire cohort was in the first time home-buying age at this time.  Combine that with good economic prospects and interest rates come down from 19% to 10%, and the result is a crazy buying spree.  This buying spree came undone when interest rates shot up in 1989 and 1990 to 13% and 14%.

I think the baby boomers reached house-buying age many years earlier than that, but they are now certain reaching retirement age, and they haven't saved anything, and most of their net worth is in a single asset, their houses. They're all going to want to cash out at the same time in the next few years, 9 million of them.

Quote
3) 1990's recession.  Even after interest rates started to come down in the 90's, real estate dropped unabated.  At this point, the recession and resulting unemployment had taken over as the driving force behind lower home prices.  Unemployment jumped from < 8% in 1990 to 12% in 1992.  Even as employment figures improved, overall average earnings didn't recover to their 1989 levels until 10 years later, in 1999.

Indeed. Who knows what will be a catalyst this time, but all I know is that what we have now can't last; either wages go up like 30% a year for 3-4 years to catch up and that nothing happens in the meantime to make people lose their animal spirits over houses, or it's going to go down at some point because there just won't be any more buyers who can afford these houses, no more greater fools. There's also the fact that the gov't is progressively tightening the situation (from 0 down and 40 years mortgages in 2006 to 5 down and soon 25 years mortgages), and that inflation is above the BoC's target and that at some point - especially if the economy goes well in the USA - they'll have to raise rates.

Quote
So, it definitely took a long time to work back up to those levels, but I don't think we are mimicking the same scenarios today:
1) Price rise is much slower.  The bubble mentality / bursting activity requires a faster rise and fewer individuals "caught in the bubble".

I disagree. What matters is the massive overvaluation, not how long it took to get there. In fact, the longer it takes, the more people become convinced "this time it's different" and the harder the fall will be when they realize it isn't.

Quote
2) The boomer cohort is saturated.  Current housing prices are not being pushed up by a pent-up glut in housing formation.

Yeah, at this point it seems to be mostly first time buyers and speculators, people who can even less afford/desire these million dollar shacks, especially in a falling (or even stable market, because they are counting on prices going up to refinance and build equity).

Quote
3) I can't predict the future, unfortunately.  We did just go through a mild recession, but there was little impact on real estate pricing, which I think is strange.

There are already bad signs for RE in certain areas (ie Vancouver), but not in others. Can't predict future, but like someone who understands the difference between price and value looking at the dot-com bubble, it's easy to see that this can't last and will end very badly. It's like looking at a stock with a PE of 100 that people keep buying and expecting to go up endlessly...

Quote
The biggest shared risk factor between the 1990's real estate weakness and today is recessionary.  We've seen that the debt to income ratio has come up steadily in the past 10 years.  This is a combination of low interest rates, as well as a significant increase in home ownership rates - from 62% to about 70% today.  A lot of what we're seeing is younger families with bigger mortgages, which is both a good and bad thing.  The bad is obvious - interest rate impact on these families is much greater because they have the full mortgage on their books and a long time horizon to pay the mortgage off.  The good side is less evident.  Younger families have a lot more flexibility to adjust to interest rate increases.  For example, a 3% interest rate increase is offset by a 2% per annum rise in earnings, assuming 5 year fixed on a mortgage valued at 5x net income.  Younger families can expect greater wage increases as they attain experience and seniority.  Older earners tend to plateau earlier, but are less exposed to interest rate shocks.

I think you are underestimating the psychological aspect of the bubble/bursting cycle. There's always going to be a certain number of people who have to sell, and since prices in a market are set at the margin, even those who don't sell will see their house market value go down and down, and hear all the doom & gloom in the news, and see their monthly payments go up and their small sliver of equity melt and then disappear, etc.. A 2% raise per year won't compensate IMO. And there's been so many mortgages where banks have not done their due diligence (no home inspection, just basing loan on postal code -- self-reported income loans, cash-back loans with no down-payment, etc) that these will probably start the ball when things become difficult.


Quote
I guess the question of real estate pricing really centers around interest rates, and I think we're stuck on the low end for quite a while.  Canada can't really raise rates, because doing so will push the dollar up, causing further economic pain to our exports.  Plus, given all of the debt that people have taken on, doing so would probably cause additional harm in terms of bankrupties, etc.  It's politically unsavoury.

Yes, that's why I think it could last a while longer, but a lot will depend on what happens in the US. But the longer it goes on, the worse it'll be. If 800k bungalows become 900k bungalows, it won't help the situation one bit...

Quote
It could be that the political choice is to just keep rates really low for a long time.  The resulting exchange rate impacts and inflation will help Canadian asset prices enter more normal territory.  In addition, a few years of high inflation will help push down nominal debt obligations, which would help out.  Eventually rates would have to rise, but this would be when the economy is firing on all cylinders.  Perhaps in 2-3 years?

Inflation would have to be terribly high and for a long time to catch up. I don't think we'd ever get to that point without that causing a big enough shock to the economy.

Fact is, houses are not artwork or fine wines. They can be valued in relation to rents and wages and historical standards and such. And right now, most of the country really can't afford houses, but they keep buying because of a speculative mindset (I have to buy now or I'll be priced out forever! it's a lot of debt, but it'll be worth more when I sell it anyway). It's the only thing that keeps this thing going. When that mindset changes, well... It's not entirely - even in majority - about rational economic decisions at this point, IMO. All about animal spirits.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 03, 2012, 05:34:07 PM
I don't see how that would change anything in a RE bubble bursting panic. Please elaborate.
My point about how quickly the prices rose in the 80's vs. today is that the more people who are "in it" means that the price is more real.  i.e. a meteoric rise is more readily followed by a spectacular crash, whereas a more steady rise gives the pricing more credibility.

I think the baby boomers reached house-buying age many years earlier than that, but they are now certain reaching retirement age, and they haven't saved anything, and most of their net worth is in a single asset, their houses. They're all going to want to cash out at the same time in the next few years, 9 million of them.
Some of the boomers reached home buying age that early, but the cohort spans 20 years.  Many, many more were in a position to buy homes in the late 80's than in the late 70's.  The boomers will not cash out at the same time over the next few years.  Many started retiring 5-10 years ago, and the latter half of the cohort can expect to prolong their retirement past today's national average of 63 years.

Boomers have saved quite a bit.  > 70% of them have pension plans, the median of which is about 240k.  Something like 55% of assets held are in financial instruments.  The home is a big chunk of the asset mix, but this is an historically faithful asset composition.

It looks like everything else we're debating is speculation.  I think your viewpoint has merit - namely that prices are high based on conventional (and warranted) measures and that boomers will need to liquidate their positions in the next 20 years.  This will put downward pressure on the market.  My own theory is that prices have been pushed into new territory because urbanization is a new and growing trend, and urban density justifiably moves prices above inflationary growth.  I continue to believe that real estate will defy traditional economics (for dozens of reasons), but that anyone buying today (or ever) should err on the side of caution and look for value where possible.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 04, 2012, 04:32:50 PM
My own theory is that prices have been pushed into new territory because urbanization is a new and growing trend, and urban density justifiably moves prices above inflationary growth.

Do you, or anyone else, have any examples of this taking place anywhere else over a short period (±1 decade)?

Not that I think Canada's urbanization pattern has changed that drastically over the past 10 years or that urbanization without increases in wages make debt any safer, but I'm still curious to hear more about this theory.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 05, 2012, 05:12:34 AM
Real Estate was the traditional investment vehicle for the masses, before the advent of the mutual fund industry selling stocks/bonds as the replacement. If you didn't understand/trust the market you bought bricks/mortar, often in your own town, & because in the worst case - you/familiy could always live in it if you had to. Market reversals are driving mean reversion. Board interest in this string is anecdotal evidence.

Sons/daughters need family help to buy a McMansion. Mom/Dad become grandparents sooner, & get to see their grandkids more often, if they put up the funds. Mom/Dad also get to cash out of THEIR McMansion because there is now a buyer. No different to liquidating a position by creating liquidity & selling 5 units for every 4 bought.

     
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 05, 2012, 06:24:23 AM
Do you, or anyone else, have any examples of this taking place anywhere else over a short period (±1 decade)?

Not that I think Canada's urbanization pattern has changed that drastically over the past 10 years or that urbanization without increases in wages make debt any safer, but I'm still curious to hear more about this theory.
Not exactly.  There are a few markets you can look at to make comparisons.  Hong Kong's market is pretty pure in that 100% of the market is urban.  Density has come up 50% over 30 years and property prices have come up 10 fold.  Japan's density is up about 10% with more recent years seeing negative growth in density.  Over there the real estate market has been coming off highs for nearly two decades.  In these cases, if you consider Toronto's urban density has grown about 20% over the past 10 years or so, something between negative prices and ten fold growth seems "normal".

Another way of thinking about this is by relative property values based on density.  Vancouver costs more than Toronto, which costs more than London, On, which costs more than Woodstock, On.  Looking at this kind of evidence, it is reasonable to say that more densely populated areas are worth more.  A more rigorous approach would be...  The amount of land in the Toronto area is fixed, but 20% more people live there.  All else equal, the land is at least 20% more productive.  Although, due to network effects, my belief is that a 20% increase in density results in a greater than 20% increase in productivity. 

Urbanization has come up 6% in the past 30 years, overall population density has come up 65%, and Canada's real estate market is mostly made up of 4-5 major urban centers.  This gives me some comfort in the idea that real estate in Canada should be rising at a rate greater than inflation, which at least puts a floor under real estate prices.

Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 05, 2012, 06:35:16 AM
- Urbanization - US and Canada have similar urbanization rates, but Canada's is much more concentrated at the high end.  About 7.5% of the US population lives in cities with a population > 1mm.  In Canada, this number is 50%.  That's crazy.  As a comparison, for cities of populations > 100,000, you're looking at only 28% of the 300mm people that live in the US.  That means that 75% of Americans live in cities smaller than Waterloo.  So that's another major contributing factor for why real estate prices are so comparatively high.

This sounds crazy...  because it is.  My analysis here was flawed.  I compared apples (city populations in US) to oranges (metropolitan areas in Canada).  Overall urbanization is about the same between Canada and the US.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 05, 2012, 07:03:12 AM
I am somewhat regretting wading into this discussion about house pricing because it's kind of pointless.  It's like trying to forecast the price of gold or any other non-producing asset.  The price of real estate depends too much on other factors - it can't be forecasted independently.

Real estate is a producing asset.  That's how you know that it's overvalued.  I think it has fewer influencing factors than most stocks.

I didn't say that real estate wasn't a producing asset, I said it was difficult to value like a non-producing asset.  The reason is that so much of real estate isn't about productivity.  The productive capacity of a granite counter top is about the same as a laminate one, but the price they command is different.  There are 1000's of examples like that, hence why I think it's hard to value.

One of the pricing tools for real estate that we've mentioned here is price relative to rents.  I came across this document from the CMHC:
http://www.cmhc-schl.gc.ca/odpub/esub/64691/64691_2011_A01.pdf?fr=1330958975066

It shows that the cost components of home ownership have all grown faster than rents, which only grew about 11% over 10 years.  Meanwhile, the vacancy rate (in Toronto, anyway) hasn't moved around much - between 2 and 3% for that decade.

Is there an argument that rents are too cheap?  Will they rise rapidly now that we're at a home ownership saturation point (from 62% to 70% - at the level where US real estate started to come down), while overall population is still growing?

Just a thought.
Title: Re: Garth Turner - Real Estate in Canada
Post by: ERICOPOLY on March 05, 2012, 07:43:40 AM
I haven't seen data on this, but I think you'll probably find a correlation between rising total Canadian mortgage debt as a % of Canadian GDP and rising housing prices.  When mortgage debt is on the rise as a % of GDP, home prices rise faster than trend, and they rise slower than trend (or fall) when the ratio of mortgage debt to GDP retreats.

This is what Steve Keen does in Australia and it seems fairly convincing.  He's not just looking at population trends as a measure of demand, but rather looking more closely at the financial demand.



Title: Re: Garth Turner - Real Estate in Canada
Post by: RichardGibbons on March 05, 2012, 08:59:30 PM
One of the pricing tools for real estate that we've mentioned here is price relative to rents.  I came across this document from the CMHC:
http://www.cmhc-schl.gc.ca/odpub/esub/64691/64691_2011_A01.pdf?fr=1330958975066

It shows that the cost components of home ownership have all grown faster than rents, which only grew about 11% over 10 years.  Meanwhile, the vacancy rate (in Toronto, anyway) hasn't moved around much - between 2 and 3% for that decade.

The data says "there is enough supply -- the vacancy rate hasn't moved and the rents aren't going up.   But the costs of home ownership have skyrocketed.  Thus, home ownership is in a bubble."   It seems odd to me that you want to interpret it as something else.

It's largely explained by Ericopoly's point, that there's been a massive increases in borrowing.  When rates are low, People are willing to borrow huge amounts of money to buy houses, but, for some reason seem to be reluctant to borrow money to pay their rent.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on March 06, 2012, 07:23:36 AM
The data says "there is enough supply -- the vacancy rate hasn't moved and the rents aren't going up.   But the costs of home ownership have skyrocketed.  Thus, home ownership is in a bubble."   It seems odd to me that you want to interpret it as something else.
Is it odd to invert the conclusion?  I'm exploring the idea that instead of homes being too pricey relative to rents, maybe rents are too cheap relative to homes.

My line of thinking was..  A greater portion of renters have been converted to home owners.  Vacancy rates have remained steady.  So I conclude that rental demand and rental supply are in balance.  If the growth in home ownership as a percentage stops and holds at 70%, then relatively more demand will be placed on the rental market, which should push up rents.

It's largely explained by Ericopoly's point, that there's been a massive increases in borrowing.  When rates are low, People are willing to borrow huge amounts of money to buy houses, but, for some reason seem to be reluctant to borrow money to pay their rent.
Yep, and that makes perfect sense to me.  Trust me, I am working my ass off trying to refute the theory that homes are overvalued and I'm not really getting anywhere ;)

Actually, I think it's time for me to throw in the towel on this side of the debate.  I've run out of ideas to justify Canadian home prices at their current levels, and the ones that I've come up with aren't robust enough to flog.  The evidence of bad things on the horizon is just too prevalent, and try as I might, I can't imagine a scenario where it ends well with this amount of leverage involved.

Thanks for the debate (Liberty especially.  I owe him for always being a good sport.) - I think you are right and that I am/was wrong.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 06, 2012, 07:49:53 AM
Thanks for the debate (Liberty especially.  I owe him for always being a good sport.) - I think you are right and that I am/was wrong.

Well, thanks for being a good devil's advocate. I can't take credit for most of what I've said in this thread, as I've found these ideas elsewhere.

A few weeks ago I, like most average canadians, believed that "it's different here" because "our banks are so strong and so careful about lending" and so on... But when you dig a bit, you realize it's all BS, and giving people a false sense of security, which is dangerous in itself. We have our own version of sub-prime lending here, with banks insuring so many loans with CMHC (which are then packaged and sold afaik...) that they don't give a crap about due diligence because they're not on the hook. People have pigged out on debt and leverage and that's rarely good.

In fact, the more I think about it, the more I believe that one of the most important psychological factors in how long this bubble has been going on is that we mostly avoided the US crisis. This tells people: "See, we're fine here, this can't happen here, or it would have already when things looked worse a few years ago".

After all, look at any bubble you want, and without a widespread psychological failing, they wouldn't inflate. Peple would look at the fundamentals and go "hmm, no, this isn't a good value". But in bubbles, they ignore fundamentals and think that "this time it's different" and all wish they had bought sooner so they could have benefited from the price inflation, so the next best thing is to buy now (before being "forever priced out!").
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 06, 2012, 07:52:28 AM
It's largely explained by Ericopoly's point, that there's been a massive increases in borrowing.  When rates are low, People are willing to borrow huge amounts of money to buy houses, but, for some reason seem to be reluctant to borrow money to pay their rent.

(http://www.greaterfool.ca/wp-content/uploads/2012/01/Prices-incomes.jpg)

I think this graph shows it nicely. Housing tends to follow inflation -- people earn more, they spend more on housing, prices rise.. but now people aren't earning much more but prices are way higher, so the difference has to be made up by debt.

Also, note that the graph ends in Q1 2011, so the difference is probably even wider now.
Title: Re: Garth Turner - Real Estate in Canada
Post by: ERICOPOLY on March 06, 2012, 09:27:45 AM
It's largely explained by Ericopoly's point, that there's been a massive increases in borrowing.  When rates are low, People are willing to borrow huge amounts of money to buy houses, but, for some reason seem to be reluctant to borrow money to pay their rent.

(http://www.greaterfool.ca/wp-content/uploads/2012/01/Prices-incomes.jpg)

I think this graph shows it nicely. Housing tends to follow inflation -- people earn more, they spend more on housing, prices rise.. but now people aren't earning much more but prices are way higher, so the difference has to be made up by debt.

Also, note that the graph ends in Q1 2011, so the difference is probably even wider now.

Prices might be higher because of increasing mortgage debt (not the other way around):

Here is a nice presentation on the topic:
http://www.debtdeflation.com/blogs/2011/03/20/mortgage-finance-association-of-australia-talk/

It's for Australia, but perhaps also would apply to Canada.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gokou3 on March 06, 2012, 10:38:36 AM
Prices might be higher because of increasing mortgage debt (not the other way around):

This is part of the bigger picture, which is "Prices went up because of availability of bigger mortgage".  Once again, government policies were made counterproductive to their goal, namely affordable housing.  All that 0% downpayment / 40-year amortization / stated-income loans, in addition to a generally declining interest rate environment over the last decade, enable people to borrow a lot more than they otherwise can.  Alas, this didn't allow them to buy bigger houses (or go from no ownership to having ownership) because prices quickly adjust upwards.

This also explained why house prices shoot up way higher than rent.  Typically, mortgage payments and rents are x% of a family's income.  The latter didn't get the "help" mentioned above.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 06, 2012, 01:54:12 PM
You might want to recognize:

Looser & cheaper mortgages. HELOC financing permits interest only monthly payment. The extended period of historic low rates allows a given $ of monthly payment to support a lot more mortgage. CMHC removed the default risk on the big mortgages with minimal DP, making questionable credit extension safe for the lender. Availability of longer than 'normal' financing terms. Net impact is more $ to spend on the same supply of housing. Therefore price must increase - Economics 101
 
Help with DP
. Every $ of help mom/dad extend son/daughter is another $ to spend on the same supply of housing. Also a multiplyer as without the DP help, son/daughter may not have been able to enter the housing market period. Again, more $ at the lower end of the market. Price can only increase.

Global investment. Vast majority of Canada lives in the major cities, & many of them are attractive investment homes to foreign investors. Family going to school (Vancouver, Toronto), NA alternative (Montreal, Quebec City, Victoria), just like the place. Again, more $ at the higher end of the market. Price can only increase.

Exclude all Canada's major urban centers from the stats, & prices have moved by roughly the inflation + regional growth rate. About what you would expect.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 06, 2012, 04:04:22 PM

Help with DP
. Every $ of help mom/dad extend son/daughter is another $ to spend on the same supply of housing. Also a multiplyer as without the DP help, son/daughter may not have been able to enter the housing market period. Again, more $ at the lower end of the market. Price can only increase.

A lot of people seem to have been buying without any actual downpayment, afaik. "cash back" mortgages have been giving back up to 5%, some of them even 7-8% (for a 102-103% mortgage). That's pretty reckless. And all the risk ends up with CMHC. *sigh*
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 11, 2012, 06:51:21 PM
One more graph:

(http://www.greaterfool.ca/wp-content/uploads/2012/03/chart.jpg)
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on March 21, 2012, 11:51:51 AM
Canada's banking regulator, OSFI, proposed a new set of mortgage underwriting guidelines for Canadian banks yesterday. If these go into effect, they will tighten lending for many Canadian borrowers. For example, the new guidelines would disallow the use of "cash back" mortgages to get around minimum down payment rules. They would force lenders to use the 5-year posted rate to qualify borrowers for any uninsured mortgage, regardless of type or term. And they really clamp down on the use of HELOCs, by reducing the maximum LTV ratio for HELOCs and disallowing interest-only payments.

Seems like the federal gov't is serious about reducing the flow of cheap debt in the housing market, even if the Bank of Canada has its hands tied with interest rates. It will be interesting to see what kind of debate this sparks, since it could be a catalyst that finally pops the bubble in Vancouver. The gov't is also walking a fine line... they want to curb excessive borrowing, but they also don't want their policies blamed for an inevitable housing correction/collapse that will hurt a lot of voters.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 21, 2012, 01:03:34 PM
It also looks probable that in the next federal budget the 30-year amortization period will be killed, leaving 25 years the longest.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 22, 2012, 07:21:31 PM
http://www.greaterfool.ca/2012/03/22/moral-hazard/

The second part of this post is pretty scary  :-\
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 26, 2012, 11:29:17 AM
http://business.financialpost.com/2012/04/26/osfi-to-supervise-cmhc/
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on January 21, 2013, 12:17:43 PM
So assuming there's nothing worthwhile to short right now, when this bubble pops where should we be looking for values?

Brookfield Real Estate Services?
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on February 08, 2013, 03:55:59 PM
Is the crash starting?

http://blogs.wsj.com/canadarealtime/2013/02/08/canadas-onslaught-of-data-mostly-points-one-direction-down/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 08, 2013, 04:51:36 PM
Is the crash starting?

http://blogs.wsj.com/canadarealtime/2013/02/08/canadas-onslaught-of-data-mostly-points-one-direction-down/

There's been many signs for many months now. I think we're slowly reaching a point when things will start to accelerate because the mainstream sentiment will start to change. But we'll see.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 27, 2013, 03:18:59 PM
http://www.bloomberg.com/news/2013-02-27/canada-losing-debt-halo-as-bull-market-housing-peaks-with-carney.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 11, 2013, 12:16:15 PM
Looks like the public discourse keeps changing slowly..

http://business.financialpost.com/2013/03/11/house-prices-to-remain-flat-for-10-years-td/?__lsa=dfb8-4756

For a while it was "prices will keep going up, it's different here", then "growth in prices will slow down", and now this. A few more months and they'll talk about prices going down...
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 18, 2013, 10:46:54 AM
Sales numbers looking pretty ugly, and over time it should start showing up in prices (they are very sticky on the way down, so sales will go down before prices):

(http://www.greaterfool.ca/wp-content/uploads/2013/03/SALES-PLUNGE.jpg)
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on March 21, 2013, 07:57:30 AM
In sum, things are a little worse than we thought...but only a little bit. And it should stabilize.  ::)


http://www.propertywire.com/news/north-america/canada-real-estate-prices-201303217581.html
Canadian property prices not expected to move much in 2013 or 2014
THURSDAY, 21 MARCH 2013

The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity and prices as supply responds to lower demand.
The residential real estate market had slowed as a result of changes to mortgage lending rules and guidelines which were introduced in August of last year.

The national average home price is now projected to edge down by 0.2% to $362,600 in 2013. This is slightly lower than was previously forecast. While largely flat at the national level, gains in excess of inflation are still expected in the Prairies and in Newfoundland. British Columbia, Ontario, and New Brunswick are forecast to record declines in their provincial average prices this year.

The national average price is forecast to edge back up by 1.7% to $368,700 in 2014. As in 2013, Alberta, Newfoundland, and to a lesser extent Saskatchewan and Manitoba are forecast to see the biggest gains. The forecast increase in the national average price in 2014 reflects a modest rebound in British Columbia, where its provincial share of national sales will return closer to normal and lift the national average price.

Sales activity on a national basis seems to be stable, as are average prices. However, national housing market trends continue to mask some increasingly divergent regional trends.

CREA said that sales activity in the second half of 2012 geared down by more than previously anticipated in some housing markets, resulting in a downward revision to the national sales forecast for 2013.
 
But it pointed out that the continuation of low interest rates will remain supportive for housing activity and prices this year and next year. Sales are still expected to improve later this year in tandem with stronger economic growth.

National sales activity is forecast to reach 441,500 units in 2013, a 2.9% fall from 454,573 sales in 2012, and some 5% below the 10 year average from 2003 to 2012. It was also a downward revision from the previous forecast for a 2% fall.

Alberta and Manitoba are the only provinces where sales are expected to rise in 2013, albeit modestly. The percentage decline in sales in Saskatchewan, Ontario, Quebec, and Nova Scotia is forecast to exceed the national result this year. The percentage decline in sales in British Columbia, New Brunswick, and Newfoundland and Labrador is forecast to be less than the national result.

CREA said that strong sales in the first half of last year will cast a long shadow over year on year comparisons during the first half of 2013 in many parts of the country. The smaller annual decline being forecast for British Columbia and New Brunswick reflects a weakening trend in these provinces during the first half of 2012 that was not apparent elsewhere.

In 2014, CREA forecasts that national activity will rebound by 4.5% to 461,200 units, reflecting a slow but steady improvement in activity. This would still leave national sales about one per cent below their 10 year average, with activity not expected to return to levels recorded in the first half of 2012 at any point in the forecast horizon.

British Columbia is forecast to see the strongest sales increase in 2014 with growth of 9.5%, albeit from a low base, with most other provinces forecast to post gains in the range between three and five per cent as the continuation of moderate economic, job, population, and income growth offsets small and gradual interest rates increases next year.

‘Mortgage rules are expected to remain as they are, so sales should be less volatile than they have been in recent years. Interest rates are also expected to remain low as the economy grows and adds jobs, which is supportive for the resale housing market,’ said Gregory Klump, CREA’s chief economist.

This story relates to: Property  canada  property market  property prices  property sales  real estate  [SEE ALL]
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 06, 2013, 09:26:27 AM
http://business.financialpost.com/2013/04/05/canadian-housing-downturn/

Signs of a Canadian housing downturn are everywhere
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 07, 2013, 12:43:01 AM
(http://www.greaterfool.ca/wp-content/uploads/2013/04/CHART.jpg)
Title: Re: Garth Turner - Real Estate in Canada
Post by: rukawa on April 07, 2013, 07:35:00 PM
I don't think there is any way to take advantage of this except by not buying a house in Canada. I strongly doubt there will be a crash. In Canada mortgages have recourse. House owners will simply not sell their houses and attempt to rent them out. The result will be a prolonged period of flat prices in housing....probably for 15 or so years.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 08, 2013, 06:48:37 AM
I don't think there is any way to take advantage of this except by not buying a house in Canada. I strongly doubt there will be a crash. In Canada mortgages have recourse. House owners will simply not sell their houses and attempt to rent them out. The result will be a prolonged period of flat prices in housing....probably for 15 or so years.

AFAIK states in the US where there's recourse were hit just as bad as the others. I don't expect a sudden crash, but I think prices will go down significantly (or wages will go up a lot, but that's a lot less likely).
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on April 08, 2013, 06:54:07 AM
A lot of people are predicting prices will stay flat for many, many years.

LOL. As if prices ever stay flat on anything.
Title: Re: Garth Turner - Real Estate in Canada
Post by: VAL9000 on April 08, 2013, 07:25:35 AM
I think the issue in Canada is the concentration of baby boomers whose primary asset is real estate.  Boomers have a very high percentage of home ownership.  Without looking I would guess that this cohort owns about 50% of all primary residences in Canada.  Get that group all looking to cash in their "savings" over a 15 year period, and a crash is probable.

The slack can't be taken up by younger generations at these prices, because they don't have comparable earnings power relative to boomers.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Yours Truly on April 08, 2013, 07:26:39 AM
A lot of people are predicting prices will stay flat for many, many years.

LOL. As if prices ever stay flat on anything.

Prices should move up with inflation, thats been the historical trend since forever
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on July 17, 2013, 02:30:33 PM
Interesting paper on housing in Canada. The intro's a bit too cute, but good overview and lots of interesting charts and stats:

http://www.cansofunds.com/wp-content/uploads/2013/07/Canso-Px-The-Canadian-Housing-Market-July-2013-Revised-2.pdf
Title: Re: Garth Turner - Real Estate in Canada
Post by: no_free_lunch on July 17, 2013, 06:31:53 PM
Quote
Prices should move up with inflation, thats been the historical trend since forever

Wasn't that the trend in the US as well?  Before the huge RE crash?
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on October 15, 2013, 10:00:53 AM
This can't be sustainable.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on October 16, 2013, 07:02:33 PM
One of the annoying things about RE in canada is you apparently can't trust the 'official' numbers at all:

http://www.greaterfool.ca/2013/10/16/truth-trust/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Hoodlum on October 24, 2013, 07:34:00 PM
When I walked out of my local Tim Hortons last night, there were 2 men discussing taking out $100k on their home line of credit to invest in the stock market.  I think we are getting close to the end now.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on October 24, 2013, 07:39:49 PM
I have been waiting for a correction for yearssssssss.
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on November 29, 2013, 11:53:53 AM
Some great people to follow on twitter if you want to keep up with the day-to-day musings of Canadian real estate:

https://twitter.com/ac_eco
https://twitter.com/BenRabidoux
https://twitter.com/YVRHousing
https://twitter.com/MikeFotiou
Title: Re: Garth Turner - Real Estate in Canada
Post by: Mark Jr. on December 03, 2013, 11:19:44 AM
Been following Garth Turner a long time, met him in person a couple times, good guy, fabulous writer.

I think he's right about housing but he then goes on to make some recommendations which I find puzzling:

He eschews savings for the most part and advocates taking out credit lines against your home to invest in things like equity indexes and bank prefs.

Yet, if interest rates have nowhere to go but up, and housing values have nowhere to go but down, won't this eventually squeeze somebody who follows this advice from both ends?


But when I asked him about this in the comments of his blog once he just gave a one word retort like "*groan* or something like that, as in "obviously you're too stupid to understand so I won't bother explaining why I'm right" sorta deal.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Martian on December 03, 2013, 11:35:26 AM
Been following Garth Turner a long time, met him in person a couple times, good guy, fabulous writer.

I think he's right about housing but he then goes on to make some recommendations which I find puzzling:

He eschews savings for the most part and advocates taking out credit lines against your home to invest in things like equity indexes and bank prefs.

Yet, if interest rates have nowhere to go but up, and housing values have nowhere to go but down, won't this eventually squeeze somebody who follows this advice from both ends?

  • Your borrowing costs go up as interest rates rise
  • Rising interest rates typically dampen stock market returns
  • Your collateral (your house) is losing value
  • Bank shares in particular would come under pressure in a real estate bust, the prefs too I would think

But when I asked him about this in the comments of his blog once he just gave a one word retort like "*groan* or something like that, as in "obviously you're too stupid to understand so I won't bother explaining why I'm right" sorta deal.

I don't think he advises to take home equity loan and invest.  He says that lot of people have their savings in low interest paying accounts that have negative earnings after inflation. He wants them to put it into ETFs and bank prefs whose returns are better. He also does not want people to have an emergency fund which earns nothing. He says incase of emergency you can use the credit card/home equity loan for the time being and sell some of your investments that are fully liquid to pay it back.
Title: Re: Garth Turner - Real Estate in Canada
Post by: ajc on December 03, 2013, 02:58:13 PM
Q&A with Vijai Mohan, the man who's shorting Canada's banks

Recently, The Globe and Mail ran a story about Vijai Mohan, a U.S. hedge fund manager who has made an all-in bet against Canada.

The founder of a small San Francisco-based hedge fund called Hyphen Partners LP has staked 95 per cent of his investors’ assets on a wager that the country’s housing market and banking sector are about to come apart at the seams. Mr. Mohan has amassed large short positions on Canadian bank shares and the loonie, betting their values will fall sharply.

Vijai joined Globe business reporter Sean Silcoff and business community editor Dianne Nice for an online chat, and took your questions about the risks he sees in Canadian investments.

You can read a transcript from the discussion below....

http://www.theglobeandmail.com/globe-investor/investor-community/live-chat-with-vijai-mohan-the-man-whos-shorting-canadas-banks/article11731134/?ss=1 (http://www.theglobeandmail.com/globe-investor/investor-community/live-chat-with-vijai-mohan-the-man-whos-shorting-canadas-banks/article11731134/?ss=1)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 03, 2013, 05:11:14 PM
Thanks ajc. I came here to post that but you beat me to it. Good read. Nothing totally new, but well argued. The argument about put-backs to the banks from CHMC is particularly interesting, though it's hard to know how that would play out.
Title: Re: Garth Turner - Real Estate in Canada
Post by: no_free_lunch on December 03, 2013, 05:38:14 PM
I have heard it prophesized for years.  We'll see if this comes to pass.  It seems inevitable but the timing.. very difficult to pick.

Quote
Prior to the release of the OSFI B20 regulations, my research indicates that one could a) present self-employment income using self-reported income with no stringent background checks to prove that indeed the source of income is valid, b) enter into a real estate transaction without a physical appraisal, and also c) enter into a 100% loan to value mortgage - all simultaneously qualifying for a CMHC insured mortgage product.

I can vouch for b & c.  That was very, very common.  I have even heard of excess of 100%.  Not sure about point a.

The one thing that concerns me about housing in Canada is the prevalence of 5 year mortgages.   In the US, it seems that they are fully amortized over 15 or 30 years, so no interest rate risk.  If interest rates ever rise in Canada, watch out.  It is not just new buyers who are going to be hurting.
Title: Re: Garth Turner - Real Estate in Canada
Post by: racemize on December 03, 2013, 06:02:09 PM
I have heard it prophesized for years.  We'll see if this comes to pass.  It seems inevitable but the timing.. very difficult to pick.

Quote
Prior to the release of the OSFI B20 regulations, my research indicates that one could a) present self-employment income using self-reported income with no stringent background checks to prove that indeed the source of income is valid, b) enter into a real estate transaction without a physical appraisal, and also c) enter into a 100% loan to value mortgage - all simultaneously qualifying for a CMHC insured mortgage product.

I can vouch for b & c.  That was very, very common.  I have even heard of excess of 100%.  Not sure about point a.

The one thing that concerns me about housing in Canada is the prevalence of 5 year mortgages.   In the US, it seems that they are fully amortized over 15 or 30 years, so no interest rate risk.  If interest rates ever rise in Canada, watch out.  It is not just new buyers who are going to be hurting.

well that certainly sounds frightening.
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on December 03, 2013, 06:03:19 PM
Thanks ajc. I came here to post that but you beat me to it. Good read. Nothing totally new, but well argued. The argument about put-backs to the banks from CHMC is particularly interesting, though it's hard to know how that would play out.

I'm betting it won't play out with CMHC rolling over and the banks not settling for some amount.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on December 03, 2013, 06:06:33 PM
a) was prevalent in Vancouver prior to GFC. Stated income and equity programs (asset based lending) were common. No proof of income was required for either option.

In addition, certain first nations groups to whom regulations did not apply were offering 100% financing with no proof of income.

Brokers and bank lenders have been beating the system:
Most banks do not report mortgages on credit bureaus in Canada. From what I understand it has been common practice amongst brokers and lenders to educate their clients not to include other properties owned but financed at other institutions so that debt servicing is within guidelines. There is no way to know unless advised by the client.

This is why individuals who work the system borrow from banks and avoid HELOC's as those get reported.

Mortgages under corporations do not get reported on bureaus either. The system is full of holes and there will be consequences in Vancouver as the system has been exploited to an extreme. Everyone has chosen to look away as there was so much money to be made.

Why do you think individuals have been able to buy houses when the average house price is at 10x average household income.
Title: Re: Garth Turner - Real Estate in Canada
Post by: racemize on December 04, 2013, 09:24:25 AM
Horizon Kinetics commentary on Canadian REITs.  No real mention of the danger of housing prices falling--I presume that is an issue for REITs?  (I've always ignored them as they have seemed risky to me, but don't know much of the mechanics).

http://www.horizonkinetics.com/docs/December_Commentary_Canadian_REIT.pdf
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 04, 2013, 10:30:28 AM
Horizon Kinetics commentary on Canadian REITs.  No real mention of the danger of housing prices falling--I presume that is an issue for REITs?  (I've always ignored them as they have seemed risky to me, but don't know much of the mechanics).

http://www.horizonkinetics.com/docs/December_Commentary_Canadian_REIT.pdf

I'm not expert on REITs, but when Garth Turner mentions them, he seems to think that they'll do ok because the renting market isn't nearly as bubbly as the buying one (and many REITs are heavy or exclusively in the commercial sector).
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 04, 2013, 10:33:15 AM
Via many people on Twitter lately:

(http://i.imgur.com/YBqsya1.jpg)
Title: Re: Garth Turner - Real Estate in Canada
Post by: racemize on December 04, 2013, 10:42:53 AM
Why does that chart say "Household debt in Asia" and then list a bunch of non Asian countries?  Does it mean something other than debt in those countries?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 04, 2013, 10:54:18 AM
Why does that chart say "Household debt in Asia" and then list a bunch of non Asian countries?  Does it mean something other than debt in those countries?

Not sure. It's from the Economist, so I'd guess it was in an article about that and they also included some other countries as comparison points.
Title: Re: Garth Turner - Real Estate in Canada
Post by: fareastwarriors on December 04, 2013, 12:15:28 PM
http://www.bloomberg.com/news/2013-12-04/wealthy-global-buyers-favoring-montreal-spur-17-gains.html (http://www.bloomberg.com/news/2013-12-04/wealthy-global-buyers-favoring-montreal-spur-17-gains.html)

Wealthy Global Buyers Favoring Montreal Spur 17% Gains
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 04, 2013, 01:17:33 PM
http://www.bloomberg.com/news/2013-12-04/wealthy-global-buyers-favoring-montreal-spur-17-gains.html (http://www.bloomberg.com/news/2013-12-04/wealthy-global-buyers-favoring-montreal-spur-17-gains.html)

Wealthy Global Buyers Favoring Montreal Spur 17% Gains

One thing I've found out the more I learned about Canadian RE is that there's little you can trust.

No third party, transparent body is keeping track of sales. You get stats from realtors, who mutilate the numbers so much you don't know what they mean anymore. They silently go back and revise past year numbers so the YoY comparisons look better, some houses listed in 2-3 systems get reported as 2-3 sales when they are sold, they throw out data arbitrarily, etc.

And then they play the media little a fiddle most of the time, with realtor press releases reprinted as news and even going as far as having realtors of asian origin pose as wealthy chinese buyers for TV crews in Vancouver (in a now infamous yellow helicopter ride), with bankers being cited as sources for most RE articles (as if big banks were unbiased parties in this).

It's all about sentiment. Everybody thinks prices are very high, and the only thing that can make them buy is if they're sure they'll keep going up and that waiting will price them out (fear) and cost them more. When sentiment turns, it'll get interesting, because it's not as if most people think that prices are reasonable and growth is just a nice bonus; they feel like they need it both to justify buying and to feel like it'll help them carry all that debt later later thanks to capital gains, and of course they don't want to miss out on all the profits everybody are making on their houses (greed).

So it's very possible that some area of Montreal is very hot. Things might even keep going across the country for years. But I'm certain it's not sustainable, and what can't keep going won't. In the meantime, I'm happy renting and I take what I read about RE with a big grain of salt.
Title: Re: Garth Turner - Real Estate in Canada
Post by: nkp007 on December 04, 2013, 02:47:15 PM
Well said Liberty. The entire industry is incentivized to keep the ball rolling.

All the bubble thumpers seem to be using reasonable rationale and logic.

It's scary that all sides agree that real estate is expensive and there will be some sort of correction. It's the extent that is being debated (soft landing vs crash).
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 11, 2013, 06:46:34 AM
http://blogs.wsj.com/moneybeat/2013/12/11/a-worldwide-ranking-of-the-most-over-and-undervalued-housing/

(http://online.wsj.com/media/1211PeteChart.png)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 13, 2013, 07:38:22 AM
(http://d3j5vwomefv46c.cloudfront.net/photos/large/827306195.png?1386939707)
Title: Re: Garth Turner - Real Estate in Canada
Post by: ajc on December 13, 2013, 07:48:30 AM
http://twitpic.com/dok1jn/full

Should be fine. It'll be different this time. Just you wait...
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 13, 2013, 10:37:42 AM
The Goldilocks argument. Where have we heard this one before?  :P


Quote
Not too hot, not too cold, but ‘just right’ – the Goldilocks scenario that appears to be playing out in the Canadian housing market.

Mark Chandler, head of fixed income and currency strategist at RBC Capital Markets, noted that the latest round of mortgage measures –  instituted in the summer of 2012 – looks like a success in terms of cooling demand.

http://business.financialpost.com/2013/12/13/canadian-housing-market-not-too-hot-not-too-cold/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on January 02, 2014, 02:09:29 PM
http://www.economist.com/news/finance-and-economics/21592646-monetary-policy-may-call-end-house-price-party-castles-made-sand
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on January 02, 2014, 04:34:50 PM
Ben Rabidoux: Four changes CMHC needs to make to rein in its mortgage market influence
 (http://www.theglobeandmail.com/report-on-business/economy/housing/four-changes-cmhc-needs-to-make-to-rein-in-its-mortgage-market-influence/article16178271/)

http://www.theglobeandmail.com/report-on-business/economy/housing/four-changes-cmhc-needs-to-make-to-rein-in-its-mortgage-market-influence/article16178271/

1) Increase income documentation requirements on insured mortgages
2) Reinstate the regional mortgage cap
3) Eliminate the second home program
4) Increase transparency and oversight
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on January 02, 2014, 04:42:06 PM
Canada Mortgage Trends:  Fighting Mortgage Fraud (http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/09/fighting-mortgage-fraud.html)
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/09/fighting-mortgage-fraud.html

Mortgage fraud in Canada has increased by a staggering 50% in recent years, according to Equifax.

While accounting for only 13% of attempted frauds in 2011, mortgage fraud was responsible for two-thirds, or $400 million, of the estimated dollar amount of financial fraud in Canada. According to John Russo, Vice President of Equifax, that number jumped to $600 million in 2012.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on January 08, 2014, 08:06:53 AM
http://www.financialsense.com/contributors/bca-research/outlook-canada-australia
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on January 24, 2014, 06:34:00 PM
https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=816871

Fitch affirms the large Canadian banks today.  There are several assumptions built into the rating that are arguable, such as:

"Fitch's ratings incorporate a base case housing scenario of a plateauing and orderly cooling of the housing market."

They also provide cover for changing their rating, such as:

"Should the CMHC alter its mortgage insurance programs or not fully make banks whole for potential loan losses on insured mortgages due to underwriting defects or other reasons, ratings could be downgraded."

"Banks with significant presence outside of Canada, including RY in the U.S. and global capital markets, BNS in Latin America and Asian Markets, and BMO and TD largely in the U.S retail market, could have their ratings impacted should there be weakness in any of these markets, should it adversely impact credit quality and earnings generation."

I own puts on the Royal Bank of Canada.  I am skeptical of its capital levels and it's earnings capabilities over the next few years.  There is most likely a housing bubble.  Debt to personal income is at historically high levels.  Royal Bank management strikes me as aloof, and too eager to expand in recent years.  Why people continue to purchase this bank at over 2 times Book Value confuses me, even granting that it is part of an oligopoly.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on January 24, 2014, 08:48:33 PM
when will this "bubble" actually burst?

How many years we have to wait? I am not shorting anything for this, I just want to buy a house cheap in Toronto. :)
Title: Re: Garth Turner - Real Estate in Canada
Post by: hardcorevalue on January 25, 2014, 06:20:16 AM
Yes, I am the same. I want to buy a house but they are wayyyy too expensive and I can't get over the fact that after the 5 year fixed term you have no idea what your mortgage payment will be.

I'm 28 and a lot of my friends in Toronto have started buying real estate (particularly condos). I ask them what happens if interest rates double in 5 years and they have no answer what so ever. It's like they haven't even thought about it. Boggles my mind. I guess I'm stuck in the rental market for eternity! But I'm happy to save the difference and compound it at a good rate :)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Otsog on January 25, 2014, 09:05:40 AM
Not looking forward to refi in 2016.  We never had the interest only or teaser rate mortgages here, but since practically every mortgage in the country matures in 5 years or less the entire country is on medium term teaser rates. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on January 25, 2014, 03:09:33 PM
I wouldn't say foolish.
I thought it was pricey few years, wish I have bought then. You never know. Can't look at a house a pure investment, especially nice location.
Title: Re: Garth Turner - Real Estate in Canada
Post by: original mungerville on January 26, 2014, 06:38:44 PM
https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=816871

Fitch affirms the large Canadian banks today.  There are several assumptions built into the rating that are arguable, such as:

"Fitch's ratings incorporate a base case housing scenario of a plateauing and orderly cooling of the housing market."

They also provide cover for changing their rating, such as:

"Should the CMHC alter its mortgage insurance programs or not fully make banks whole for potential loan losses on insured mortgages due to underwriting defects or other reasons, ratings could be downgraded."

"Banks with significant presence outside of Canada, including RY in the U.S. and global capital markets, BNS in Latin America and Asian Markets, and BMO and TD largely in the U.S retail market, could have their ratings impacted should there be weakness in any of these markets, should it adversely impact credit quality and earnings generation."

I own puts on the Royal Bank of Canada.  I am skeptical of its capital levels and it's earnings capabilities over the next few years.  There is most likely a housing bubble.  Debt to personal income is at historically high levels.  Royal Bank management strikes me as aloof, and too eager to expand in recent years.  Why people continue to purchase this bank at over 2 times Book Value confuses me, even granting that it is part of an oligopoly.

Enoch01,

In which areas do you find Royal too eager to expand. Anything specific? or is that just in general?
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on January 27, 2014, 06:11:06 AM
https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=816871

Fitch affirms the large Canadian banks today.  There are several assumptions built into the rating that are arguable, such as:

"Fitch's ratings incorporate a base case housing scenario of a plateauing and orderly cooling of the housing market."

They also provide cover for changing their rating, such as:

"Should the CMHC alter its mortgage insurance programs or not fully make banks whole for potential loan losses on insured mortgages due to underwriting defects or other reasons, ratings could be downgraded."

"Banks with significant presence outside of Canada, including RY in the U.S. and global capital markets, BNS in Latin America and Asian Markets, and BMO and TD largely in the U.S retail market, could have their ratings impacted should there be weakness in any of these markets, should it adversely impact credit quality and earnings generation."

I own puts on the Royal Bank of Canada.  I am skeptical of its capital levels and it's earnings capabilities over the next few years.  There is most likely a housing bubble.  Debt to personal income is at historically high levels.  Royal Bank management strikes me as aloof, and too eager to expand in recent years.  Why people continue to purchase this bank at over 2 times Book Value confuses me, even granting that it is part of an oligopoly.

Enoch01,

In which areas do you find Royal too eager to expand. Anything specific? or is that just in general?

Mainly mortgage origination - cash back, high LTV, etc.  I suspect also that they've grown too big, too fast in capital markets.  Just a hunch though.  From the 2012 AR:

"Capital Markets has significantly advanced its global position to be a top 10 investment bank and is gaining market share in traditional investment banking businesses faster than any bank in the world."

When I see leveraged institution say stuff like this, it makes my ears perk up.
Title: Re: Garth Turner - Real Estate in Canada
Post by: original mungerville on January 27, 2014, 01:34:17 PM
Thanks Enoch01. That is quite the quote you pulled out there from their public report!
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 03, 2014, 08:54:23 AM
http://www.theglobeandmail.com/report-on-business/top-business-stories/pimco-sees-30-slump-in-canadas-housing-market-in-time-cuts-holdings/article17194498/

PIMCO on canadian housing

http://inagist.com/all/438794496860360704/

Ray Dalio on the Canada

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 14, 2014, 07:56:16 PM
I just read When Irish Eyes are Crying by Michael Lewis about the RE bubble in Ireland, and many things were definitely familiar. I don't think Canada's bubble is on that scale, but many of the attitudes are recognizable. Good read for those who still haven't read it (it was published in 2011):

http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103.print

Here's some highlights I kept (the part about Lehman's global testicles is just funny):

Quote
Around the middle of 2006 all these former students of ours working for the banks started to appear on TV!” he says. “They were now all bank economists, and they were nice guys and all that. And they were all saying the same thing: ‘We’re going to have a soft landing.’ ”

The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash. It was in the nature of real-estate booms to end with crashes—just as it was perhaps in Morgan Kelly’s nature to assume that, if his former students were cast on Irish TV as financial experts, something was amiss. “I just started Googling things,” he says.
Googling things, Kelly learned that more than a fifth of the Irish workforce was employed building houses. The Irish construction industry had swollen to become nearly a quarter of the country’s G.D.P.—compared with less than 10 percent in a normal economy—and Ireland was building half as many new houses a year as the United Kingdom, which had almost 15 times as many people to house. He learned that since 1994 the average price for a Dublin home had risen more than 500 percent. In parts of the city, rents had fallen to less than 1 percent of the purchase price—that is, you could rent a million-dollar home for less than $833 a month. The investment returns on Irish land were ridiculously low: it made no sense for capital to flow into Ireland to develop more of it. Irish home prices implied an economic growth rate that would leave Ireland, in 25 years, three times as rich as the United States. (“A price/earning ratio above Google’s,” as Kelly put it.) Where would this growth come from? Since 2000, Irish exports had stalled, and the economy had been consumed with building houses and offices and hotels. “Competitiveness didn’t matter,” says Kelly. “From now on we were going to get rich building houses for each other.”

[...] The comparisons that sprung to Morgan Kelly’s mind were with the housing bubbles in the Netherlands in the 1970s and Finland in the 1980s, but it almost didn’t matter which examples he picked: the mere idea that Ireland was not sui generis was the panic-making thought. “There is an iron law of house prices,” he wrote. “The more house prices rise relative to income and rents, the more they subsequently fall.” [...]

“What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.” [...]

Bertie Ahern, the prime minister from June 1997 until May 2008 and Political Perp No. 1. Ahern is known both for a native shrewdness and for saying lots of spectacularly dumb-sounding things that are fun to quote. Tony Blair had credited him with a kind of genius in how he brokered the Northern Ireland peace negotiations; on the other hand, seeking to explain the financial crisis, he actually said, “Lehman’s was a world investment bank. They had testicles everywhere.” [...]

The top executives of the three big banks all operated in a similar spirit: they bought shares in their own companies right up to the moment of collapse, and continued to pay dividends, as if they had capital to burn. Virtually all of the big Irish property developers who behaved recklessly signed personal guarantees for their loans. [...]

Ireland’s 87 percent rate of home-ownership is among the highest in the world. There’s no such thing as a non-recourse home mortgage in Ireland [and it didn't stop the bubble or crash]. The guy who pays too much for his house is not allowed to simply hand the keys to the bank and walk away. He’s on the hook, personally, for whatever he borrowed. Across Ireland, people are unable to extract themselves from their houses or their bank loans. Irish people will tell you that, because of their sad history of dispossession, owning a home is not just a way to avoid paying rent but a mark of freedom. In their rush to freedom, the Irish built their own prisons. And their leaders helped them to do it.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on April 14, 2014, 09:46:04 PM
A lot of Chinese numbers are higher eg: 100% house ownership, etc.

My fear is the impact a slow down will have on commodities and inflows from China on Canadian real estate.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 17, 2014, 09:45:29 AM
http://www.bnn.ca/News/2014/6/17/CMHC-to-return-to-lower-risk-roots-.aspx

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 17, 2014, 10:32:33 PM
https://www.youtube.com/watch?v=enRnv2RLXmw

Kyle Bass on Canadian RE
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on July 10, 2014, 06:57:02 PM
http://www.macleans.ca/economy/realestateeconomy/why-canada-isnt-immune-to-a-u-s-style-housing-crash/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Viking on July 10, 2014, 11:15:46 PM
As the article states at the end, the key is what happens to interest rates. The five year rate currently sits at a generational low of 3%; if it normalizes to 5% (as the author expects) then, yes, we likely will see a decline in prices. The higher interest rates go the bigger the price decline.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Ham Hockers on July 11, 2014, 06:12:14 AM
As the article states at the end, the key is what happens to interest rates. The five year rate currently sits at a generational low of 3%; if it normalizes to 5% (as the author expects) then, yes, we likely will see a decline in prices. The higher interest rates go the bigger the price decline.

That's only true holding everything else constant.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 08, 2014, 09:39:51 AM
17% of condo owners in Toronto, Vancouver bought for investment

http://www.cbc.ca/news/business/17-of-condo-owners-in-toronto-vancouver-bought-for-investment-1.2731289

This won't end well...
Title: Re: Garth Turner - Real Estate in Canada
Post by: ukvalueinvestment on August 08, 2014, 10:18:44 AM
17% is probably low compared to London  ;)
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on August 08, 2014, 10:35:35 AM
It's actually "17% of condo owners who live in a condo also own a secondary condo for investment."

That's very, very different from saying that 17% of condos are investment properties.

From the CMHC report:
The survey did not cover Canadian households that own condominium units in Toronto or Vancouver but do not reside in these CMAs. Foreign investors, and corporate investors are also not covered by the survey.


Not sure what one is supposed to conclude from a stat like this.
Title: Re: Garth Turner - Real Estate in Canada
Post by: blainehodder on August 08, 2014, 10:38:31 AM
This somewhat obnoxiously ad filled site has some great charts on Canadian housing and income.

http://www.chpc.biz/6-canadian-metros.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 08, 2014, 10:40:29 AM
Yeah, the very restrictive definition means that this is a floor. The real number is probably much higher, especially for all those pre-construction condos that people like Brad Lamb are flogging to the unsophisticated masses, claiming they can make triple-digit returns in a few years...

I think it's said well here: https://twitter.com/benrabidoux/status/497780348299018241
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on August 08, 2014, 12:40:13 PM
There is a wide range of condo size & location within each city. The term 'average' is pretty meaningless here.

Most shoebox investment condo's are bought because PIT & condo fees after tax - are significantly less than renting; & little suzy does not have to fight others to get the place. Mom/pop invest by putting up the DP - & suzy rents the condo from them while going to school. Suzy's rent = mom/pops net monthly after-tax cost. Mom/pop will often also be the agent buying/selling the place, & selling directly to other families with sons/daughters in similar positions. Minimal MLS involvement, & a good chunk of the commission $ stays within the family.

Raise rates 500bp & the value of all real estate declines, not just condos.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 26, 2014, 06:40:31 AM

Question: What will cause the bubble in real estate to burst or put another way, what will cause sentiment to change in the CDN housing market? Will it be interest rates? Will the government lower the amortization period again? Is it a collapse in commodity prices?

Cheers

No idea, but it's always something. "When something can't keep going, it will stop," as they say.
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on August 27, 2014, 03:54:04 PM
I was sitting with a bunch of people around a campfire recently, and while chatting with the fellow next to me, I learned he was the VP of Credit for a prominent mid-size credit union in the Vancouver area... basically overseeing their residential mortgage business. So of course I started peppering him with questions about his thoughts on the Vancouver real estate market, credit quality, mortgage regulations for credit unions vs. banks, etc.

He through me for a loop. He told me that several years ago, he firmly believed that Vancouver real estate was due for a major correction, but after watching prices continue to rise and rise, he's since changed his mind and joined the camp that thinks it will just keep going up because borrowing is so cheap and "everyone wants to live here." I asked what did he think would happen when interest rates rise? He said that he doesn't think they ever will now, because they've been so low for so long that raising them would be hurt too many people, so "it's too late... they can't do it." I asked, but what if they do? He laughed and said, "then I'll be out of a job."

It was eye-opening... these are kind the sentiments you've heard from average home-owners and speculators in Vancouver for years. Hearing them from a mortgage lending exec -- an otherwise smart guy -- really drove home how pervasive the irrational exuberance really is.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 27, 2014, 05:52:00 PM
Thanks for sharing. This is what capitulation near the top smells like, I think.

Reminds me of the Citigroup exec: "As long as the music is playing, you’ve got to get up and dance."
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 27, 2014, 06:05:48 PM
Thanks for sharing that story left coast. I think the guy is fooling himself, thinking that rates could never rise. That makes no sense. Eventually they will. They will have to if the economy starts booming or Inflation starts rising. This is not going to end well.

just look at Japan - it is still low rates there for many , many years --

rates could rise in the US - i doubt it'd rise in Canada any time soon as our economy is too dependent on the construction industry...  and we need the low rates to give manufacturing an advantage.   there's no easy way out of this in my opinion...

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 27, 2014, 06:27:05 PM
just look at Japan - it is still low rates there for many , many years --

And where is Japan's real estate market now compared to where it was at its peak?

Not that it matters. Canada is very different from Japan on so many levels, I don't think it's a very useful country to compare it to.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on August 27, 2014, 06:40:55 PM
This would go on longer but we all know this won't end well, and the pendulum will swing back. Remember how US bubble get busted, is it because of rising interest rate?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 27, 2014, 07:00:36 PM
This would go on longer but we all know this won't end well, and the pendulum will swing back. Remember how US bubble get busted, is it because of rising interest rate?

In the same way that the stock market is (somewhat) forward-looking, I think the RE market is. So you won't need a lot of people to lose their shirt before things turn, you'll just need a change of sentiment; people who don't think anything bad can happen change their mind and realize that trees don't grow to the sky. Anything could be a catalyst. Then the marginal buyer who doesn't think twice today about getting a gigantic mortgage will evaporate.

Otherwise, what will it be? In 10 years everybody making 65k will live in 2-3 million dollar houses? While similar houses in the U.S. go for maybe 400k?
Title: Re: Garth Turner - Real Estate in Canada
Post by: rukawa on August 27, 2014, 07:10:32 PM
My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on August 27, 2014, 07:24:30 PM
My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

It didn't stay flat in the late eighties. House prices were cut in half in the toronto area. Housing bubbles always end badly. Won't be any different this time either. The higher it goes up, the harder it will fall.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 27, 2014, 07:27:00 PM
I don't disagree with a correction.
But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.




My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

It didn't stay flat in the late eighties. House prices were cut in half in the toronto area. Housing bubbles always end badly. Won't be any different this time either. The higher it goes up, the harder it will fall.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on August 27, 2014, 07:55:43 PM
I don't disagree with a correction.
But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.




My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

It didn't stay flat in the late eighties. House prices were cut in half in the toronto area. Housing bubbles always end badly. Won't be any different this time either. The higher it goes up, the harder it will fall.

Check out what happen to RE when the main buyers are foreigners. That's not a positive in longer term.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 27, 2014, 08:46:01 PM
Garth Turner writes a lot about the so called 'hot-asian-money' and how it isn't nearly as much as most people think. Lots of media and realtor hype and little substance on a scale that could prop up the whole market. Many Canadians of Asian ancestry are being mistaken for foreigners too.
Title: Re: Garth Turner - Real Estate in Canada
Post by: ERICOPOLY on August 27, 2014, 09:17:37 PM
He through me for a loop. He told me that several years ago, he firmly believed that Vancouver real estate was due for a major correction, but after watching prices continue to rise and rise, he's since changed his mind and joined the camp that thinks it will just keep going up because borrowing is so cheap and "everyone wants to live here."

Canada is too cold for everyone to want to live there.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 27, 2014, 09:57:50 PM
Canada stopped the class of immigration that allowed rich immigrants to come to Canada as of 2012.

Look at the what is happening to sales to high end homes in Vancouver - they have slowed. Look at jobs in the financial and construction industry - it is not easy in those industries any more.

If your asset prices increase because of hot money coming in, it can drop just as fast.

If Chinese money can defy economics, then why are real estate prices in Chinese cities dropping?

At some point the excessive debt will catch up with the people and leverage is scary on the way down.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 27, 2014, 10:03:07 PM
You think we will see the type of correction in the US here in Canada?
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on August 27, 2014, 10:15:09 PM
The problem, I think, is that there's simply no data on foreign buyers. So all you're left with are anecdotes and marketing hype. The flow of Chinese capital into the Vancouver housing market is certainly real, there's no question. Just look at what was happening in the investor immigrant program that was scrapped this year. From the WSJ today:

After Overwhelming U.S. Visa Program, Where Will China’s Emigrants Go Next?
 (http://blogs.wsj.com/chinarealtime/2014/08/27/after-overwhelming-u-s-visa-program-where-will-chinas-emigrants-go-next/)At the time of the program closure, there were an estimated 48,000 applications made by mainland Chinese with the Canadian consulate in Hong Kong, and wait times were expected to be as long as five years.
The vast majority of those were going to Vancouver.

But what kind of impact is it really having on the market as a whole? Nobody has any idea, including Garth. This guy took a swing at it 6 months ago, but had to make so many assumptions that his analysis was basically reduced to guess-work:
Vancouver Home Prices to Suffer With End of Investor Immigrant Program (http://www.bcbusiness.ca/real-estate/vancouver-home-prices-to-suffer-with-end-of-investor-immigrant-program)

It really is mind-boggling that there's so little reliable data available on a market that is so fundamental to the Canadian economy as housing. Not just with regards to foreign investment, but in general. That shitty report that CMHC put out a few weeks ago just underscores the point... after years of research, they still can't even say what % condos are owned as investments vs. primary residences. Really?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Potato on August 27, 2014, 10:22:48 PM
I don't disagree with a correction.
But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.

One of the big memes driving the speculation in the 80's was precisely the exodus of millionaires from Hong Kong, as it became clear that the British lease would not be renewed.

Plus ca change...
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 27, 2014, 11:36:53 PM
Look at the history of Vancouver RE:
40% drop in 1 yr in 1981.
25% over 4 yrs starting in 1994.

If you say it is CHinese money - then look at HK RE history - it is not unusual for them to have a 50% drop once every decade. HK is the only city more expensive in the developed world based on median household income to median housing prices in the developed world.

Vancouver was about 11x median household income v about 5x back in early 2000s.

Why cant a severe drop happen in Vancouver?
Title: Re: Garth Turner - Real Estate in Canada
Post by: petec on August 28, 2014, 03:08:22 AM
I don't disagree with a correction.
But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.

One of the big memes driving the speculation in the 80's was precisely the exodus of millionaires from Hong Kong, as it became clear that the British lease would not be renewed.

Plus ca change...

Plus, all those Chinese departing will only help the *Chinese* RE bubble burst, which will have knock-on impacts elsewhere, possibly bursting bubbles all over the shop including in Canadian (and, closer to home for me, London) housing.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on August 28, 2014, 06:02:02 AM
What if the chinese stop buying in canada? Why would they buy here when you can get a bigger house for half the price in the US?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 28, 2014, 06:34:42 AM
It really is mind-boggling that there's so little reliable data available on a market that is so fundamental to the Canadian economy as housing. Not just with regards to foreign investment, but in general. That shitty report that CMHC put out a few weeks ago just underscores the point... after years of research, they still can't even say what % condos are owned as investments vs. primary residences. Really?

This. Exactly this.

But what we do know is that if most of the data comes from realtors, it's going to be heavily biased to help them, not the other way around. That's why they quietly revise last year's numbers downward to make this year's numbers look better or double and triple count sales just because they've been listed in more than one place and stuff like that.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 28, 2014, 06:37:43 AM
Vancouver's the worst in the country, but the epicenter of a crisis doesn't even have to start there. It's about sentiment (certainly not about fundamentals -- look at multiples of incomes and rents), so if the market blows up first in Toronto or elsewhere, you can be certain that Vancouver people will take note and proceed to freak out in turn.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 07:02:58 AM
I can see big condo correction... Not so much houses ,,,  a lot of Chinese people are buying with cash... Excess cash ... And are for their kids.  There are also a lot of retired people from elsewhere in Canada who prefer to retire here. WE could see some correction but I doubt it will be significant in the single family market in Vancouver.

You can't really apply conventional value investing / relative valuation when it comes to RE. This is a type of asset for family, for status, for a lifetime of hardworking ... There's a reason why only certain cities in the world attracts premium valuation such as HK, Shanghai, London, New York, etc. most immigrants want to live where other immigrants go to , it creates a network effect if you will.  So you won't see premium even just 2h drive from Vancouver.     

This situation is also not like The early 80s when HK people moved because of fear or HK. There's no fear driving mainland Chinese moving here. It's simple for the sake of their well being because china is too crowded ! If you are the 1% in china, you would do what you can to give your kids the best - and that's why they like certain markets.

Finally, most Chinese don't take out a mortgage with these houses. Cash. Mortgage is viewed as a bad thing in their culture -   Rheas the picture I'm seeing with the single family houses in Vancouver.  Condo market is another story.  Toronto is another story.  I think real estate is very localized.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 28, 2014, 07:22:59 AM
If everyone is paying cash in Vancouver, then why do people in Vancouver have the highest debt levels in Canada.

Where are the stats to show that all houses are being bought by Chinese immigrants with cash? Or are these anecdotes based on a few sales?

Reality does not support the view that people are buying a majority of houses for cash. It is possible that 1% or so of the sales might fall into that category.

Bob Rennie (local realtor - highest sales) in a speech had stated that he was not worried about the cancellation of the program for rich immigrants because 69% of all sales in the last 5 years had been to locals buying 2nd property. His statement contradicts the statement that rich immigrants are buying everything for cash.

All you have to do is title searches on houses and you will know if banks have a charge against houses. Try a few and see what shows up.
Title: Re: Garth Turner - Real Estate in Canada
Post by: A_Hamilton on August 28, 2014, 07:29:09 AM
Are there any thoughts from Canadians on this board in regards to Calgary/Edmonton? In a slowdown what happens to Canada's basic materials economy? I've thought about Houston in the early 80's a good amount and wonder why the same bust won't come to these cities. Would 25% vacancy rates really be that hard to believe if you had oil prices fall 30-40% and stay down for a few years (this is something everyone tells me cannot happen...which in my mind means the inevitable next step is that it will happen)?

Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 07:32:53 AM
i suppose the higher debt level is because there are more working class people here who are trying to afford a condo or an entry-level home.   

i've been waiting for a few years now to buy a house with no luck... and the prices keep on rising faster than income !  perhaps i'm one of those that has changed my view on RE in Vancouver.     
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 28, 2014, 09:44:07 AM
Gary, you seem to be agreeing with me that the locals have taken on a lot of debt to keep up with the high prices - whatever the reason for the high prices. Isn't that a bubble when people do something because others are doing it and it has worked for the last 10 years?

I would ask you to consider what portion of housing sales are made to new immigrants and the percentage of sales to residents. I would assume immigrants buy well under 5% of the properties. Most immigrants are not wealthy and cannot afford to buy within the first 5 to 10 years. This is why a lot of imigrants migrate.

Check out the historical housing affordibility for Vancouver from the RBC study. It shows an average person now has to use 81% of their pre-tax income to buy a bungalow v 50% before this run up started.
http://www.rbc.com/newsroom/_assets-custom/pdf/20140828-HA.pdf

If you were a betting man, how would you bet on this? Is it more likely that a house will get more expensive relative to income or cheaper.
 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 28, 2014, 09:56:02 AM
i suppose the higher debt level is because there are more working class people here who are trying to afford a condo or an entry-level home.   

i've been waiting for a few years now to buy a house with no luck... and the prices keep on rising faster than income !  perhaps i'm one of those that has changed my view on RE in Vancouver.   

Timing is always hard. A lot of people thought there was a tech bubble in the mid 90s and had to wait for years before it burst. Some even changed their minds, capitulated, and bought near the top.

What we have to remember is that the market doesn't have to do anything on a schedule that is convenient for us, but the laws of economics haven't been repealed either.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on August 28, 2014, 10:25:43 AM
A large part of Vancouver RE is Asian owned investment property, & is mortgage free; get over it. If condo prices fell in any major way, those investors would simply club with their friends & buy the 2nd condo cheap - in anticipation of a later sale 1-3 yrs later. If they needed cash in the interim, they would simply mortgage the condo, & rent it out cheap to pay the P&I.

If the Vancouver condo market were a slum, we would call this process gentrification, & have no trouble pushing out the poor living there - making them homeless. If you want to live in a nice place, either outbid everyone else in the world who would like to live there, or accept the fact that you cannot afford to live there anymore. You would not listen to that poor persons angst, so why would you expect anyone to listen to yours.

No different to parts of London, Paris, Geneva, Toronto, etc.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: A_Hamilton on August 28, 2014, 10:30:44 AM
A separate question. If one believes that Canada's housing market will have significant delinquencies in the future are you better off shorting the Canadian banks or shorting the Canadian dollar given the large linkages the banks have to the central government via CMHC?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Otsog on August 28, 2014, 10:34:47 AM
No opinion on anything, just thought this was an interesting data point.  I read about Canada's population growth in a book recently and grabbed this data from the UN (http://esa.un.org/unpd/wpp/Excel-Data/population.htm)

(http://i.imgur.com/XuWa1tc.jpg)

5th fastest growing G20 country, kind of surprised me some of the countries we were ahead of.  Also, a bit surprising just how much faster Can + USA are projected to grow over Europe. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on August 28, 2014, 11:22:37 AM
No opinion on anything, just thought this was an interesting data point.  I read about Canada's population growth in a book recently and grabbed this data from the UN (http://esa.un.org/unpd/wpp/Excel-Data/population.htm)

(http://i.imgur.com/XuWa1tc.jpg)

5th fastest growing G20 country, kind of surprised me some of the countries we were ahead of.  Also, a bit surprising just how much faster Can + USA are projected to grow over Europe. 

Annualized, thats growth of less than 1%/year. My house has gone up in value 35% over the last 2 years. That doesn't make sense to me. How many rich people in this world want to come and live in canada?
Title: Re: Garth Turner - Real Estate in Canada
Post by: ASTA on August 28, 2014, 11:51:04 AM
I am not rich but whould like to come to Toronto :) tired off Europe. Have been thinking Singapore or Toronto lately lucky enough my wife is born in Toronto so it's easier to convince here to move there :)
From what I read and see in Europe my very personal opinion is that to many low wage people getting in too Europe and they are why smarter then gullible swedes for an example. But my family has lived in four different continents the last 40 years. So I am used to moving.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Otsog on August 28, 2014, 01:42:44 PM
Annualized, thats growth of less than 1%/year. My house has gone up in value 35% over the last 2 years. That doesn't make sense to me. How many rich people in this world want to come and live in canada?

Vancouver is going to be faster than Canada, so I grabbed these #'s:
(http://i.imgur.com/xPffABp.jpg)
http://www.cmhc-schl.gc.ca/en/corp/about/cahoob/data/data_008.cfm
http://www12.statcan.gc.ca/census-recensement/index-eng.cfm
http://www.metrovancouver.org/planning/development/strategy/RGSBackgroundersNew/RGSMetro2040ResidentialGrowth.pdf

35% over 2 years doesn't make sense to me either.  Idk if a crash, correction, soft landing, slow down, stagnation or apocalypse are coming.  If one of them does Canada looks pretty attractive to me. 

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 28, 2014, 02:49:19 PM
You will be surprised how many of the so called rich immigrants have actually bought using financing. In Canada, a new immigrant can get 65% of the property financed without any credit (FICO) or income. Apparently, a similar product in the US was responsible for the subprime debacle - NINJA loans. You could add no credit to that in Canada if you have been in Canada for less than 5 years.

You could sell an apartment in Beijing for $1 mil and use that as a down payment and buy a house for $2 mil. If you get a HELOC you have a interest only payment of under $3,000 a month while you wait for capital appreciation and then sell. This has worked well for the last 10 yrs. Why would it not work in the future?

Few more points to consider:
For perspective - US which has 10 times our population has 7000 visa's for Chinese investors.

http://money.cnn.com/2014/08/27/news/economy/china-us-visa/index.html?iid=HP_LN

Even if Vancouver gets 100% of our investor immigrants from China - assumption based on our population - 10% would be 700 immigrants.
Could 700 individuals be responsible for the prices in a city of 2.5 mil?

Another interesting stat to look at - the correlation between increase in debt in BC and property prices. It says to me that the increase in prices is not due to cash purchases, but, rather financed by debt.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on August 28, 2014, 03:00:19 PM
You will be surprised how many of the so called rich immigrants have actually bought using financing. In Canada, a new immigrant can get 65% of the property financed without any credit (FICO) or income. Apparently, a similar product in the US was responsible for the subprime debacle - NINJA loans. You could add no credit to that in Canada if you have been in Canada for less than 5 years.

At the international arrivals at Pearson in Toronto, right at the end of the ramp coming out into the concourse there's a CIBC kiosk.
A large kiosk. I'd say it's about 20' by 40' with huge signs for people new to Canada to apply for different products.

Last Friday I picked up my wife coming home from Portland and I counted 12 staff members from CIBC. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 04:01:30 PM
Let's do a bit of math here

If an entry level house is $1M in Vancouver - like an old 50 year old house with a basement suite that can be a mortgage-helper -- 

Let's assume 10% down - so $900K mortgage , 3.5% , amortized for 25 years,
my excel formula:  =PMT(3.5%/12,12*25,900000)   = $4500 / month for the mortgage.
The basement suite is probably going to rent for $1500 - so mortgage is $3000. 
$3000 x 12 = $36000.    And if this is 80% of pre-tax income = > the household is making $45000 pre-tax.   This doesn't make any sense.    I don't believe a family making $45,000 in Vancouver are living in $1M homes - they are more likely to be in $300 - $400K condos. 

On the other hand, if say a couple earns $100,000 gross and spends $80,000 on mortgage a year = $6666 / month + $1500 mortgage-helper = $8100 => $1.6M house.   

I'd say I don't know of any couple earning $100,000 living in $1.6M homes. 

What I see are the rich Asian money in $4M ~ $6M homes , cash deal.  Last week a friend of ours came from China and dropped $3M on a lot with a creek - cash deal; and didn't even bother with inspection.    They probably have a printing press for RMB in China so they don't give a >>>> if there's a correction in Canada - they just want the money out of communist reach.  And be available for their children!

---

Now to answer your question:  I'd say immigrants are likely responsible for 30% of new high-end houses in West Van and Vancouver West-side. (i.e., $3M+ homes)   Then there's the $1.5M - $2.0M range for the successful professionals in town -- (doctors, lawyers, good value-investors, etc)   

And then there are high end condos $800K - $1.5M for those who are downsizing from their big home in West Van (i.e., after selling it to the Chinese for $3M+) 

And then you have the working class people (earning $60K - $100K a year) living in $500K - $800K condos

As always, when the thing collapses it'll be the working class people getting their equity in condos wiped out while the high-end houses will not likely be affected because there's limited supply & there the top 1% of 1.5B people is a lot of demand. 

I use Chinese - but don't forget there are a lot of wealthy Canadians from Calgary (oil money), US, Europe, etc.    They too likely don't have a mortgage. 

Gary

edit: On debt: I don't know how that's calculated - I think there are a lot of house builders here that leverage their principal home to build a spec-house to then sell to others....  That could be a source of debt....     I suppose if those people get into trouble we could see quite a few real estates up for grabs - but I'd say as soon as there's a 10% below market price, it'll be gone .   I'm still seeing a lot of multiple offers at 10% - 20% over asking in decent areas...    Every weekend I think about: where do they all print their money????



 

Gary, you seem to be agreeing with me that the locals have taken on a lot of debt to keep up with the high prices - whatever the reason for the high prices. Isn't that a bubble when people do something because others are doing it and it has worked for the last 10 years?

I would ask you to consider what portion of housing sales are made to new immigrants and the percentage of sales to residents. I would assume immigrants buy well under 5% of the properties. Most immigrants are not wealthy and cannot afford to buy within the first 5 to 10 years. This is why a lot of imigrants migrate.

Check out the historical housing affordibility for Vancouver from the RBC study. It shows an average person now has to use 81% of their pre-tax income to buy a bungalow v 50% before this run up started.
http://www.rbc.com/newsroom/_assets-custom/pdf/20140828-HA.pdf

If you were a betting man, how would you bet on this? Is it more likely that a house will get more expensive relative to income or cheaper.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on August 28, 2014, 04:27:21 PM
clearly, I hear many jump in now because they believe the price is only going to go up.

I haven't seen mid inome ppl buying more than one in presales event, their thinking is price can only go up.

We only need a slight price drop to make ppl worry.

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 28, 2014, 04:41:19 PM
Sorry, I should have been clearer. I was talking about Metro Vancouver. The median household income is $68,000 and median house is approx $680,000.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 04:58:17 PM
Gary, but what happens when you renew your mortgage in 5 years and you pay 6 or 7 % or higher?

You think in 2020 interest rate will be 10%?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 05:09:11 PM
Sorry, I should have been clearer. I was talking about Metro Vancouver. The median household income is $68,000 and median house is approx $680,000.

Got it - no it is a problem -  look, i'm not dilutional - there's a reason why i haven't got a house - I am hoping the resources here and a correction would help me afford a house eventually -    and it is unfortunate when the premium product keeps on getting more expensive, the regular stuff gets inflated too!  This is mainly because there's a shortage of trades here -- when they are all hired at $30/h or higher to work on luxury homes in the good areas; nobody is left to build the 'affordable' housing... so we end up with condos in the metro Vancouver area being more expensive than they should've been - it makes no sense; but the shortage of labour is the cost of brining the products to the market.  The cost of concrete construction is about $300 /sf and wood-frame is $200   - 
single family is about $150 for entry level and $200 - $250 for high end and $300 for luxury. 

And then there's the land.   

So these developers are still pocketing about 50%  ($300 + land @ $150 - $200? = $600 - but pre-sell them for $800 - $1500/sf)       I'd say there's still enough margin for the developers to let them go at a discount.  That'd be interesting to think about if the developers need to let their inventories go at cheap prices.

My point is we could see a correction; but don't hold your breathe for the $8 WFC or BAC shares type of deal in VancouverRE --- I really don't think that'll happen.

Gary

Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on August 28, 2014, 05:47:38 PM
Those 800K-1.5M condos are debt free & often bought by active & retired boomers. Lux, new, one-floor, & in the centre of the action; no different to someone buying a 1/4 floor in New York - just cheaper. They will live there a good 10yrs+, & eventually use a reverse mortgage against the place to finance their dotage. Long-term money.

Nobody forced that medium income to buy a house at 10x income. Thousands of people move further out of the city & commute; 60-90 minutes each way is pretty normal for a London, New York, Toronto, etc. If you don't want to commute, you made a lifestyle choice - so pay the freight & stop whining.

Nothing says you have to buy in Vancouver either, you could have rented. If you sold your West Van house nothing prevents you from buying lux condos in other cities, renting them out, & using some of that CF to pay your rent in Vancouver. Again, if you want to live in Vancouver you have made a lifestyle choice - so pay the freight.

Nothing prevents anyone from either downsizing to a smaller place, or teaming up with other generations to jointly buy & live in a larger place that has been re-modelled. Common practice in both Indian & Arabic communities, & it often comes with built-in baby sitting. If you are that concerned about cost - either change your lifestyle, or pay the freight your choice generates.

Life is full of hard choices.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on August 28, 2014, 06:25:37 PM
As an investment, buying a house makes no sense given the cap rate and income to price ratio unless you think the price is going to go up.

But having a house gives some people peace of mind and sense of pride which is cool too.

Title: Re: Garth Turner - Real Estate in Canada
Post by: oddballstocks on August 28, 2014, 07:44:56 PM
I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

What's an average professional white collar salary up there 150-175?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 08:10:34 PM
Oddball -
I think may be I am mistaken with my English

When I said a couple makes $60 - 100K  --- i mean the COMBINED earnings of the couple. 

I.e., may be 30K + 30K = $60K
Or $50K + 50K = $100K.   

Average salary for engineers working in BC  :  https://www.apeg.bc.ca/Careers/Compensation-Survey

Gary

I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

What's an average professional white collar salary up there 150-175?
Title: Re: Garth Turner - Real Estate in Canada
Post by: oddballstocks on August 28, 2014, 08:16:38 PM
Canada is (far) more expensive than the US from housing to groceries. It has higher taxes too as well as semi socialist policies. Generally the competition is not as much as in the U.S.

I think Sanjeev and Alanesh are home owners in Vancouver and it would be good to hear from them as well.


I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

What's an average professional white collar salary up there 150-175?

Yeah, I guess I just never realized how much more expensive it was.  I wonder why?  It seems like goods should be just as cheap as in the US, they have plenty of roads, rail and ship lines that connect.  Maybe an import duty tax or something, but I wouldn't think that much.
Title: Re: Garth Turner - Real Estate in Canada
Post by: oddballstocks on August 28, 2014, 08:17:31 PM
Oddball -
I think may be I am mistaken with my English

When I said a couple makes $60 - 100K  --- i mean the COMBINED earnings of the couple. 

I.e., may be 30K + 30K = $60K
Or $50K + 50K = $100K.   

Average salary for engineers working in BC  :  https://www.apeg.bc.ca/Careers/Compensation-Survey

Gary

I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

What's an average professional white collar salary up there 150-175?

Gary,

Thanks for the clarification.  Now that I'm looking at these average and median salaries I'm wondering (like everyone else) how anyone can afford a home up there.  The cost and salaries are really out of line.
Title: Re: Garth Turner - Real Estate in Canada
Post by: NormR on August 28, 2014, 08:18:48 PM
Median total income: Canada: $74,540 (2012)

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm (http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm)
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 28, 2014, 08:26:43 PM
This is the latest 'high end' condo being marketed right now in Vancouver

I stopped by there --  a 2 bedroom condo at the lower floors with no view starts at $1M...  For $800K you can buy a 1 bedroom or a studio...   

http://vancouverhouse.ca/       (PS. This was 80% sold - )

Or a working couple could spend $500K for a 600sf condo downtown Vancouver

http://jamesonhouse.com/2904-gallery

 
Title: Re: Garth Turner - Real Estate in Canada
Post by: oddballstocks on August 28, 2014, 08:39:12 PM
This is the latest 'high end' condo being marketed right now in Vancouver

I stopped by there --  a 2 bedroom condo at the lower floors with no view starts at $1M...  For $800K you can buy a 1 bedroom or a studio...   

http://vancouverhouse.ca/       (PS. This was 80% sold - )

Or a working couple could spend $500K for a 600sf condo downtown Vancouver

http://jamesonhouse.com/2904-gallery

That first link is awesome, what a building!  Hope they finish it before a crash, that thing would look hideous half finished.  I much prefer developers build beautiful buildings like that verses the cookie cutter stuff you see here.

Norm, thanks for the median stat, it's 50% higher in Canada verses the US ($50k).  Now if everything costs 50% more it's just a wash, interesting eitherway.
Title: Re: Garth Turner - Real Estate in Canada
Post by: oddballstocks on August 28, 2014, 08:45:20 PM
Two other data points, Canadians have a wealthier middle class, and as a whole are much wealthier than Americans.  So maybe the prices are just reflecting that Canadians can and will pay more for places?

You can get some truly cheap housing in the US.  My brother rents an apartment that's probably 800 sq ft two bedroom.  He has a roomate, they each pay $250 a month.  It's in a nice city, and the building is in nice shape.

I wonder if anyone's living in Buffalo and commuting into Toronto each day?  Making Canadian money and paying Buffalo prices, the new wealthy... I guess the same could be true for BC as well.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on August 28, 2014, 09:16:25 PM
This is the latest 'high end' condo being marketed right now in Vancouver

I stopped by there --  a 2 bedroom condo at the lower floors with no view starts at $1M...  For $800K you can buy a 1 bedroom or a studio...   

http://vancouverhouse.ca/       (PS. This was 80% sold - )

Or a working couple could spend $500K for a 600sf condo downtown Vancouver

http://jamesonhouse.com/2904-gallery

That first link is awesome, what a building!  Hope they finish it before a crash, that thing would look hideous half finished.  I much prefer developers build beautiful buildings like that verses the cookie cutter stuff you see here.

Norm, thanks for the median stat, it's 50% higher in Canada verses the US ($50k).  Now if everything costs 50% more it's just a wash, interesting eitherway.

Reminds me of the condos they built near me in Mississauga. Nicknamed the marilyn monroe buildings.
http://mysquareonecondo.ca/Mississauga/marilyn-monroe-condos/
Title: Re: Garth Turner - Real Estate in Canada
Post by: NormR on August 28, 2014, 09:21:05 PM
Two other data points, Canadians have a wealthier middle class, and as a whole are much wealthier than Americans.  So maybe the prices are just reflecting that Canadians can and will pay more for places?

You can get some truly cheap housing in the US.  My brother rents an apartment that's probably 800 sq ft two bedroom.  He has a roomate, they each pay $250 a month.  It's in a nice city, and the building is in nice shape.

I wonder if anyone's living in Buffalo and commuting into Toronto each day?  Making Canadian money and paying Buffalo prices, the new wealthy... I guess the same could be true for BC as well.

There are less expensive places in Canada too.  Rural areas, smaller cities (Windsor, etc.)

Also, keep in mind that the figures I linked are for family income (generally 2 earners).  It'll be a bit higher in the big cities.

In addition, many big cities follow policies that tend to boost prices.  Zoning restrictions, anti-sprawl legislation.  The feds help boost prices on the insurance side via the CMHC.  Etc.

All that said, young families generally have a hard time buying - even with the low rates - without help from family. 

The real estate market seems quite stretched to me.  It's got to the point where you could buy a house in a big centre, or opt for one in a smaller town (or the U.S.) and enjoy a modest retirement based on the price difference.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 28, 2014, 09:54:03 PM
Oddball - that is family income not per person.
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on August 28, 2014, 10:02:17 PM
But what we do know is that if most of the data comes from realtors, it's going to be heavily biased to help them, not the other way around. That's why they quietly revise last year's numbers downward to make this year's numbers look better or double and triple count sales just because they've been listed in more than one place and stuff like that.

Yeah, the realtor boards are shameless, but honestly I can't really blame them... their job is to sell houses, not provide an objective view of the market. Nobody expects a car salesman to give you objective and unbiased advice. Blaming realtors for pooping out dubious market data is like blaming a bird for pooping on your car. That's their job... it's just what they do.

Now the media on the other hand... their job is to inform the public and to ask hard questions of authority. So seeing the media just regurgitate the realtors' bad data without questioning it at all is pretty galling. They are either complicit or lazy.

And the CMHC, well... I'm not sure even they know exactly what their raison d'être is anymore. But you'd think an agency that is ultimately backstopping most of the residential mortgages in Canada would have some decent data on the internal dynamics of the housing market. But apparently not.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on August 29, 2014, 04:19:43 AM
Is this just in Vancouver city limits or have the suburbs been caught up in this too?
House prices seem reasonable in the burbs. (But I also don't know how nice these other cities are, Abbotsford, Langley, Maple Ridge etc)

In Toronto the last decade, as prices rose in T.O. so did the surrounding areas. We left Newmarket because we got more house for $200k less on a new build. But even prices in Barrie (an hour North) have rises quite a bit the last decade.

We're contemplating a move West and, at least to us, there seems to be a bit of a disconnect between Vancouver and the surrounding area.
Houses <$450k in our area only lists a few at any time. The same search outside of Vancouver lists lots of homes.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on August 29, 2014, 05:40:42 AM
Travel west from Toronto to Mississauga; & the cost of a very similar house, drops by roughly 70K - just because it is no longer Metro TO. One GoTrain stop, maybe 5 minutes of additional commute, train goes every 30 minutes until 1AM in the morning. Keep going west from Mississauga, & the same thing happens again as you pass through Oakville & Burlington. A similar thing happens if you go north or east of Metro Toronto.

Go really west to Hamilton; same GoTrain line (no drive, no parking), but maybe a 90 minute commute to bank land. A many roomed century, & very modernized, mansion may set you back 650-750K; the similar mansion in a Toronto Parkdale (cruddy area) would cost you 1-1.25M, & a 30-40 minute subway commute to bank land. Buy that mansion in Rosedale (Toronto tony area), with maybe 5 minutes less commute, & its 1.75-2.25M. As property tax in Hamilton is less than 35% of what it would be in Toronto (lower value + lower mill rate), the cost of a monthly GoTrain pass is essentially free. Choice of lifestyle cost.

Toronto is no different to New York, London, Paris, SFO, etc.
Vancouver is just joining the club.

SD





Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on August 29, 2014, 05:52:47 AM
Hamilton is not "really West" of Toronto. The entire golden horseshoe is just one big sub-division now.

I grew up in Hamilton and commuted to Toronto for years (both GO Train and car) before moving North to Newmarket. (After a 1 year in Bloor West Village where it took as long to get to a grocery store as it does for me to get from Newmarket to the 401 on some days  ;D )
All the highways and GO Trains are jam packed from 6AM now. I used to be able to get on the 400 at 6:45 and make decent time to the 401. Now the traffic starts at 5:30 and it started even further North.

People are finding Guelph and K-W are better alternative now. As is shown in the traffic on the 401 West of the 407 interchange.

I just wondered since we may move West for both of our careers, at times the Greater Vancouver area seems very similar to Toronto and other times is seems nothing alike. (I'm basing this off browsing MLS on the style of homes and prices)

So in 10 years a place like Abbotsford may be similar to a Newmarket, Oshawa or Burlington?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 29, 2014, 06:28:43 AM
But what we do know is that if most of the data comes from realtors, it's going to be heavily biased to help them, not the other way around. That's why they quietly revise last year's numbers downward to make this year's numbers look better or double and triple count sales just because they've been listed in more than one place and stuff like that.

Yeah, the realtor boards are shameless, but honestly I can't really blame them... their job is to sell houses, not provide an objective view of the market. Nobody expects a car salesman to give you objective and unbiased advice. Blaming realtors for pooping out dubious market data is like blaming a bird for pooping on your car. That's their job... it's just what they do.

Now the media on the other hand... their job is to inform the public and to ask hard questions of authority. So seeing the media just regurgitate the realtors' bad data without questioning it at all is pretty galling. They are either complicit or lazy.

And the CMHC, well... I'm not sure even they know exactly what their raison d'être is anymore. But you'd think an agency that is ultimately backstopping most of the residential mortgages in Canada would have some decent data on the internal dynamics of the housing market. But apparently not.

I also blame the media and the regulators, but I don't think realtors are blameless, even if there's no surprise in their behavior. Lying isn't a good thing, y'know.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 29, 2014, 07:20:41 AM
Vancouver is a smaller city compared to Toronto - 2.5 mil v 6+ mil.

An average commute here would be just north of 30 min whereas in Toronto it tends to be more like an hour.

Abbotsford is not included in Metro Vancouver and the transit system will offer you no connectivity. It would take you 1 hour and 15 mins to get into Vancouver from there by car.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on August 29, 2014, 07:34:46 AM
Canadians are getting screwed, probably because there's a lot less competition in most industries up here.

Retailers might complain about the US being over-retailed, but it has benefits for customers.
Title: Re: Garth Turner - Real Estate in Canada
Post by: NormR on August 29, 2014, 07:42:04 AM
Companies in the US also sell 10 times the product they do in Canada so they can offer cheaper prices in the US. It's more expensive to set-up shop in canada.

There are still frictions at the border from duties, exchange rates, etc.  Add in higher costs for retail from wages/benefits/real estate, and the gap is fairly easy to explain. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on August 29, 2014, 07:44:35 AM
Canadians are getting screwed, probably because there's a lot less competition in most industries up here.

Retailers might complain about the US being over-retailed, but it has benefits for customers.

Retail is the only industry where there is competition in Canada. Everything else is either a monopoly or oligopoly. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on August 29, 2014, 08:06:16 AM
don't forget we have parity or close to parity which is why we feel things are cheaper in the US!   Rewind a few years back when we were at $1USD: $1.25 CAD I think most thought then things were reasonable in Canada !   My personal view is our dollar should be valued at about $0.80 - $0.85 ---  Gary
Title: Re: Garth Turner - Real Estate in Canada
Post by: leftcoast on August 30, 2014, 07:50:34 AM
Good article about foreign ownership of real estate in Canada, and Vancouver in particular. Interesting to see the comparison with Australia.

http://www.huffingtonpost.ca/2014/08/27/foreign-real-estate-ownership-canada_n_5718705.html

Vancouver’s rise to become the second most expensive housing market in the world — the average detached home is now worth $1 million — cannot be explained by local incomes, which are well below the average of major Canadian city centres.

The math simply doesn’t add up to explain what is happening in the market.

Just over half of Vancouverites believe there is too much foreign ownership of real estate in the city, according to a 2012 poll. But in a statistical vacuum, no one knows for sure.

Estimates for foreign-owned downtown condos in Vancouver and Toronto range from less than five per cent to a whopping 50 per cent.

There’s no question that home ownership in cities such as Sydney, Vancouver and London has become a trend among affluent Chinese, sparked partly by policies in China that make owning a second home an extremely costly endeavour and prevent them from transferring large sums of yuan out of the country directly.


...

Countries including the U.S., Denmark, France, Mexico, Japan, Turkey and Singapore have not only implemented methods to collect data on foreign investments but have also invoked tax policies to curtail the trend.

Eyeing the potential for an investment bubble in London driven by foreign investors, the U.K is implementing a capital gains tax for foreign investors selling homes beginning next year.

Hong Kong’s government has levied a 15 per cent tax for non-residents who buy property — in part to curb fears their market will be overrun by mainland Chinese speculation. Denmark forbids foreign buyers from purchasing waterfront property and the U.S. places heavy taxes on the sale of foreign-owned houses.

Meanwhile, Canada’s hands-off approach — whether out of politeness, lack of know-how or self-interest — puts it in the minority among industrialized countries by remaining in the data dark.

Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on August 30, 2014, 10:36:56 AM
There is always a bad guy; in London it was the Arabs following the oil boom, then it was the Russians, now it is the Chinese. The reality is that many of these properties are actually rented out (to friends) at below market rates -  & it is often flight money, bribe money, or money laundered funds making the purchase. Players change, but the asset itself stays; realty fees & higher property taxes are just the cost of doing business.

Locals bitch because they couldn't match the bid, are not the friends getting below market rates, & cant make their case for deferred taxes because of difficulty paying bills (as those rich guys ARE paying, & ON TIME). The fact that locals benefit from the modernized services financed by those property taxes, & higher borrow capacity resulting from rising property values - is conveniently ignored.

You don't need people actually using the place - as Abu Dhabi, & much of Dubai proves. But you have the place, & debt free, because it is an emergency asset that you can use - should you have to flee home with nothing but the shirt on your back. Exiles are routinely created every day.

Taxing is also not the answer (UK). You simply flip the place into a locals name, retain a call option at the purchase price, & agree the annual fee on the option for the next 99 years.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on August 30, 2014, 11:07:56 AM
Check out what happened to real estate in Dubai in 2008/20009. That is the problem with hot money.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on August 30, 2014, 04:47:56 PM
It's not hard to see various real estate bubbles and subsequent bursts afterward. They do happen and it will go to downside as irrationally as they do to the upside.

Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on August 31, 2014, 06:39:40 AM
Re Abu Dhabi/Dubai. Much of the building was built on money laundered funds. $ in to create a bank -> new build real estate financed by that new bank -> new real estate built at higher prices to bubble it -> loan against the appreciation to repatriate the $ in. Bank is collapsed (crises), the kingdom takes over the shiny new buildings, & offers cheap rent in Grade A buildings to anyone who would like to start-up/open a business catering to the ME. Very smart.

The same process built Vegas, & Havana; just different players. The Paris of the ME was already taken (Beirut), so we got Disney Land instead - just keep in mind that Beirut, Abu Dhabi, & Dubai were all long established trading ports before the West found them; & hot money has been around for a very long time.

On any given day the status of Hong Kong could be revoked, making it just like the rest of China - & it would wipe out the wealth of anyone in Hong Kong that is not in gold. So to insure survival ... periodically sell down/borrow against HK assets, invest the cash in Vancouver RE .. & you will never be poor. Vancouver RE gets a steady ongoing inflow of new cash - but the value of the condo to a HK buyer is primarily safety, not shelter. If it goes down 35% next week, it is largely irrelevant.

It could never happen here is fallacy - ask anyone from Beirut.

SD


 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Kiltacular on September 01, 2014, 09:17:08 PM
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on September 02, 2014, 06:09:35 AM
Most argue that RE bubbles are actually a plus. New houses get built, old areas get repurposed, infrastructure gets upgraded (water, sewage, transit, etc.), higher paying jobs from related construction, additional RE commissions, etc. But like anything, abuse it - & you will get burnt.

Canada has long had HELOCs & some of the US instruments. Unlike the US, the market levers are much more tightly controlled - & OSFI/BOC/CMHC routinely tighten to cool down markets. Folks will be angry no matter what; whether a bubble was allowed - or they were prevented from borrowing under tighter rules.

House ownership is not an entitlement, & neither is a short commute to work.
CMHC outlived its main purpose of enabling returning servicemen (WWII) to buy a house (stability) & start families, many years ago.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 02, 2014, 07:14:25 AM
Some people will argue the same thing about the internet bubble (think of all the extra fiber that was laid out, etc).

Doesn't mean a lot of people won't get creamed. RE bubbles are a plus for those who rent and wait on the sidelines or those who luck out and sell at the top and don't just turn around to buy a similarly expensive house. Not for everybody else.

(http://i.imgur.com/bTw60eA.png)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 02, 2014, 07:45:17 AM
I found this article interesting:

I think European households are wealthier than the U.S

Average US household net worth: $381,000
Average Canadian household net worth: $400,000. ( or ~$650K in Vancouver )


Despite long work hours, tremendous opportunity, and inventing so much of what we use every day (iPhone, Android Phone, iPad, Chromebook, Intel processor, Nike shoes, Google, Yahoo, YouTube, AirBnB, Pandora, etc) Americans are not the wealthiest ones in North America. Canadians are King and Queen thanks to their extraordinarily strong housing market and Social system of governance. With stronger governance comes better managed financial institutions. A wider taxation net also helps ensure that a country is more united.



http://www.financialsamurai.com/the-average-canadian-household-net-worth-is-huge/

That's counting the value of their houses, though. Look at their liquid assets and incomes and the picture will be different, I'll bet.

I'm sure american investors all seemed a lot richer too at the top of the dot-com bubble, but it wasn't real value.

I think it's crazy and circular to use house prices to justify high house prices ("see, people have a high net worth, they can afford these expensive houses. Oh, what's their net worth mostly composed of? Houses, of course....").
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on September 02, 2014, 09:18:37 AM
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?

I've sold the banks.  I've been early.

What's interesting is that CMHC insurance in force had been holding steady, and actually has been shrinking a little recently.  CMHC historically has been about a 10% ROE business (your banks thank you).  So someone has been willing to take in less premium to insure riskier than normal mortgages these days.  More evidence of irrational behavior.
 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Aberhound on September 02, 2014, 10:49:18 AM
High Vancouver RE prices creates a problem for those holding. I realize concentration of assets in High priced RE is unsafe. But I can see the massive influx of wealthy immigrants from everywhere. I wonder why they come because engineers and doctors etc. have a difficult time getting qualified here and business people have a difficult time adapting to our oligopolistic markets. But then I meet their young sons and daughters in their early 20s and I see the reason for the sacrifice. Who wouldn't want to move their children to a tolerant society with massive stores of societal trust, the type of trust that takes decades of safety and stability to develop? Further, I see technology making it easier to run international businesses from Vancouver. Then I wonder why prices aren't double or triple in a globalized world. What is the price of feeling safe? And what if winters in Toronto keep getting colder?The proportion of immigrants choosing Vancouver might increase. So I pay down debt to make it safe for me to hold RE through any conceivable correction. Hence the imbalance of assets.

Suppose one of you seeking to build an asset management business could help people like me. Could you find a pension fund that seeks to diversify their risk like a bank or pension fund in Japan and show them that they would benefit from writing no recourse first mortgages in Vancouver at say 60% LTV if the monies are used to fund portfolios of diversified assets upon which the bank can hold a charge as well ie the recourse is on both the RE and the portfolio. Problem solved especially for me if there is a clause allowing mortgage payments to come from portfolio appreciation during downturns when my income drops. Pension gets extra yield on no recourse loan, risk is reduced for both sides by diversification, you can rapidly get millions in portfolios and I can hold a lot more BAC and US long term treasuries. Buffett suggests no leverage which is what I have mostly followed. But is leverage better in some circumstances if it allows you to diversify? I think the answer is yes if the cost of borrowing is below the 6% expected returns + a margin of safety. This may be possible with the current low mortgage interest rates.
Title: Re: Garth Turner - Real Estate in Canada
Post by: shalab on September 02, 2014, 11:15:38 AM
The median stats per household is even worse in the U.S compared to Canada. U.K and Canada are also roughly on par...

http://www.freedomthirtyfiveblog.com/resources/median-and-average-net-worth

Median Net Worth               

Per Person in Canada      $81,610   2012      middleclasspoliticaleconomist.com/2013/06/us-median-wealth-only-28th-in-world.html

Per Household in Canada      $243,800   2012      http://cponline.thecanadianpress.com/graphics/2014/static/cp-median-family-net-worth.jpg

Per Person in the US ($USD)      $38,786   2012      http://www.middleclasspoliticaleconomist.com/2013/06/us-median-wealth-only-28th-in-world.html

Per Household in the US ($USD)      $77,300   2010      http://www.federalreserve.gov/Pubs/Bulletin/2012/articles/scf/scf.htm
Title: Re: Garth Turner - Real Estate in Canada
Post by: A_Hamilton on September 02, 2014, 11:35:48 AM
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?

I've sold the banks.  I've been early.

What's interesting is that CMHC insurance in force had been holding steady, and actually has been shrinking a little recently.  CMHC historically has been about a 10% ROE business (your banks thank you).  So someone has been willing to take in less premium to insure riskier than normal mortgages these days.  More evidence of irrational behavior.

The government effectively underwrites. Look at Tangible Common Equity / Assets and then Tangible Common Equity / Risk Weighted Assets in the Canadian banks and compare to JPM, BAC, etc.

Canadian banks have some of the thinnest direct capital levels of any financials on the planet. The question is if/when the Canadian economy faces a recession, will the banks be bailed out of mortgages at par by the government or will they have to raise capital. If a large hit to real estate happens nationally I think the public outcry would be that shareholders are no longer entitled to 20-30% ROE's on obscene amounts of leverage on tangible common.

I'm short the Canadian dollar...looked at the banks several times and the fact is if no recession/decline in housing happens in Canada you can get hurt very quickly.

As an aside FFH has hedged all of its Canadian exposure back to USD.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 02, 2014, 11:38:07 AM
Every time there's a bubble, people have a thousand reasons why it'll keep going.

All the attention gets focused on these reasons and people lose perspective. A few thousand wealthy foreigners obscure the fact that tens of millions of canadians are the ones primarily owning, buying and selling these houses, and their incomes haven't kept up, their debts are ballooning, and a huge part of the economy is RE, compounding risk.

Chinese princelings aren't the ones buying dilapidated 1960s bungalows for a million bucks...
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on September 02, 2014, 12:37:31 PM
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?

I've sold the banks.  I've been early.

What's interesting is that CMHC insurance in force had been holding steady, and actually has been shrinking a little recently.  CMHC historically has been about a 10% ROE business (your banks thank you).  So someone has been willing to take in less premium to insure riskier than normal mortgages these days.  More evidence of irrational behavior.

The government effectively underwrites. Look at Tangible Common Equity / Assets and then Tangible Common Equity / Risk Weighted Assets in the Canadian banks and compare to JPM, BAC, etc.

Canadian banks have some of the thinnest direct capital levels of any financials on the planet. The question is if/when the Canadian economy faces a recession, will the banks be bailed out of mortgages at par by the government or will they have to raise capital. If a large hit to real estate happens nationally I think the public outcry would be that shareholders are no longer entitled to 20-30% ROE's on obscene amounts of leverage on tangible common.


BINGO.

The Canadian government has been gifting to the banks to such a degree that it is almost comical.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on September 02, 2014, 12:53:15 PM
Keep in mind ...

Minimum DP's have been increased, & maximum LTV's increased via legislation. With all borrowers now either meeting these thresholds, or having their bank repossess & force a sale - weaker hands have been forced out & bigger cushions against loss put in place; for everybody. Sure, if you're the one repossessed you aren't happy - too bad.

If you don't have the DP or income required, you cant afford it - get over it.
Find a cheaper house, earn more income, or get someone else to front more DP for you - you are not entitled. Unlike the US, you are also being deliberately shut out, for the protection of everybody.

Lot less risk ....

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on September 02, 2014, 11:53:09 PM
Vancouver real estate has grown at 12% CAGR from 2000 onwards - that is almost 500% gain from the levels in 2000.

Amazing indeed!
Hi Shalab,

Are these numbers sourced from somewhere in this thread?   When I look at Vancouver price charts and crunch the numbers I don't see gains that high.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 04, 2014, 07:08:33 AM
From tom's other thread, I thought this also belonged here:

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on September 04, 2014, 07:27:10 AM
I really think US is well positioned for a decade or more of growth.  As the planet population doubles.... I think Canada and US are the two developed countries with the infrastructure and capacity for growth.   I'm very bullish about the US!
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on September 17, 2014, 05:56:17 AM
http://www.vancouversun.com/opinion/editorials/Barbara+Yaffe+Absentee+homebuyers+targeted+mayoral/10206155/story.html

Looks like they have an issue in Vancouver with vacant homes. Mayoral candidates are suggesting to tax people who buy homes and don't live in them.

"As much as 25 per cent of condos around Coal Harbour are believed to be unoccupied."



Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on September 17, 2014, 08:30:14 AM
Why aren't they building more units to absorb all this demand? It's not like there's a shortage of land in Canada and prices are clearly way above replacement value..
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on September 17, 2014, 08:35:18 AM
Why aren't they building more units to absorb all this demand? It's not like there's a shortage of land in Canada and prices are clearly way above replacement value..

They're are plenty of homes, people are just speculating...buying 2nd and 3rd properties
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 17, 2014, 09:05:13 AM
Why aren't they building more units to absorb all this demand? It's not like there's a shortage of land in Canada and prices are clearly way above replacement value..

They're are plenty of homes, people are just speculating...buying 2nd and 3rd properties

Yes, there's more condos being built in toronto than in the rest of north-america combined IIRC. Prices aren't high because of a lack of supply, it's a sentiment thing.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on September 17, 2014, 10:34:30 PM
http://www.bloomberg.com/news/2014-09-17/hong-kong-developers-raise-cash-to-buy-land-real-estate.html

Billionaires in HK have cut debt and are ready with cash to pick up cheaper RE.

This is the only city more expensive than Vancouver.
Title: Re: Garth Turner - Real Estate in Canada
Post by: opihiman2 on September 24, 2014, 02:17:51 PM
First, if 12% CAGR from 2000 is accurate, that is NO way sustainable.  All median housing prices per sq ft, in the U.S. at the very least, has only increased with wage inflation--which, since the late 70's, has mostly gone up with regular inflation.  The notion of housing affordability is strictly tied into incomes.  An "affordable" home should be, by a standard rule of thumb, 3-5x the household income.   A simple thought experiment will vet out that home prices cannot go up higher than incomes in the long term:

Suppose median house prices for homes are going up 1% higher than median house prices, then in 30 years, home prices will be 1.01^30 times higher than incomes (roughly 34%).  In 50 years, prices will be almost 64% higher.  That's just unsustainable.  Although, I do know that Vancouver has seem some tough times.  When I was there in 1999-2000, they were just coming out of a big recession, and back then, the USD/CAD was awesome.  The people I talked to around the city said that their local economies to a huge hit, it was hard to find jobs, etc...  So, I think that housing there must have been depressed--I'm speculating on this.  Thus, maybe the boom in housing up there is occurring from a very low point, and 12% CAGR for 14 years has now just created super expensive housing--possibly bubble territory.  So, this crap could keep going on for a few more years.  Who knows.  What I do know is that my old alma mater had probably the best value in higher ed back in the early 90's.  It was all over US News and Business reports.  Since then, though, the state has cut back majority of its funding, and tuition there has been skyrocketing.  It's insane, but I calculated the CAGR from when I went to school there, and tuition has been increasing by about 9-10% yoy for the past 20 years.  I thought in no way is that sustainable, but it has been growing at those rates for 20 years. 

So, who knows when this sucker will blow up.  But, I believe that it will.  There is no way 12% CAGR for housing prices is sustainable.  Even in the SF Bay Area, I calculated long term CAGR at just 5%.  I don't see how Vancouver has a leg up on SF's incredible tech economy--which I definitely think is in a bubble.
Title: Re: Garth Turner - Real Estate in Canada
Post by: opihiman2 on September 24, 2014, 02:18:30 PM
I really think US is well positioned for a decade or more of growth.  As the planet population doubles.... I think Canada and US are the two developed countries with the infrastructure and capacity for growth.   I'm very bullish about the US!

Are you being serious or sarcastic???  Please be the later.  PUHLEEZZZEEE
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on September 24, 2014, 03:14:09 PM
I really think US is well positioned for a decade or more of growth.  As the planet population doubles.... I think Canada and US are the two developed countries with the infrastructure and capacity for growth.   I'm very bullish about the US!

Are you being serious or sarcastic???  Please be the later.  PUHLEEZZZEEE

LOL.... i just simple minded i guess.... i wasn't sure when the planet is at 12B people... where those 6B should go.... China ? India ? Europe ?   I logically see North America, South America and Africa...    I like to think with the natural resources here ; the technology and the "matured" political system, there's a good chance good things could continue to happen.  Just my view :)
Title: Re: Garth Turner - Real Estate in Canada
Post by: original mungerville on September 24, 2014, 03:36:33 PM
First, if 12% CAGR from 2000 is accurate, that is NO way sustainable.  All median housing prices per sq ft, in the U.S. at the very least, has only increased with wage inflation--which, since the late 70's, has mostly gone up with regular inflation.  The notion of housing affordability is strictly tied into incomes.  An "affordable" home should be, by a standard rule of thumb, 3-5x the household income.   A simple thought experiment will vet out that home prices cannot go up higher than incomes in the long term:

Suppose median house prices for homes are going up 1% higher than median house prices, then in 30 years, home prices will be 1.01^30 times higher than incomes (roughly 34%).  In 50 years, prices will be almost 64% higher.  That's just unsustainable.  Although, I do know that Vancouver has seem some tough times.  When I was there in 1999-2000, they were just coming out of a big recession, and back then, the USD/CAD was awesome.  The people I talked to around the city said that their local economies to a huge hit, it was hard to find jobs, etc...  So, I think that housing there must have been depressed--I'm speculating on this.  Thus, maybe the boom in housing up there is occurring from a very low point, and 12% CAGR for 14 years has now just created super expensive housing--possibly bubble territory.  So, this crap could keep going on for a few more years.  Who knows.  What I do know is that my old alma mater had probably the best value in higher ed back in the early 90's.  It was all over US News and Business reports.  Since then, though, the state has cut back majority of its funding, and tuition there has been skyrocketing.  It's insane, but I calculated the CAGR from when I went to school there, and tuition has been increasing by about 9-10% yoy for the past 20 years.  I thought in no way is that sustainable, but it has been growing at those rates for 20 years. 

So, who knows when this sucker will blow up.  But, I believe that it will.  There is no way 12% CAGR for housing prices is sustainable.  Even in the SF Bay Area, I calculated long term CAGR at just 5%.  I don't see how Vancouver has a leg up on SF's incredible tech economy--which I definitely think is in a bubble.

Isn't 3-5x on the high side for North America. I think something like 2.5 - 3.5x is the norm historically (but I'm going from memory of a GMO slide from a few years ago).
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on September 24, 2014, 03:56:27 PM
Africa is supposed to be the centre for future population growth. 4 B from the current 1 B people.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 24, 2014, 04:12:58 PM
Extrapolating population numbers is hard. Iran used to have like 7 kids per women a few decades ago and now I think they're below replacement rate (2.1). Things change fast.

Latest numbers I've seen show us plateauing under 10 billion, but that could change too...

Not that I would base in any way my thinking on Canada's RE on this...
Title: Re: Garth Turner - Real Estate in Canada
Post by: opihiman2 on September 24, 2014, 07:11:01 PM
I really think US is well positioned for a decade or more of growth.  As the planet population doubles.... I think Canada and US are the two developed countries with the infrastructure and capacity for growth.   I'm very bullish about the US!

Are you being serious or sarcastic???  Please be the later.  PUHLEEZZZEEE

LOL.... i just simple minded i guess.... i wasn't sure when the planet is at 12B people... where those 6B should go.... China ? India ? Europe ?   I logically see North America, South America and Africa...    I like to think with the natural resources here ; the technology and the "matured" political system, there's a good chance good things could continue to happen.  Just my view :)

Ok well, I was just wondering, because you said the global population doubles.  I'm like, 7 billion to 14 billion?  I don't think that will be the case for another 200 years or if ever.  In fact, I think the general consensus is that the global population will top out at 10-11 billion and then start to fall. 

But, in terms of land mass, Canada has most countries beat.  They should just start creating more cities and develop them.  You just can keep jamming people into Vancouver. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: opihiman2 on September 24, 2014, 07:38:05 PM
First, if 12% CAGR from 2000 is accurate, that is NO way sustainable.  All median housing prices per sq ft, in the U.S. at the very least, has only increased with wage inflation--which, since the late 70's, has mostly gone up with regular inflation.  The notion of housing affordability is strictly tied into incomes.  An "affordable" home should be, by a standard rule of thumb, 3-5x the household income.   A simple thought experiment will vet out that home prices cannot go up higher than incomes in the long term:

Suppose median house prices for homes are going up 1% higher than median house prices, then in 30 years, home prices will be 1.01^30 times higher than incomes (roughly 34%).  In 50 years, prices will be almost 64% higher.  That's just unsustainable.  Although, I do know that Vancouver has seem some tough times.  When I was there in 1999-2000, they were just coming out of a big recession, and back then, the USD/CAD was awesome.  The people I talked to around the city said that their local economies to a huge hit, it was hard to find jobs, etc...  So, I think that housing there must have been depressed--I'm speculating on this.  Thus, maybe the boom in housing up there is occurring from a very low point, and 12% CAGR for 14 years has now just created super expensive housing--possibly bubble territory.  So, this crap could keep going on for a few more years.  Who knows.  What I do know is that my old alma mater had probably the best value in higher ed back in the early 90's.  It was all over US News and Business reports.  Since then, though, the state has cut back majority of its funding, and tuition there has been skyrocketing.  It's insane, but I calculated the CAGR from when I went to school there, and tuition has been increasing by about 9-10% yoy for the past 20 years.  I thought in no way is that sustainable, but it has been growing at those rates for 20 years. 

So, who knows when this sucker will blow up.  But, I believe that it will.  There is no way 12% CAGR for housing prices is sustainable.  Even in the SF Bay Area, I calculated long term CAGR at just 5%.  I don't see how Vancouver has a leg up on SF's incredible tech economy--which I definitely think is in a bubble.

Isn't 3-5x on the high side for North America. I think something like 2.5 - 3.5x is the norm historically (but I'm going from memory of a GMO slide from a few years ago).

Yeah, 5x is definitely on the high side.  But, it's doable.  I think 10x is what it was at the height of the real estate bubble, and that's like, dumpster diving for food because all of one's income is going into their mortgage.

I have this interesting story about that too.  I met and dated this girl online back in 2006 or so.  This was the height of the real estate bubble in the Bay Area.  She was living in the East Bay, and she just bought a house.  It was a crappy house, but that's all she could afford on her single and moderate income.  I found out that she paid a little over 11x her income for that house.  She then later told me on our first date that she couldn't afford food, and was scrapping by whatever she could get at the office or from her back yard.  I almost LoL'ed but then realized she was serious.  So, I paid for her dinner.  After awhile, I started realizing that she was doing this online dating to meet guys who would take her out and buy her dinner or lunch.  Man, people will do whatever nowadays to buy a house.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 25, 2014, 06:33:13 AM
But, in terms of land mass, Canada has most countries beat.  They should just start creating more cities and develop them.  You just can keep jamming people into Vancouver.

Canada is almost a 2D country, though. Most people live in the South, along the US border. Not that many people want to live in the Yukon or Northwest Territories... The US is smaller in total area, but a lot more of it is pleasant to live in.

But the whole "running out of space" thing isn't a very convincing argument. China has over a billion people and still has a lot of space to build new cities (which they do, many of them are even empty).. The earth's carrying capacity depends more on our sources of energy and food than on actual living space for people. If we had 100% clean energy and very efficient sources of food that don't require too much arable land, we could probably fit 100 billion people on Earth easily.
Title: Re: Garth Turner - Real Estate in Canada
Post by: opihiman2 on September 25, 2014, 10:55:49 AM
But, in terms of land mass, Canada has most countries beat.  They should just start creating more cities and develop them.  You just can keep jamming people into Vancouver.

Canada is almost a 2D country, though. Most people live in the South, along the US border. Not that many people want to live in the Yukon or Northwest Territories... The US is smaller in total area, but a lot more of it is pleasant to live in.

But the whole "running out of space" thing isn't a very convincing argument. China has over a billion people and still has a lot of space to build new cities (which they do, many of them are even empty).. The earth's carrying capacity depends more on our sources of energy and food than on actual living space for people. If we had 100% clean energy and very efficient sources of food that don't require too much arable land, we could probably fit 100 billion people on Earth easily.

Oh, most definitely.  I read a while ago that if you took the 7 billion people on the planet, stood them shoulder to shoulder, we could all easily fit in LA county.  There is a lot of land mass for sure.  But, even from a logistical point, it's much better to have more cities than one big one.  I read a really good urban planning paper that used a novel simulation in Sim City (pretty LOL, but it was really interesting) to show this.  Although, some guy did develop the most evolved city ever using one megapolis in Sim City. 

Anyways, I agree.  Resources will be our major constraint to population growth.  Just like it is for bacteria in a petri dish.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on October 27, 2014, 08:53:19 AM
http://qz.com/287510/where-in-the-world-you-should-rent-instead-of-buying/
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on November 20, 2014, 07:34:18 PM
http://www.bnn.ca/News/2014/11/20/CMHC-drops-hints-housing-market-may-be-overvalued.aspx
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on November 20, 2014, 07:42:53 PM
Some nice charts via Ben Rabidoux on twitter:

(https://pbs.twimg.com/media/B27TbzyCQAIlG4M.png:large)

(https://pbs.twimg.com/media/B27UauBCIAEUk1R.png:large)

(https://pbs.twimg.com/media/B27UvjUCIAErX4G.png:large)

(https://pbs.twimg.com/media/B27VYpGCEAAz9rz.png:large)

(https://pbs.twimg.com/media/B27V61jCMAAx-oB.png:large)
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on November 25, 2014, 06:26:16 AM
Unless the contrarian play is a severely depressed US housing market?  :P

................no, I don't believe that either.

Title: Re: Garth Turner - Real Estate in Canada
Post by: CanadianMunger on November 29, 2014, 08:54:12 PM
If oil prices stay low, are they finally the straw that breaks the Canadian housing markets back?

-CM
Title: Re: Garth Turner - Real Estate in Canada
Post by: Viking on November 29, 2014, 11:35:17 PM
My guess is interest rates are the key. As long as rates stay low the machine will continue to roll. Once mortgage rates move up a couple of percent things will get interesting.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on December 03, 2014, 10:56:40 AM
http://www.bnn.ca/News/2014/12/3/Canadians-now-owe-more-than-15-trillion-in-consumer-debt.aspx

(https://pbs.twimg.com/media/B381PeDIUAAs8dO.png:large)
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on December 03, 2014, 11:05:54 AM
http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/price-for-detached-home-in-greater-vancouver-nears-1-million/article21887389/
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on December 10, 2014, 08:54:39 AM
http://www.theglobeandmail.com/report-on-business/economy/bank-of-canada-says-housing-market-overvalued-by-as-much-as-30/article22021768/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on January 09, 2015, 09:31:32 AM
I thought this was interesting, especially the graph on page 3:



http://policyschool.ucalgary.ca/sites/default/files/research/kneebone-unemplfinal.pdf

(https://pbs.twimg.com/media/B67H8XECQAA68xw.png)

Found via: https://twitter.com/fcfyield/status/553599644719407104
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on January 09, 2015, 10:07:38 AM
Hilariously, Mr Market is still pricing Canadian banks at about 2xBV.
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on January 21, 2015, 08:14:04 AM
I may agree that Canada is in a bubble - I need some more data.

Just curious - if I buy an average home or condo in Canada what is the unlevered cap rate for the owner?
This should basically be rent minus taxes, home insurance, maintenance, hoa fees if any and other misc.  I would exclude leasing fees, vacancy, utilities (pd by owner I assume if he rented it to a tenant).   For maintenance I would assume $1 a SFT for a home which is probably roughly right.

This helps me quantify the unlevered return (excluding appreciation/depreciation) of buying a home.

For example - in Southern California the cap rate for average places went to ~2% in 2006.  That is a P/E of 50 unlevered and makes no fundamental sense. 

My area in Texas is ~ 5%   15k on 300k home which is nothing great but not so horrible either.

Thank You
Title: Re: Garth Turner - Real Estate in Canada
Post by: no_free_lunch on January 21, 2015, 08:40:36 AM
Where I am, ballpark, 3-5%.  5% would be a multi-tenant building and would assume 100% occupancy and minimal problems from tenants, e.g. not realistic long-term.  That is also after property tax/insurance/maintenance/etc but before income tax.

EDIT: Also that is based on current rental prices which have risen substantially (roughly 100%) over the past decade.
Title: Re: Garth Turner - Real Estate in Canada
Post by: moody202 on January 21, 2015, 09:04:11 AM
I may agree that Canada is in a bubble - I need some more data.

Just curious - if I buy an average home or condo in Canada what is the unlevered cap rate for the owner?
This should basically be rent minus taxes, home insurance, maintenance, hoa fees if any and other misc.  I would exclude leasing fees, vacancy, utilities (pd by owner I assume if he rented it to a tenant).   For maintenance I would assume $1 a SFT for a home which is probably roughly right.

This helps me quantify the unlevered return (excluding appreciation/depreciation) of buying a home.

For example - in Southern California the cap rate for average places went to ~2% in 2006.  That is a P/E of 50 unlevered and makes no fundamental sense. 

My area in Texas is ~ 5%   15k on 300k home which is nothing great but not so horrible either.

Thank You

The cap rates also vary by type of property. As an example the lower priced properties have a higher cap rate....the slums have the best cap rate!!!

Also -- In my area I have found single family homes have higher cap rates than condos but also come we more headaches.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on January 21, 2015, 09:17:21 AM
http://www.airdrie.ca/getDocument.cfm?ID=2722

http://renx.ca/wp-content/uploads/2014/10/14oct16-ColliersQ3-caprates1.pdf

Sub 4.5% cap rates in Vancouver/Toronto for multi-family units.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on January 21, 2015, 12:12:51 PM
http://www.bnn.ca/News/2015/1/21/Shadow-lenders-jump-into-mortgage-market-as-banks-clamp-down.aspx

This is scary
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on January 21, 2015, 12:15:23 PM
http://www.bnn.ca/News/2015/1/21/Shadow-lenders-jump-into-mortgage-market-as-banks-clamp-down.aspx

This is scary

Yep. Ben Rabidoux has been ringing the alarm bell on those for a while. He's worth following on Twitter, he knows his stuff about Canadian RE.
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on January 21, 2015, 12:44:59 PM
Actually I was interested in single family home cap rates or single unit tenant condos.
 
Apartment building cap rates are generally higher.  5% is super low though even for multifamily.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on January 21, 2015, 01:33:51 PM
Ben Rabidoux has been ringing the alarm bell on those for a while. He's worth following on Twitter, he knows his stuff about Canadian RE.

I want to follow him, I really do. But I can't follow someone who posts dozens of times a day.

Although this quote is pretty arrogant so maybe not following him won't be that hard.
Quote
Since 2013 I've consistently said that the BoC's next move was more likely to be a cut than a hike. You're welcome, world
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on January 21, 2015, 02:18:39 PM
Couple of interesting data points on real estate in Canada.

Shiller data
http://www.macleans.ca/economy/realestateeconomy/a-canadian-housing-chart-that-puts-the-bubble-in-perspective/

Canada price to rent -  Economist
http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
Title: Re: Garth Turner - Real Estate in Canada
Post by: moody202 on January 21, 2015, 02:46:45 PM
http://www.bnn.ca/News/2015/1/21/Shadow-lenders-jump-into-mortgage-market-as-banks-clamp-down.aspx

This is scary

Nothing new. This happens in US also. In fact you can buy these loans online at sites like http://www.loanmls.com/content/buy-private-mortgages.html

I don't understand the point how this is threat to the system as most of the lenders are individuals or small entities. Their collapse has very little impact on the system.

Title: Re: Garth Turner - Real Estate in Canada
Post by: LesPaul on January 21, 2015, 06:28:20 PM
http://www.bnn.ca/News/2015/1/21/Shadow-lenders-jump-into-mortgage-market-as-banks-clamp-down.aspx

This is scary

Nothing new. This happens in US also. In fact you can buy these loans online at sites like http://www.loanmls.com/content/buy-private-mortgages.html

I don't understand the point how this is threat to the system as most of the lenders are individuals or small entities. Their collapse has very little impact on the system.

I'm inclined to agree. The term 'Shadow Banking' even sounds like it was written to generate attention/worry. I know a few people personally who offer these private funds and appear to make a killing. On the other hand, I've heard stories about rather unsavoury characters (both lenders and borrowers) and deals that have gone very wrong. It's comforting that none of these mortgages are CMHC or Genworth/CG insured.

I don't know enough to share why these borrowers don't just go to HCG, perhaps someone else here can describe that with greater knowledge.

At the same time, I kind of cringe when I see a Toronto pawn broker offering mortgages on TV.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Matson125 on January 21, 2015, 08:15:46 PM
Ben Rabidoux has been ringing the alarm bell on those for a while. He's worth following on Twitter, he knows his stuff about Canadian RE.

I want to follow him, I really do. But I can't follow someone who posts dozens of times a day.

Although this quote is pretty arrogant so maybe not following him won't be that hard.
Quote
Since 2013 I've consistently said that the BoC's next move was more likely to be a cut than a hike. You're welcome, world
+1 I unfollowed him as well, it was getting to be too much.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on January 22, 2015, 06:00:34 AM
Ben Rabidoux has been ringing the alarm bell on those for a while. He's worth following on Twitter, he knows his stuff about Canadian RE.

I want to follow him, I really do. But I can't follow someone who posts dozens of times a day.

Although this quote is pretty arrogant so maybe not following him won't be that hard.
Quote
Since 2013 I've consistently said that the BoC's next move was more likely to be a cut than a hike. You're welcome, world
+1 I unfollowed him as well, it was getting to be too much.

I never read him as arrogant. Those types of messages always sounded tongue in cheek to me.

He posts a lot of RE stats and charts that I'm not finding elsewhere, so I'm quite happy to follow him. To each their own.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on January 22, 2015, 06:30:08 AM
I never read him as arrogant. Those types of messages always sounded tongue in cheek to me.

The message itself wasn't arrogant as much as the "You're Welcome World".

Very Harry Longish.

I read through a bunch of tweets last night and every now and then he's a bit arrogant IMO. His reply to David Baskin yesterday was a bit immature. The "seriously!" tweet.
He's the president of his own advisory company and instead of debating the point of DB's tweet all he does is the high school reply, "seriously!"

Don't get me wrong, his take on Canadian real estate seems solid, just some of his tweets rub me the wrong way.
Hardcore value retweets the good stuff from him so I'm not missing out.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on January 22, 2015, 06:47:17 AM
The "You're welcome world" is the part that I read as tongue in cheek. Maybe I have a hard time believe that anyone can write things like that non-ironically until they release an ebook with that title :)
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on January 22, 2015, 07:31:33 AM
The "You're welcome world" is the part that I read as tongue in cheek. Maybe I have a hard time believe that anyone can write things like that non-ironically until they release an ebook with that title :)

Don't forget the $200 price tag.  ;D
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on January 22, 2015, 12:29:42 PM
I believe that Harry's book is free now giving credence to the saying "Advice is worth what you pay for it" ?
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on January 22, 2015, 01:21:14 PM
I believe that Harry's book is free now giving credence to the saying "Advice is worth what you pay for it" ?

I checked out of curiosity and didn't find it on Amazon.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on January 22, 2015, 03:01:42 PM
As far as I can see Harry wrote two books - so far. One was 24 pages and the other 36 pages and I believe he was asking over $200 each which worked out to about $10 per page. Of course that may be a bargain considering it is billed as "The Most Powerful Trading System Ever Publicly Revealed".

I didn't try downloading it but you might be able to download it here?
http://collectingbooks.net/1559-you-re-welcome-planet-earth-the-most-powerful.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on January 22, 2015, 03:23:54 PM
Still overpriced.  :P

Title: Re: Garth Turner - Real Estate in Canada
Post by: beerbaron on January 22, 2015, 03:48:06 PM
Still overpriced.  :P

The title is the best part of the book I heard.

BeerBaron
Title: Re: Garth Turner - Real Estate in Canada
Post by: peter1234 on January 22, 2015, 11:25:44 PM
He had 3 books on amazon, but they all seem to be gone.
 ;D

He seems to have 3 books on Amazon, 1 "expensive", 2 "cheap".
 ;) :) ;D

http://www.amazon.com/Youre-Welcome-Planet-Earth-Convexity-ebook/dp/B00F43EHF2/ref=la_B00DC7EPJK_1_1?s=books&ie=UTF8&qid=1401389638&sr=1-1

http://www.amazon.com/Youre-Welcome-Planet-Earth-Powerful-ebook/dp/B00DBT66MI/ref=la_B00DC7EPJK_1_2?
s=books&ie=UTF8&qid=1401389638&sr=1-2

http://www.amazon.com/Youre-Welcome-Planet-Earth-INTEGRATING-ebook/dp/B00KKVO334/ref=la_B00DC7EPJK_1_3?s=books&ie=UTF8&qid=1401389638&sr=1-3
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on January 23, 2015, 05:06:32 AM
Probably sold out.

However, you can still license his “least expensive strategy” beginning at just $900,000.

http://seekingalpha.com/author/harry-long
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on February 02, 2015, 02:40:04 PM
http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/calgary-housing-market-hits-seven-year-low/article22749863/?cmpid=rss1
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 05, 2015, 09:10:18 AM
http://m.theglobeandmail.com/report-on-business/economy/new-alarm-bells-ringing-over-household-debt/article22797037/?service=mobile

Quote
“Canada had the second-biggest jump in household debt-to-income ratios of any country other than Greece between 2007 and the second quarter of 2014 […] Canada and Australia along with a number of countries in northern Europe “now have larger household debt burdens than existed in the U.S. or the U.K. at the peak of the credit bubble””
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on February 11, 2015, 01:32:01 PM
Anyone know why Canada's home price bubble did not bust when the US went into the Great Recession? 
Seems like Canadian home prices dipped a little then came roaring back.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on February 11, 2015, 02:17:00 PM
Anyone know why Canada's home price bubble did not bust when the US went into the Great Recession? 
Seems like Canadian home prices dipped a little then came roaring back.

Wasn't the U.S.'s main problem sub-prime lending? We didn't have that here, or at least to the extreme as the U.S.
Title: Re: Garth Turner - Real Estate in Canada
Post by: A_Hamilton on February 11, 2015, 03:11:47 PM
Anyone know why Canada's home price bubble did not bust when the US went into the Great Recession? 
Seems like Canadian home prices dipped a little then came roaring back.

Wasn't the U.S.'s main problem sub-prime lending? We didn't have that here, or at least to the extreme as the U.S.

The only major  economies on the globe that didn't collapse in 2008 were commodity driven (Canada and Australia) riding the China/ high oil price bubble or had a command economy (China). Canada was starting to collapse and then oil prices reversed course in a hurry.

I'm not sure there is much Canada can do to avoid it from a policy perspective (in the near term, over 20 years maybe continued diversification away from commodities and banking), but I think if commodity weakness really takes hold the country is going to have a very nasty recession. 



 
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 11, 2015, 03:24:47 PM
I concur with A_ Hamilton.

The stimulus in China saved the day for Australia, Brazil and Canada. As China moves away from investment led growth it will be tough for these countries because all of them have real estate bubbles backed by higher personal debt levels than the US or UK back in 2007. The oil rigs had jobs that paid $120,000 to $300,000 for high school graduates. It is tough to earn those incomes in other industries and support the debt/lifestyle individuals may have taken on.

For perspective - China was buying 50% of global production of several commodities at it's peak. It's tough for any other country to replace that kind of demand.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 11, 2015, 03:27:54 PM
I think that's likely correct. Canada benefited from the commodities boom while pretending that what made it get through the crisis was actually prudent citizens and institutions. It's quite clear that debt levels higher than the U.S. at its peak and houses that cost almost 2x what they cost in the US aren't exactly a prudent state to be in...
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 11, 2015, 04:03:33 PM
It will get nasty if this impacts the housing industry in Canada (which I expect it to).

Housing and related industries are around 25% of GDP and investment in housing is over 7%. The commodity crash may lead to people losing houses when their debt levels are at their highest levels in history. At 70% home ownership it could get interesting as future demand is going to be limited when an average house costs 5.5 times the median household income. In some cities, it is at 10x.

Canada does not need sub-prime lending - there are enough investors who have pooled funds and lend money privately at 12-14% on 2nd/3rd mortgages. These funds are usually borrowed at 3.35% from FI's using individuals equity in their own residence. The boom has gone on for so long a lot of home owners have made this is a source of income for themselves. Most of these guys have no past experince of downturns and have no idea what they are getting into. On $500,000 HELOC at 10% spread they could be earning $50,000, and, as far as they understand with no risk.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on February 11, 2015, 04:05:06 PM
Canada benefited from the commodities boom while pretending that what made it get through the crisis was actually prudent citizens and institutions.

Don't forget our Conservative government. They've been given credit also, worthy or not.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 11, 2015, 04:07:26 PM
I am sure the increase in amortization to 40 years with 0% down helped along with other steps taken to help Canadians buy houses. That was the governments contribution.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 11, 2015, 04:14:54 PM
The chest-puffing and self-back-patting by Canada about all this reminds me of Europe right after the subprime crisis started in the US. I remember reading Economist articles quoting European politicians gloating and saying that American capitalism was dead, the European model had triumphed, and Americans should come over to Europe to see how it's done, etc.

How did that turn out?
Title: Re: Garth Turner - Real Estate in Canada
Post by: EliG on February 11, 2015, 04:19:45 PM
Questions to Canadians:

Are any of you still buying USD at the current level?

I have about 15% of portfolio sitting in cash (CAD). CAD is trading below purchasing power parity (~82c). It's annoying to buy USD here. On the other hand, it may be not too late if the worst predictions about Canadian economy come true.

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 11, 2015, 04:21:31 PM
Not buying anymore. Loaded up on USD over the last 10 years when the US was on sale.

I am building CAD cash as I believe Canada is about to go on sale.

PS. Should add, I am no expert.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on February 11, 2015, 06:25:35 PM
Anyone here live in Toronto/Vancouver/Calgary, with kids but do not own a house?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on February 11, 2015, 06:44:23 PM
It's very normal to raise a family in a 1000sf box.... they've done it in HK, Tokyo, Seoul , Taipei, Shanghai.....  no reason why we can't in Toronto or Vancouver. 

I live in a condo in Vancouver - I can easily get a house about 1h commute away from work for about the same price.   I made the choice I don't want to do 1h x 2 each day for work.... :))

Gary
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on February 11, 2015, 06:49:22 PM
Sorry, I mean renting a place rather than owning it.

The price is high, but hard not to buy one when you have kids... is it not?


Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 11, 2015, 07:00:38 PM
Sorry, I mean renting a place rather than owning it.

The price is high, but hard not to buy one when you have kids... is it not?

Why would it be "hard not to buy a place" when you have kids? In many countries, most people rent, and I think they still manage to reproduce.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Range on February 11, 2015, 07:02:53 PM
Sorry, I mean renting a place rather than owning it.

The price is high, but hard not to buy one when you have kids... is it not?

Sincerely not trying to be a jerk... but why would it be different if you have kids or not?

A simple lease vs. buy analysis or implied cap rate on purchase price is what I would look at.  I don't see how kids fit into either of those equations.

(I don't have kids so I could be completely naive here)
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on February 11, 2015, 07:10:40 PM
It's just harder to move around when you have kids, neighborhood, school, etc...

Title: Re: Garth Turner - Real Estate in Canada
Post by: Potato on February 11, 2015, 08:53:24 PM
Anyone here live in Toronto/Vancouver/Calgary, with kids but do not own a house?

Yes, in Toronto with one kid; we rent a detached 3-bdrm near the north end of the subway system. Before that I rented a detached and then half of a duplex in London, ON. Finding a place with space is harder than finding a condo, but it's far from impossible. Took about two months of looking last time to find a place to settle in that was decently renovated and in a good neighbourhood, and there was at least one candidate coming up each week.

As for life with a kid while renting, it's not hard at all, in fact it's awesome. When there was a small leak in the roof I just called the landlord, and they took care of it -- I didn't have to spend precious time I could be napping calling and screening contractors or cracking the whip to get the job done. We were in the place in London (before getting pregnant) for 4 years, we've been here for over 3 and just signed another lease to secure another year. Even if at the end of that we move, it's hardly more moving around than typical owners these days.

And the price:rent here is just insane, and getting crazier every year. I don't know why anyone is buying at these prices (well, I do -- they don't even consider renting, as the question seems to imply here).
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 11, 2015, 09:07:23 PM
Same here - Vancouver 2 kids and renting. Rent a house.

Have more cashflow than most I know who are house rich but cash poor. But, they would brag at every dinner how much money they had made and how much their house was worth. Not so much over the last couple of years as most of the prices have plateaued.

I can sense the psychology changing. It is still considered an Alberta issue at this point. Easier to bury my head in the sand than accept something terrible is about to transpire. To be seen how it plays out.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gr33ngi4nt on February 12, 2015, 06:35:22 AM
I came across these charts yesterday. I suspect the mix for Toronto (which doesn't break out multis vs. singles) is more heavily skewed to multis than in the Ontario chart. Pretty scary.

I just signed a lease for a 1br condo in Toronto. During the viewing and negotiating process you could really sense how desperate the agents/landlord are to get the units rented. Mind you, it is in the middle of winter, kids still in school, and multiple condos completed during the same month. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: frommi on February 12, 2015, 07:26:15 AM
Does it make sense to short canadian banks based on this insight?
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on February 12, 2015, 08:00:41 AM
Thanks for the replies of why Canadian homes didn't crash.

I am in the US and I think it may be easier to spot bubbles when you are outside of the country.  Less koolaid being offered daily!  I think homes in Canada are about 75% overvalued.  I got that from looking at the economist website and comparing the average long term real price and price to rent and both work out to ~75% overvalued.  The US wasn't that overvalued overall.  If I owned one of these overpriced homes I would immediately sell and rent.  That can be a very significant amount of money.

I agree that a bunch of other places are in bubbles too, China, Australia, etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on February 12, 2015, 08:14:14 AM
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 12, 2015, 08:18:49 AM
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)

Interest rates are similarly low in many other places, yet houses aren't as expensive as in Canada.

I think what will matter in the end is that house prices have completely disconnected from wages. People are barely able to afford housing even with the help of super low interest rates. Most people justify buying because they think prices will keep rising and 1) if they don't buy now, they'll never be able to and 2) over time they'll make money on their house.

As soon as sentiment changes and people realize that trees don't grow to the sky, I think things can start to happen fairly quickly.
Title: Re: Garth Turner - Real Estate in Canada
Post by: petec on February 12, 2015, 08:24:24 AM
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)

Interest rates are similarly low in many other places, yet houses aren't as expensive as in Canada.

I think what will matter in the end is that house prices have completely disconnected from wages. People are barely able to afford housing even with the help of super low interest rates. Most people justify buying because they think prices will keep rising and 1) if they don't buy now, they'll never be able to and 2) over time they'll make money on their house.

As soon as sentiment changes and people realize that trees don't grow to the sky, I think things can start to happen fairly quickly.

+1 and I fear the UK is in the same position.   Although, I do think that a decade or so of ultralow rates is a possibility, as per the previous post.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 12, 2015, 08:28:03 AM
+1 and I fear the UK is in the same position.   Although, I do think that a decade or so of ultralow rates is a possibility, as per the previous post.

That's possible, but I don't think interest rates have to rise for sentiment to change (at least in Canada, I'm less familiar with other markets).

The current oil crash could be the final nail in the coffin. Mining (esp. junior) has been depressed for a few years, and now this. That's a big chunk of the Canadian economy, and especially, a very visible chunk. Bad news are hard to ignore when you have no margin of safety (record debt levels, etc).
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on February 12, 2015, 08:29:58 AM
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)


Both are fair points.  I have no idea when interest rates will rise.   We are in some weird times with interest rates though.
~140 year lows on the 10 year US treasury yield.  140 years!  http://www.multpl.com/interest-rate/
Negative interest rates in Germany too.  Which is just insane to me.
For interest rates to stay low you would have to believe investors would accept 0 or negative real interest rates for an extended period which I think is unlikely.   But who knows - I am no expert and if you had told me German interest rates would be negative I would not have guessed that.  BTW - German residential real estate seems roughly fairly valued.  Japan is probably also.

I think there is a benefit for the levered buyer on a present value basis. But the risk seems to be on the downside at these prices.

A lot of people attribute the current central bank actions of lowering rates to causing bubbles, etc.  It may be partially the reason - hard to say how much though.  In the late 1920's, ~2000, and 2006 interest rates were higher and there were bubbles in addition to many other times.  No real estate bubbles in Germany and Japan housing that I know of now.  So it seems to me that the overriding point is human nature which which gets caught up in bubbles like teenager drinking beer.
Title: Re: Garth Turner - Real Estate in Canada
Post by: petec on February 12, 2015, 08:33:50 AM
+1 and I fear the UK is in the same position.   Although, I do think that a decade or so of ultralow rates is a possibility, as per the previous post.

That's possible, but I don't think interest rates have to rise for sentiment to change (at least in Canada, I'm less familiar with other markets).

The current oil crash could be the final nail in the coffin. Mining (esp. junior) has been depressed for a few years, and now this. That's a big chunk of the Canadian economy, and especially, a very visible chunk. Bad news are hard to ignore when you have no margin of safety (record debt levels, etc).

I don't think interest rates have to be the trigger either.   But (speaking for the UK, and specifically London) I think the psychology of ownership is so strong that it will take time, or a real crisis, to change it.   It's just been so long since anyone really got hurt owning property here that people don't consider the downside.   I'm not even sure most have any way to visualise the downside and the leverage.   And they don't have to because so far every dip has been temporary since the 1970s.   Housing is a) basically the only investment option most laypeople have, b) a surefire winner in the popular psychology, and c) an essential that seems only to get more expensive.   You can understand why the mindset exists and I do think it will take time, or a crisis, to turn.
Title: Re: Garth Turner - Real Estate in Canada
Post by: petec on February 12, 2015, 08:35:59 AM

A lot of people attribute the current central bank actions of lowering rates to causing bubbles, etc.  It may be partially the reason - hard to say how much though.  In the late 1920's, ~2000, and 2006 interest rates were higher and there were bubbles in addition to many other times.  No real estate bubbles in Germany and Japan housing that I know of now.  So it seems to me that the overriding point is human nature which which gets caught up in bubbles like teenager drinking beer.

Surely it's the direction of rates that matters, not the level?   My underdstanding is that pretty much every bubble has been preceded by easing monetary policy.   But clearly the teenager/beer psychology is also key - the two interact with each other.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on February 12, 2015, 08:48:01 AM
[quote author=mcliu link=topic=6314.msg210631#msg210631 date=142375765

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)
[/quote]

What are the chances a recession comes in the next decade? I think the odds are higher than rates rising.
Title: Re: Garth Turner - Real Estate in Canada
Post by: petec on February 12, 2015, 08:56:19 AM
[quote author=mcliu link=topic=6314.msg210631#msg210631 date=142375765

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)

What are the chances a recession comes in the next decade? I think the odds are higher than rates rising.
[/quote]

+1
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 09:13:07 AM
It won't be rates that pricks this bubble. A simple recession will do it. Canadians have way too much debt and can't afford their homes a zero rates.

There is absolutely no evidence to backup any of your assumptions.
Title: Re: Garth Turner - Real Estate in Canada
Post by: frommi on February 12, 2015, 09:34:39 AM
It won't be rates that pricks this bubble. A simple recession will do it. Canadians have way too much debt and can't afford their homes a zero rates.

There is absolutely no evidence to backup any of your assumptions.

When i recall it correctly than the real estate bubbles in Netherlands and Spain popped because of a recession, not because of rising interest rates. I can imagine that under rising interest rates inflation is rising, so house prices/wages possibly rise too.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on February 12, 2015, 09:40:35 AM
http://www.bnn.ca/News/2015/2/12/Genworth-warns-of-rising-losses-on-mortgages-from-oil-sensitive-Alberta.aspx
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 09:55:09 AM
I look at real life examples for what can happen - in Europe, US and Japan - housing prices in several countries are lower even though interest rates today are much lower than at the peak of the housing cycle.

To me this is enough evidence to show that prices can be lower as interest rates drop if debt levels are too high.

Human behaviour in the market breaks all the rules taught in economics - lower interest rates do not lead to higher asset prices in these instances.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 09:57:40 AM
This is why I believe 50cent$s maybe be right.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 12, 2015, 10:07:00 AM
Housing is a very emotional purchase. When you buy stocks or bonds, you calculate your returns and (hopefully) are somewhat rational about it.

Most houses aren't bought like that. People usually live in them, so there's no rent income, and they tend to be bought because "it's what you do when you reach a certain stage in your life", because "everybody I know is doing it", and because of social pressure from your mother in law or whatever.

That's why I think what matters most is sentiment, and who knows what can make it turn, but I know that confidence is built over time, but lack of confidence can be very very sudden. Looking at interest rates is looking at it more rationally than most people look at it; in fact, many people now buy houses like they buy cars (stupidly), just by looking at the monthly payment rather than at the actual price + interests.
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on February 12, 2015, 10:14:41 AM
Has there been any incredibly dumb lending in Canada like the US had with subprime, etc?  If so who has been the most aggressive?
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 10:19:08 AM
When i recall it correctly than the real estate bubbles in Netherlands and Spain popped because of a recession, not because of rising interest rates. I can imagine that under rising interest rates inflation is rising, so house prices/wages possibly rise too.

Before the housing crashes in Netherlands, Spain, US, Japan interest rates were rising.

Also, did the housing market crash because of the recession? Or was the recession caused by the housing crash?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 10:24:39 AM
Higher interest rates lead to a slower economy which inturn leads to job losses. This leads to housing bubbles being pricked.

How does it matter what the reason for high paying jobs being lost is?

If the commodity crash casuses widespread job losses in an economy that is dependent on that sector - the end result should be the same.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 10:30:00 AM
If regulated FIs could lend with 0% down and looked at financing based on stated income or equity based lending.

I wonder what the unregulated sector would have had to do to stay in business. They had to go further out on the curve to stay in business.

It is very easy to beat the system here and enough individuals have been doing it as they see this as a guaranteed route to riches - why because apparently everyone wants to live in Canada so foriegners will keep paying higher prices.
Title: Re: Garth Turner - Real Estate in Canada
Post by: frommi on February 12, 2015, 10:31:58 AM

Before the housing crashes in Netherlands, Spain, US, Japan interest rates were rising.

Also, did the housing market crash because of the recession? Or was the recession caused by the housing crash?

Thanks, good questions! Looks like i have to read more.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 10:43:51 AM
When did rates rise before the US crash?

http://b-i.forbesimg.com/jessecolombo/files/2014/01/united-states-interest-rate.png
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 12, 2015, 10:55:37 AM
It is exactly two years since this thread started and back then ago the consensus was that Canada was in a housing bubble about to pop. Yet not only has there been no pop, but prices have continued to rise.

I am not saying that there are no serious concerns nor am I suggesting that there may not be a pricing correction in the Canadian housing market. However, the Canadian market is not quite the same as in the U.S. and many other countries. A lot of people here have a reasonable amount of equity in their homes above their mortgages and many mortgages are insured by the Canadian Government (CMHC). In the past we have seen CMHC step in to help stabilize prices during a correction and when prices dropped in the past they rebounded fairly promptly.

Remember the law of supply and demand.  At one time we used to have nuclear families where 2, 3 generations would live in the same house. Now it seems everyone has their own house or condo.

In general our population is well educated and many singles live in their own homes and condos. Today’s high divorce rates means you now need two houses where previously only one was needed. Immigration also drives our housing industry.

Here is something else that seems to be overlooked. Our houses are more expensive to build and probably last longer because of that. They have to meet high snow load criteria, withstand high winds and very cold temperatures. That means a high quality level and makes them more expensive to build. Materials are also expensive because they must travel greater distances to and service smaller markets in many cases. Our houses must be very well insulated, require much more expensive heating systems, and because our houses are built tight we often require air exchange systems to keep the air fresh and humidity levels in check.

So perhaps our housing is expensive, but there may be more value in them as well.

Just my opinions.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 10:58:57 AM
Is it that much different from the US - our demographics or the cost to build.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 11:02:36 AM
The oil crash is a possible catalyst and things tend to stay irrational longer than one can imagine - even though it sounds like a cop out - it is true.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 11:05:48 AM
Another number to check out - if this has been true for a while - better quality builds - why has an average house in the US been more expensive until 2008.

Or did these codes come into effect after 2008.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 12, 2015, 11:17:02 AM
It is exactly two years since this thread started and back then ago the consensus was that Canada was in a housing bubble about to pop. Yet not only has there been no pop, but prices have continued to rise.

I'm sure people were saying that in 1998 and 1999 too. The market can stay irrational a very long time.

I've always said that I have no idea about the timing of any correction or crash, just that pricing doesn't make sense, and what can't go on forever will stop at some point. In the meantime, I'm renting.

All the excuses I hear about Canada being different ring hollow to me. Vancouver is not Paris or New York, Canada isn't 2x more desirable to live in than the US, our economy isn't booming, land is not scarce, our debts are incredibly high (people take out their equity through HELOCs) and now that almost everybody owns, who will the marginal buyer be, esp as boomers retire and downsize (few other investments than their homes, right?), etc. CMHC isn't some magical institution that can snap its fingers and make everything right.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 12:21:35 PM
All the excuses I hear about Canada being different ring hollow to me. Vancouver is not Paris or New York, Canada isn't 2x more desirable to live in than the US, our economy isn't booming, land is not scarce, our debts are incredibly high.

I don't know what stats you are using but remember that averages are misleading. Average U.S. housing prices might appear cheaper but most of the cheap cities are not desirable. Anyone want to move from Toronto to Detroit, Buffalo, or Cleveland? The really desirable cities (San Francisco, LA, San Diego, NY, Miami) are expensive even after the housing meltdown.

The other factor that people are ignoring is land use policies. Land is scarce in Vancouver and Toronto. In 2005, the Ontario government introduced the Places to Grow Act designed to promote intensification. This has limited the supply of single family homes (and resulted in a condo boom).

Housing prices are certainly elevated but when you can control for supply constraints and interest rates, I don't know that we can be certain there is a bubble. We will only know in retrospect.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 12:39:28 PM
Don't NY or San Francisco have land restrictions? If yes, why is that any different in Canada - why does it result in higher prices in Canada. NY median houses are cheaper than Toronto. Does that imply Toronto is more desirable and people will leave NY to move to Toronto.

Does Canada have less desirable cities (as a %age) or is it just Toronto and Vancouver that everyone lives in? Would someone move from Windsor/Winnipeg to Miami. Not sure how that makes any difference to affordibility, highest ever debt levels, highest ever homeownership.

All I can say is all the power to individuals that think this is a good bet to make and a place to have their capital as I am not comfortable putting my hard earned capital  at risk when the odds aren't in my favour.

We should list - numbers/facts that are at historical highs in Canada - those are easier to layout rather than stories that can be used to rationalize what has happened.

If most of the numbers are against buying - then the odds are your capital is at risk. I do not expect everyone to agree as there is always some story that can be used to rationalize any decision.
 
Nor does it imply a crash is imminent. But, once the music stops watch out.

EDIT: That should read NY metro and GTA, not NY and Toronto.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 12, 2015, 12:52:28 PM
All the excuses I hear about Canada being different ring hollow to me. Vancouver is not Paris or New York, Canada isn't 2x more desirable to live in than the US, our economy isn't booming, land is not scarce, our debts are incredibly high.

I don't know what stats you are using but remember that averages are misleading. Average U.S. housing prices might appear cheaper but most of the cheap cities are not desirable. Anyone want to move from Toronto to Detroit, Buffalo, or Cleveland? The really desirable cities (San Francisco, LA, San Diego, NY, Miami) are expensive even after the housing meltdown.

The other factor that people are ignoring is land use policies. Land is scarce in Vancouver and Toronto. In 2005, the Ontario government introduced the Places to Grow Act designed to promote intensification. This has limited the supply of single family homes (and resulted in a condo boom).

Housing prices are certainly elevated but when you can control for supply constraints and interest rates, I don't know that we can be certain there is a bubble. We will only know in retrospect.

I know all this. Still doesn't make sense to see housing totally disconnect form wages and inflation for so long. Do we foresee people making 60k/year buying $3-4 million houses in 10 years? Where does this stop? Either wages go up a lot to catch up, or housing comes down a lot. Because in the meantime, the delta between wages/inflation and housing has been filled with debt, and there's a limit on that too.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on February 12, 2015, 12:57:05 PM
Would it be possible that people can just afford to pay more for a house?

This is just a back-of-the-envelope calculation:

Toronto Median Detached Home in 2005 was ~$350K. Avg. Mortgage Rate: 6%. Median Household Income ~$65K
Toronto Median Detached Home in 2014 was ~$600K. Avg. Mortgage Rate: 3%. Median Household Income ~$72K

If you assume a 70% LTV at those rates, interest expense in 2005 would be $15K and in 2014 would be $13K. Given that household income has risen while interest expense has declined..

http://creastats.crea.ca/treb/mls/mls05_median.htm
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on February 12, 2015, 01:10:51 PM
This tool is pretty neat (you can isolate countries in the list on the right, say, Canada and the US):

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:20:54 PM
That is true at this point in time. Is it different in US, Japan or Europe? Why are their houses cheaper?

I do not anticiapte everyone to have trouble with their mortgages. Just on the margins.

So what matters is the number of individuals who will have trouble servicing the debt during financial stress:
1) longterm home ownership rates in Canada are around 63%. Today around 70%. In the long run could it go back to 63% or is it different this time.
2) debt to disposable income was around .90 until the late 1990s. Now 163%. Is this a permanent state where we can carry 60% more debt over the long run.
3) Consumer debt per capita in early 2000s was around $19,000. Today $29,000. In British Columbia it is at $38,000.
4) total private debt is close to 100% of GDP at a historical high.
5) Can first time buyers afford to buy. Where is the future demand coming from?
6) A median house is 5.5x median income. In the US it is 2.5x. Are the rates not low there? Are their incomes that much lower?

This is the same point Liberty raised when he talked about - individuals are looking at the payments and not the total cost of owning. What is the difference between a $200,000 mortgage v $400,000 using the long term average 5 year mortgage rate in Canada - most mortgages in Canada are amortized over 30 to 40 years. What will the total cost over the 30 or 40 years be.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on February 12, 2015, 01:36:06 PM
That's the whole point though. Even though debt-to-income has risen by 70%. The cost of carrying that debt has dropped by more than 50%. So on a net basis, the carrying cost of your debt may have actually declined over the past 2 decades.

From an affordability perspective, it's actually cheaper to buy a $600K today than to buy a $350K house in 2005, even though the price has nearly doubled. So you end up with a mortgage twice as big, but the cost of that servicing that mortgage is actually lower..

Obviously, if you believe that rates will go back to the levels in the early 80s, then the debt service is unlikely to be sustainable. However, you can't rule out the possibility that rates will continue to go lower.. I mean it's been going lower for the past 4 decades..

P.S. I actually think housing prices are ridiculous in the GTA area, but I just wanted to make sure we're covering all the possibilities.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 01:37:27 PM
Don't NY or San Francisco have land restrictions? If yes, why is that any different in Canada - why does it result in higher prices in Canada. NY median houses are cheaper than Toronto. Does that imply Toronto is more desirable and people will leave NY to move to Toronto.

If I wanted to sell my detached house in Toronto (great neighborhood) and move to Manhattan, could I buy a similar house for the same price?

Nope, I just looked on Trulia. If I want a townhouse in a nice neighborhood in Manhattan, I will need to sell 10 of my houses. There is a small vacant lot in East Harlem that is only 50% more than my house in Toronto, though.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:40:28 PM
Is the median income in Manhattan and East Harlem the same as the neighbourhood in Toronto?
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 01:42:02 PM
Is it different in US, Japan or Europe? Why are their houses cheaper?

Why do you think their houses are cheaper?
https://financialpostbusiness.files.wordpress.com/2014/11/fp1106_world_property_markets_940_ab.jpeg?w=620&h=666
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:43:32 PM
I beleive the median house price in metro San Fran and greater Vancouver is around the same.

The median household income in SF is just below $100k whereas in Vancouver it is $69,000. I believe SF might have more billionaires and millionaires than Vancouver. Does that explain the high debt levels individuals have?

SF and Vancouver have land restrictions. Both have low rates.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on February 12, 2015, 01:44:51 PM
Manhattan's median annual household income is $67K.
Toronto is around $72K.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:46:14 PM
I think we were comparing great neighbourhoods.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:46:49 PM
An average house in NY metro is in the $300-400k range.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 01:50:37 PM
Is the median income in Manhattan and East Harlem the same as the neighbourhood in Toronto?

The median income in my neighborhood is more than 2x East Harlem.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:51:45 PM
The square foot prices mean nothing unless we have other details - such as local incomes, population, population density, etc.

Tokyo prices are similar to Vancouver - Tokyo has as many people as all of Canada. It doesnt tell me anything useful.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:52:25 PM
Fair enough.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on February 12, 2015, 01:55:16 PM
An average house in NY metro is in the $300-400k range.

Don't want to hijack this thread, but the median household income for NYC is ~$55K..

No one seems to address the fact that the numbers show that the cost to service debt has gotten significantly cheaper today in Canada than it was 10 years ago. And it's continuing to get cheaper to service debt.

I think most media outlets quote that debt-to-income has gone up significantly over the past decade, but they fail to mention that the cost of that debt is actually lower today..

I mean a high debt-to-income ratio really becomes a problem if 1) cost of debt goes up 2) income goes down.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 01:56:53 PM
Job losses due to an economy dependent on a few industries.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 02:05:31 PM
Mortgage affordability index from CMHC.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 02:13:38 PM
The rates could stay low for the next 40 years, but, if they do normalize - this may apply.

http://www.rbc.com/newsroom/_assets-custom/pdf/20141126-HA.pdf

EDIT: It is an individuals choice whether to put their capital at risk based on the data available. Some may see this data as proving that prices will increase and others may come to a different conclusion.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 12, 2015, 02:24:05 PM
The rates could stay low for the next 40 years, but, if they do normalize - this may apply.

Yes, real estate prices are elevated and are sensitive to rising rates or economic shock. But almost all asset prices are elevated and sensitive to rising rates. This doesn't mean there is a bubble -- it just means that low interest rates are creating dangerous distortions in the financial system.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 02:24:56 PM
I run through this thought process and this is where i get stuck -

In a an environment where interest rates stay flat or decline will -
1) incomes increase to sustain future price appreciation.
2) will we go to 200% private debt to GDP for the next double on houses.
3) will foreigners buy enough houses in Canada to lead to another double.
4) where is the future demand going to come from at 2x the house prices.

If interest rates normalize -
1) will incomes increase enough to lead to the next doubling of housing prices as debt payments increase.
2) will this attract new buyers.

I cant think of others - but it would be great if you could point out scenarios which would allow for further price increases for this to be a good investment.

EDIT: Where and what is my margin of safety here.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 02:27:45 PM
I live in Vancouver - so I am biased by our local market.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on February 12, 2015, 02:42:50 PM
The house I was looking  is up 15 percent last year.

Suburb in Gta.

It is not a cheap house.

Tough here.



Title: Re: Garth Turner - Real Estate in Canada
Post by: Range on February 12, 2015, 04:13:40 PM
Widsom,

I'll just add that house prices have done inflation or inflation+1% over time depending on the research/studies that you read.

So let's call that 4% just for fun.  That means that a house will take 17-18 years to double in value.

Does that mean that the average homeowner over the past century has made a poor decision if it took on average 17 years for his house to double in value?

(I'm also bearish on Canadian housing, I just don't understand what you're trying to prove)
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 12, 2015, 04:30:57 PM
Consider this

1. For those who have been renting over the past few years rather than owning - as of today, how has that worked out for you financially?

2. Do not apply principals of investing to home ownership.

If the value of your shares drop by 50% tomorrow, half of your money is gone. Gone, disappeared, poof.

If the price of your home drops by 50% tomorrow, you still have a place to live, its value to you is the same as it was yesterday. The drop in price is only a number.   

...

Is housing really more expensive than it was in the past?

Years ago I paid a mortgage as high as 17.5% - and others paid higher. At that time you could pay your mortgage every month for five years and at the end of that period you had only reduced your total amount owing by a few hundred dollars. Nearly all of your payments went to pay interest.  And that was with 20 year amortization rates. Today the reverse is true, most of your payments are going against the debt itself.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 12, 2015, 05:40:50 PM
Range I probably did not word it right.:
I was trying to invert. Assuming prices double in 15 odd years - what could the reasons be.

cwericb - just because something was right or worked for 30 years does not imply it will automatically work for the next 10 years.

Again - all of us our looking at the same data and interpreting it differently - we do not need to convince anyone.

It is just that I see odds not favoring owning. I could be wrong. Only time will tell and hopefully I will be wiser either way.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 12, 2015, 05:58:58 PM
Yeah you missed my point. I’m suggesting that today’s prices may not be as out of line historically as they appear. A much higher percentage of today’s mortgage payment go towards actually paying down the debt.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Potato on February 12, 2015, 06:55:06 PM
1. For those who have been renting over the past few years rather than owning - as of today, how has that worked out for you financially?
[...]
If the price of your home drops by 50% tomorrow, you still have a place to live, its value to you is the same as it was yesterday. The drop in price is only a number.   

On the first point I just did a retrospective a few weeks ago on the blog -- if you had a detached house in the GTA you did a fair bit better than rent & invest the difference, even if you now had to move and pay transaction costs etc. For any other kind of housing (condo, townhouse, semi), even though it's been a pretty good couple of years with no crash, the cashflow difference in renting and phenomenal stock market returns have made renting & investing better. I believe there will be a crash, but even if there isn't, renting looks to be the better bet assuming more normal appreciation (inflation-ish) and investment returns (5-7%-ish).

For many people, there are real risks to home ownership in a crash that make it harder to just ride out than riding out a stock market crash, because it's purchased using leverage and you can go underwater. The very serious risk is that while underwater your job moves, but you're trapped in the house. The less serious, more theoretical risk (it's been too long since there's been a housing crash to see how the banks will react) is that if you're underwater you may not be able to shop for your mortgage renewal and will have to take the posted rate, which could crimp a family's budget if they were already close to the edge of affordability at whatever special discount they were able to get in boom times.

The first risk can be particularly harsh in single-industry towns (I think about Ft. McMurray in particular). To me housing over-valuation looks like a nasty positive-feedback cycle: economy gets bad, prices go down, people get trapped in place, economy takes longer to improve, prices go down more...
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on February 13, 2015, 07:21:23 AM
What a debate!

I think at the end of the day one has to come up with an absolute value for an asset.
If homes in Canada are trading at an unlevered P/E of 35x and are worth 20x then they are massively overvalued, (I made the P/E's up).  Eventually the price will reflect the value but people can be nuts for a long time.

All the other arguments about land scarcity, govt, safer lending, etc are just noise as illustrated by history over the last 200+ yrs.
But wait - THIS TIME IS DIFFERENT!!!! 
 
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on February 13, 2015, 08:23:30 AM
I think at the end of the day one has to come up with an absolute value for an asset.

No asset has an absolute value. All values are relative.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on February 13, 2015, 09:41:56 AM
http://www.bloomberg.com/news/articles/2015-02-13/5-reasons-sweden-s-red-hot-housing-market-won-t-crumble

Canada could be like Sweden - in answer to why housing prices could keep increasing.
Title: Re: Garth Turner - Real Estate in Canada
Post by: RichardGibbons on February 14, 2015, 02:01:25 PM
1. For those who have been renting over the past few years rather than owning - as of today, how has that worked out for you financially?

I fit in here.  A decade ago, I could have afforded to purchase a home with cash on the west side of Vancouver. However, I rented instead.  This allowed me to get aggressive in wealth building, both in investing and starting a business.  Now my net worth is roughly 4 times what it was then.  That said, I might have done better if I bought 8 houses with maximum leverage.  But I think that's irrational outcome-oriented thinking.  (i.e. the same seeing a 10 come up in roulette in Vegas, then saying that I would have been better off if I bet all my assets on 10.)

2. Do not apply principals of investing to home ownership.

If the value of your shares drop by 50% tomorrow, half of your money is gone. Gone, disappeared, poof.

If the price of your home drops by 50% tomorrow, you still have a place to live, its value to you is the same as it was yesterday. The drop in price is only a number.   

These are mostly the same thing.  In the first case, your ownership of businesses and their cash flow is the same, while the price people will pay you for them declined.  In the latter case, your ownership of the house and its implied rent is the same, but the price people will pay for it has declined.  I think the main difference is that the former is likely much more diversified and much more liquid, and therefore less risky.

You likely think there is something magical about owning a house and that it shouldn't be evaluated based on its cash flows because you live in Vancouver.  Lots of people think that here.

Is housing really more expensive than it was in the past?

Years ago I paid a mortgage as high as 17.5% - and others paid higher. At that time you could pay your mortgage every month for five years and at the end of that period you had only reduced your total amount owing by a few hundred dollars. Nearly all of your payments went to pay interest.  And that was with 20 year amortization rates. Today the reverse is true, most of your payments are going against the debt itself.

It only makes sense to use this sort of reasoning if the cost of the debt is fixed over the lifetime of the debt.  Since, in Canada, almost all first mortgages are for a small fraction of the period of time that the debt is paid off, then this is bad analysis.  If you want to use this sort of reasoning (which I think is a bad idea, but I'm conservative when it comes to large  bets), then the most reasonable thing to do is to estimate the cost over the full life of the debt, then add a margin of safety.

The funny thing is that most of us would say that it would be a bad idea to use 5 year debt to finance a project that will take 30 years to pay off that returns an extra 2% a year above cost of capital. The risk of interest rates rising or the business environment worsening is just too high to make a it a sensible bet.  But call the project a "home" and suddenly people think it's a good idea....
Title: Re: Garth Turner - Real Estate in Canada
Post by: Range on February 14, 2015, 02:36:01 PM
Thanks for that last post Richard.

I didn't feel like taking the time to address those points but I'm glad someone did.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 14, 2015, 07:29:45 PM
“I  fit in here. A decade ago, I could have afforded to purchase a home with cash on the west side of Vancouver. However, I rented instead.  This allowed me to get aggressive in wealth building, both in investing and starting a business.”

That is not the scenario I was comparing. Very few have the cash to buy a home in Vancouver. That is not the same as comparing a mortgaged home to renting. Yes, with cash you can compound it through investments. But the average person does not have that cash to invest, nor can he borrow it without collateral. He has to live somewhere and for most the choice is to either rent or buy. 

There also seems to be an assumption on this thread that all Canadians live in Vancouver, Calgary, Toronto or Montreal. Certainly prices in those cities are high. But the combined populations of those cities represents only one third of the Canadian population - two thirds of us live elsewhere where prices may not be as unreasonable.

The extreme, of course is Vancouver. And it seems that people here frequently tend to reference Vancouver in their examples. In comparison to the rest of the country Vancouver seems dysfunctional when it comes to housing prices. But those prices are driven by a lot of unique factors not shared by most of the rest of the country. Vancouver prices are double the average and perhaps three or four times the price of many other areas of the country so it is a rather unique example.

Now for those who believe that investments in the market and home ownership are essentially the same thing, try living in your investments. As I said previously, if home prices drop substantially, you still have a place to live. Perhaps the difference here is that I am talking about the average person, not wealthy, successful investors.

Personally, home ownership has worked out well for me over the years. But I have never looked at my house as an investment, it is my home.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on February 15, 2015, 07:28:32 AM
Not really a fair comparrison. What happens if your stock drops by 50% and you lose your job? What happens if your stock drops by 50% and you do not have the funds to buy more? What happens if your stock drops to zero or close to it by bad management?

Further, if your house drops and you lose your job, you still have to live somewhere. That is the difference. You are still going to have to pay either rent or mortgage payments. And, one other thing. Even in bankruptcies, few people lose their homes today.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on February 15, 2015, 07:33:45 AM
yes, I didn't buy a house and get crashed by using into oily stocks.
Title: Re: Garth Turner - Real Estate in Canada
Post by: rb on February 21, 2015, 08:15:15 AM
Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Jurgis on February 21, 2015, 08:51:08 AM
Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?

You got it! You buy a bus for $198K and it provides 12% yield when you use it to show RE to Chinese RE tourists.  8)
Title: Re: Garth Turner - Real Estate in Canada
Post by: plato1976 on February 21, 2015, 09:27:12 AM
Did we take the depreciation into consideration?

Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?

You got it! You buy a bus for $198K and it provides 12% yield when you use it to show RE to Chinese RE tourists.  8)
Title: Re: Garth Turner - Real Estate in Canada
Post by: rb on February 21, 2015, 08:03:57 PM
Nope, that's tax gravy  :)
Title: Re: Garth Turner - Real Estate in Canada
Post by: gokou3 on February 21, 2015, 10:33:23 PM
Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?
This ad is for a development in a bad area of Surrey, a suburb of Vancouver.  The developer is Concord Pacific which is famous for making cookie cutter condos.  The price is probably for a 300-400SF studio unit.  As for 12% yield, the investor will consider himself lucky if he can gross half of that figure.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on February 22, 2015, 03:51:53 AM
This ad is for a development in a bad area of Surrey, a suburb of Vancouver.  The developer is Concord Pacific which is famous for making cookie cutter condos.

I think they're at 19 and counting for condos surrounding the Skydome and CN Tower here.
There was an article I read that asked, "Is Concord Cityplace a ghetto in the making?"
The main point seemed to be the "investors" buying and renting them out.

Even some city councillors are/were raising concerns about it. How long is it sustainable etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 03, 2015, 07:19:34 AM
Quote
“With the loonie falling about 10% against the U.S. dollar in the last six months,” said the Financial Post yesterday, “foreigners who have their money parked in greenbacks or in currencies pegged to the American dollar are likely to ramp up their interest in the Canadian marketplace, say industry experts.”

See what I mean? It’s a relentless and consistent message, yet one which is supported by no authoritative data. And any empirical attempt to counter it – as CMHC did recently with a survey showing only 2% of condos in 416 or 604 are foreign-owned – is instantly attacked.

So, what are we to think? If a massive doubling of mortgage debt on the part of Canadian citizens is not enough to make it clear who the buyers are, what is?

Well, here’s a glimpse.

The Victoria Real Estate Board tracks exactly who buys real estate in that market, BC’s second-largest. Yeah, I know. Victoria is not Vancouver, 115 watery km away. Maybe there are twice as many foreign buyers in Van. Maybe it’s five times. But at least this is a good starting point in understanding who is buying houses in one of the priciest cities in the country, and a provincial capital. The numbers below were just released privately to members of the Victoria Real Estate Board:

(http://i.imgur.com/Qcdz5a4.png)

By the way, of the 1.64% of Victoria buyers who were foreigners, 50% were from the US.

Of course, such stats won’t change the minds of those who hate without thinking, or blame others for their shortcomings. That’s the nature of prejudice. We all have some.

But it’s a fair assumption all real estate board have similar numbers. Guess why they’re not published?

http://www.greaterfool.ca/wp-content/uploads/2015/02/VIC-BUYERS-CHART.png?8f4c78
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 29, 2015, 02:44:08 PM
so how many of you do not own a house and are renting in the Toronto and Vancouver area?

The house market is just red hot in these two places (other cities like Calgary, Montreal, Ottawa have been slowing down already). In Toronto, almost nobody thinks this rise is going to stop anytime soon. House are selling with multiple competing offers even in the suburb area, 15% over asking is becoming a norm.

Is it a good time to keep renting? Or just jump in the band wagon as the foreigner money and cheap rate will be around for quite a while?

I am renting and feel pretty confused.
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on March 29, 2015, 04:06:30 PM
so how many of you do not own a house and are renting in the Toronto and Vancouver area?

The house market is just red hot in these two places (other cities like Calgary, Montreal, Ottawa have been slowing down already). In Toronto, almost nobody thinks this rise is going to stop anytime soon. House are selling with multiple competing offers even in the suburb area, 15% over asking is becoming a norm.

Is it a good time to keep renting? Or just jump in the band wagon as the foreigner money and cheap rate will be around for quite a while?

I am renting and feel pretty confused.

It is always darkest before dawn.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 29, 2015, 07:04:47 PM
>>It is always darkest before dawn.


I just don't know what will slow it down unless tmw China said no more capital flight. But chance of it is zero.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on March 30, 2015, 05:04:18 AM
The subject of this thread was Garth Turner’s prediction of the imminent collapse of a real estate bubble in Canada.

But this thread and his comments originated over three years ago
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 30, 2015, 05:17:32 AM
The subject of this thread was Garth Turner’s prediction of the imminent collapse of a real estate bubble in Canada.

But this thread and his comments originated over three years ago.

Yes. It probably will take a 30 percent plus correction just to bring the price back to 3 yrs ago in some area.

We have quite a bit of institutions saying it is overpriced by 20 30 percents since few years ago. 

Mind blowing thing

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 05:36:47 AM
The subject of this thread was Garth Turner’s prediction of the imminent collapse of a real estate bubble in Canada.

But this thread and his comments originated over three years ago.

Timing is hard, for sure, but value remains value. I'm sure people thought tech stocks were overvalued in 1997... Didn't make them fairly valued in 1999 because there hadn't been a crash yet.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 30, 2015, 06:25:38 AM
The subject of this thread was Garth Turner’s prediction of the imminent collapse of a real estate bubble in Canada.

But this thread and his comments originated over three years ago.

Timing is hard, for sure, but value remains value. I'm sure people thought tech stocks were overvalued in 1997... Didn't make them fairly valued in 1999 because there hadn't been a crash yet.

The problem is I think for the foreigners, houses are cheap here.

A million for them is cheap to have an address in Canada.

Places like Scarborough, a smallish house asks for 500k can be sold for 700k.

And the same house maybe worth mid 40 couple years ago.

Not sustainable if all buyers are local and need employment income to sustain mortgage.

But we are talking about ppl who does not mortgage 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 07:12:03 AM
The subject of this thread was Garth Turner’s prediction of the imminent collapse of a real estate bubble in Canada.

But this thread and his comments originated over three years ago.

Timing is hard, for sure, but value remains value. I'm sure people thought tech stocks were overvalued in 1997... Didn't make them fairly valued in 1999 because there hadn't been a crash yet.

The problem is I think for the foreigners, houses are cheap here.

A million for them is cheap to have an address in Canada.

Places like Scarborough, a smallish house asks for 500k can be sold for 700k.

And the same house maybe worth mid 40 couple years ago.

Not sustainable if all buyers are local and need employment income to sustain mortgage.

But we are talking about ppl who does not mortgage

Where is "here"? Just Vancouver or all of Canada?

If houses are cheap here, just imagine how much cheaper they are in the US (about half price) and in other places around the world (Europe) that haven't had this massive, way above inflation, decade long run of debt binging. A few years ago the government allowed 40-year amortizations and 0 percent down, do you think that has had an impact on psychology and that maybe there's a lot of inertia there? Once things go up fast enough for long enough, people become convinced that it'll always be that way (especially if other asset classes get killed in the meantime and people lose confidence in them). I think we're still moving from past decisions, but now with mining in the hole, oil crashed, the canadian dollar clobbered, the US getting better, debt piling up and incomes getting farther and farther away from home prices, something has got to give. Otherwise what, households making 60k will be buying 2 million dollar bungalows in a few years?  Look at any world comparison, and we're one of the most expensive places in the world compared to rents or incomes or replacement costs (behind Hong Kong..) yet Canada's weather sucks and our economy is not doing well... Vancouver and Toronto aren't Paris or New York, that's for damn sure.

Also, blaming it all on foreigners will be shown to be a mistake in due time, I think. Most of what I see is that they are only a small part of the market. There was a survey in victoria where it was less than 1% of the market. But of course, realtors love to keep the illusion going (buy now or never! these rich foreigners will outbid you if you don't give your maximum!), so data is hard to come by for most places. In fact, even numbers on housing coming from realtors are really suspect and the media basically reprints their press releases; there's a total lack of transparency in our market.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on March 30, 2015, 08:53:31 AM
The subject of this thread was Garth Turner’s prediction of the imminent collapse of a real estate bubble in Canada.

But this thread and his comments originated over three years ago.

Timing is hard, for sure, but value remains value. I'm sure people thought tech stocks were overvalued in 1997... Didn't make them fairly valued in 1999 because there hadn't been a crash yet.

The problem is I think for the foreigners, houses are cheap here.

A million for them is cheap to have an address in Canada.

Places like Scarborough, a smallish house asks for 500k can be sold for 700k.

And the same house maybe worth mid 40 couple years ago.

Not sustainable if all buyers are local and need employment income to sustain mortgage.

But we are talking about ppl who does not mortgage

Where is "here"? Just Vancouver or all of Canada?

If houses are cheap here, just imagine how much cheaper they are in the US (about half price) and in other places around the world (Europe) that haven't had this massive, way above inflation, decade long run of debt binging. A few years ago the government allowed 40-year amortizations and 0 percent down, do you think that has had an impact on psychology and that maybe there's a lot of inertia there? Once things go up fast enough for long enough, people become convinced that it'll always be that way (especially if other asset classes get killed in the meantime and people lose confidence in them). I think we're still moving from past decisions, but now with mining in the hole, oil crashed, the canadian dollar clobbered, the US getting better, debt piling up and incomes getting farther and farther away from home prices, something has got to give. Otherwise what, households making 60k will be buying 2 million dollar bungalows in a few years?  Look at any world comparison, and we're one of the most expensive places in the world compared to rents or incomes or replacement costs (behind Hong Kong..) yet Canada's weather sucks and our economy is not doing well... Vancouver and Toronto aren't Paris or New York, that's for damn sure.

Also, blaming it all on foreigners will be shown to be a mistake in due time, I think. Most of what I see is that they are only a small part of the market. There was a survey in victoria where it was less than 1% of the market. But of course, realtors love to keep the illusion going (buy now or never! these rich foreigners will outbid you if you don't give your maximum!), so data is hard to come by for most places. In fact, even numbers on housing coming from realtors are really suspect and the media basically reprints their press releases; there's a total lack of transparency in our market.

I went to a open house/bidding war on Saturday for shits and giggles. Did not see one Asian person there.
Title: Re: Garth Turner - Real Estate in Canada
Post by: benhacker on March 30, 2015, 09:10:48 AM
Quote
I went to a open house/bidding war on Saturday for shits and giggles. Did not see one Asian person there.

We are now in the stage of action in CA real estate where there will be one last round of suckers to come in and go down with the ship.  The data does not support external (non CA) money being a significant driver of this boom, it is a red herring to shove away the fact that this boom is Canadian in nature (which in my experience Canadian's find just as uncomfortable as folks in the US did in 2006).

I would also argue (as was done above) that the relative valuation of US major markets are cheaper and/or more attractive relatively to CA, and big money Asians wouldn't on average have a problem switching.

Whether Canada's market is a bubble or not is beside the point.  It is clearly very very pricey.  I think it best to avoid as a buyer right now if possible.  All else is speculation.  An entire housing ecosystem has developed around ever rising prices... change will be uncomfortable for many even if it's not a disaster.

Ironically, I predict that when housing prices up North start printing negative YoY prices, this thread will dry up and no one will care. :)  Always seems to be that way (see China)... we'd rather try to predict the turn than profit from the result.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 30, 2015, 09:27:38 AM
Rules that I use:

Anything not sustainable in the long run has to end.
Low interest rates, high debt, rising unemployment, rising housing prices is not a combination that is sustainable.

You do not have to play if something does not add up.
No one is forcing my hand to invest in real estate. Maybe I need to develop a hobby outside investing or real estate and wait for the opportunity that I have prepared for.

Do not create false expectations that the market will correct in a given amount of time.
You will know when the time is right. It will be obvious went it happens. Life is a marathon.
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on March 30, 2015, 09:51:30 AM
Rules that I use:

Anything not sustainable in the long run has to end.
Low interest rates, high debt, rising unemployment, rising housing prices is not a combination that is sustainable.

You do not have to play if something does not add up.
No one is forcing my hand to invest in real estate. Maybe I need to develop a hobby outside investing or real estate and wait for the opportunity that I have prepared for.

Do not create false expectations that the market will correct in a given amount of time.

You will know when the time is right. It will be obvious went it happens. Life is a marathon.

Good stuff Wisdom.  I agree.  During the 1920's Bernard Baruch reminded himself that 2+2 still equals 4 when many got sucked into the stock bubble at the time.   I think these times are relatively easy to identify.   The hard part is having the independence, courage, patience and confidence to not get sucked up into buying the bubble even though you may feel alone.
Title: Re: Garth Turner - Real Estate in Canada
Post by: LongHaul on March 30, 2015, 09:54:52 AM
Let's look out a few years.  Canadian real estate tanks 30% in real terms, unemployment way up, construction and consumer down, CAD down, etc.  Headlines are terribly pessimistic, the world is doing to end, Everyone is scared,  bla, bla, bla.  Typical bust but it will recover. 

What are some high quality businesses to own in Canada that are likely to get cheap?  I can only think of the 2 railroads that are cyclical but seem great.

Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on March 30, 2015, 10:13:08 AM
Rules that I use:

Anything not sustainable in the long run has to end.
Low interest rates, high debt, rising unemployment, rising housing prices is not a combination that is sustainable.

You do not have to play if something does not add up.
No one is forcing my hand to invest in real estate. Maybe I need to develop a hobby outside investing or real estate and wait for the opportunity that I have prepared for.

Do not create false expectations that the market will correct in a given amount of time.

You will know when the time is right. It will be obvious went it happens. Life is a marathon.

Good stuff Wisdom.  I agree.  During the 1920's Bernard Baruch reminded himself that 2+2 still equals 4 when many got sucked into the stock bubble at the time.   I think these times are relatively easy to identify.   The hard part is having the independence, courage, patience and confidence to not get sucked up into buying the bubble even though you may feel alone.


+1
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on March 30, 2015, 10:31:36 AM
Couple of thoughts.

It’s fine to sit out what is likely a bubble, but since this thread began (Feb 2012) how much have average house prices increased in say, Vancouver. Lets say 30%? So if prices suddenly drop by 25%, wouldn’t you still have been better off to have ignored Turner’s warning and have bought in 2012?

One other thing. A while ago I suggested that one MAY have been better off to investing in a home three years ago rather than in the markets. Some disagreed. However, they may not be taking into account that the “profit” in the market is taxable when you sell. The “profit” in your home is not.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 30, 2015, 10:41:10 AM
What if mortgage rates ever turn negative and you're paid to borrow? How will home prices (or asset prices in general) behave then?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 30, 2015, 11:01:43 AM
mcliu, do you want to base a $500k to $800k decision based on what if rates are negative. I personally would not.

Also what kind of environment/conditions would lead to negative rates. What are the implications of debt in a deflationary environment?

Again - is this sustainable in the long run - negative rates, rising assets, higher unemployment?

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 11:08:15 AM
Couple of thoughts.

It’s fine to sit out what is likely a bubble, but since this thread began (Feb 2012) how much have average house prices increased in say, Vancouver. Lets say 30%? So if prices suddenly drop by 25%, wouldn’t you still have been better off to have ignored Turner’s warning and have bought in 2012?

When something becomes more overvalued, the magnitude of the price drop that would result from a bubble bursting becomes bigger too. In places like Vancouver and Toronto, it could be quite big, just like in some parts of the US the 2009 house bust was a lot more severe than in other places. Averages don't tell the whole story (cue story of the man drowning in the river 4-feet deep on average).

ie. If the tech bubble had burst in 1997 rather than 2000, the drop would have been lower. If the US housing bubble had burst in 2005 rather than...

This situation in Canada lasting longer isn't a good thing. It's not like there's a 25% drop written in stone from whatever level. Also, real estate is a very psychological asset that people buy for emotional reasons, and when psychology turns, it can happen very quickly, and a drop doesn't have to stop at fair value. It can go through the floor quite a bit.

Quote
One other thing. A while ago I suggested that one MAY have been better off to investing in a home three years ago rather than in the markets. Some disagreed. However, they may not be taking into account that the “profit” in the market is taxable when you sell. The “profit” in your home is not.

Downsides of that are that houses aren't very liquid, especially not if the market becomes troubled (which is when you might need money most - ie. Calgary these days), if you want to own a house, whatever appreciation you get would just go to pay for the appreciation in whatever place you're moving to. You could try to jump out of the market at the top and rent for a while, but trying to time these things is always very hard. Seems less risky to me to try to jump in from outside when you see prices being low than try to jump out from inside when prices are high -- and I don't see being out as a missed opportunity since we rent quite a nice place, so not a sacrifice, and my capital is compounding in the market faster anyway, and I feel it's less risky to own a dozen high quality businesses than 1 asset in 1 city on 1 street.

To me the same questions always remain: Why are houses almost twice as expensive in Canada as in the US? People keep adding debt to buy things that don't generate cashflows. What happens if capital appreciation stops or reverses? What happens when interest rates start rising in the US? Why is Canada one of the most expensive places to buy a house in the world when looked at ratios to rents and incomes, as well as historically for same country? How fast have incomes gone up in Canada in the past 10-15 compared to house prices? How long can that delta keep widening? Etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: benhacker on March 30, 2015, 11:18:38 AM
cwericb,

Quote
It’s fine to sit out what is likely a bubble, but since this thread began (Feb 2012) how much have average house prices increased in say, Vancouver. Lets say 30%? So if prices suddenly drop by 25%, wouldn’t you still have been better off to have ignored Turner’s warning and have bought in 2012?

One other thing. A while ago I suggested that one MAY have been better off to investing in a home three years ago rather than in the markets. Some disagreed. However, they may not be taking into account that the “profit” in the market is taxable when you sell. The “profit” in your home is not.

I don't have an answer for you, but I'll share an example that I think you may like, and comment on it generally.

A very smart poster over on the Fool who I respect a lot recently wrote a very long amusing note critical of Hussman (he has long been critical of him for good reason - my point has nothing to do with Hussman really though) in that he (Hussman) referred to 1937 US stock market recently as a "bubble".  The poster then clarified that had you bought the "bubble" and held (assuming S&P / equivalent index like item at the time), you would have achieved 5.4% real return through until now, ending in 2008 to 2014 period only changed the results a moderate amount (say 0.4% real, from memory).

His post was mostly humorous snark about Hussman, but it was intended to say that if you call 1937 a bubble, how do you justify that given the returns achieved in the aftermath?

To me, this gets to some fundamental questions and assumptions that we as investors have to have a stake in, and often times the words we use "bubble" "intrinsic value" "overvalued" etc can detract from our discussions, because oftentimes our words make us seem further apart than we actually are (and of course, sometimes not).

I'll chatter a bit about some assumptions about asset prices that I think are commonly held, and try to address your point:

1) Real assets, generally speaking, increase in value over a long time - assuming the price paid was roughly in the realm of reasonable.  If the assets are productive in nature, generally this increase exceeds the rate of inflation, or the rate you can obtain holding T-bills.  Held long enough, your return on the asset will equal it's long term growth, almost completely independent of price paid (with enough time).

2) Asset prices in general (at least if held over a medium basis) feedback into behaviors in the economies they are in.  High house prices embolden home builders, owners, and lenders, low commodity prices discourage conservation, and eventually increase use (of course, all else equal, these are just two small examples), and of course high stock prices for a sector of the economy allow capital to flow toward endeavors in that industry more freely (through IPOs, debt raises, etc).

3) The long run return of different asset prices has some level of uncertainty.  For example, US stocks have provided real returns of 5.5-6% for 100 years, but perhaps 3% or 8% real would still be reasonable as we look forward - we don't "know".  Gold has kept with inflation pretty well, real estate has done inflation + 1% maybe, and land has done much better, although is very location specific.  All these returns can help us guide the future, but there are many uncertainties (call them real risks) about future legal developments, labor / capital relations, wars, tax impacts that make the outcome generally uncertain for investors.

To get back around to my point, there are a few things that feed into my half-answer of your comment above (which I think many rational people reading this thread would ask as well):

1) Canadian real estate, despite many who believe it to be overvalued (myself), may indeed turn out to be a good investment over a long time horizon, and even in the short horizon, there is no guarantee that it will even correct downward.

2) What Canadian real estate prices have done since some folks have been talking of a real estate bubble in Canada is in not particularly instructive.  We know two things: 1) Virtually every bubble / boom financial market in the past has had haters calling it overheated 3,4, and 5 years early... 2) Virtually every market that has unevenly risen higher over years and decades without a collapse also had probably similar number of haters. :)

2a) I think what this thread can teach us is to see what specific arguments were made by specific posters, and what the investment / economic implications were (by those posters)... so we can hold them accountable, and learn both the errors of and the bounds of the logic they have used.

3) Just because an asset price increases (or even is LIKELY to increase) well over a period of years or decades, may *or* may not mean the current price should be avoided.  We all have a fundamental assumption of what kinds of risks we want to accept (or what some would even consider "risk"): 
 - Liquidity
 - Volatility
 - Permanent risk of loss
 - Loss of opportunity

Circling back to my poster friend on the Fool, and 1937 not being a bubble... maybe we shouldn't use that loaded word.  Perhaps when something is bought and it drops 50% in short order, that's unacceptable risk to some?  Perhaps it's just part of the business?  Maybe it's the volatility price you pay (just a liquidity issue?) to own an asset class (equites) that outperforms all others when tax and inflation adjusted over time.  I don't know.

This is a long way of saying that what happens in 2012-2015 doesn't matter to me personally (other than learning as I mentioned above) because my (financial) bet on the Canadian housing market didn't start until right at the end of 2014.  But just because other's were wrong in 2012, doesn't mean avoiding CA RE wasn't prudent (I don't have a strong opinion).  But also, if CA RE is  a good long term asset class, perhaps all the short term chattering is irrelevant to long term investors (in fact I would virtually GUARANTEE that is the case... long term being >10 years).  Paying a 50-100% premium for an asset class that will return 5% real, still means you are a winner with a long enough timeframe.

However, I would only caution that the #1 mistake I see (and have seen) people make is to forget the simple fact I covered about asset prices up thread... that asset prices do actually feedback into the real economy.  The psychology of booms and busts is real and based on human nature, high prices beget competition, loosening of downside scenario testing (which makes it worse when it does come).  I like Canada, and I think long term it's a good bet, and that would include real estate.  But based on every data point I see, forgoing investment now (in RE), will likely leave buyers with better opportunities later after the sheen wears off and reality sets in.  I may be wrong, and if it takes long enough for my view to bear itself out, I *will* be wrong, even if someday I get to say "told you so" because time is not on the side of someone betting against the prices of real assets in well run countries.

I just personally think that those buying into CA RE are using way rosier assumptions than others elsewhere investing in similar assets.  To me I'm guessing that they will be disappointed, mostly because they are taking on heightened risks (volatility, liquidity, and loss of opportunity... but probably not risk of permanent loss if held for a good period of time) for the compensation they are getting.  However, I am man enough to admit, that my estimate on the compensation for holding CA RE long term may simply not be as optimistic as reality, or the market may be ok with the long term rate of return from today's prices, and thus no adjustment is needed.

There is of course a different implication of your question if we invert it:

If prices were extremely elevated in CA RE 3 years ago, and the natural increase in value is less than markets have appreciated since then... doesn't that just mean we have much further to fall now?  I don't know which is right... but I feel like the market tend to hurt the most people it can... I know several people (in Oregon in the US) invested in Toronto Condos and they are all quite happy with themselves.  When the CA RE boom reaches Portland OR, I have trouble thinking this time will be different.  But again, it's a good asset long term, so it may not be a huge deal.

And of course those sitting out a boom or betting against don't necessary leave their proceeds in cash... that is not the appropriate measuring stick.  Saying a CA RE investor is worse off in cash, isn't really an argument, cash is crap long term, but that doesn't mean they shouldn't spend their money on a better opportunity.  When I short a stock, I use most / if not all of the proceeds to buy another stock I like better... the same is true with all life's decisions... not buying CA RE, doesn't mean you can't buy a Greek hotel, or a Florida swamp, or an Argentinian stock, or...

We'll see.

Ben  (wish I knew the future, and sorry for the ramble)
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 30, 2015, 12:31:26 PM
Why are houses almost twice as expensive in Canada as in the US?

Do you really think you could sell a house in Toronto and buy something similar in NYC for half the price?





Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 12:35:01 PM
Why are houses almost twice as expensive in Canada as in the US?

Do you really think you could sell a house in Toronto and buy something similar in NYC for half the price?

No, but that's not what I said either.

(https://s-i.huffpost.com/gen/1763924/thumbs/o-US-CANADA-HOUSE-PRICE-GAP-570.jpg?6)
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on March 30, 2015, 12:39:15 PM
Ben, I am playing devil’s advocate with many of my comments. I also agree with much of what you write. None of us have a crystal ball - unfortunately - the best we can do is make educated guesses.

However, I would point out one unique point in investing in a house. Unlike most investments, it is an investment that you can use, enjoy and live in as the market settles out.

What I don't understand is why people seem to assume that Canada consists of just Vancouver, Calgary, Toronto and Montreal. Prices in those cities are very high and while some or all of those cities may see a housing correction, that does not mean that the same correction will necessarily take place in all of Canada. Remember that those cities only represent about one third of the population of Canada. Two thirds of Canadians live elsewhere.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 12:50:42 PM
What I don't understand is why people seem to assume that Canada consists of just Vancouver, Calgary, Toronto and Montreal. Prices in those cities are very high and while some or all of those cities may see a housing correction, that does not mean that the same correction will necessarily take place in all of Canada. Remember that those cities only represent about one third of the population of Canada. Two thirds of Canadians live elsewhere.

That's a good point. Obvious, you don't buy the average price in the country. If I lived somewhere where houses were selling for a reasonable price (some little town in New Scotia or something), I'd buy. But where I am, I don't think they are, and I look at the behavior of everyone around me, how they think about RE, not giving any thought to risk, expecting things to keep going exactly as they have for the past 10-15 years, and how they are buying based on what they can afford to pay per month (without much margin of safety, at these super low rates), and I know that this is not a sustainable thing. And where I live is a lot less expensive than the big cities. Still, too expensive is too expensive; a Toyota Corolla might be a good deal at $20k, but it's overpriced at $40k regardless of the arguments the salesperson has.

The argument that you live in your house, so it doesn't matter if you overpay might be convincing if buying a house was the only option apart from a cardboard box, but I can rent and get a nice subsidy from my landlord (ie. to live in equivalent comfort, while putting aside as much as I'm putting aside now (in house equity vs savings/investing), would cost me significantly more).
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 30, 2015, 01:09:50 PM
No, but that's not what I said either.

That's what you are implicitly saying when you use averages. The "average" means there is no difference between a condo in Detroit and a 6 bedroom house in Toronto.

So there are a few plausible answers to why house prices are twice as expensive in Canada:
- the average does not normalize for differences in locations, house sizes, or house types
- the methodology used by NAR/CREA is based on transactions. This can skew averages (for example there might be a lot of distressed foreclosure sales but very few sales of high end homes)
- the averages in Canada might be skewed by Vancouver and Toronto
- the averages in the US might be skewed by Detroit and other distressed markets
- the mortgage market in the US is seized up as a result of the financial crisis
- US real estate is a bargain
- Canada is in a speculative real estate bubble

When you look at the international data I posted, the safe conclusion is that real estate prices are elevated almost everywhere relative to historical prices. Certain markets in the US seam to be the outlier.

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 30, 2015, 01:17:30 PM
Prices are elevated everywhere from long term averages - it seems there is agreement on this.

The only question is:
the risk/reward still good, or
do we keep dancing till the music is playing.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 30, 2015, 01:34:50 PM
Remember also all the gains from your primary residence in Canada is tax FREE.... so if you can make $1M 30 years later on a piece of real estate, it is as if you made $2M in income.... or something like that. 

I think there are definitely a few players in the market.... but I know for most Chinese buyers, they are buying 1 house for the long term to raise their kids...   They aren't buying multiple houses/ condos.  And I believe most are buying with cash -  and I believe they are buying in London, LA, San Fran, Singapore, etc., not just Vancouver / Toronto.

I should also mention the Chinese RMB is pegged to the USD... so relative to people from China / Taiwan / HK --- Canadian real estate just dropped 25% compare to a year ago...  so it is on sale

It's a tough decision for sure...   
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 01:41:46 PM
That's what you are implicitly saying when you use averages. The "average" means there is no difference between a condo in Detroit and a 6 bedroom house in Toronto.

Um. No.

Quote
So there are a few plausible answers to why house prices are twice as expensive in Canada:
- the average does not normalize for differences in locations, house sizes, or house types
- the methodology used by NAR/CREA is based on transactions. This can skew averages (for example there might be a lot of distressed foreclosure sales but very few sales of high end homes)
- the averages in Canada might be skewed by Vancouver and Toronto
- the averages in the US might be skewed by Detroit and other distressed markets
- the mortgage market in the US is seized up as a result of the financial crisis
- US real estate is a bargain
- Canada is in a speculative real estate bubble

When you look at the international data I posted, the safe conclusion is that real estate prices are elevated almost everywhere relative to historical prices. Certain markets in the US seam to be the outlier.

Cities don't grow overnight. The historical average of house prices in Canada and the US can be compared over time. Why did they diverge recently but not before? Why was 2006 considered to be an overpriced market in the US but not in Canada?

Nobody said that prices were the same everywhere, but this phenomenon is a country-wide thing, just like it was in the US in 2006. Some places are worse than others, but most of the factors that have caused this (federal housing policies, interest rates, media psychology, busts in other asset classes driving people away, etc) were country-wide factors. This isn't like the Toronto bubble in the late 80s. You can look at price trends in almost any city in the country and see it happening, not just in Vancouver and Toronto -- prices might not be as high, but in a small city where houses used to cost 175k, the fact that they now cost 300k barely a decade later is still telling.

In any case, this comparison between two very close and similar countries is just one of many factors. Even if that didn't exist, there would still be price ratios to incomes, price ratios to rents, price ratios to replacement costs, growth in prices vs inflation, growth in prices vs historical, debt levels vs historical, buying psychology, lack of good data about the market (the US is way ahead of us there), etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 30, 2015, 02:27:51 PM
The historical average of house prices in Canada and the US can be compared over time. Why did they diverge recently but not before? Why was 2006 considered to be an overpriced market in the US but not in Canada?

I'm going to step aside from this conversation. I will suggest that:
- the starting point of that graph was probably deliberate and things might look different if you looked at a longer time period
- the NAR/CREA data is not a great methodology for tracking housing prices. Case-Schiller is not perfect but addresses most of the flaws.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 30, 2015, 03:04:29 PM
Liberty,  I used to think exactly like you.

  In Toronto,
Rent ratio is properly 30 40x.  1m house rent for 2.5k.

Income ratio is over 7x. And I am talking
about become tax income...

Very high ratios no matter how u cut in.

But i still see multiple ppl bidding on the offer night.  Heard stories about  guys out bidding  pretty  himself just to get in.

U check out the houses in Scarborough. They don't even look as nice as those in Phoneix.

But if this bubble continues on for few more years, why not jump in and take advantage of it.

Only if I know the future.

Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 30, 2015, 03:11:52 PM
Remember also all the gains from your primary residence in Canada is tax FREE.... so if you can make $1M 30 years later on a piece of real estate, it is as if you made $2M in income.... or something like that. 

I think there are definitely a few players in the market.... but I know for most Chinese buyers, they are buying 1 house for the long term to raise their kids...   They aren't buying multiple houses/ condos.  And I believe most are buying with cash -  and I believe they are buying in London, LA, San Fran, Singapore, etc., not just Vancouver / Toronto.

I should also mention the Chinese RMB is pegged to the USD... so relative to people from China / Taiwan / HK --- Canadian real estate just dropped 25% compare to a year ago...  so it is on sale

It's a tough decision for sure...   

Gary,

The areas I witness the steepest raise in RE generally have high ratio of ppl from mainland China.

It's not uncommon to see a huge house in Toronto and Vancouver  either being empty most of the time or just have the mom and son live there.

I don't even think thry care about the forex rate.
They just want to get the money out in case something bad happen back home.

Canada is a much smaller market than US. so the impact will be way more visible.



Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 30, 2015, 03:16:01 PM
Say if I l am renting my place for 2.5k, if I buy it will cost me 1m

And I need to pay 8k annually for taxes, maybe 4k for maintenance.

So spend 1m saves me 20k... So it does not make sense to buy unless u are betting on house price to go up fast.


Of coz,  I do realize house is not pure investment.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 03:37:00 PM
Liberty,  I used to think exactly like you.

  In Toronto,
Rent ratio is properly 30 40x.  1m house rent for 2.5k.

Income ratio is over 7x. And I am talking
about become tax income...

Very high ratios no matter how u cut in.

But i still see multiple ppl bidding on the offer night.  Heard stories about  guys out bidding  pretty  himself just to get in.

U check out the houses in Scarborough. They don't even look as nice as those in Phoneix.

But if this bubble continues on for few more years, why not jump in and take advantage of it.

Only if I know the future.

.

Best of luck with that.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 30, 2015, 03:40:19 PM
The historical average of house prices in Canada and the US can be compared over time. Why did they diverge recently but not before? Why was 2006 considered to be an overpriced market in the US but not in Canada?

I'm going to step aside from this conversation. I will suggest that:
- the starting point of that graph was probably deliberate and things might look different if you looked at a longer time period

Found these which goes back to 1980:

(http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/home-buying/article11502773.ece/BINARY/w620/Real+house+prices%3A+Canada+vs.+the+U.S.)

(http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/home-buying/article11502650.ece/BINARY/w620/Ben+Chart+1)
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on March 30, 2015, 04:23:30 PM
That graph shows the Canadian house prices went through a period of 10 years where housing prices were stagnant -all during the 1990's? Boy I don't remember that - (edit) I guess that depended on where you lived.
Title: Re: Garth Turner - Real Estate in Canada
Post by: merkhet on March 30, 2015, 05:18:13 PM
Liberty,  I used to think exactly like you.

  In Toronto,
Rent ratio is properly 30 40x.  1m house rent for 2.5k.

Income ratio is over 7x. And I am talking
about become tax income...

Very high ratios no matter how u cut in.

But i still see multiple ppl bidding on the offer night.  Heard stories about  guys out bidding  pretty  himself just to get in.

U check out the houses in Scarborough. They don't even look as nice as those in Phoneix.

But if this bubble continues on for few more years, why not jump in and take advantage of it.

Only if I know the future.

.

Best of luck with that.

Many of my relatives said the same thing about China's housing market... (multiple bids, etc.)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 06, 2015, 03:54:56 AM
Does it make sense to short canadian banks based on this insight?

In a word... No. 

I just went through two separate processes in the last 7 months.  One was remortgaging our house at lower rates with First National Lp (Canada's biggest mortgage lender).  The other was setting up a new Heloc with TD Bank. 

First National required proof of wage, employment, and assessed the house for its value before approving the remortgage.  The house was assessed for 950k, my estimate on its resale is 1050 to 1100 k.  They cap the amount they will lend at 80%.  We remortgaged with room to spare. 

I like to operate with a Heloc to smooth my investment income that I rely on.  We went to Td to get a Heloc set up.  Again, we had to provide full income verification, and TD sent their own house assessor.  It was again assessed for 950 k, within seven months of the last assessment.  The capped the total borrowable at 80% including First National's portion. 

My Wife and I have Equifax credit scores of 800 and 854.  900 is a perfect score.  90 plus Defaults among those with higher than 800 run at less than 1%.  We had to go through alot of hoops to get this all done. 

My conclusion:
The big 5/6 Canadian Banks are unlikely to get stung very much in a real estate crash, if there is one.  First National is also unlikely to get stung very much either.  If housing does crash their stocks will get very cheap for no reason.  Ry, TD, BMO, BNs, CM, and Fn are all on my long term watch list. 

I have even dipped my toes in the water buying some First National and Ry recently.  This is part of my strategy of shifting some of my assets to Canadian dividend paying companies to generate income.

If I were going to short something in relation to a Real Estate crash I would look at mortgage lenders who work the subprime space.  There are some smaller publicly traded ones.  I dont have any suggestions in particular as I dont short as a rule, and I am not looking in this space for watch list candidates - I suspect some of these will get wiped out but cant say which.  In part of my due diligence For Fn, I googled under numerous search terms for Canadian Housing lenders for people with weak credit and came up with a few names - First National did not appear.  Incidentally, I have been a customer of First National for 11 years since they were a smaller outfit, and they sailed right through 2008/2009 unscathed.  It only took me 7 years or so to pull the trigger and start paying myself back on my mortgage. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 06, 2015, 05:25:02 AM
http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/vancouver-real-estate-prices-continue-climb-projected-to-skyrocket/article23799929/
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on April 06, 2015, 08:22:14 PM
Nuts.

But unless gov does something,  hard to see this stop.
Title: Re: Garth Turner - Real Estate in Canada
Post by: FiveSigma on April 06, 2015, 08:38:13 PM
We went to Td to get a Heloc set up. 

Uccmal, how did you get TD to give you a HELOC up to 80% of total LTV with your first mortgage NOT being with TD (i.e., with First National)?

In my very recent experience, every big-5 Canadian bank refuses to go second on a property with first mortgage that is not with them, including TD (had a phone conversation with them).

The only firm that agreed to do it was Home Capital group, but they cap total LTV (first+HELOC) at 65% of appraised property value.



Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 07, 2015, 03:45:12 AM
Nuts.

But unless gov does something,  hard to see this stop.

What do you mean? You don't think that at a certain point incomes simply can't keep up, and interest rates will go up in the US, forcing the bank of Canada's hand (if they don't want the CAD to be even weaker -- Canada is still a net importer)? Or that some random shock to the economy (we already have mining in the dumps, and now oil) will be enough? Caring only about short-term monthly payments rather than the actual entire price of something is not sustainable.

The government is far from being the only entity that can do something. When they ease like they did recently, they are just kicking the can down the road and making it worse when we get there.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 07, 2015, 05:37:32 AM
We went to Td to get a Heloc set up. 

Uccmal, how did you get TD to give you a HELOC up to 80% of total LTV with your first mortgage NOT being with TD (i.e., with First National)?

In my very recent experience, every big-5 Canadian bank refuses to go second on a property with first mortgage that is not with them, including TD (had a phone conversation with them).

The only firm that agreed to do it was Home Capital group, but they cap total LTV (first+HELOC) at 65% of appraised property value.

I dont know.  I had one before the remortgage that was discharged at that time.  I hold all of my brokerage accounts with TD, and Visa cards with TD.  Maybe they are worried about losing that business?  So, I have been a long time customer... 30 years total. 

Your comment plays to my thesis that the big Canadian banks aren't going to be left holding the ball in a housing slowdown though.  Its the smaller finance companies of which there are dozens out there.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Yours Truly on April 07, 2015, 07:09:59 AM
I for one welcome our new Mainland Chinese overlords
Title: Re: Garth Turner - Real Estate in Canada
Post by: bizaro86 on April 07, 2015, 07:23:12 AM
We went to Td to get a Heloc set up. 

Uccmal, how did you get TD to give you a HELOC up to 80% of total LTV with your first mortgage NOT being with TD (i.e., with First National)?

In my very recent experience, every big-5 Canadian bank refuses to go second on a property with first mortgage that is not with them, including TD (had a phone conversation with them).

The only firm that agreed to do it was Home Capital group, but they cap total LTV (first+HELOC) at 65% of appraised property value.

They'll do it if they think they have a chance at making you a relationship customer. My banker moved to RBC for awhile, and I took a new 1st mortgage on one rental and a second (behind a Scotiabank first) on a different rental. They had no problem doing it, and pushed hard to get the second as well, which I was planning to combine with the Scotia first mortgage.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gurpaul88 on April 07, 2015, 08:03:42 AM
I for one welcome our new Mainland Chinese overlords

+1
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on April 07, 2015, 08:23:36 AM
http://www.macleans.ca/economy/realestateeconomy/when-the-housing-bubble-bursts-there-wont-be-a-soft-landing/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 07, 2015, 08:21:25 PM
There seems to be a general sense that nothing huge can occur in the housing market.  This itself is a risk.

In a severe global downturn, risk aversion will take over and funds will run from risky assets.  The proverbial tide will go out and so many things will get clobbered simultaneously (junk bonds, EM bonds, stocks and currencies).  It has taken years to inflate global assets and it will take much less time for all of them to come back down to earth.

It is getting harder to sit back and watch everyone else making money in this environment, and that is exactly why those that can resist being drawn into the markets, will be well positioned when the inevitable will eventually occur.  Remember how Buffet was ridiculed because he would not board the tech wreck of the 90s?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on April 08, 2015, 06:06:14 AM
There seems to be a general sense that nothing huge can occur in the housing market.  This itself is a risk.

In a severe global downturn, risk aversion will take over and funds will run from risky assets.  The proverbial tide will go out and so many things will get clobbered simultaneously (junk bonds, EM bonds, stocks and currencies).  It has taken years to inflate global assets and it will take much less time for all of them to come back down to earth.

It is getting harder to sit back and watch everyone else making money in this environment, and that is exactly why those that can resist being drawn into the markets, will be well positioned when the inevitable will eventually occur.  Remember how Buffet was ridiculed because he would not board the tech wreck of the 90s?

I agreed - although I think real estate in Canada is probably not quite the same as the tech bubble where some assets were priced at avg of 165x p/e multiples - and the market participants bought using margin -

I believe the high end real estates in Canada are bought with cash... 
and many 'average' condos were bought with more stringent downpayment and insurance requirements. 

That's not to say a bubble is not here and won't burst... but I have a hard time seeing that's the same as the tech bubble. 

Gary



Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on April 08, 2015, 06:30:03 AM
I have a question -
Is there any data backing up the statement - "high end houses are being bought with cash."

Canadian banks have a new immigrant program - no income, no credit requirements as long as you have been in Canada less than 5 years and can put down 35%.

Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on April 08, 2015, 06:54:30 AM
Hi Wisdom.. sorry I don't have any data.
But having lived in Vancouver for 20 years... and know the Asian community very well... and just from the deals I know - they are all bought with cash deals.  The town of Vancouver is just flooded with money from China.

when i went to UBC - wealthy students from Taiwan / HK drove BMW or Benz to school.... 

I now do quite a bit of work at ubc - and wealth students from China drive Ferrari and Rolls Royce to school....     In fact I recently saw a blog on my FB feed:  http://universityofbeautifulcars.tumblr.com/

I have no problem believing these students are here with their mom (dad still working in China) - and almost everything they own is bought with cash.   

Gary



Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 08, 2015, 07:05:08 AM
There seems to be a general sense that nothing huge can occur in the housing market.  This itself is a risk.

In a severe global downturn, risk aversion will take over and funds will run from risky assets.  The proverbial tide will go out and so many things will get clobbered simultaneously (junk bonds, EM bonds, stocks and currencies).  It has taken years to inflate global assets and it will take much less time for all of them to come back down to earth.

It is getting harder to sit back and watch everyone else making money in this environment, and that is exactly why those that can resist being drawn into the markets, will be well positioned when the inevitable will eventually occur.  Remember how Buffet was ridiculed because he would not board the tech wreck of the 90s?

I agreed - although I think real estate in Canada is probably not quite the same as the tech bubble where some assets were priced at avg of 165x p/e multiples - and the market participants bought using margin -

I believe the high end real estates in Canada are bought with cash... 
and many 'average' condos were bought with more stringent downpayment and insurance requirements. 

That's not to say a bubble is not here and won't burst... but I have a hard time seeing that's the same as the tech bubble. 

Gary

During the tech wreck, even the Queen of England was trading stocks.  Everyone was doing it, except for a few notables WB, Prem, etc..

We are seeing global inflation of all assets simultaneously.  There is a possibility that all assets will reverse simultaneously and very quickly.  Long tail events occur when people are not expecting them.  BLACK SWAN!!

Today everyone is convinced that a 50% drop in Canadian RE is not possible.  Is a 50% drop reasonable in light of the global asset inflation over the past 7 years?  What if everything drops at the same time?  Will global funds pour into Canada for refuge?  Who knows???

BLACK SWANS are possible and very few are prepared to deal with such an outcome.  Personally it looks like pick up quarters in front of a steam roller.  Not worth the risk.

 
Title: Re: Garth Turner - Real Estate in Canada
Post by: merkhet on April 08, 2015, 07:07:04 AM
I suppose the lack of credit purchases might make a difference on the margin, but does it really matter if most of the purchases are all cash or not? After all, the marginal buyer sets the prices. The margin only matters for the knock-on effects.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on April 08, 2015, 07:09:36 AM
There seems to be a general sense that nothing huge can occur in the housing market.  This itself is a risk.

In a severe global downturn, risk aversion will take over and funds will run from risky assets.  The proverbial tide will go out and so many things will get clobbered simultaneously (junk bonds, EM bonds, stocks and currencies).  It has taken years to inflate global assets and it will take much less time for all of them to come back down to earth.

It is getting harder to sit back and watch everyone else making money in this environment, and that is exactly why those that can resist being drawn into the markets, will be well positioned when the inevitable will eventually occur.  Remember how Buffet was ridiculed because he would not board the tech wreck of the 90s?

I agreed - although I think real estate in Canada is probably not quite the same as the tech bubble where some assets were priced at avg of 165x p/e multiples - and the market participants bought using margin -

I believe the high end real estates in Canada are bought with cash... 
and many 'average' condos were bought with more stringent downpayment and insurance requirements. 

That's not to say a bubble is not here and won't burst... but I have a hard time seeing that's the same as the tech bubble. 

Gary

During the tech wreck, even the Queen of England was trading stocks.  Everyone was doing it, except for a few notables WB, Prem, etc..

We are seeing global inflation of all assets simultaneously.  There is a possibility that all assets will reverse simultaneously and very quickly.  Long tail events occur when people are not expecting them.  BLACK SWAN!!

Today everyone is convinced that a 50% drop in Canadian RE is not possible.  Is a 50% drop reasonable in light of the global asset inflation over the past 7 years?  What if everything drops at the same time?  Will global funds pour into Canada for refuge?  Who knows???

BLACK SWANS are possible and very few are prepared to deal with such an outcome.  Personally it looks like pick up quarters in front of a steam roller.  Not worth the risk.

 

So what if your horizon is very long - say 20 years ?

We had the worst real estate correction in the US in 2008/09...    Are the quality homes in NEW YOrk / Seattle,  San Fran back to the peak in 2007 ?   

I think there is a risk - but so as everthing else in the world...   We gotta look forward and stay positive.    Being risk adversed can include having mechanism in place to address the risk....   Gary
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 08, 2015, 07:31:28 AM


So what if your horizon is very long - say 20 years ?

We had the worst real estate correction in the US in 2008/09...    Are the quality homes in NEW YOrk / Seattle,  San Fran back to the peak in 2007 ?   

I think there is a risk - but so as everthing else in the world...   We gotta look forward and stay positive.    Being risk adversed can include having mechanism in place to address the risk....   Gary

Very good point.  One needs to be protected as they move forward.  Many are getting complacent and will not be protected.  That is what will trigger a correction.  The Canadian RE will simply be swallowed up by other global events, no matter what arguments are put forward.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on April 08, 2015, 08:09:36 AM
I think  the main reason ppl are buying house is there is a general belief  that house price will continue to go up if u don't act now.

It's like a chicken and egg thing.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 08, 2015, 08:16:38 AM
I think  the main reason ppl are buying house is there is a general belief  that house price will continue to go up if u don't act now.

It's like a chicken and egg thing.

The greater fool theory. That's basically all bubbles.

Quote
The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. Or one may rationally have the expectation that the item can be resold to a "greater fool" later.

http://en.wikipedia.org/wiki/Greater_fool_theory
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 08, 2015, 08:18:22 AM
I think  the main reason ppl are buying house is there is a general belief  that house price will continue to go up if u don't act now.

It's like a chicken and egg thing.

Fear of missing out is the fuel that drives bubbles.
Title: Re: Garth Turner - Real Estate in Canada
Post by: hardcorevalue on April 08, 2015, 09:19:26 AM
All I can say is I have seen this in countless friends (late 20s early 30s age group) in Toronto. Yes, the most common belief is if you don't buy now you will never be able to afford a house in the city. There is zero belief (and I say this not over exaggerating) that house prices can go down. They are a 'one way' asset to most Torontonians. Any time you mention the US, Ireland, or other markets where housing broke, they say Canada isn't like that or the government would never let that happen. This spring is likely to see material price appreciation in Toronto, the interest rate cuts (although small) make it seem to the public that rising prices are even more permanent now.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on April 08, 2015, 10:16:52 AM
You don't need to wait for spring summer time.

House prices already up at least 15 20 percent in some suburb areas yoy. Scarborough

Inside Toronto, even way over built condos have caused bidding war.

The new finance minister  and bank governer so far is saying  soft landing.  Ie. Wait and pray.



Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 09, 2015, 05:14:53 AM
There seems to be a general sense that nothing huge can occur in the housing market.  This itself is a risk.

In a severe global downturn, risk aversion will take over and funds will run from risky assets.  The proverbial tide will go out and so many things will get clobbered simultaneously (junk bonds, EM bonds, stocks and currencies).  It has taken years to inflate global assets and it will take much less time for all of them to come back down to earth.

It is getting harder to sit back and watch everyone else making money in this environment, and that is exactly why those that can resist being drawn into the markets, will be well positioned when the inevitable will eventually occur.  Remember how Buffet was ridiculed because he would not board the tech wreck of the 90s?

I agreed - although I think real estate in Canada is probably not quite the same as the tech bubble where some assets were priced at avg of 165x p/e multiples - and the market participants bought using margin -

I believe the high end real estates in Canada are bought with cash... 
and many 'average' condos were bought with more stringent downpayment and insurance requirements. 

That's not to say a bubble is not here and won't burst... but I have a hard time seeing that's the same as the tech bubble. 

Gary

During the tech wreck, even the Queen of England was trading stocks.  Everyone was doing it, except for a few notables WB, Prem, etc..

We are seeing global inflation of all assets simultaneously.  There is a possibility that all assets will reverse simultaneously and very quickly.  Long tail events occur when people are not expecting them.  BLACK SWAN!!

Today everyone is convinced that a 50% drop in Canadian RE is not possible.  Is a 50% drop reasonable in light of the global asset inflation over the past 7 years?  What if everything drops at the same time?  Will global funds pour into Canada for refuge?  Who knows???

BLACK SWANS are possible and very few are prepared to deal with such an outcome.  Personally it looks like pick up quarters in front of a steam roller.  Not worth the risk.

 

Okay, we had a generational macro event in 2008/09.  As a result the financial system is in better shape than it has been in decades. 

What asset prices are inflated, exactly?  You keep saying this but provide no evidence.  Commodities are generally depressed.  Europe Inc is generally depressed.  Japan Inc. is depressed.  By far the most important asset of all is running at 40% of its peak.

I agree with you that CDn. real estate is frothy.  However, as I have asserted above it is a subsector of the economy restricted to mortgage lenders.  Will something take it down eventually.  Of course, but 50%.  When did this last happen?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 09, 2015, 05:36:55 AM
There seems to be a general sense that nothing huge can occur in the housing market.  This itself is a risk.

In a severe global downturn, risk aversion will take over and funds will run from risky assets.  The proverbial tide will go out and so many things will get clobbered simultaneously (junk bonds, EM bonds, stocks and currencies).  It has taken years to inflate global assets and it will take much less time for all of them to come back down to earth.

It is getting harder to sit back and watch everyone else making money in this environment, and that is exactly why those that can resist being drawn into the markets, will be well positioned when the inevitable will eventually occur.  Remember how Buffet was ridiculed because he would not board the tech wreck of the 90s?

I agreed - although I think real estate in Canada is probably not quite the same as the tech bubble where some assets were priced at avg of 165x p/e multiples - and the market participants bought using margin -

I believe the high end real estates in Canada are bought with cash... 
and many 'average' condos were bought with more stringent downpayment and insurance requirements. 

That's not to say a bubble is not here and won't burst... but I have a hard time seeing that's the same as the tech bubble. 

Gary

During the tech wreck, even the Queen of England was trading stocks.  Everyone was doing it, except for a few notables WB, Prem, etc..

We are seeing global inflation of all assets simultaneously.  There is a possibility that all assets will reverse simultaneously and very quickly.  Long tail events occur when people are not expecting them.  BLACK SWAN!!

Today everyone is convinced that a 50% drop in Canadian RE is not possible.  Is a 50% drop reasonable in light of the global asset inflation over the past 7 years?  What if everything drops at the same time?  Will global funds pour into Canada for refuge?  Who knows???

BLACK SWANS are possible and very few are prepared to deal with such an outcome.  Personally it looks like pick up quarters in front of a steam roller.  Not worth the risk.

 

Okay, we had a generational macro event in 2008/09.  As a result the financial system is in better shape than it has been in decades. 

What asset prices are inflated, exactly?  You keep saying this but provide no evidence.  Commodities are generally depressed.  Europe Inc is generally depressed.  Japan Inc. is depressed.  By far the most important asset of all is running at 40% of its peak.

I agree with you that CDn. real estate is frothy.  However, as I have asserted above it is a subsector of the economy restricted to mortgage lenders.  Will something take it down eventually.  Of course, but 50%.  When did this last happen?

1989. House prices dropped 50% in TOR

You are correct.  It was, however, not universally that dramatic across Canada. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 09, 2015, 06:02:25 AM
No it was VAN and TOR were they dropped

What data are you using.  I found one data set that suggested a roughly 30% drop for Canada.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 09, 2015, 06:49:43 AM
Canada wide: 89/90 about 25% drop:

http://www.macleans.ca/economy/realestateeconomy/a-canadian-housing-chart-that-puts-the-bubble-in-perspective/

Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 09, 2015, 06:53:34 AM
Toronto Real house prices from TREB:

http://www.wheretrustbegins.com/4a_custpage_9237.html

~ 30 % drop in 89/90

Anecdotally, I recall headlines of 50% drops in some areas such as the Beaches. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 09, 2015, 08:49:10 AM
Hi Al,

The Central Banks have created a major global stretching for yield that has affected everything (Sovereign debt, Corporate Bonds, Junk Bonds, Real Estate, Stocks, ...).  When the elastic snaps back (don't know when & don't know how) it has the potential to be colossal.

Do you have plan for this possible long tail event?  What if RE is down 50% and stock are down even more and the Cdn $ is crushed?  Will you be OK?  Will you be able to take advantage of the amazing bargains that will be offered up?  Do you have some sort of insurance policy against this scenario?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on April 09, 2015, 09:38:52 AM
From what I recall, in the US an argument that was often used was that they have never had a nation wide drop in housing prices. That real estate was local. But, after a long run up in RE prices across the country prices dropped on average 34%.

RE prices have been a one way bet in Canada since 1999 - 15+ years. What are the odds that this continues? If this does stop and Canadians realize they have taken on too much debt and sucked up future demand, what happens?

The norm in recessions is for immigration to drop as the locals struggle to get jobs and do not like additional competition for jobs. Investments coming into the country drop because money coming from outside can find a better home.

What happens, if after a 15 year run up in housing prices it comes to halt and 7% of our GDP is housing. In the US it was 6% at peak and currenlty it is running at 3%. Personal debts are going to be tough to pay back unless commodities rebound in a big way or the loonie drops a lot to bring back manufacturing.

I am unable to figure out how this can continue. Though it has for longer than I would have expected.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on April 09, 2015, 11:00:37 AM
http://business.financialpost.com/personal-finance/canadians-embrace-idea-of-paying-rent-and-condo-fees-with-their-credit-cards

I hope these people actually pay off their credit cards.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 09, 2015, 11:16:56 AM
http://business.financialpost.com/personal-finance/canadians-embrace-idea-of-paying-rent-and-condo-fees-with-their-credit-cards

I hope these people actually pay off their credit cards.

Unless I'm misreading that, it sounds like people are paying 2.75% extra for the privilege of paying with their credit cards:

Quote
The credit card fee is 2.75 per cent of the transaction to the consumer, making the lure of gaining points on your card a less attractive option.

“Somebody has to pay for the cost of acceptance [of the credit card],” says Postrehovsky. “We are giving the consumer the option to pay [through a credit card].”

Crazy. Guessing people desperate or illiterate enough to do that are probably not always paying it every month...
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 09, 2015, 11:20:01 AM
http://business.financialpost.com/personal-finance/canadians-embrace-idea-of-paying-rent-and-condo-fees-with-their-credit-cards

I hope these people actually pay off their credit cards.

WOW!!!  It looks like millennials have completely missed the point that cash as a store of value.  As long as the cashflow covers the expenses, all is good.  There are going to be a lot of people living in their parent's basements for a long time.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on April 09, 2015, 11:21:52 AM
http://www.macleans.ca/economy/realestateeconomy/the-vacant-truth-about-rental-condos/
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 09, 2015, 11:28:44 AM
http://business.financialpost.com/personal-finance/canadians-embrace-idea-of-paying-rent-and-condo-fees-with-their-credit-cards

I hope these people actually pay off their credit cards.

WOW!!!  It looks like millennials have completely missed the point that cash as a store of value.  As long as the cashflow covers the expenses, all is good.  There are going to be a lot of people living in their parent's basements for a long time.

It's human nature. I don't think people have ever liked this whole concept of "you can only buy what you can afford with the money that you have saved" concept. If credit had been as available as it is now in the 60s or whatever, the boomers would've gorged on it to buy muscle cars with no seatbelts, turntables, and bell bottom pants or whatever. Most people have no idea how to manage money and don't think very far ahead, which is sad.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 09, 2015, 11:34:26 AM
http://www.macleans.ca/economy/realestateeconomy/the-vacant-truth-about-rental-condos/

Good piece, thanks for posting.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 09, 2015, 11:39:17 AM
http://www.macleans.ca/economy/realestateeconomy/the-vacant-truth-about-rental-condos/

Good piece, thanks for posting.
1+
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 09, 2015, 03:15:47 PM
Nothing wrong here..

http://m.theglobeandmail.com/globe-investor/personal-finance/mortgages/good-things-come-in-small-packages-for-millennial-buyers/article23671953?service=mobile
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 09, 2015, 04:21:28 PM
Nothing wrong here..

http://m.theglobeandmail.com/globe-investor/personal-finance/mortgages/good-things-come-in-small-packages-for-millennial-buyers/article23671953?service=mobile
Developer Jon Stovell of Reliance Properties specializes in delivering housing to those young people who are eager to purchase real estate, and also willing to live small. He believes that the millennial market has a lot of untapped potential, but he says cities such as Vancouver aren’t keeping up, with their outmoded regulations.

They must be outmoded since THIS TIME IS DIFFERENT!
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on April 09, 2015, 04:29:30 PM
Hi Al,

The Central Banks have created a major global stretching for yield that has affected everything (Sovereign debt, Corporate Bonds, Junk Bonds, Real Estate, Stocks, ...).  When the elastic snaps back (don't know when & don't know how) it has the potential to be colossal.

Do you have plan for this possible long tail event?  What if RE is down 50% and stock are down even more and the Cdn $ is crushed?  Will you be OK?  Will you be able to take advantage of the amazing bargains that will be offered up?  Do you have some sort of insurance policy against this scenario?

Well, I am not convinced.  As you know, We, whom were on this board, went through one of these a few years back and came out stronger.  Do you have a plan Phoenix? 

I for one have been buying dividend payers in an assortment of industries.  It is interesting to note that in 2008/2009 the majority of companies did not cut their dividends - they didn't raise them, but they didn't cut either.  The major income hits were among US financials.  At the same time I have been exiting most of my leveraged bets (Leaps), slowly. 

I cant speak to CDn. Real Estate.  It is certainly frothy but has never dropped by 50% - see above evidence. 

I try to get my head around the scenario you propose.  With central bank ammunition used up, the outcome is nothing short of worldwide disaster.  Nothing will be safe, certainly not cash.  This time around no one will be buying stocks because we would be in a deflationary spiral. I guess that is why the fed. is unwilling to shrink its balance sheet or raise interest rates in any hurry.  I also think the Fed. and worldwide governents want to inflate their way out of debt. 

Like Y2k, there is enough people worrying about it to make it a non-event.  This wasn't the case in 2007, when no one seemed worried about anything.  I had SPY puts by summer 2008, that I sold out way, way too early.  I am not seeing that as necessary right now. 


Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 09, 2015, 04:45:06 PM
Good article with Ben Tal on vacancy rates in TO

http://landlordrescue.ca/the-truth-about-current-vacancy-rates/

As for your concern, about a sell off,  I think that there is a very real possibility. I have been disseminating a cap rate spread sheet for the use of small investors for years and it does include such things as maintenance and vacancy. What you find when evaluating real estate in Toronto is that it makes no financial sense at all unless capital appreciation is relied upon to make the investment.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on April 09, 2015, 05:20:32 PM
Vancouver RE has been there for a few years. You can look at European debt for example - why would people buy an asset that guarantees them a loss.

Obviously the majority does not think about the outcomes of their actions.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on April 09, 2015, 06:45:07 PM
Almost Warren buffett like returns on this condo. Toronto is littered with crap like this. It's funny because in the investment world its illegal to post returns like this but in RE it's ok. Feel bad for people who fall for this.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Matson125 on April 10, 2015, 08:36:38 AM
Debate on housing and debt in Canada

http://www.marilyn.ca/AtHome/segments/Daily/April2015/4_9_2015/KevinOLearyScottMcGillivray
Title: Re: Garth Turner - Real Estate in Canada
Post by: Aberhound on April 12, 2015, 07:48:09 PM
There is are two trends which are new to me in Vancouver. Both probably will further drive up prices. First, the new model for Condos is for the developer to retain ownership of the land and to sell the units to buyers on 50 year leaseholds. The other trend has come from Hong Kong where landlords owning rental properties separate the land ownership from the building ownership by leasing themselves the building for long terms, then when they go to the bank for financing the only security offered is the assignment of rents and the leasehold interest. I recall the Empire State Building being split into a leasehold so what is new may be the ability to borrow on the lesser security. The structure is an attempt to get around the problem that you risk losing the entire property merely because there is a short term crash in market values.

Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on April 21, 2015, 12:11:13 PM
http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-whats-really-scary-about-high-ratio-mortgages-in-canada?utm_source=dlvr.it&utm_medium=twitter
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on April 21, 2015, 01:56:01 PM
http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-whats-really-scary-about-high-ratio-mortgages-in-canada?utm_source=dlvr.it&utm_medium=twitter

Thanks 50cents for the post.  1.8M households with a -13% savings rate.  Ouch!!!
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 22, 2015, 05:40:25 AM
http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-whats-really-scary-about-high-ratio-mortgages-in-canada?utm_source=dlvr.it&utm_medium=twitter

Great one, thanks for posting!
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on April 22, 2015, 10:10:32 AM
http://www.economist.com/news/finance-and-economics/21648624-housing-markets-across-globe-both-underperform-and-overwhelm-property-puzzles?frsc=dg%7Cd

(http://cdn.static-economist.com/sites/default/files/imagecache/original-size/images/print-edition/20150418_FNC602.png)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Jurgis on April 22, 2015, 10:32:32 AM
I should buy a house in Japan...

Never mind, I think they don't sell to foreigners.

Maybe a Greek island...  8)
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on May 05, 2015, 11:01:04 AM
Prices still rising..............



CBC News:

April house sales surge 17% in Toronto, 37% in Vancouver

Huge demand for homes and tight supply make for a seller's market in both cities


The Toronto Real Estate Board reported 11,303 house sales in the Greater Toronto Area in April, and a five per cent surge in new listings as buyers decided to test the market.

The average selling price rose 10 per cent year over year to $635,932, with a detached single-family home in the 416 area code region selling for an average of $1,056,114.

Residential property sales in Metro Vancouver reached 4,179, compared to the 3,050 sales in April 2014, and up 2.9 per cent from March, which also saw record sales numbers.

http://www.cbc.ca/news/business/april-house-sales-surge-17-in-toronto-37-in-vancouver-1.3061755?ref=fh,content.ighome.com
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on May 05, 2015, 05:08:14 PM
i would like in some area, it's more like up 15% to 20% YoY.

And no sign of slowing down.
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on May 05, 2015, 05:26:36 PM
Several weeks ago I closed about half of my put position on The Royal Bank of Canada (took it down to 2% position of current portfolio), only because I couldn't roll it to 2017.  I'll ride the rest of the position into the ground.  If the rest of it does go to zero this adventure will have cost me about 3.5% of current port.  The funny thing is that all the ingredients are there for a bust, it just hasn't happened yet.

Canadian real estate - to the moon!
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on May 05, 2015, 07:10:36 PM
Several weeks ago I closed about half of my put position on The Royal Bank of Canada (took it down to 2% position of current portfolio), only because I couldn't roll it to 2017.  I'll ride the rest of the position into the ground.  If the rest of it does go to zero this adventure will have cost me about 3.5% of current port.  The funny thing is that all the ingredients are there for a bust, it just hasn't happened yet.

Canadian real estate - to the moon!

No asset goes up at 6-10 times the rate of inflation.

Sure it can, just for some reasonable or unreasonable amount of time.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on May 05, 2015, 07:19:36 PM
Several weeks ago I closed about half of my put position on The Royal Bank of Canada (took it down to 2% position of current portfolio), only because I couldn't roll it to 2017.  I'll ride the rest of the position into the ground.  If the rest of it does go to zero this adventure will have cost me about 3.5% of current port.  The funny thing is that all the ingredients are there for a bust, it just hasn't happened yet.

Canadian real estate - to the moon!

No asset goes up at 6-10 times the rate of inflation.

Sure it can, just for some reasonable or unreasonable amount of time.

Many say it will go up forever, and soft landing just mean it go up slowly to let income catch up.

None of the people I talk to expect house to go down. You have to live in Vancouver and Toronto to believe the atmosphere here.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on May 06, 2015, 10:01:04 AM
A balloon is always at it's largest just before it pops.

It seems that the balloon will never pop while it is filling, and then all of a sudden, the inevitable happens.

It deflates at an incredibly scary rate compared to the amount of time it takes to fill it.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 06, 2015, 10:08:07 AM
It has been a one way bet in Vancouver for 15 years now. It is amazing how long things can run.

Markets can be irrational longer than....
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 27, 2015, 07:22:45 AM
http://www.cbc.ca/news/business/real-estate-woes-the-secret-lives-of-house-poor-canadians-1.3086793

Title: Re: Garth Turner - Real Estate in Canada
Post by: tripleoptician on May 31, 2015, 03:08:46 AM
I've lived in Vancouver for 5 years now and have been a firm believer in the unbalanced, frothiness of this market the entire time. All typical measures of inaffordability have been shown to be consistently off when comparing the local population's overall income, current debt levels and overall income growth in the recent past.
My wife and I are both doctors and could "afford" to buy, but I could never rationalize the purchase despite home ownership being aggressively pushed on us from all Vancouver locals and our parents who have obviously made money in real estate over this extended bull market, albeit in Winnipeg/Ottawa markets.

In the last few months however, I feel like I've been analyzing the local situation in Vancouver incorrectly.....


 I agree with the majority of the bearish posters on this thread who point to the national indicators such as historic low interest rates coupled with historically high debt levels, combined with a prolonged period starting in late 1990's of purposeful manipulation by CMHC to increase home ownership via longer amoritization periods and lower minimum downpayment requirements. This national trend shows this cannot go on forever based on the macro/microeconomic trends that govern our national/provincial and municipal landscape for Canadians. Eventually either a recession, higher interest rates or lack of consumer/investor confidence in real estate being the golden ticket will lead to either prolonged stagnation or decline in prices in the majority of our National markets. Coming from Manitoba, this is the viewpoint I have held consistently for Winnipeg's market, and felt Vancouver's hot market was explained by its locals unbridled enthusiasm for all things real estate. It truly is more manic than any other area in the country, because everyone knows  multiple "average Joe's" who have made hundreds of thousands in this local market. It perfectly describes everything related to a speculative bubble.

The problem with Vancouver real estate is there is a significant non local market force in the foreign Chinese buyer. I don't believe the rest of the country is affected by this at any similar order of magnitude, although the Toronto market may be somewhat affected. Many posters have alluded to the Chinese foreign buyer influence, but I don't think we have delved deep enough into why this money flows to the Vancouver market, and what factors would potential reverse or diminish its flow. This is the part that has me questioning whether this long term rise will actually decline. I don't want to debate if foreign buyers are truly having an effect - anecdotal and objective evidence is continuing to mount; the only question may be is it the primary driver of recent increases or secondary/tertiary contributer. I've attended some forums with Dr Ley and personally feel the link is clear
http://www.theglobeandmail.com/life/home-and-garden/real-estate/some-wonder-if-its-time-vancouver-acts-to-slow-foreign-buyers/article24341903/

Now these are some commonly held beliefs as to what motivates the Chinese foreign buyer to buy million dollar homes with cash:

1. Taking capital out of China provides a possible call option/exit strategy if an individual's business gets nationalized.

2. Canada has less stringent immigration laws regarding obtaining permanent residency status relative to other Western countries including an "investor" class that eases the application process if the applicant is wealthy. This again gives an individual a call option on leaving China if political unrest or corruption/witchhunts occurs.
 
3. Access to Western educations for their children

4. Environmental concerns for China/Chinese desire for natural beauty of Vancouver

5. It has been very lucrative as an investment over the last several years

6. Canada appears to have the most lax laws on foreign property ownership compared to other Western countries.

7.It also appears we have lax laws on bringing large amounts of currency into our borders relative to other Western countries:

http://www.vancouversun.com/news/Vancouver+airport+tops+country+seizures+undeclared+cash/8043419/story.html

There are likely many other possible motivations and some of the above may be anecdotal or incorrect. I previously believed that regardless of the motivation, once the bubble "pops" in the rest of Canada which will eventually occur, the foreign buyer would immediately be dissuaded from continuing to purchase as price declines would scare them from placing capital into a possible losing investment. I now think this is probably wrong.

The above border cash seizures article references that the supposed amount of capital outflow allowable to a Chinese citizen is $50,000/ year CAD equivalent. To have overall Chinese outflows in the billions/year as referenced in the article, individuals are obviously deciding the risk of keeping their cash in China is riskier than being caught taking larger sums out of the country. The Chinese foreign buyers are not utilizing local mortgages to purchase Vancouver homes. Anecdotal evidence has shown the majority are cash purchases. As noted above, even when CBSA finds undisclosed large amounts of cash at the border, the person pays a fine but keeps all their cash without further investigation. A multi million dollar cash real estate purchase by a Canadian citizen would likely send CRA on an in depth audit, but there is no concern by Canadian authoritities when it is a foreign buyer.
Couple the above with this recent article that suggests Chinese policy will ease limits on foreign capital flow along with a depreciating
CAD relative to the yuan, it appears capital outflows to Canada may see a sustained surge.

http://www.wsj.com/articles/china-to-ease-limits-on-overseas-investments-1432841526

So to summarize, I can see many natural incentives to encourage Chinese citizens to continue to have their capital flow to Western countries and will not be abated by:
1. tougher foreign ownership laws (see Australia and Hong Kong's real estate price growth despite making foreign real estate investment harder),
2. Chinese National policy (has currently been ignored and is set to ease further)
3. Increase in interest rates (purchases are largely cash)
4. Chinese recession - I think this would continue to see higher capital outflows as there is a higher chance of nationalization of private businesses in poor economic times rather than continual economic growth

So if there is potential tidal wave of external capital flow that doesn't necessary act based on fundamentals, does this not mean Vancouver prices potentially have a long term trend to rise even despite the astronomic growth thus far?




Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on May 31, 2015, 07:44:29 AM
hi tripleoptician
very interesting analysis...  I share the same view, except you put it down in words better than I could have described it.

i am a taiwanese immigrant and traveled to japan, taiwan, china recently and know of a few wealthy folks who are in the $3M+ markets in West Vancouver.    in Asia, the primary residence is taxed for capital gain -  so in addition to the new wave of immigrants driving up the prices, there are also folks who have moved to Vancouver for 5 ~ 10 years now participating in the market, building spec houses .  So a typical lot in west vancouver is around $2M ~ $3M ; they spend another $2M to build a 6000sf luxury house and flip to a new Chinese immigrant for $7 or $8M , all tax free.   Imagine making $2 - $3M over 2 years tax free -- I am a youngish professional too and could 'afford' an entry-level house, but been watching on the sideline , not knowing when this will end. what i can afford in the $1M neighbourhood are all crappy tare-down houses...  meanwhile I live in a 800sf condo lol

in my recent visit to Beijing, i can really appreciate the state of the pollution...   and i was told over there people do not own their houses; they lease from the government.  the communist party owns everything in China.   

re wiring cash overseas - there are ways for people to get money out. and people are doing this.  even more rapidly these days because the Canadian market is 20% off thanks to the oil plunge. 

i'd add a few more points: vancouver is truly unique (in comparison to other major NA / European cities):
a) it has an establish asian community - 3rd largest in north america ?
b) you can get very decent Chinese food in Vancouver
c) you are 10 hours direct flight from home (vs 15+ going to Toronto / New York)
d) you are in the warmest city in Canada (avg 10 snow days a year with a dry ,  summer)
e) you are protected by the US but not part of US (this means stability)
f) on a relative basis, real estate is still much cheaper than Singapore, Hong Kong, Taipei, Tokyo, Seoul

unlike equities where we like to find ideas before others flock to ; real estate is built on existing infrastructure , community and environment. the  major cities of the world will continue to attract buyers

Gary




Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 08:40:12 AM
The only question I have is:
Can you confirm most of the deals are being done in cash. If you have lived in Canada for less than 5 years, you can qualify for a 65% mortgage with no income and no credit. I believe it is called the new immigrant program.

I have seen this with many $10 mil purchases in Vancouver. And I do not expect a person who has bought a house for $ 10 mil to say I have financed it.

I would look a bit deeper than just the anecdotes for evidence.

EDIT: Agree with most of the the stuff you are saying. But, here are my other thoughts:
1) Majority of individuals are doing this with $ 1 mil homes - 65% no questions financing. But, I have also seen that most struggle to get good employment once in Canada - for whatever reason. They are currently managing because the housing values have been increasing. What happens when those values aren't rising and they are still struggling for good jobs?

2) In most cases that I have come across this scenario - the money comes from sale of an apartment in a Chinese city ($1 mil range). Let's say I sell a condo for $ 1 mil CAD (after taxes) in Beijing. Move to Vancouver - put down 35% on a million dollar home and live off the $650,000. But, at some point I will need to get a good paying job when the $650,000 is gone. Today, on a $650,000 mortgage your monthly payments would be around $3,000.

I do believe this could continue until either of the 2 things happen:
1) something causes real estate price in Vancouver to fall scaring buyers away from this arrangement
2) anything that causes large real estate losses in China
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 08:57:40 AM
Traditionally, an immigrant used to take 3 to 5 years to establish themselves in a new country. And it was on average in year 10 that they would end up buying their first house when they had a down payment ready.

What the new immigrant program seems to have done is front loaded the whole process. Most immigrants now buy within the first year of landing in Canada.

I also feel there tends to be a high correlation between recessions and slow down in immigration in a democratic society. Canada could be on the verge of a slow down. Funnily enough the protest and talk about professional locals not being able to afford a house are starting at the same time as the slow down.

We shall see if it turns out differently this time.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on May 31, 2015, 09:01:44 AM
A few may have a million dollar condo in Beijing.  For what it is worth Beijin cost of living was higher than Vancouver when I was there in March. 

The people playing in the 3m plus market in Vancouver are easily very high net worth individuals ... They can afford the mortgage If we count their global assets.   The avg home price in Vancouver is around one million because we have entry level places in the not so speculative markets of Burnaby , Richmond , Coquitlam , etc where "ordinary" folks live lol.




The only question I have is:
Can you confirm most of the deals are being done in cash. If you have lived in Canada for less than 5 years, you can qualify for a 65% mortgage with no income and no credit. I believe it is called the new immigrant program.

I have seen this with many $10 mil purchases in Vancouver. And I do not expect a person who has bought a house for $ 10 mil to say I have financed it.

I would look a bit deeper than just the anecdotes for evidence.

EDIT: Agree with most of the the stuff you are saying. But, here are my other thoughts:
1) Majority of individuals are doing this with $ 1 mil homes - 65% no questions financing. But, I have also seen that most struggle to get good employment once in Canada - for whatever reason. They are currently managing because the housing values have been increasing. What happens when those values aren't rising and they are still struggling for good jobs?

2) In most cases that I have come across this scenario - the money comes from sale of an apartment in a Chinese city ($1 mil range). Let's say I sell a condo for $ 1 mil CAD (after taxes) in Beijing. Move to Vancouver - put down 35% on a million dollar home and live off the $650,000. But, at some point I will need to get a good paying job when the $650,000 is gone. Today, on a $650,000 mortgage your monthly payments would be around $3,000.

I do believe this could continue until either of the 2 things happen:
1) something causes real estate price in Vancouver to fall scaring buyers away from this arrangement
2) anything that causes large real estate losses in China
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 09:04:32 AM
The average price for Vancouver is $1.3 mil not including any of the suburbs.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on May 31, 2015, 09:09:09 AM
Then average down by the condos and east can maybe. I know condo prices have not moved.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 09:13:46 AM
East Van is right. Condos are not included in Single detached prices.

What I am trying to point out is that is a small section of the population of immigrants not the majority. But, it gets all the headlines.

The investor class of immigrants is a very small number - you can look up the numbers and majority of them settle in Toronto.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on May 31, 2015, 09:25:04 AM
Well I think like illiquid stocks. A few buys move the price.
We visited a friend yesterday who bought a new lot in west van wanting to rebuild .  He figures he gets $8m because the last two sales on the block were in that neighbourhood. 

I'm not sure what to do.

I think if I buy in the east van level but in say north Vancouver I could be okay over the long term. Or just get used to condo living.  Nothing wrong. Small environmental footprint lol.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 09:34:42 AM
Gary not sure what the right thing to do is.

If this is a bubble, it is one of the longest in Canada. At some point most people will buy into it.

The other thing that scares me in the number of individuals relying on the real estate market for income. Majority of people I talk to - anyone from doctors, IT professionals to cab and truck drivers - everyone is building on the side. They seem to be doing exactly what your friend is doing. Buy houses for a $1 - 2 mil and build a new home and flip it.

I have 2 concerns -
1) What if majority of the sales in the last few months have been to developers rather than real demand?
2) What happens in 2 years time when all these houses are completed and put on the market and there are no buyers? (If immigration or China slows/Canada is in a recession or interest rates are higher)
3) Since so many individuals rely on this process for income - what happens to their mortgages and multiple properties when the cash flow (music) stops?

It truly scares me when I look at how far it has fed into the local economy because of how long this has gone on.

Could the shortage in lots being available be due to these builders buying at this time rather than real demand.

But, this may continue for a lot longer - who knows.

EDIT:
Because it is difficult to get good employment - most immigrants - Indians, Iranians and Chinese are very heavily reliant on this process for their incomes - building a home if you have capital (self employed), trades until you have capital (immigrants are cheaper) and work longer hours in general.



Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on May 31, 2015, 09:38:49 AM
A few things you might want to keep in mind …

Big house, no cash. No one forced you to buy more shelter than you need. You did it in the hope of a near-term flip to some other sucker at a higher price, and ... there is no possibility that you may be that sucker.

Foreign investment. Canadian real estate is a very good deal versus global comparatives, and bought primarily to hedge against adverse change. Look forward 30 years - and to most folk, it is pretty hard to see why Vancouver would not trend towards what Hong Kong used to look like prior to the hand-over. Foreign buyers are simply being prudent, and astute.

Negative yield. In today’s world, a high net worth person, depositing CHF into a Swiss Bank for safekeeping - has to pay the bank around 0.25-0.50% to take the money. Or, they could simply buy an A list condo in Vancouver for cash - and pay a property manager to keep it rented, as an alternative store of value. Rent the condo for 3-4 months/year to cover taxes and condo fees, and flip it again for a gain as/when you need the money.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 09:49:43 AM
SD obviously that is happening.

But, if the CAD drops 20% it is not as safe. And this has nothing to do with a real estate market that has gone one way for 14 years now.

On top of that if bonds are in a bubble and interest rates reverse, the calculations on real estate might change as well.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Hoodlum on May 31, 2015, 03:02:27 PM
I can tell you that the CMHC is allowing purchasers to use overseas accounts as collateral for mortgages.  There is no method for the CMHC to ensure that these account don't have any other leans against them or if the cash would be accessible when required.  This is likely one of many holes in our existing system and when the market does turn we will start to see what was really happening.

In my area, new homes are going for 20% more than existing resales and many of these new homes won't get built until 2017.  Home owners are hoping that the market continues this upward trajectory between now and when the new house closes.  When the market does turn and house prices drop we will see a lot of home owners in trouble as they won't be able to take on the additional mortgage.  Foreign buyers may just get up and leave rather than deal with the huge losses.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on May 31, 2015, 04:06:43 PM
The price has risen because demand for Vancouver real estate has consistently exceeded the supply over the last 14 years. The Hong Kong handover ceremony was 1997, and it came with a number of transitional provisions expiring 2000. As those provisions expired, Hong Kong funds began to flow out, and were initially spread over a number over of markets. As the investment results developed, Vancouver (and Toronto) captured a growing market share of the rising flow, and local real estate prices have risen accordingly.

Yes there is price risk, but it is minor. The Hong Kong gate will not remain open forever, but when it closes; it will be sudden, absolute, and will stay closed for a very long time. If the price of the condo collapses 70% it really does not matter – what matters is that you got the funds out, it is in a safe place, and your family has options.

Price risk declines significantly, the more you can make on the Canadian property during interim flips. Concentrate the recycled and new inflow on select markets, and you can generate a reliable bubble of rising prices. Sell into the bubble for a gain, reinvest the proceeds in other Canadian real estate, and when the door closes – you will not be one of those down 70%.

Everything to this is exceptionally rational; it is just not what most Canadians are accustomed to. It is also not that unusual, re foreign investment in London (UK), New York, Paris, Milan, etc.

SD

Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on May 31, 2015, 05:42:32 PM
If u believe the rate will go up eventually back to 5% which makes the mortgage rate 6 or 7 percent , house price will come down.

Yes,  the cash buyers won't need to sell. But they won't be significant driver there. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on May 31, 2015, 08:15:58 PM
SD you should check out how many locals own 10 to 40 properties and are leveraged all the way. I would recommend not falling prey to media stories that this is all Chinese money.

Maybe Vancouver is the next London, maybe not. The jury is still out.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on May 31, 2015, 09:26:27 PM
I hear you, but I also know there are very different segments within every market. There will always be the foolish who will over-leverage and blow themselves up.

Most folks just do not get why anyone would knowingly buy a condo at an inflated price, when they know it could be worth cents on the dollar tomorrow - even when you are pretty sure that you may well be the bag-holder at the end. But talk to anyone who has had to flee a country with nothing, or been trapped in a country, and the answer becomes abundantly clear. Your life, a safe bolt-hole, and a marketable grubstake are the keys; you simply accept that you will be a distressed seller, and have no expectation of getting full value for the asset.

Example. Canadian kids have been so successfully vaccinated against measles and polio for successive generations, that most people now have never seen an all-out death from one of these diseases. They were called child killers for a reason, and hard deaths were routine. But because we have not seen it - we dismiss it. In grandpas time there was no vaccine ….

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 03, 2015, 10:27:00 AM
Toronto up like 15 percent year over year.
Sky is the limit.

 

Title: Re: Garth Turner - Real Estate in Canada
Post by: Yours Truly on June 03, 2015, 12:12:43 PM
Who needs the stock market when you can just flip single-detached homes in Toronto and Vancouver and declare it your principal residence (and incur no taxes on gains)? ... says a lot of non-financial folks
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 11, 2015, 06:55:12 PM
https://twitter.com/benrabidoux/status/608612145991938048
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on June 15, 2015, 07:23:12 AM
http://www.cbc.ca/news/business/average-house-price-rose-8-in-may-to-over-450k-1.3113533



I recently had a chance to talk to a few agents with a lot of clients from China... yes, they are mostly buying in the high end Vancouver market... interesting the 5 major banks would lend these new immigrants money with no income in Canada, as long as they can show them proof there is income overseas.   min. downpayment is 35%. 

So with the ultra low interest rate here in Canada for the mortgage, and relatively higher savings interest rate in China; to many Chinese buyers, taking out a mortgage in Canada is like 'free money' to them...   the interest from the savings account in China basically pays for the mortgage interest + principal. 

I can see why money is flooding into Canada now...   

I suppose once the interest rate spread decreases - either due to increase in Canadian rates or lowering of Chinese rates - then the market could go back to normal levels.

Gary



Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 15, 2015, 09:30:07 AM
Gary, I have raised this a few times and I will repeat - you do not even confirm income overseas. All they need to do is have a reasonable explanation about their source of income. Why, because it is really not that difficult to provide fake documents and a Canadian employee would not know any better. In addition, a Canadian bank has no recourse on income or assets outside Canada.

Mainland Chinese have not experienced falling prices in RE so far, ever since they were allowed to own RE in China. They have only seen them go one way in China. To a lot of them this is a one way bet with no risk.

Look at the number of risks they are taking on -
1) foreign exchange - income in China and investment in China
2) interest rate
3) leverage
4) over valued asset

It is likely that when they move, a lot of these factors will move against them and the losses are going to be quick and big which could spread panic. I cannot imagine making a bet with this many variables that could potentially go against me. Either they are sure they will get out in time or they do not understand the risks they are taking on.

We will see - making money in Vancouver RE has been easy for 15 years now. The longest uptrend so far that I have been able to find - historically, it has been around 7 years in Vancouver. I guess, people can still find reasons why Vancouver RE will keep running up.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on June 15, 2015, 09:51:17 AM
thank you Wisdom for your reply.  I too agree there's a lot of risk and frankly I don't really like RE going up , all tax free, leveraged, making it much , much harder now for individuals like myself making a modest salary taxed at high % and also trying to do a bit of investing on the side...   At this rate of RE price appreciation, I will likely live in a condo forever... lol

I'd be interested to know if any board members here work at one of the major banks in Canada and can share what kind of interest rates the new immigrants are getting with no income in Canada. 

Gary
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 15, 2015, 11:22:09 AM
My understanding is they get posted rates. There is no adjustment for risk other than 35% down.
Title: Re: Garth Turner - Real Estate in Canada
Post by: tripleoptician on June 15, 2015, 08:59:13 PM
Thanks wisdom for all your insights.
This knowledge does magnify the risk compared to my impression that Canadian financing would be hard to come by and therefore most purchases were primarily cash.
Interest rate spreads should imply a downturn or flattening of prices.

I still find it hard to evaluate on what will happen to rent vs own cost dynamics as our vacancy rates are so low. If buying for 10 years duration or greater, do you believe Vancouverites will be ahead based on overall principal payments vs savings from renting and investing the difference? I'm worried rent costs will increase once home ownership becomes less appealing....
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 16, 2015, 07:11:57 AM
http://www.bcrea.bc.ca/docs/economics-publications-archive/2015-06-foreign-buyers-research-report.pdf
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on June 16, 2015, 07:57:54 AM
Yes there is risk, but it is minor.

China is communist state. Residents have only what the state allows them to have, and the state can take away the bank accounts, cars, and domestic real estate at any time. They CANNOT take away whatever residents have stashed overseas.

A resident can either repay their Canadian mortgage from a Chinese source, or repay from sale of Canadian real estate. If the Canadian property was bought at 3M with 1M down, & never traded, it need only sell for 67% of cost. But … if the resident had been successfully trading Canadian property, and had interim gains to offset against, they could afford to sell the Canadian property for a lot less.

It means that residents are best served if they trade within a collective bubble, start their trading as early as possible, and stay close to the herd. Exactly what we are seeing.

Yes the bubble WILL eventually burst, but who does it really affect - ordinary Vancouverites are not those buying the luxury condos.

It is about permanently getting funds out of China; and it is a lot safer, & more utilitarian, than simply depositing funds in an offshore account.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 16, 2015, 08:07:35 AM
Yes the bubble WILL eventually burst, but who does it really affect - ordinary Vancouverites are not those buying the luxury condos.

The bubble is not only in luxury properties.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 16, 2015, 09:06:00 AM
There is also a reason why BC's per capita non-mortgage debt levels are 2x the Canadian average - around $39,000. Allows the locals to enjoy the ride.
Title: Re: Garth Turner - Real Estate in Canada
Post by: bizaro86 on June 16, 2015, 09:19:13 AM
My understanding is they get posted rates. There is no adjustment for risk other than 35% down.

Do you actually mean the posted rate? Because there is a pretty big difference between the posted rate and the actual market rate that Canadians who qualify for mortgages pay. (Generally speaking). That increase in interest rate would be effectively a risk adjustment.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 16, 2015, 09:36:58 AM
Sorry, that should have said the same rates as everyone else that qualifies using income and credit history.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 16, 2015, 09:39:08 AM
A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 16, 2015, 09:54:32 AM
A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.

This post has some stuff about how some lenders like Vancity are offering all kinds of crazy products (ie. they give you half of your downpayment at 0.01% interest, etc):

http://www.greaterfool.ca/2015/06/14/the-money-changers/

Also: http://business.financialpost.com/personal-finance/mortgages-real-estate/a-third-of-canadians-would-struggle-if-mortgage-rate-grew-by-only-1-survey-finds

"A third of Canadians would struggle if mortgage rate grew by only 1%, survey finds"
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 16, 2015, 07:47:42 PM
A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.

This post has some stuff about how some lenders like Vancity are offering all kinds of crazy products (ie. they give you half of your downpayment at 0.01% interest, etc):

http://www.greaterfool.ca/2015/06/14/the-money-changers/

Also: http://business.financialpost.com/personal-finance/mortgages-real-estate/a-third-of-canadians-would-struggle-if-mortgage-rate-grew-by-only-1-survey-finds

"A third of Canadians would struggle if mortgage rate grew by only 1%, survey finds"

I am debating whether I should get in.. (Toronto) I guess not?!!?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 17, 2015, 05:42:21 AM
A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.

This post has some stuff about how some lenders like Vancity are offering all kinds of crazy products (ie. they give you half of your downpayment at 0.01% interest, etc):

http://www.greaterfool.ca/2015/06/14/the-money-changers/

Also: http://business.financialpost.com/personal-finance/mortgages-real-estate/a-third-of-canadians-would-struggle-if-mortgage-rate-grew-by-only-1-survey-finds

"A third of Canadians would struggle if mortgage rate grew by only 1%, survey finds"

I am debating whether I should get in.. (Toronto) I guess not?!!?

It's your decision, it's your money, same as with stocks. But if you're asking me what I would do, especially in Toronto, I would rent (I'm currently renting, and I live somewhere a lot less expensive than Toronto). If you are really itching for a nice place, then rent a luxury condo or house, it'll still cost you a lot less than buying. Put aside the difference for a bigger downpayment down the road and wait for this real estate mania to be over. You never get a good deal when you are buying something that everybody else is buying, especially when they think it'll keep going up fast and can't fall.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on June 18, 2015, 11:13:25 AM
http://www.vancouversun.com/business/real-estate/Flipping+Vancouver+homes+proves+profitable/11145524/story.html#ixzz3dRA3YYGc
Title: Re: Garth Turner - Real Estate in Canada
Post by: Otsog on June 18, 2015, 04:30:25 PM
Having a bitch of a time selling my condo in Victoria, anyone want it?

Anyone know what cap rates usually are in multi-family residentials?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on June 18, 2015, 04:52:52 PM
downtown vancouver, for a newer 550K condo , 2 bdrm + 2 bathroom + 1 parking  - rent should be $2000/month.
you then need to account for about $400/month of strata fee + insurance + property tax....      ($2000)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Otsog on June 18, 2015, 05:35:49 PM
Wow that is low.

I'm calculating roughly 3% in Victoria. I don't have any insurance though. Also had maintenance, vacancy and management fees.

Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on June 18, 2015, 06:11:25 PM
http://news.nationalpost.com/full-comment/bruce-yaccato-youd-have-to-be-crazy-to-buy-real-estate
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 18, 2015, 06:50:01 PM
I am renting in Toronto suburb, $2000 per month, it will cost me about $750,000 to buy the place.
Rent is pretty reasonable. But the catch is the same house can be have to 630k last year.

So, yes up close to 20% in a year!   :-\
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on June 18, 2015, 07:18:59 PM
I am renting in Toronto suburb, $2000 per month, it will cost me about $750,000 to buy the place.
Rent is pretty reasonable. But the catch is the same house can be have to 630k last year.

So, yes up close to 20% in a year!   :-\

Good for you on relatively cheap rent though.  Prices sound like they are firmly in greater fool territory.

I'm astonished at how low some of these quoted rental yields are.  Your hypothetical landlord's situation were he to buy it today:

$2k * 12 / $750k = 3.2%.

By contrast, I own a rental at an 11% yield in the U.S.  Nothing special, I bet there's millions of them in the U.S. available at similar prices.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 18, 2015, 07:32:15 PM
I am renting in Toronto suburb, $2000 per month, it will cost me about $750,000 to buy the place.
Rent is pretty reasonable. But the catch is the same house can be have to 630k last year.

So, yes up close to 20% in a year!   :-\

Good for you on relatively cheap rent though.  Prices sound like they are firmly in greater fool territory.

I'm astonished at how low some of these quoted rental yields are.  Your hypothetical landlord's situation were he to buy it today:

$2k * 12 / $750k = 3.2%.

By contrast, I own a rental at an 11% yield in the U.S.  Nothing special, I bet there's millions of them in the U.S. available at similar prices.


Yes, and we have not talked about taxes on rental income, property taxes and maintenance expenses.

If one assumes house price will JUST appreciate the same pace as inflation, it makes no sense to buy now. But somehow in Canada, there is a thinking that detached houses will be in shortage, so buy now or never!
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 19, 2015, 04:11:23 AM
Pure madness...
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on June 19, 2015, 05:34:26 AM
We're in Bradford, Ontario which is 45 minutes North of Toronto..................2.5 hours during evening rush.  >:(

We're in a newer (4 year old) home. A few homes were up for sale last summer and into fall and sat on the market with little interest. These same homes went back on the market in the spring and all 4 have sold for more than the previous list price and within a week.

Our next door neighbour listed last spring for $549 and had little interest and a couple of "low" offers.
They listed again and sold the morning the listing hit the market. (obviously his listing agent already had a buyer lined up). He sold for $629 and had multiple offers. One was significantly higher but came with a phone book of conditions, so they knew to pass to save lots of frustration.

Another house friends lived in and sold 2 years ago for $469 recently sold for $619. This is the same model of home we're in and the new model from the builder is listed for $505.

The market is hot everywhere apparently.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 19, 2015, 06:26:33 AM
We're in Bradford, Ontario which is 45 minutes North of Toronto..................2.5 hours during evening rush.  >:(

We're in a newer (4 year old) home. A few homes were up for sale last summer and into fall and sat on the market with little interest. These same homes went back on the market in the spring and all 4 have sold for more than the previous list price and within a week.

Our next door neighbour listed last spring for $549 and had little interest and a couple of "low" offers.
They listed again and sold the morning the listing hit the market. (obviously his listing agent already had a buyer lined up). He sold for $629 and had multiple offers. One was significantly higher but came with a phone book of conditions, so they knew to pass to save lots of frustration.

Another house friends lived in and sold 2 years ago for $469 recently sold for $619. This is the same model of home we're in and the new model from the builder is listed for $505.

The market is hot everywhere apparently.

I think the coming interest rate hikes, which are now clearer than ever, are pulling demand forward, among other factors.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 06:40:22 AM
I don't think interest rates are going anywhere with what is happening in Alberta. If job losses continue how can BoC raise rates. I would expect loans to start going bad later this year or early next year - the jobs in the oil fields pay a lot more than jobs elsewhere.

I would not be surprised if we go lower rather than higher.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 19, 2015, 06:43:01 AM
I don't think interest rates are going anywhere with what is happening in Alberta. If job losses continue how can BoC raise rates. I would expect loans to start going bad later this year or early next year - the jobs in the oil fields pay a lot more than jobs elsewhere.

I would not be surprised if we go lower rather than higher.

Canada could delay, but it won't have a choice but to follow the US sooner rather than later (as always). Otherwise that'll kill the loonie, and even if the BoC doesn't raise rates immediately, the bond market could anticipate it, affecting mortgages.

Personally, I'd love it if the BoC went the opposite direction from the Fed and the CAD went down to 0.50 or something, because most of my assets are in USD and my costs in CAD, but I doubt that'll happen.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on June 19, 2015, 06:45:58 AM
I don't think interest rates are going anywhere with what is happening in Alberta. If job losses continue how can BoC raise rates. I would expect loans to start going bad later this year or early next year - the jobs in the oil fields pay a lot more than jobs elsewhere.

I would not be surprised if we go lower rather than higher.

Canada could delay, but it won't have a choice but to follow the US sooner rather than later (as always). Otherwise that'll kill the loonie, and even if the BoC doesn't raise rates immediately, the bond market could anticipate it, affecting mortgages.

Personally, I'd love it if the BoC went the opposite direction from the Fed and the CAD went down to 0.50 or something, because most of my assets are in USD and my costs in CAD, but I doubt that'll happen.

i can't wait for that to happen... US - CAD   0.5 !!
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 19, 2015, 06:49:57 AM
I don't think interest rates are going anywhere with what is happening in Alberta. If job losses continue how can BoC raise rates. I would expect loans to start going bad later this year or early next year - the jobs in the oil fields pay a lot more than jobs elsewhere.

I would not be surprised if we go lower rather than higher.

Canada could delay, but it won't have a choice but to follow the US sooner rather than later (as always). Otherwise that'll kill the loonie, and even if the BoC doesn't raise rates immediately, the bond market could anticipate it, affecting mortgages.

Personally, I'd love it if the BoC went the opposite direction from the Fed and the CAD went down to 0.50 or something, because most of my assets are in USD and my costs in CAD, but I doubt that'll happen.

i can't wait for that to happen... US - CAD   0.5 !!

I just drooled a little  :P
Title: Re: Garth Turner - Real Estate in Canada
Post by: Otsog on June 19, 2015, 07:48:50 AM
Can the BoC raise rates?

I bet the BoC/CMHC/Feds are in a constant panic. There must be regular internal reports like "if interest rates go up 1%, 2 million Canadians will lose their homes".
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 08:38:07 AM
We're in Bradford, Ontario which is 45 minutes North of Toronto..................2.5 hours during evening rush.  >:(

We're in a newer (4 year old) home. A few homes were up for sale last summer and into fall and sat on the market with little interest. These same homes went back on the market in the spring and all 4 have sold for more than the previous list price and within a week.

Our next door neighbour listed last spring for $549 and had little interest and a couple of "low" offers.
They listed again and sold the morning the listing hit the market. (obviously his listing agent already had a buyer lined up). He sold for $629 and had multiple offers. One was significantly higher but came with a phone book of conditions, so they knew to pass to save lots of frustration.

Another house friends lived in and sold 2 years ago for $469 recently sold for $619. This is the same model of home we're in and the new model from the builder is listed for $505.

The market is hot everywhere apparently.


Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 08:46:18 AM
Can the BoC raise rates?

I bet the BoC/CMHC/Feds are in a constant panic. There must be regular internal reports like "if interest rates go up 1%, 2 million Canadians will lose their homes".


Yes, it will be ugly. Many of the high end homes were purchased by the riches.. so those might be ok.

But many of the smaller houses are owned by normal families with big mortgages.

But I am in the camp that BoC won't raise rate even if US does. They just can't.



Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 19, 2015, 09:01:37 AM
Yes, it will be ugly. Many of the high end homes were purchased by the riches.. so those might be ok.

But many of the smaller houses are owned by normal families with big mortgages.

But I am in the camp that BoC won't raise rate even if US does. They just can't.

You mean ever?

Money will just stay free forever and that's the solution. Case closed. Is that something you want to bet on?

Maybe houses will also keep appreciating at multiples of wage growth for a decade or two also, the difference can just be made up of even more debt...

Where do you see the CAD vs the USD in 2-3 years if the Fed methodically raises during that time?
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on June 19, 2015, 09:31:50 AM
Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?
We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario.  :o

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question  ;D
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 09:53:02 AM
Yes, it will be ugly. Many of the high end homes were purchased by the riches.. so those might be ok.

But many of the smaller houses are owned by normal families with big mortgages.

But I am in the camp that BoC won't raise rate even if US does. They just can't.

You mean ever?

Money will just stay free forever and that's the solution. Case closed. Is that something you want to bet on?

Maybe houses will also keep appreciating at multiples of wage growth for a decade or two also, the difference can just be made up of even more debt...

Where do you see the CAD vs the USD in 2-3 years if the Fed methodically raises during that time?

For sure, not forever. :)
CDN can go all the way to 60 cents. And the houses will look even cheaper for the foreigners.

Canada gov really in a difficult position, they really can't do much, burst it and we will lots of job losses. The real estate industry probably hire tons of ppl directly and indirectly....
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on June 19, 2015, 09:53:51 AM
You might want to revisit your ‘investment’ analysis

ASSUME that BOTH house buyer and professional landlord are WISE speculators.
Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto.

The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff.

Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit.

Most folk have a much lower risk tolerance than a speculator.
If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket.

Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option.

Your choice.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 09:57:34 AM
Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?
We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario.  :o

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question  ;D
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

Interesting, thanks. I heard a new site near Aurora had 100s of ppl lining up. :) And some buy more than 1.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 09:57:50 AM
Liberty while it will not be ever, it could be a while before rates go up.

Think about this -
1) unless commodities bounce back - just had a 15 year run
2) housing continues booming - has been booming for 15 years
3) manufacturing comes back - it will take time before manufcturing starts coming back.

Where do blue collared workers who lose jobs in the resource field get jobs that pay as much.

At the sametime, we have the highest debt loads in recorded history. The only way they can counter it is by having the loonie at a low level v USD. Beggar thy neighbor.

At this point I don't know how to think about it because if the loonie drops too much that could lead to inflation and thus, higher interest rates.

The authorities have chosen to be risk averse and take the easier route in the last 20 odd years, so I expect them to choose lower rates rather than have the population deal with the pain of defaults and higher interest rates.

While I say this, I realize these things are impossible to predict.

EDIT:
I was reading an article about those big yellow trucks at mining sites. The drivers are paid $200,000 a year. And a lot of companies are in the process of buying self driving trucks over the next 5 odd years. No one is going to pay a truck driver $200,000 anywhere else.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 10:01:24 AM
You might want to revisit your ‘investment’ analysis

ASSUME that BOTH house buyer and professional landlord are WISE speculators.
Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto.

The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff.

Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit.

Most folk have a much lower risk tolerance than a speculator.
If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket.

Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option.

Your choice.

SD

The strategy works when things keep going up.
It's a confidence game. Once ppl realize house prices can drop. Unsold houses will jump. Speculators stuck with houses and they can't afford P+I or just I.

Will be ugly.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Yours Truly on June 19, 2015, 10:07:44 AM
Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?
We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario.  :o

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question  ;D
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

I know a handful of acquitances that have bought in Bradford with the sole intention of buying pre-construction, adding cosmetic touches only to flip it a few months to a year later.  They think it's guaranteed money with zero risk and so far they've been spot on.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 10:09:09 AM
Liberty while it will not be ever, it could be a while before rates go up.

Think about this -
1) unless commodities bounce back - just had a 15 year run
2) housing continues booming - has been booming for 15 years
3) manufacturing comes back - it will take tiem before manufcturing starts coming back.

Where do blue collared workers who lose jobs in the resource field get jobs that pay as much.

At the sametime, we have the highest debt loads in recorded history. The only way they can counter it is by having the loonie at a low level v USD. Beggar thy neighbor.

At this point I don't know how to think about it because if the loonie drops too much that could lead to inflation and thus, higher interest rates.

The authorities have chosen to be risk averse and take the easier route in the last 20 odd years, so I expect them to choose lower rates rather than have the population deal with the pain of defaults and higher interest rates.

While I say this, I realize these things are impossible to predict.

Yes, if you believe CDN will go lower, buying FTP is the way to go.  ;D
The exchange rate saved them lots of headache.
We should open another thread to talk about idea that will benefit from lower CDN.
Title: Re: Garth Turner - Real Estate in Canada
Post by: enoch01 on June 19, 2015, 10:12:49 AM
You might want to revisit your ‘investment’ analysis

ASSUME that BOTH house buyer and professional landlord are WISE speculators.
Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto.

The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff.

Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit.

Most folk have a much lower risk tolerance than a speculator.
If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket.

Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option.

Your choice.

SD

I'm glad I don't have to get into the game of trying to justify low single digit rental yields because I'm too dumb to understand what any of the above means.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 10:13:41 AM
Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?
We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario.  :o

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question  ;D
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

I know a handful of acquitances that have bought in Bradford with the sole intention of buying pre-construction, adding cosmetic touches only to flip it a few months to a year later.  They think it's guaranteed money with zero risk and so far they've been spot on.

Same here. More than a few actually, more than pocket money. Some of those are retired ppl with deep pocket, some are working class ppl.

I am sure when I get in, it will burst.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Yours Truly on June 19, 2015, 10:22:12 AM
Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?
We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario.  :o

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question  ;D
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

I know a handful of acquitances that have bought in Bradford with the sole intention of buying pre-construction, adding cosmetic touches only to flip it a few months to a year later.  They think it's guaranteed money with zero risk and so far they've been spot on.

Same here. More than a few actually, more than pocket money. Some of those are retired ppl with deep pocket, some are working class ppl.

I am sure when I get in, it will burst.

LOL, why buy stocks when you are almost guaranteed large returns on a pre-construction homes? all you need to do is line-up on the first day when the sales office opens!!
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 10:36:31 AM
In Vancouver the reason is because it has been in the top 3 places to live in the world according to one survey. Thus, everyone here believes that you do not need to be able to afford the mortgage, all that matters is that everyone around the world will move here and pay any price. You do not need jobs, just be rated the best place to live.

Meanwhile, this Ipsos Reid survey was released yesterday. 40% of people living in Vancouver want to leave - most common reason - high cost of living.

http://www.vancouversun.com/business/Vancouverites+feel+priced+town/11146479/story.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 19, 2015, 10:41:51 AM
Liberty while it will not be ever, it could be a while before rates go up.

Think about this -
1) unless commodities bounce back - just had a 15 year run
2) housing continues booming - has been booming for 15 years
3) manufacturing comes back - it will take time before manufcturing starts coming back.

Where do blue collared workers who lose jobs in the resource field get jobs that pay as much.

At the sametime, we have the highest debt loads in recorded history. The only way they can counter it is by having the loonie at a low level v USD. Beggar thy neighbor.

At this point I don't know how to think about it because if the loonie drops too much that could lead to inflation and thus, higher interest rates.

The authorities have chosen to be risk averse and take the easier route in the last 20 odd years, so I expect them to choose lower rates rather than have the population deal with the pain of defaults and higher interest rates.

While I say this, I realize these things are impossible to predict.

EDIT:
I was reading an article about those big yellow trucks at mining sites. The drivers are paid $200,000 a year. And a lot of companies are in the process of buying self driving trucks over the next 5 odd years. No one is going to pay a truck driver $200,000 anywhere else.

But the CAD has already fallen 20-25% from its recent plateau, and even more from its recent peak. At a certain point, imports just cost too much, and we're importing a lot of stuff, while many of our exports are priced in USD anyway (oil, metals, etc). If the fed increases rates 2-3 times and the BoC keeps them where they are each time, the CAD will get slaughtered.

I'm no expert on this stuff, but the way I think about it, there's a range within which the CAD is fairly neutral on housing. It's basically kicking the can down the road, not solving anyone's problems but not making them worse. And then out of this range higher or lower, it's bad for housing.

If the CAD goes back up too high, this hurts manufacturing and means fewer foreign investments into natural resources and such, which is bad for housing when people lose their jobs and big projects don't get built.

If the CAD goes too low, then imports start costing a lot, the cost of what people buy in stores goes up, and that hurts housing directly since people have so little money to spare thanks to their bloated housing costs, they're already tapped out. In other words, if the CAD goes to 0.50 USD, suddenly everybody's food, vehicles and gasoline, electronics, consumer products, etc goes up a lot, and that'll squeeze a lot of people out of their houses that are already twice as expensive as the equivalent US house...
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on June 19, 2015, 12:07:28 PM
Same here. More than a few actually, more than pocket money. Some of those are retired ppl with deep pocket, some are working class ppl.

I am sure when I get in, it will burst.

LOL, why buy stocks when you are almost guaranteed large returns on a pre-construction homes? all you need to do is line-up on the first day when the sales office opens!!

The Aurora sites all start in the $700k, there's 3 new ones.

I knew of the people buying pre-construction but these people buying 3-4 year old homes are putting $10's of thousands and one home had about $100k put in after the people bought.

We're looking to go back to Newmarket in the old downtown area. Century homes with lots of tree lined streets and people take care of their property. We miss it, a lot.
We're tempted to list our place since all the homes here are selling for prices we thing are insane and selling quickly. 

But right now, we're just not ready.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 12:34:30 PM
Same here. More than a few actually, more than pocket money. Some of those are retired ppl with deep pocket, some are working class ppl.

I am sure when I get in, it will burst.

LOL, why buy stocks when you are almost guaranteed large returns on a pre-construction homes? all you need to do is line-up on the first day when the sales office opens!!

The Aurora sites all start in the $700k, there's 3 new ones.

I knew of the people buying pre-construction but these people buying 3-4 year old homes are putting $10's of thousands and one home had about $100k put in after the people bought.

We're looking to go back to Newmarket in the old downtown area. Century homes with lots of tree lined streets and people take care of their property. We miss it, a lot.
We're tempted to list our place since all the homes here are selling for prices we thing are insane and selling quickly. 

But right now, we're just not ready.


There are many home owners I know of thinking of cashing in. But then the hard question comes, where to go? 
I know a family was thinking to move to Montreal as their son going to McGill there (very cheap tuition there btw), they sold their house early last year to get ready. Things change and they end up need to pay 15%+ more to get back a similar house in a not as good neighborhood.

Pure madness, but I wish I have get in when I moved here few years ago.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Hielko on June 19, 2015, 12:54:19 PM
Why not rent instead of buying back? Seems that it is pretty cheap based on this thread.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 19, 2015, 01:10:43 PM
Why not rent instead of buying back? Seems that it is pretty cheap based on this thread.

Not idea, but probably afraid it will go up further.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 01:26:05 PM
The way I see it, the owners are subsidizing renters. I like to be the one who receives the subisdies rather than the one subsidizing others. If you factor in maintenance and vacancy on top of other costs, I think the returns are negative in a lot of cases.

Similar to Sir Templeton - make money by helping others - buy when they want to sell and sell when they want to buy. I see the subsidy the same way. I will buy when renters again start subsidizing home owners.

Yes, I am not seeing the gain in networth that the owners are because of leverage. But, I think of that as speculation as I cannot count on the gains and I am not smart enough to get out in time. Those leveraged gains on inflated assets dissappeared awfully fast in the US and some European countries.

BTW - nothing stopping us from investing those savings into other assets.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on June 19, 2015, 01:57:55 PM
keep in mind those leveraged gains are all tax free

if one can make $500K flipping a house in 2 years that's about 1M pre-tax income or about 10 years worth of salary for a 'high income' job.  I can see why people take this risk.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 02:11:49 PM
But, it can vanish. How much of it is just luck?

I would not take on a$500-700k mortgage and hope. But, I am sure we are gamblers.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on June 19, 2015, 02:12:21 PM

There are many home owners I know of thinking of cashing in. But then the hard question comes, where to go? 


We're thinking a condo in Vancouver or Toronto.  ;D

That's the problem. If you sell a high priced asset, you're just going to buy another high priced asset and you won't come out ahead in any meaningful way.

As far as renting goes, the rents here are getting high also. Some are renting their houses out for more than $2000 a month plus utilities.
Our mortgage that we're renewing now will be at 2.25% and our payment is $1600.

If we find a place in downtown Newmarket in our price range, that will be our forever house, or at least until the girls are in University and moved out. (They're 3 and 6 now)

My wife is a software consultant and makes enough money that if an opportunity comes up in Alberta or BC, a move may be the best for us.
From my weekly viewing of MLS, prices are not coming down in Alberta in any meaningful way and BC is the same as it has been for years.
When oil dropped below 60 and companies were cutting staff there was an influx of new listings in Alberta but that only lasted about a month. Prices and number of listings seems the same as last year.

We will move for our lifestyle to the West or Newmarket not for the sake of cashing in. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on June 19, 2015, 02:17:19 PM
Is the risk that great ?

If you look at comparable cities in the US -  Seattle , Portland , San Fran and New York --  have we gone back or go beyond the 2007 prices?  Keep in mind the 2008/09 crash of US was the wrost in history; they have subprime ...    we have a different lending practice, downpayment policy , etc here in Canada.   I think if you were planning to rent for 5 years or more you are probably better off owning a place

But, it can vanish. How much of it is just luck?

I would not take on a$500-700k mortgage and hope. But, I am sure we are gamblers.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 03:09:32 PM
I think otherwise, but, that is ok. I see a lot of risk and it could just be that I am very risk averse.

We can keep going back and forth and never agree because the outcome is in the future. Based on my limited understanding all I care about are the following:
1) asset is overvalued based on long term historical measures - 5.5 x median household income/sub 3% rental yield
2) leverage is involved - highest debt levels
3) everyone is talking about it or involved - 70% ownership v 63%

We can keep talking about all the reasons in the world why this time will be different but I don't care because I have no ability to know why it has to be different this time. I prefer to be opportunitic rather than rely on my forecasting abilities.

All the history I have read says avoid the above scenario. It is always possible that this time the outcome will be different. But, in the end I would have learned why this time was different and hopefully be smarter as a result. I do not think enough time has transpired to change my mind. Or maybe I have my head buried in the sand. We will know at some point in time.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 19, 2015, 03:55:06 PM
I should add that this was further re-inforced because I was able to be opportunistic in 2008/2009 and 2011. Most individuals who have chosen to participate in real estate have not done as well even though they have used leverage and the market has been very favourable.

These individuals need to let me know that they live in million dollar homes. Because I do not have any physical asset to show they feel that there must be something wrong with me as I cannot figure out what is obvious to everyone here - buy a house and become a millionaire.

My conclusion is because human nature dictates that a million dollar house needs to have furnishings/lifestyle/vehicles/kitchens, etc that match the million $ house, the majority end up spending the equity. My best read is most of this has been financed as a result of which networth has not increased at the rate one would expect. But, again it is only anecdotal and one persons opinion.

But this could also be the reason why 40% of people living in Vancouver want to leave but can't bring themselves to do what is best for them - human nature is interesting to say the least. And it is possible that I am fooling myself because I already came to this conlusion and reality is that everyone else is right that - an average house in Vancouver is going to $3 mil by 2030 and we will be the first city where only multi-millionaires live.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on June 20, 2015, 07:23:21 AM
This is what folks are missing.

Assume you could rent a townhouse condo in a typical Toronto or Vancouver dormitory satellite city for 2K/month + utilities. Alternatively you could buy it for 629K. If you choose to buy - the condo fee will be 300/month, the mill rate 0.007, and the variable rate HELOC mortgage rate will be 2.50%; there will be no principal repayment.

Crunch the numbers, and compared to the rent option; the house buyer can afford to pay 16K/year in interest. At 2.50% this would support a mortgage of roughly 640K, and release 11K of equity. If your banker wants a 25% down payment (158K), that 16K/year becomes 11.8K of interest and 4.2K of SAVINGS/year reinvested as principal repayment.

If the landlord can charge more than 2K/month, or the mortgage rate is less than 2.5%; that savings, or equity release, would be even more. Every $100/month you pay above 2K/month; reduces principal by 1.2K/year, or releases an additional 48K of equity.

If you believe that house prices will rise over time, the landlord will have a very tough time raising his rent. If you believe that interest rates will significantly rise sometime soon, the landlord will suddenly find rent increases easy amidst a sea of new resale listings.

Most folk recognize that houses are hard assets that grow, over time, at the inflation rate. Most folk also recognize that the global financial crises is not likely to end soon, and therefore variable rate mortgages are unlikely to rise significantly. And just about everybody knows that the further you are from the urban centre - the lower the cost of living is; a $200/month cost of living saving would reduce principal by 2.4K/year, or release 96K of equity.

That down town condo was not designed for 3, couples need the space, and that move out to the satellite cities is not a big risk. We just don’t like that we have to move.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on June 20, 2015, 08:47:22 AM
SD - u are missing out a lot of expenses.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Aberhound on June 20, 2015, 07:39:55 PM
My neighbour in Vancouver just sold out to a Chinese businessman who bought the $3.5M house as a guest house. Ten years ago it cost $650,000. When it is legal to move capital out of China, which they need to do to be a reserve currency, thousands more will be looking for "guest houses". We are a resort city. My other neighbour is heading to Saudi to a project to build 120 towers. He is just one of many who have been recruited to do the same. Instead of building one tower at a time here they intend to build many at once. The abundance of capital worldwide means that there are many who can afford Vancouver. Why come here? If you visit it is obvious. Crime is low thanks to a school system that teaches tolerance, and, unusual for North America, critical thinking (not all schools unfortunately). Or maybe it is the cheap pot that keeps people mellow. We are currently experiencing the best June weather in Vancouver in my lifetime. Sunny and warm with a cool breeze from the north. California drought means better weather here. Isn't California real estate much riskier than Vancouver? We will never have a drought. Will BC be paid for water exports via NAWAPA? Site C dam makes no sense unless the government intends to build NAWAPA.

Property in the interior of BC has risen even more than Vancouver proportionately. People sell in the city then move to the interior. The land I bought in the Kootenays has risen far more than the city because of the lower cost base. I am not selling because old Crown grants like I have have provisions that the government has to pay you reasonable amounts if they take water. I wonder if I will be able to enforce it once water is monetized? BC Hydro now has an entire office floor devoted to software to measure water flows and the government has passed laws to control ground water with a license system. Why measure it when there is so much excess here of little value? I expect they plan to monetize it. When water is monetized Canada will have a water-dollar like US has had a petro-dollar since the 1970s. I suspect it will be a North American currency by that time.

So I am not selling, instead I am looking for hedges. Right now I am looking at riverfront land which should fit 90 RV lots, a few hundred miles inland where it is sunny and close to the highway, hospitals and malls in a growing community. My trouble is that I am debt adverse as I believe it is too risky to hold real estate if you can't hold it through the cycles. Selling and trying to time the market rarely works. The dips have been minuscule in the long term trend. In theory if the market turns down the foreclosures and defaults will drive demand to the RV sector and modular homes are getting much better. It seems like a perfect hedge to me. Get a long term mortgage so it cannot be called by the bank then sell lots on a lease to own basis. I have been studying the business and in the US post 2008 it was exceptionally profitable. I suspect both the hedge and the land I hold and want to hedge will rise in value. Rising rents will drive many who do not own property out of Vancouver. You have to own property to stay unless you have skills like my neighbour the builder. Technology drives huge increases in wealth when globalism prevails and Vancouver and other well run beautiful places will prosper so long as the trend continues. It takes decades of good government and prosperity to create the trust which generally prevails here. The high levels of trust and tolerance is the true wealth of Vancouver. Robots should give another decade of gains and by that time then cheap energy should be available driving more gains but the great wealth created will tend to concentrate where there is high levels of trust and tolerance. Send your wives and daughters here and we will send you back well educated and fertile young women. Many of my neighbours are households with women and children and husbands who earn elsewhere. There are plenty of ex-hippy farmers who live by natural law ie the golden rule and the philosophy of reap what you sow to ensure you can buy good food. The newly arrived Chinese who practice Tai Chi in the parks fit in well as do the Japanese mothers and children who have such impeccable manners.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on June 21, 2015, 11:11:12 AM
Actually, it does not miss the expenses; we just do not like what it says.

Utilities. Rent + utilities = Condo fee + property cost + utilities. Utilities are on both sides of the equation and are therefore irrelevant for comparison purposes. If you use more of the utilities than the average person, and are not paying for it – good for you. You have a foolish landlord.

Maintenance, grass cutting, property management, capital repairs, etc. Your condo fee pays for exactly that, and the landlord includes it in the rent he/she charges. If you bought a condo and have been assessed for additional reserve funds – too bad for you. You simply under-contributed in prior periods, and are making up for it today.

Transport, cost of living, etc. These are side-by-side houses. Whether you rented, or bought, the costs would be the same under each option and are therefore irrelevant for comparison purposes.

Principal & savings. Reduce the $4,200/yr to zero, and the maximum the renter would pay is $19,797/year – or $1650/month if the place is unfurnished. If you can buy and finance for less than $1650/month you would do so. Don’t much care if the property value could go down – it is cheaper than renting every month; the property value could also go up as well.

So … the equation is really rent = condo fee + ppty tax + mortgage interest.

Buy new and the condo fee is minimal, buy in an area where there is a lot of new build and ppty tax is minimal (as the new development is paying for upgrades), buy when times are tough because interest rates will be low, and buy when rents are high. 

Yes there is lots of rental property. But the property’s that have been fixed up cost more than $1650/month to rent, and are old. The property’s that have not been fixed up you would not want to raise a family in – unless you had to. So buy new, live better, and put up with the 3-4 months of delay that it may take to build the place.

There should be a stampede of buyers for new build high price condos in newly developing satellite towns, accessible to the urban core. There should also be bitching about the additional commute time. Exactly what we are seeing, and hearing, in the GTA.

Your biggest risk is a rapid rise in the variable interest rate, as a 100bp rise increases your cost/month by $400/month. But so what; does anyone really think that in today’s global economy we are going to see a rapid rise in rates anytime in the foreseeable future? And if we did - does anyone really think that the BOC would not be doing everything it could to mitigate it? Yes it is a risk, but not enough to paralyse.

So … everything we are seeing, really is very rational. We just do not like what it is telling us.


SD

Title: Re: Garth Turner - Real Estate in Canada
Post by: Schwab711 on June 21, 2015, 05:29:09 PM

The average down payment in Canada is 7% not 25%.

Thank you! I have always wanted to find this statistic because it's frustrating to hear Americans talk about Canadians as the world's most prudent folks. You just cannot have 25% down payments as common place without lots of other problems (given the size of houses globally).
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on June 21, 2015, 06:43:45 PM
Sorry but the 7% number is inaccurate.

Per the CMHC website the minimum is 5% for a single family dwelling and 10% for murbs. This 7% may be accurate for a brand new entrant with no prior real estate history, but it ignores the thousands of other trade up transactions where buyers already have significant equity from their previous home. If the 7% were representative, most Canadian posters on this board would have a mortgage equaling 93% of their house value - just how likely is that? http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm

Folks finance the land transfer tax, they do not pay it out of pocket. The Ontario tax on a 629K property is 1.26% (7,910) of the property value, the interest cost would be 197/year; $17/month is not a show stopper.
http://www.fin.gov.on.ca/en/tax/ltt/

First time buyers are not buying 629K townhouse condo's either, as they cannot withstand the bidding wars. Different story for a 200K condo - but that is not the market we are talking about. But even if folks do take out the CMHC insurance, they will finance it. The CMHC premium for a 20% down payment is 1.25% of the home value. Again, $16/month is not a show stopper.

Rent also goes up every year if you have a terrible landlord. No difference.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on June 22, 2015, 05:19:19 AM

The average down payment in Canada is 7% not 25%.

Thank you! I have always wanted to find this statistic because it's frustrating to hear Americans talk about Canadians as the world's most prudent folks. You just cannot have 25% down payments as common place without lots of other problems (given the size of houses globally).

This meme about Canadians being financially prudent will be looked back on later with great amusement.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on June 22, 2015, 06:50:56 AM
I am relying on my memory so could be wrong on the numbers - 50% of all mortgages in Canada at this point are insured. That implies there was something missing in the underwriting - either the 20% down payment wasn't there, there was no proof of income, etc.

The 3 insurers are CMHC, Genworth and Canada Guaranty. CMHC had virtually pulled out of the market because after the crisis they had insured 50% of all mortgages in Canada.

I believe that 50% of mortgages would amount to over $600 B in a country with GDP of $1.7 trillion or so.

Maybe this is rational, maybe it isn't. Maybe it is prudent, maybe not.
Title: Re: Garth Turner - Real Estate in Canada
Post by: notorious546 on June 24, 2015, 09:13:26 AM
http://www.nytimes.com/2015/06/24/business/economy/more-americans-are-renting-and-paying-more-as-homeownership-falls.html?ref=business&_r=1
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on July 02, 2015, 02:24:04 PM
We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario.  :o
And it continues.

We had our home appraised for our mortgage renewal this September. Our broker wants to be able to lock us in to 2.25% so he's getting the ball rolling now.

The appraisal came in at $560.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on July 09, 2015, 07:15:51 AM
Fascinating - flipping properties and fear of missing out.

http://business.financialpost.com/personal-finance/mortgages-real-estate/luxury-home-buyers-in-vancouver-flipping-houses-to-other-desperate-buyers-before-ink-even-dries-on-sale-contracts
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on July 09, 2015, 07:28:36 AM
http://www.financialexpress.com/article/industry/banking-finance/ordinary-canadians-turn-bankers-as-shadow-mortgage-lending-rises/98032/

anecdotal evidence on how these purchases are being financed.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Schwab711 on July 09, 2015, 03:51:32 PM
Who holds the loans in Canada? Do the big 4 keep them on their books or are their MBS or Canadian mortgage funds out there? Who is poised to take the losses?
Title: Re: Garth Turner - Real Estate in Canada
Post by: LesPaul on July 09, 2015, 04:00:47 PM
http://www.financialexpress.com/article/industry/banking-finance/ordinary-canadians-turn-bankers-as-shadow-mortgage-lending-rises/98032/

anecdotal evidence on how these purchases are being financed.

No idea how big this market is - but I've seen a few of these deals on the desks of an acquaintance - private 2nd mortgage with a 9% or 10% interest rate and a 1% fee upfront - interest only payments for 12 months or so.

Personally, if this was something I'd want to invest in, I'd probably just put my money into a First National (FN.TO - 7.5% Yield) or MCAN (MKP.TO - 9.5% Yield) today. At least most of those mortgages are backed by CMHC...although who knows how far that would get you in a crisis!
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on July 09, 2015, 04:37:33 PM
I believe 50% of the mortgages are held by CMHC, Genworth and Canada guaranty. I could be wrong (relying on memory here) but i think these are 90-80% backed by the government.

The majority of the remaining mortgages are likely to be held by regulated FI's the banks, credit unions, etc. But, it is easy to beat the system if you know how to play the game which brokers/lenders do.

1) banks do not report mortgages on credit bureau's - thus, borrowers lie about primary residence v RE for investment. As far as the new FI is concerned this would be the only mortgage this individual would have.
2) by under holdco and the mortgage/HELOC is not reported on credit bureau. Lie when you apply for your next mortgage under another holdco,  whether you have a mortgage or not (similar to point 1)
3) often the down payment can be from an equity take out on the above properties as they increase in value.
4) Brokers/lenders advice individuals to apply for as many lines of credits as possible once a mortgage is approved to come up with the 5% down payment.
5) of course - private lenders - it is common to have small pools of  upto $10 mil or so lending to purchasers who do not have down payments or to builders. Often the source of the funds in first place are HELOCs on properties.

Back in 2007 individuals took out HELOC's at P minus 1% or so and lent to borrowers before getting burnt. This time around the money chasing this market seems to be more organized though often linked to brokers or pooled funds with no previous experience in downturns.

Often the term on these are for 1 year at 12-14%.

The down payments can come from private mortgages. If true, the official stats on %age of houses that have less than 20% down or the number of investment properties are, in my opinion, under reported.

The article about flipping also shows that a lot of the demand being reported may be artificial because the properties are being bought by either speculators or builders who plan to tear down and build more expensive homes. We will know at some point whether it is the end user buying or just flippers creating this demand.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on July 15, 2015, 06:43:32 PM
Quote
The average SFH in Toronto costs $1.1 million, while in Chicago the average listing price is $335,984. In Vancouver a urban detached house now goes for $2.2 million. In Seattle the average list is $627,889. A 30-year mortgage in the US costs 4.3% and a five-year adjustable is 3.1%. Both have been rising this year. In Canada you can now borrow a five-year variable-rate mortgage for 1.98% – even before being nipped for today’s central bank folly.

http://www.greaterfool.ca/2015/07/15/a-tale-of-two-nations/
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on July 15, 2015, 08:00:15 PM
Canada House up 10% year over year.
If u take out Van and Toronto, only 3.4%.

Rate cut and lowering loonie will almost guarantee more upward movement.

But then what.... rate is not far away from zero.

But loonie going down means more Chinese buyers.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Schwab711 on July 15, 2015, 09:51:05 PM
How is the housing market still going up!? Thanks for getting back to me wisdom. I've read about some of your 5 points and it does seem likely that high LTV mortgages are being under-reported by a meaningful amount. Do you know any small investment companies with large exposure to development loans? Is anyone trying to short this?


Canada House up 10% year over year.
If u take out Van and Toronto, only 3.4%.

Rate cut and lowering loonie will almost guarantee more upward movement.

But then what.... rate is not far away from zero.

But loonie going down means more Chinese buyers.

How can they cut rates into a housing market that's increasing across the baord!? I agree with everything you say though. It does seem like foreign investors are the only reason the market is up so much between Chinese and American investors [speculators].
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on July 15, 2015, 10:00:10 PM
rate cut will help stimulate export
and also the already hot real estate industry -

aside from the foreign buyers... those in their 30's , if own a home, will be spending most of their income in housing.. which does not contribute to the economy....  we need consumer spending to get the economy going.

the other sad part is most of the price tag of a house is in the land...   we were looking at a $1m house in north van... they had 25 offers and end up 250K over asking....  the house is almost a taredown...  so the money most goes into the land....  unless the seller spends the proceeds back into the economy... i see very little overall contribution (no construction worker, no materials, etc)....  bad..... 

the US recession came suddenly and the government reaction was swift.

feels like Canada may be looking at low oil, low commodity, and slow growth for a while... I hope I am wrong !
Title: Re: Garth Turner - Real Estate in Canada
Post by: Aberhound on July 17, 2015, 09:07:46 AM
rate cut will help stimulate export
and also the already hot real estate industry -

aside from the foreign buyers... those in their 30's , if own a home, will be spending most of their income in housing.. which does not contribute to the economy....  we need consumer spending to get the economy going.

the other sad part is most of the price tag of a house is in the land...   we were looking at a $1m house in north van... they had 25 offers and end up 250K over asking....  the house is almost a taredown...  so the money most goes into the land....  unless the seller spends the proceeds back into the economy... i see very little overall contribution (no construction worker, no materials, etc)....  bad..... 

the US recession came suddenly and the government reaction was swift.

feels like Canada may be looking at low oil, low commodity, and slow growth for a while... I hope I am wrong !

I found out where some of the money goes this weekend when I go to a party up in Kelowna, a small city 4 hours inland from Vancouver. It was like going back in a time warp. Almost everyone at the party had sold and moved from Vancouver over the past 25 years and moved to new homes in Kelowna. The later they moved the bigger the house. Most owned recreational properties as well and all looked exceptionally fit from an active outdoor life culture. Then I visited friends in Oliver, a few hours south in the "Golden Mile", so named because the soil is incredibly mineral rich. Massive monies has gone into wineries while the fruit farms have mostly gone due to low returns. All land owners have had incredible rates of return from rising land values. I can't see why the trend won't continue as higher prices in Vancouver and more immigrants from low trust societies drive those used to a high trust society inland allowing an exchange of wealth and discomfort for wealth, comfort and an improved, more healthy lifestyle. We basically live in a country club economy and we should embrace it and start charging an entrance fee commensurate with the quality of the land and resources. When water starts to back currencies like oil has since the early 1970s BC will be incredibly wealthy so BC seems likely to become the new Alberta.

Now I want to convince my spouse to move to Kelowna as well.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on July 17, 2015, 09:15:51 AM
I heard an interesting idea - 

The government of Canada has recently scrapped the 'investment immigration' program where a typical Chinese family invests $800K in Canada in exchange for a landed immigrant status -  so instead of scrapping that, we should increase the investment from $800K to say $5M CAD, and instead of it being an investment, make it a permanent contribution to the local economy - goes towards improvement of transit, healthcare etc.   Now that the $5M for the luxury house west van is gone, perhaps we see a slower growth in real estate, and for whomever we attract, they are now even more certain to be the top 0.1%. LOL
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on July 17, 2015, 09:46:01 PM
$10m house sold last week. Hope this will motivate us all to work hard lol

http://youtu.be/05sgT9dL7zA
Title: Re: Garth Turner - Real Estate in Canada
Post by: The Falcon on July 18, 2015, 04:02:36 PM
rate cut will help stimulate export
and also the already hot real estate industry -

aside from the foreign buyers... those in their 30's , if own a home, will be spending most of their income in housing.. which does not contribute to the economy....  we need consumer spending to get the economy going.

the other sad part is most of the price tag of a house is in the land...   we were looking at a $1m house in north van... they had 25 offers and end up 250K over asking....  the house is almost a taredown...  so the money most goes into the land....  unless the seller spends the proceeds back into the economy... i see very little overall contribution (no construction worker, no materials, etc)....  bad..... 

the US recession came suddenly and the government reaction was swift.

feels like Canada may be looking at low oil, low commodity, and slow growth for a while... I hope I am wrong !

This story rings a bell, replace Vancouver with Sydney and Toronto with Melbourne  and we have a very similar set of circumstances unfolding down here.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mrholty on July 31, 2015, 02:33:17 PM
Just wanted to add some antecdotal information to this thread.

I watched this for a few years and felt there was a bubble atleast in BC.  Earlier this summer spent a week in BC on vacation and spent a few nights with locals.  Much of the stereotypes or comments I've read in this thread were there. 
Buying a second home in AZ - check. 
Sister is a house flipper - sold her business as a Chiro but not ready to retire.  now a yoga instructor and house flipper - check
etc, etc, etc.

Well work took me for the last two weeks to SE Asia + China.  These two weeks were with customers who run manufacturing and distribution companies to a part of the energy economy.  In general these guys are all in their 50s and looking to sell out their business in the near future.  I'd say that 50% of these guys already had a home in the US/Canada and the majority of those were in Vancouver.  These guys want the Vancouver weather, they schools and they want some safety of their assets.  They all paid 100% cash.  That said these guys are just a couple hundred in the entire country of China that serves a several billion dollar industry.  Their employees aren't doing what these guys are doing.  In a lull between drinking Baiju one older guy smiled and asked me why I was so interested in what these guys did with their wealth.  Clearly he was wary of my questions.  (In reality I had simply brought up that I had just been vacationing in Vancouver and the rest of them told stories about them buying property there) and setting up their kids in college there and their kids were becoming landlords, starting businesses, etc.  He told me that he's got his money in Canadian Banks and he's waiting for the bubble to burst to buy the others guys houses.

There is no investment advice in this but much of the stories and anecdotes were confirmed for me in a few weeks of my travels this summer. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on September 03, 2015, 09:16:35 AM
Thought this was good:

Quote
When 99.9% of folks in Canada talk abt a "historically low debt service ratio," they're using the wrong # #cdnecon

https://twitter.com/ljkawa/status/639470003998355456

(https://pbs.twimg.com/media/CN_aeyyW8AA-1fI.png:large)
Title: Re: Garth Turner - Real Estate in Canada
Post by: permabear on September 03, 2015, 01:56:57 PM
Thought this was good:

Quote
When 99.9% of folks in Canada talk abt a "historically low debt service ratio," they're using the wrong # #cdnecon

https://twitter.com/ljkawa/status/639470003998355456

(https://pbs.twimg.com/media/CN_aeyyW8AA-1fI.png:large)
Can you believe stats can reported debt service ratio as interest only until now? What a useless/misleading metric
Title: Re: Garth Turner - Real Estate in Canada
Post by: rb on September 03, 2015, 03:03:44 PM
Can you believe stats can reported debt service ratio as interest only until now? What a useless/misleading metric
I am highly disappointed and ashamed by stats can. They don't track a lot of stuff, their interface is total crap, and a lot of data you have to pay for. I think Canada may have the worst statistical service of the developed countries!
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on October 23, 2015, 09:10:06 AM
just to give everyone a sense of how crazy real estate is ...

I made an offer on a small house a month ago.  didn't get it. 

a month later a similar property came on the market on the same street. but house was in worse condition and needed to spend more money to have an income suite.  so I passed.  well, it just got sold for 400k more than the much nicer house I didn't get a month ago...
Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on October 23, 2015, 10:14:17 AM
Can you believe stats can reported debt service ratio as interest only until now? What a useless/misleading metric
I am highly disappointed and ashamed by stats can. They don't track a lot of stuff, their interface is total crap, and a lot of data you have to pay for. I think Canada may have the worst statistical service of the developed countries!
I wonder if the quality of the service is related to the staff cuts made in the last few years?

Estimated Job Losses 2012-2016 (Reports on Plans and Priorities)
Statistics Canada: 2,230 or 35% of full-time positions

via:
http://news.nationalpost.com/news/canada/canadian-politics/conservatives-have-wiped-37000-off-the-public-service-payroll-cutting-jobs-faster-than-expected

Statscan’s budget has fallen by $29.3-million in the past two years, and its staffing has fallen by 767 people, or 18.5 per cent, in the same period, excluding the census and surveys paid for by outside clients.
via:
http://www.theglobeandmail.com/report-on-business/economy/lack-of-funds-keeps-statscan-study-from-public/article18088971/
Title: Re: Garth Turner - Real Estate in Canada
Post by: zuokk on October 27, 2015, 07:44:22 AM
https://www.change.org/p/justin-trudeau-keep-the-annual-tfsa-contribution-limit-at-10-000
Title: Re: Garth Turner - Real Estate in Canada
Post by: rb on October 27, 2015, 10:34:09 AM
https://www.change.org/p/justin-trudeau-keep-the-annual-tfsa-contribution-limit-at-10-000
I'm confused about what this has to do with real estate. Also why people this the limit would not be rolled back. It was a proeminent part of the platform.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on November 02, 2015, 09:58:22 AM
http://www.vancouversun.com/business/bank+mortgages+bags+cash+behind+chinese+home+buys+vancouver/11485324/story.html?__lsa=5235-1262

Study confirms what I have stated several times. 82% of the so called houses bought by new rich Chinese investors are done using financing rather than cash.

As a newcomer in Canada one needs no job, no income or credit to borrow. The so called rich immigrants have been playing with other peoples money and loving it.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on November 02, 2015, 10:36:49 AM
hi Wisdom
this is consistent with what i have been learning in the last few months - 
my wife's family recently sold their house and used a Chinese agent for her connection with the Chinese buyers -  the deal was good , but I did learn from her that most of her clients are buying with Canadian mortgages.   I also spoke to people I know at TD and RBC and were told that the banks will give them loans provided they can show their incomes in China.

Aside from the Chinese buyers; there are also real estate agents and developers in this game - who are bidding up the lot prices.  Take for example a North Van lot recently sold for $1.8M...  and you could get a brand new 5000 sf house in the same neighbourhood for $2.3M -  okay, both are overpriced; but the point is the lot price is way out of proportion than a newly completed house where we know the cost is likely about $150 ~ $200/sf. 

We will then have suckers like myself, who have a relatively 'good' income in Canada and can likely mortgage our way to buy a $1.5M house in Vancouver , with a bit of parent's help and a basement suite as income helper.  I also learn the bank will give you mortgage based on the basement suite rental income - something I was told not possible a few years ago.

I am wondering how this game will end - and what it'll do to Canada's economy. 


ADD:  My thought process is that if a few years ago we decided not to trust the accounting of most Chinese RTOs ....  why do our banks trust the immigrant's income in China ?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on November 02, 2015, 10:57:01 AM
To add to that many Canadians are now builders/developers providing a large secondary income. One of their requirements is having an inventory to demolish and re-build as they build anywhere from 1-10 houses a year. In greater Vancouver even if we assume 100 builders hold an inventory of 10 houses each = 1,000 houses are owned by these builders. My best anecdotal evidence says the real numbers would be higher. Thus, a lot of the demand or shortage of housing you see in GVRD is artificial. It will be interesting when the music stops, because the large secondary incomes will disappear and that inventory could come back on the market when no one else can afford it.

My best guess - When Canadian RE goes we will have a recession as our natural resources are already hit and housing seems to be the last pillar. RE is struggling in all cities other than Toronto and Vancouver

Similar to Japan and US - our interest rates will drop as housing gets cheaper because the BoC will need to stimulate.

This is how I see it playing out. Lower housing prices and lower rates going forward.
Title: Re: Garth Turner - Real Estate in Canada
Post by: rb on November 02, 2015, 11:09:12 AM
You guys are pretty spot on. Our RE situation scares the crap out of me. It seems like we've learned nothing from the near miss in 2008 and the disaster south of the border.

Oh and the icing on the cake, today RBC removed its $1.25 million loan limit for newcomers with no credit history. I mean what could go wrong with that?
Title: Re: Garth Turner - Real Estate in Canada
Post by: permabear on November 02, 2015, 12:08:54 PM
Our RE situation scares the crap out of me. It seems like we've learned nothing from the near miss in 2008 and the disaster south of the border.

The Canadian government quietly propped up the banking industry in 2008-10. So yeah, the 'near miss' was more like kicking the can down the road. Haven't read this report yet, but apparently the banks received $114bn in support from gov't and CIBC, BMO and Scotia were all underwater!

Summary: https://www.policyalternatives.ca/newsroom/updates/study-reveals-secret-canadian-bank-bailout
Full report: https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/04/Big%20Banks%20Big%20Secret.pdf

I know it's old news (published in April 2012). If this version of events has since been debunked, would love to hear an explanation.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gokou3 on November 02, 2015, 12:41:03 PM
http://www.vancouversun.com/business/bank+mortgages+bags+cash+behind+chinese+home+buys+vancouver/11485324/story.html?__lsa=5235-1262

Study confirms what I have stated several times. 82% of the so called houses bought by new rich Chinese investors are done using financing rather than cash.

As a newcomer in Canada one needs no job, no income or credit to borrow. The so called rich immigrants have been playing with other peoples money and loving it.

Meanwhile....

How mortgage fraud is thriving in Canada's hot housing market
http://www.theglobeandmail.com/report-on-business/economy/housing/mortgage-fraud-on-the-rise-among-brokers-trying-to-help-clients-qualify/article27051297/



Title: Re: Garth Turner - Real Estate in Canada
Post by: rb on November 02, 2015, 07:20:22 PM
Our RE situation scares the crap out of me. It seems like we've learned nothing from the near miss in 2008 and the disaster south of the border.

The Canadian government quietly propped up the banking industry in 2008-10. So yeah, the 'near miss' was more like kicking the can down the road. Haven't read this report yet, but apparently the banks received $114bn in support from gov't and CIBC, BMO and Scotia were all underwater!

Summary: https://www.policyalternatives.ca/newsroom/updates/study-reveals-secret-canadian-bank-bailout
Full report: https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/04/Big%20Banks%20Big%20Secret.pdf

I know it's old news (published in April 2012). If this version of events has since been debunked, would love to hear an explanation.
I've read it. The report is worthless. Yes liquidity programs were used but the conclusions the authors draw are erroneous. At first I thought the authors weren't that much aware of monetary and bank funding operations but as I kept reading I realized that they were just being disingenuous.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Aberhound on November 07, 2015, 07:24:28 PM
(http://www.acting-man.com/blog/media/2015/11/1-Sweden-property-prices.png)

Swedish property prices effect of zirp and Nirp. Coming to Vancouver?

When marijuana is legalized soon and you can grow the stuff yourself your worries will seem to drift away.
Title: Re: Garth Turner - Real Estate in Canada
Post by: RichardGibbons on November 08, 2015, 08:21:00 PM
Vancouver single family homes are already up far more than this chart in roughly half the time period.  That said, they could go up more.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on November 11, 2015, 07:17:13 PM
Let me apologize if this has already been posted.  I found the following presentation that is a little dated but very relevant:
http://www.slideshare.net/ndsouza22/the-big-short-ii

I also really enjoyed this article:
http://www.fool.ca/2014/12/02/10-jaw-dropping-numbers-from-canadas-real-estate-market-2/

In summary, the price appreciation of real estate in Canada is a result of higher lending.  The income to support that lending has not kept up and lending is at a saturation point.  It can't go much higher.  Calgary is a good example of what to expect.

http://www.bnn.ca/News/2015/11/10/Empty-floors-shadow-vacancies-new-norm-for-Calgary-tower-owners.aspx
Title: Re: Garth Turner - Real Estate in Canada
Post by: Libs on March 03, 2016, 09:01:32 AM
http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

Nice summary of the shenanigans realtors pull in Canada ( esp Vancouver).

A) Realtor sells A's house to B.
B ) Realtor invokes the assignment clause, and buys it himself
C ) Flips to someone else at a profit.

Legal, but scummy. Note the 500+ outraged comments to get a sense of how things are boiling over.
Title: Re: Garth Turner - Real Estate in Canada
Post by: RichardGibbons on March 03, 2016, 10:41:05 PM
Legal, but scummy.

I don't actually see why this is scummy (and I tend to have very strong opinions about real estate). As long as the agent wasn't representing the original seller, I don't see the problem.

Like, once the deal is signed, the original seller has got what they want, and the buyer has all the risk.  Would it still be scummy if the market dropped, and the agent sold the assignment for a $200,000 loss rather than a $200,000 gain?

Is it scummy if a market maker in the stock market buys shares for you for $10, and then sells them 30 seconds later for $10.10? 

I don't see any real difference.  I think that this issue is simply media-created outrage over something that's actually ethical (and kind of stupid for the agent to do.) 

The people want to blame someone for the ridiculous Vancouver housing prices, so would prefer to blame agents rather than the stupid people buying houses that they can't actually afford, the Bank of Canada trying to keep the bubble economy alive by pumping debt into the system through low interest rates, and CMHC lubricating the system by pushing a healthy dose of moral hazard onto the banks.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Viking on March 03, 2016, 10:56:25 PM
I live in greater Vancouver (Langley). 2,350 sq ft houses sold for $600,000 six years ago. Two years ago they sold for $700,00. Last year it was $750,000. This year a house was listed for $850 and it sold for $1,030 (it is now affectionately referred to as the 'million dollar house'). My neighbour recently listed their house at $938,000; they had 40 people though, multiple offers, and a final offer of $983,000. Most of buyers are Asian looking to get their $ out of China. Total blows me away to see prices going up one hunded thousand dollars each year for many years. Hard to see how this is not a bubble.

The crazy thing is the flow of $ from China is expected to continue so we may very well see prices go even higher. Vancouver is such a small city it does not take much demand from China to cause prices to spike. Both of my new neighbours are from China (very nice families and great neighbours). :-)
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 03, 2016, 11:23:00 PM
Interesting fact - permanent residents from China to BC are down 50% in the last 10 years.

City of Vancouver expects a 1,000 demolition permits this year. Could it be developers who own those properties. From what I understand there are a lot of individuals who have become builders and a lot of them own anywhere from 2 to 20 properties that they re- develop. Could this be the reason for the shortage in supply and crazy prices?
Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on March 04, 2016, 01:00:09 AM
Interesting fact - permanent residents from China to BC are down 50% in the last 10 years.

City of Vancouver expects a 1,000 demolition permits this year. Could it be developers who own those properties. From what I understand there are a lot of individuals who have become builders and a lot of them own anywhere from 2 to 20 properties that they re- develop. Could this be the reason for the shortage in supply and crazy prices?

Can you clarify what you mean by this, or provide a source?  It is ambiguous as it is written.
permanent residents from China to BC are down 50% in the last 10 years.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 04, 2016, 05:05:40 AM
Legal, but scummy.

I don't actually see why this is scummy (and I tend to have very strong opinions about real estate). As long as the agent wasn't representing the original seller, I don't see the problem.

Like, once the deal is signed, the original seller has got what they want, and the buyer has all the risk.  Would it still be scummy if the market dropped, and the agent sold the assignment for a $200,000 loss rather than a $200,000 gain?

Is it scummy if a market maker in the stock market buys shares for you for $10, and then sells them 30 seconds later for $10.10? 

I don't see any real difference.  I think that this issue is simply media-created outrage over something that's actually ethical (and kind of stupid for the agent to do.) 

The people want to blame someone for the ridiculous Vancouver housing prices, so would prefer to blame agents rather than the stupid people buying houses that they can't actually afford, the Bank of Canada trying to keep the bubble economy alive by pumping debt into the system through low interest rates, and CMHC lubricating the system by pushing a healthy dose of moral hazard onto the banks.

I think some are thinking that's more trading with insider info.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 04, 2016, 08:05:11 AM
http://www.vancouversun.com/Permanent+residents+from+China+drops+half/11688716/story.html

Residents from China drop by half
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 04, 2016, 08:48:11 AM
Do you have to be a permanent residence to buy a house?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 04, 2016, 09:09:56 AM
No - this was in reference to the anecdote that both their neighbors were from China. But, I don't see rich investors buying houses that are an hour out of the city in the suburbs for $1 mil (no backyard/no views). The suburb (Langley) is where most professional families are moving to as it is considered affordable.

And no Vancouver is no silicon valley - the city has one of the lowest median household incomes amongst major Canadian cities.
Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on March 04, 2016, 10:31:24 AM
http://www.vancouversun.com/Permanent+residents+from+China+drops+half/11688716/story.html

Residents from China drop by half

Wisdom, thank you for the source.
This would be a more accurate summary.
VANCOUVER — Overseas immigration to B.C. is down 22 per cent in the past decade, driven largely by a plunge in migration from China, which has long been this province’s largest source of immigrants.

The number of permanent residents moving to B.C. from China has fallen by half, to just over 6,000 in 2014 from 13,600 in 2005, according to Immigration, Refugees and Citizenship Canada. China’s proportion of B.C.’s new permanent residents dropped to 17 per cent from 30 per cent in the decade.


Immigration is what makes Canada a great country and will be critical to our future growth. I support it completely.

"Permanent resident" is people that have applied and received permanent status in Canada. This is different from "resident" as you summarized in both your comments above. A Permanent Resident is on track to eventually become a Canadian citizen, if they choose to. A resident is just some one that is living here (on a visa or whatever).

Some people choose to immigrate to Canada and work here and pay taxes here.  But some are just getting their money out of their own country and invest it in real estate in Canada. If real estate continues on the current path it is possible the government will add a tax on foreign ownership of property. There are other countries that have similar taxes or restrictions on property ownership.

Do you know the expression, "there are lies, damned lies and statistics?".  I can find a statistic to prove any argument I want. But to understand the data in context you need a broader perspective and more information. And I don't think we have all the data in front of us. For example, what if Harper made budget cuts in the immigration processing dept in 2013 and there was a huge backlog in 2014 so the numbers of approved were low?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 04, 2016, 10:39:53 AM
Nodnub - I was talking about PR's. It was just that I used a short form when you asked for the source. If you look at the graph in the article it does not look like a one time read - It looks like that is the trend. It is possible that 2004 was an anomaly. I do not know for sure though.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 04, 2016, 12:08:19 PM
With homes trading so far above replacement value, why aren't there people building homes like crazy in Toronto and Vancouver? The margins must be huge. And it's not like there's a shortage of land..
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 04, 2016, 12:48:47 PM
With homes trading so far above replacement value, why aren't there people building homes like crazy in Toronto and Vancouver? The margins must be huge. And it's not like there's a shortage of land..

homes aren't trading above replacement value -  it's the lots - the dirt - that's worth a fortune.

a house of $1.5M is $1.45M in the price of the lot; not the house!
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 04, 2016, 12:54:14 PM
With homes trading so far above replacement value, why aren't there people building homes like crazy in Toronto and Vancouver? The margins must be huge. And it's not like there's a shortage of land..

At least one of your assumptions is incorrect.

http://www.thestar.com/business/real_estate/2015/10/24/the-rise-of-willowdale-torontos-hottest-new-neighbourhood.html

"Land values alone have escalated so dramatically the last couple of years in this area just east of the North York Civic Centre that Jalali says banks are appraising most original homes at 97 per cent land value."
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 04, 2016, 01:49:04 PM
Land is valuable to developers. I believe that is where most of the inventory is sitting - it takes a while for city approvals, demolishing and building.

When this is over and done with - it will be interesting to look at the number of Canadians who became builders.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 04, 2016, 02:06:12 PM
Land is valuable to developers. I believe that is where most of the inventory is sitting - it takes a while for city approvals, demolishing and building.

When this is over and done with - it will be interesting to look at the number of Canadians who became builders.

i personally know of quite a few family friends and relatives just buying up lots and holding...   not developing.     many Asians would save money in land rather than in a savings account lol 
Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on March 04, 2016, 05:00:06 PM
Nodnub - I was talking about PR's. It was just that I used a short form when you asked for the source. If you look at the graph in the article it does not look like a one time read - It looks like that is the trend. It is possible that 2004 was an anomaly. I do not know for sure though.

Yes I see what you are saying.  I think this is a more telling excerpt from that article.

Quote
Henry Yu, a history professor at the University of B.C. who studies migration between China and Canada’s west coast, said the decline in permanent residents does not mean there are fewer Chinese in B.C.

“What you’re seeing is the benefits of permanent residency have declined over time. It doesn’t mean there are less Chinese here. It just means that permanent residency as a desirable decision has declined, at times precipitously.”

Yu points to the former Conservative government’s introduction of a 10-year super visa as “ground changing.” Super visas are valid for 10 years and allow parents and grandparents to visit children in Canada for up to two years at a time. The government introduced the program in 2011 as it capped the number of new permanent residence applications for parents and grandparents it would accept because of a lengthy backlog.

For Chinese parents who have children studying in Canada, for example, it often makes more sense to apply for a super visa than for permanent residence, Yu explained.

“If you have a 10-year super visa, then what’s the upside of being a (permanent resident)? In fact, there’s quite a few downsides to being a (permanent resident),” Yu said, noting that having to pay taxes in Canada is at the top of that list. There is also no requirement to be a permanent resident in order to own property in Canada.
Again,  I would love to have these people come and stay and become permanent residents and become citizens and work and pay tax in Canada.  But if the parents live and work overseas and buys a big house for their 18 year old kid to come study here and live in the big house by themself and use it as a tax dodge (personal residence exemption), then what value does that family contribute to Canadian society?



Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 04, 2016, 05:09:20 PM
That is the hot money that may be coming in and will be first to leave when and if things go south. Just makes for larger swings. The unfortunate thing is that this is real estate that we are talking about that is being used to speculate and tends to have a large impact with each move because more people own homes and leverage. Leverage can be 20x.

For perspective - Last year home prices increased 30% in Vancouver on top of a 15 year run up. There are several examples where I know people who are turning around and selling a house the same day for $90k more than the purchase price.

Never been easier to get rich.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Phoenix01 on March 04, 2016, 07:37:23 PM
The graph in this article needs to be seen to be believed.

http://www.news1130.com/2016/02/02/vancouver-house-price-new-record/

Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on March 04, 2016, 09:58:14 PM
That is the hot money that may be coming in and will be first to leave when and if things go south. Just makes for larger swings. The unfortunate thing is that this is real estate that we are talking about that is being used to speculate and tends to have a large impact with each move because more people own homes and leverage. Leverage can be 20x.

For perspective - Last year home prices increased 30% in Vancouver on top of a 15 year run up. There are several examples where I know people who are turning around and selling a house the same day for $90k more than the purchase price.

Never been easier to get rich.

That is definitely how it looks! I used to believe the following expression would come true "what the wise man does in the beginning the fool does in the end".  But not sign of that yet.  It's a crazy time. 

There is no advantage to having that additional volatility in the housing market.  I keep thinking hot money flows in real estate just seems like it will end badly some day. That was essentially the problem in the US real estate boom in early/mid 2000s,  except the hot money was coming from inside the country (people that couldnt *really* afford the mortgage, or people that bought more properties than they could handle because credit terms were soooo loose - you had a pulse, you could get a zero-down IO mortgage).
Title: Re: Garth Turner - Real Estate in Canada
Post by: nodnub on March 04, 2016, 10:03:01 PM
The graph in this article needs to be seen to be believed.

http://www.news1130.com/2016/02/02/vancouver-house-price-new-record/

That is very interesting chart.  Again there is an issues with statistics/data.  I wish they would publish the median value. I wonder what it would look like. I think it would show what the price increases were on a "more typical" house and be less skewed by the most expensive properties.  Maybe the median is only up 10% this year.  who knows.

--
edit:  okay I stopped being lazy. and spent a couple minutes with google. 
MLS has the Home Price Index (HPI) which is calculated using the median price instead of the average price.  I opened this report for Feb 2016 http://www.rebgv.org/sites/default/files/REBGV%20Stats%20Pkg%20February%202016.pdf

In the first table in that report you can discover the median price increase in the last 12 months to Feb 2016 for Detached houses, townhouse and apartments in various areas. eg.  Vancouver East, Vancouver West, West Vancouver, Burnaby South, et al.
or consolidated to Greater Vancouver level.  All numbers are lower than the headline 30% increase,  most of them are in the mid-20s. 

Given that the median prices are increasing at lower rate than average I think that the higher end properties are going up a lot more than 30% in the past year.  It's tough luck to be a millionaire in Vancouver if you haven't bought your 3 million house yet  :)

Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 04, 2016, 11:49:07 PM
That is the hot money that may be coming in and will be first to leave when and if things go south. Just makes for larger swings. The unfortunate thing is that this is real estate that we are talking about that is being used to speculate and tends to have a large impact with each move because more people own homes and leverage. Leverage can be 20x.

For perspective - Last year home prices increased 30% in Vancouver on top of a 15 year run up. There are several examples where I know people who are turning around and selling a house the same day for $90k more than the purchase price.

Never been easier to get rich.

Shouldn't a 15-year run indicate there are long-term fundamental factors supporting the market?

The price chart says apartment prices have increased more modestly than detached homes, suggesting it's land that has become scarce.

I am not saying the current price is fully justified, because it likely reflects both investment merits and speculation.

If Chinese buying is indeed key, then it's difficult to know when the run-up will stop. My guess is if adjusted for quality and lifestyle, Vancouver housing is likely still cheaper than China.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 05, 2016, 04:37:20 AM
just like many bubbles (I don't know if this one is but it sure looks like one) ... it will be hard to see how it stops until it does.

as this continue, pretty much all locals will need to move to condos, while foreign ppl (mainly from China) taking over all detached.

does this look like sustainable to you?

most other major cities in around the globe do have some rules in places to stop the inflow while Canada has done nothing so far. That makes the situation way worse as Canada is becoming the easiest place to move money into.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 05, 2016, 05:31:30 AM
just like many bubbles (I don't know if this one is but it sure looks like one) ... it will be hard to see how it stops until it does.

as this continue, pretty much all locals will need to move to condos, while foreign ppl (mainly from China) taking over all detached.

does this look like sustainable to you?

most other major cities in around the globe do have some rules in places to stop the inflow while Canada has done nothing so far. That makes the situation way worse as Canada is becoming the easiest place to move money into.

My guess is the problem is mostly in Vancouver and Toronto, not really Canada wide.

The global affluent go after these highly livable cities. You hear the same complaints when you talk to someone from London or Sydney.

I presume even before the immigrants arrived in scale a couple of decades ago, the same trend was taking place, albeit not as visible. People from other cities moved in, neighborhoods gradually gentrified, local low-income households moved out.

So this broad trend has been in place for many years and will surely continue. Only the characters have changed and the pace has accelerated.

I agree if Canada changes its immigration policy, it will likely slow the Vancouver market a bit. In addition, the government could force the foreigners to buy new apartments rather than existing properties, which is the rule in Australia.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 05, 2016, 06:39:40 AM
just like many bubbles (I don't know if this one is but it sure looks like one) ... it will be hard to see how it stops until it does.

as this continue, pretty much all locals will need to move to condos, while foreign ppl (mainly from China) taking over all detached.

does this look like sustainable to you?

most other major cities in around the globe do have some rules in places to stop the inflow while Canada has done nothing so far. That makes the situation way worse as Canada is becoming the easiest place to move money into.

My guess is the problem is mostly in Vancouver and Toronto, not really Canada wide.

The global affluent go after these highly livable cities. You hear the same complaints when you talk to someone from London or Sydney.

I presume even before the immigrants arrived in scale a couple of decades ago, the same trend was taking place, albeit not as visible. People from other cities moved in, neighborhoods gradually gentrified, local low-income households moved out.

So this broad trend has been in place for many years and will surely continue. Only the characters have changed and the pace has accelerated.

I agree if Canada changes its immigration policy, it will likely slow the Vancouver market a bit. In addition, the government could force the foreigners to buy new apartments rather than existing properties, which is the rule in Australia.

Trend continues but does not mean it will not swing to extreme as the trend continues.
Historical low rate won't last long and math tells you, normalized rate will literally push many home owners into distressed area. Hard to see rate to go up any time soon tho... just an example
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 05, 2016, 06:44:54 AM
With homes trading so far above replacement value, why aren't there people building homes like crazy in Toronto and Vancouver? The margins must be huge. And it's not like there's a shortage of land..

At least one of your assumptions is incorrect.

http://www.thestar.com/business/real_estate/2015/10/24/the-rise-of-willowdale-torontos-hottest-new-neighbourhood.html

"Land values alone have escalated so dramatically the last couple of years in this area just east of the North York Civic Centre that Jalali says banks are appraising most original homes at 97 per cent land value."

Is there some sort of land constraint or zoning regulation in the GTA area? When I look at Google Maps, there's so much land..  :o

The article you pointed out seems to be land that's pre-built. What about values for land for new construction?

It just seems like, out of all the countries in the world, Canada should be the last one having a shortage of land problem.

Also, is there a big pricing discrepancy between residential land and farmland? Is it hard to get farmland re-zoned to residential? Just trying to understand the market here.

At these million+ prices, it still seems very profitable to buy a couple of acres of land, convert it to residential, built a stack of homes.. Are there any publicly-traded Canadian home builders? Would be nice to look at the financials..
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 05, 2016, 07:42:49 AM
There are restrictions on farmland being rezoned.

If I understand human nature -a point is reached where citizens exert pressure on their elected representativeso to release more land/tighten rules, etc. at some point in time. It actually seems to be playing out that way if you see what happened in recent elections and the pressure continues to build.

The problem  is that the prices are so inflated, that the floor is going to be a long way down once the music stops due to any reason.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 05, 2016, 07:45:33 AM
If a run up for 15 years proves there are fundamentals, then what happened to Calgary or any other city in Alberta after a 15 year run. Something to think about?

It is human to be irrational and longer than anyone can imagine.
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on March 05, 2016, 08:29:05 AM
There are restrictions on farmland being rezoned.

If I understand human nature -a point is reached where citizens exert pressure on their elected representativeso to release more land/tighten rules, etc. at some point in time. It actually seems to be playing out that way if you see what happened in recent elections and the pressure continues to build.

The problem  is that the prices are so inflated, that the floor is going to be a long way down once the music stops due to any reason.

I can only speak to Newmarket (and Aurora I believe but not positive). About 10 years ago there was a halt to all new home construction. The town council(s) said there's no more land to be developed, ever.

Famous last words. A golf course was rezoned to residential, with lots of residential opposition. But not over green space issues, the local residents said their home values would plummet since they're not a golf course community anymore.

Farms in the same area, west of the mall for those familiar with Newmarket, were sold and are being developed. Prices start around $800k last I looked. For a 34' by '110' lot and about 2000 sq ft.

All on land deemed untouchable about 10 years ago by the town council.
Title: Re: Garth Turner - Real Estate in Canada
Post by: EliG on March 05, 2016, 08:34:50 AM
Is there some sort of land constraint or zoning regulation in the GTA area?

Yes. Greenbelt (Golden Horseshoe) (https://en.wikipedia.org/wiki/Greenbelt_(Golden_Horseshoe))

Quote
The Greenbelt is a permanently protected area of green space, farmland, forests, wetlands, and watersheds, located in Southern Ontario, Canada. It surrounds a significant portion of Canada's most populated and fastest-growing area—the Golden Horseshoe.

Created by legislation passed by the Government of Ontario in 2005, the Greenbelt is considered a major step in the prevention of urban development and sprawl on environmentally sensitive land in the province.

It's debatable how much impact the Greenbelt has on the house prices in GTA. For example:

Priced Out: Understanding the factors affecting home prices in the GTA (https://www.pembina.org/reports/priced-out.pdf)

Page 18

Factor 4: Land availability and regulations

The availability of land, both in terms of its physical location and the regulations governing its use, can influence home prices. However, in the GTA this may only be an issue for specific, established neighbourhoods.
 
Key findings

• There is an adequate supply of land in the GTA for approved and future residential developments. Based on municipal projections, 81% of the land available for development will still be unused in 2031.

• Intensification policies will mean more housing units can be built per acre than previously. Using the same amount of land, it is possible to build 250,000 more high-density housing units in the GTA by 2031 than would have been possible with the lower-density development of past decades.

• Land availability is not an issue for the region, but it is relevant for established neighbourhoods that are favoured by homebuyers. These neighbourhoods, which tend to be near the urban centre, are experiencing high levels of demand combined with a lack of available land and therefore higher prices.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 05, 2016, 09:37:54 AM
A few GTA comments.

There is no shortage of land.

There is significant mismatch between expectation and reality. That detached/semi-detached close to good schools, at a reasonable price, is available; but it is in the ‘burbs. The trade-off is commute time, and the cost is roughly an extra 75-125K (dependent on type of house) per 15 minutes of one-way commute. To live and work downtown is a lifestyle choice.

Global, not local. Vancouver and Toronto are global, and cosmopolitan cities.
In today’s negative global rate environment; cultures that prefer to save via land purchase - versus bank/broker deposit, are doubly incentivized. A high end purchase in a down town core is protected by both the lack of new land; and the market incentive to offer only high-end units on any land that might be reclaimed. Currently, you could buy a USD 7M apartment in New York; or one each in both Vancouver AND Toronto, PLUS have change to decorate with. Those times you stay in New York, use a hotel.

As/when CAD appreciates above USD 1 again, simply sell one of the Canadian apartments and buy something in New York at what are highly likely to be depressed prices. You are simply buying/selling real estate that you can actually use (stay in), instead of financial paper (bonds, stocks) that you cannot. Functional asset class diversification amongst the global 1%.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on March 05, 2016, 10:03:31 AM
A few GTA comments.

There is no shortage of land.

There is significant mismatch between expectation and reality. That detached/semi-detached close to good schools, at a reasonable price, is available; but it is in the ‘burbs. The trade-off is commute time, and the cost is roughly an extra 75-125K (dependent on type of house) per 15 minutes of one-way commute. To live and work downtown is a lifestyle choice.

Global, not local. Vancouver and Toronto are global, and cosmopolitan cities.


SD

The last line I have quoted here summarizes the situation nicely.  Toronto and Vancouver play by the rules of global, international cities. 

See the chart in this article from just over a year ago. 

http://business.financialpost.com/personal-finance/mortgages-real-estate/toronto-and-vancouver-home-prices-pass-rome-and-close-in-on-paris

Land availability does not seem to be a factor.  Proximity is the issue. 

This applies very neatly to Toronto.  The greatest price increases have been downtown, and near the subway lines.  I live very near Mississauga (~1 km), 15 minutes by bus from the subway, and the prices have not risen nearly as rapidly, as homes slightly east and walking distance from the subway.  There has also been huge developments of high rise condos along old, and new subway lines that may be skewing the prices upwards as well. 

Finally, Canada's immigration is somewhere over 200,000 people every year, of which over 40% wind up in the greater Toronto Area.  That is an addition of 1 million people, with their children every 10 years since 1991.  Of course, prices will go up.  No one really knows if they are in a bubble.  I honestly
thought they were in a bubble 12 years ago, when we bought our house.  I am happy my wife pushed to buy a house then, in retospect. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 06, 2016, 01:58:45 AM
A few GTA comments.

There is no shortage of land.

There is significant mismatch between expectation and reality. That detached/semi-detached close to good schools, at a reasonable price, is available; but it is in the ‘burbs. The trade-off is commute time, and the cost is roughly an extra 75-125K (dependent on type of house) per 15 minutes of one-way commute. To live and work downtown is a lifestyle choice.

Global, not local. Vancouver and Toronto are global, and cosmopolitan cities.


SD

The last line I have quoted here summarizes the situation nicely.  Toronto and Vancouver play by the rules of global, international cities. 

See the chart in this article from just over a year ago. 

http://business.financialpost.com/personal-finance/mortgages-real-estate/toronto-and-vancouver-home-prices-pass-rome-and-close-in-on-paris

Land availability does not seem to be a factor.  Proximity is the issue. 

This applies very neatly to Toronto.  The greatest price increases have been downtown, and near the subway lines.  I live very near Mississauga (~1 km), 15 minutes by bus from the subway, and the prices have not risen nearly as rapidly, as homes slightly east and walking distance from the subway.  There has also been huge developments of high rise condos along old, and new subway lines that may be skewing the prices upwards as well. 

Finally, Canada's immigration is somewhere over 200,000 people every year, of which over 40% wind up in the greater Toronto Area.  That is an addition of 1 million people, with their children every 10 years since 1991.  Of course, prices will go up.  No one really knows if they are in a bubble.  I honestly
thought they were in a bubble 12 years ago, when we bought our house.  I am happy my wife pushed to buy a house then, in retospect.

Bubble has become such an overused word. That's unfortunate, because it deterred a lot of people (without a wise wife) from buying.

If prices in Vancouver and Toronto are merely in line with Rome and Paris, to me they are still cheap.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 06, 2016, 05:17:19 AM
Vancouver home prices are high because it is a global ciy - any evidence to back it up or is it anecdotal. Is that why young families are buying $ 1 mil homes in the burbs.

Sounds awfully like peak oil unless there is evidence.

Most new immigrants that I have seen buy get 65% financing and are speculating using this leverage. People think that large amounts are tough to qualify for so the new immigrants must be paying cash. Not true - I would love to see numbers suggesting otherwise.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 06, 2016, 08:47:50 AM
there sure are LOTS of speculation... many houses being bought for 1m+ is being rented out for mere 2k per months.. that's gross rent.

the reason?

flip it next year for 20%+ profit.

Many (mostly condos) are just left vacant.

To say this surge in pricing is mainly because V & T are world class cities is a bit weak on reasoning.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on March 06, 2016, 09:30:10 AM
Vancouver home prices are high because it is a global ciy - any evidence to back it up or is it anecdotal. Is that why young families are buying $ 1 mil homes in the burbs.

Sounds awfully like peak oil unless there is evidence.

Most new immigrants that I have seen buy get 65% financing and are speculating using this leverage. People think that large amounts are tough to qualify for so the new immigrants must be paying cash. Not true - I would love to see numbers suggesting otherwise.

Of course its anecdotal or subjective - So is this entire discussion.  One would have to start by describing what a global city is, and how prices are affected. 

Even the damn government cant figure it out and they theoretically have access to all the statistics. 

I know that in Toronto prices are higher closer to downtown, or near subway lines.  The price rise has not been porportionate across the entre region. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on March 06, 2016, 09:31:13 AM
there sure are LOTS of speculation... many houses being bought for 1m+ is being rented out for mere 2k per months.. that's gross rent.

the reason?

flip it next year for 20%+ profit.

Many (mostly condos) are just left vacant.

To say this surge in pricing is mainly because V & T are world class cities is a bit weak on reasoning.

Your statement is a bit weak on evidence. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 06, 2016, 01:31:13 PM
It was not suggested that V or T luxury housing is driving the price surge.
Most recognize that simply a few big sales will skew the average - upward.
The average will also skew -  upward; when the 1% market has disproportionate activity.

Nothing says that a parent cannot partner with their kids.
Kids pay the mortgage, future grandkids inherit the parents share of the property.
With low rates, & a sizeable down payment, 1M is not that big a stretch.
Kids, & grandkids, benefit from property appreciation - tax free.

I don't ask the weatherman for his facts, I just opt to use his/her forecast.
If I don't believe it - I'm free to bring along a parka, swim trunks, or an umbrella.

It is the same mechanism in London, New York, Paris, Rome, etc.
We just aren't used to it - therefore it is controversial.

SD









Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 06, 2016, 03:58:26 PM
there sure are LOTS of speculation... many houses being bought for 1m+ is being rented out for mere 2k per months.. that's gross rent.

the reason?

flip it next year for 20%+ profit.

Many (mostly condos) are just left vacant.

To say this surge in pricing is mainly because V & T are world class cities is a bit weak on reasoning.

Your statement is a bit weak on evidence.

In Toronto... thats pretty well known
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 06, 2016, 05:32:55 PM
If you haven't been in Canada, you may want to see data, although I think everyone in Canada knows.

There are half a million people of Hong Kong descent in Canada. They live overwhelmingly in V/T. This doesn't count the newer immigrants from China.

In terms of overall Chinese population, 531k live in Toronto (9.6% of total) and 411k in Vancouver (18% of total), which compares to 91k in Montreal (2.4% of total) and 20k in Winnipeg (2.9%).

I don't have the numbers, but assume before the immigration from Asia in the past couple of decades, the price gap between Vancouver and Montreal was less dramatic.

Of course there are many factors impacting prices. Even without the immigrants, I'd imagine Vancouver would over time become far away the priciest city in Canada. It's nice and laid back and warm. The point is the immigration/global affluent/etc likely only accentuated a trend already in place. 

Maybe the current price is high and you hope it falls. But never lose sight of the strong fundamentals in these cities.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on March 07, 2016, 04:31:29 AM
If you haven't been in Canada, you may want to see data, although I think everyone in Canada knows.

There are half a million people of Hong Kong descent in Canada. They live overwhelmingly in V/T. This doesn't count the newer immigrants from China.

In terms of overall Chinese population, 531k live in Toronto (9.6% of total) and 411k in Vancouver (18% of total), which compares to 91k in Montreal (2.4% of total) and 20k in Winnipeg (2.9%).

I don't have the numbers, but assume before the immigration from Asia in the past couple of decades, the price gap between Vancouver and Montreal was less dramatic.

Of course there are many factors impacting prices. Even without the immigrants, I'd imagine Vancouver would over time become far away the priciest city in Canada. It's nice and laid back and warm. The point is the immigration/global affluent/etc likely only accentuated a trend already in place. 

Maybe the current price is high and you hope it falls. But never lose sight of the strong fundamentals in these cities.

I will pull some very anecdotal evidence from my personal experience.  There is a vibrant Tamil (Sri Lankan) community in Toronto.  I was at a wedding of two under 30s three years ago, via my Wife's work.  They bought a house at market prices then - both are young professionals from pretty poor families.  There were dozens of similar kids at the wedding.  I envision this going on in our sizable, Chinese, Indian, Persian, Serbian, Polish, Romanian, African etc. communities.  I have friends, and have worked with people from some of these communities.  The city is growing and there is pressure on housing as a result.

I cant answer whether that justifies Paris and Rome pricing but I am damn sure there is vastly more opportunity for intelligent and educated immigrants in Canada than nearly anywhere else in the world.  Just ask the moderator of our message board, his business partner, or Prem Watsa, or Frank Stronach.. we get the idea.

The flipping of real estate is a sidebar to the real effect, whatever the sensationalist headlines are. 

I would never argue that the price increases, year on year, are sustainable, either.  The increases may slow down, stop, or even reverse somewhat as time goes, since that is what markets do.  But the overall trend is in place.  Prices will not revert significantly.  Add to this that Canada and Ontario have been floating at the edge of recession for 7 years now during the most dramatic price rise. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 07, 2016, 06:37:11 AM
We have had very similar anecdotal experience (Mississauga), and for much of the GTA - it is largely the norm; not the exception.

We have a new development, close to us, where every new build was a large detached (2300+sq. feet) + yard, starting at 700K. Most were built for around 850K after upgrades, all are < 5 yrs old, & its roughly a 40 minute one-way commute to down town Toronto via Go Train. These developments are fairly common, and widely available across the 'burbs.

We know many of the folks who moved in.
It is almost always the grand parents living on the ground floor, parents on the upper floor, & kids in the (very nice) walk-in basement. Typically as the kids move away, the family helps with the buying of an apartment fairly close. There are many sources of income (kids, mom/dad, grand parents), multiple and sizeable equity stakes, & relatively little at risk. For the most part, this is a very common practice in the Middle East, Near East, and Far East; and it works very well - at a variety of levels.

This would be very difficult to do if you were not living in a very cosmopolitan city, hence V & T are dominant beneficiaries. It is also why it is so alien to the average US based investor - it is just not the common US practice.

If you published this, it would not sell papers - or attract advertising $.
So instead .... one publishes the sensational stuff instead, with an aim to herding panicked buyers, & feeding the news cycle.
It works very well.

SD


Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on March 07, 2016, 08:27:58 AM
Never really been a fan of Mr. Turner’s, but let’s go back to the start of this thread.

Mr. Turner confidently stated... 

“The risk of a long and slow real estate decline has never been more acute. The certainty of a long and slow ascent in interest rates never more assured.

Smart people will follow the advice set out here often. Sell assets at the top. With real estate, that’s probably now.”


That was over FOUR years ago. I wonder what Mr. Turner might say today should he meet one of those “smart people” in a dark alley?

Four years later it makes for interesting reading   http://www.greaterfool.ca/

eb
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 07, 2016, 08:45:20 AM
"We are classically at the end of a bull market,” Mr. Turner says." - National Post May 2008

He might be right in the end. But he was at least 8 years early.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on March 07, 2016, 09:40:21 AM
Never really been a fan of Mr. Turner’s, but let’s go back to the start of this thread.

Mr. Turner confidently stated... 

“The risk of a long and slow real estate decline has never been more acute. The certainty of a long and slow ascent in interest rates never more assured.

Smart people will follow the advice set out here often. Sell assets at the top. With real estate, that’s probably now.”


That was over FOUR years ago. I wonder what Mr. Turner might say today should he meet one of those “smart people” in a dark alley?

Four years later it makes for interesting reading   http://www.greaterfool.ca/

eb

I guess he would say we are in a bubble and prices will go down soon.  Turner is generally a decent guy but he makes most of his living as a financial shill, hence the sensationalism. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 07, 2016, 09:50:22 AM
Never really been a fan of Mr. Turner’s, but let’s go back to the start of this thread.

Mr. Turner confidently stated... 

“The risk of a long and slow real estate decline has never been more acute. The certainty of a long and slow ascent in interest rates never more assured.

Smart people will follow the advice set out here often. Sell assets at the top. With real estate, that’s probably now.”


That was over FOUR years ago. I wonder what Mr. Turner might say today should he meet one of those “smart people” in a dark alley?

Four years later it makes for interesting reading   http://www.greaterfool.ca/

eb

I don't think he foresaw interest rates stay near zero for this long, as most didn't.

That doesn't mean that his argument about canadian RE being disconnected from fundamentals isn't right, just that he got the timing wrong (that's always the hardest thing to get -- ask Burry). In fact, the longer this goes on, the worse it's probably going to be in the end.

I'm happy to keep renting, in the meantime. I don't know about elsewhere in the country, but in my area, I've definitely felt a plateauing and softening in the past year. I know people who've tried selling a house for months and given up, there's a million condos for sale in a 10 km radius, we've tracked many houses that have been for sale for a very long time and aren't moving. I don't know what will make sentiment change further, maybe interest rates at some point, maybe prolonged low oil prices, maybe just RE-fatigue or something else. But I know that when house prices disconnect from incomes for this long, the difference is debt, and that can't pile on forever. Same for something that everyone knows can't fall -- it has to fall. Stability creates instability because it drives people to go too far and do things they shouldn't do.

edit: BTW, to make things clear, the part in bold in the cwericb quote above is written in a way that makes it appear like it's from four years ago, but it's from today's post:

http://www.greaterfool.ca/2016/03/06/suck-it-up-3/

He might have said similar things four years ago, though.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 07, 2016, 10:33:25 AM
At least people have stopped including Calgary in the grouping of global cities.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on March 07, 2016, 10:37:37 AM
We have had very similar anecdotal experience (Mississauga), and for much of the GTA - it is largely the norm; not the exception.

We have a new development, close to us, where every new build was a large detached (2300+sq. feet) + yard, starting at 700K. Most were built for around 850K after upgrades, all are < 5 yrs old, & its roughly a 40 minute one-way commute to down town Toronto via Go Train. These developments are fairly common, and widely available across the 'burbs.

We know many of the folks who moved in.
It is almost always the grand parents living on the ground floor, parents on the upper floor, & kids in the (very nice) walk-in basement. Typically as the kids move away, the family helps with the buying of an apartment fairly close. There are many sources of income (kids, mom/dad, grand parents), multiple and sizeable equity stakes, & relatively little at risk. For the most part, this is a very common practice in the Middle East, Near East, and Far East; and it works very well - at a variety of levels.

This would be very difficult to do if you were not living in a very cosmopolitan city, hence V & T are dominant beneficiaries. It is also why it is so alien to the average US based investor - it is just not the common US practice.

If you published this, it would not sell papers - or attract advertising $.
So instead .... one publishes the sensational stuff instead, with an aim to herding panicked buyers, & feeding the news cycle.
It works very well.

SD

By no means am I smart enough nor interested in attempting to predict the path of Canadian real estate over the next several years.  As value investors though, it is quite obvious that Greater Toronto Area real estate is far from what would be considered a "value" proposition. 

Sd...your example of the Mississauga development with 2300sq. ft. houses in the $700 - 850k range provide a great comparison to the properties in my neighborhood (roughly 110km west of Mississauga).

My property is about 10km west of Woodstock and about 10km South of the 401 in a small village consisting of roughly 100 homes.  In 2009 I purchased a new 2100sq. ft brick house, 2 car garage, w/deck, and concrete driveway for $270k.  Many of the standard features in this home are what would be considered "upgrades" in big city subdivisions.  The house sits on about a 1/4 acre lot.
The lot component of the purchase was roughly $50k.  This implies a retail price on the house itself of $220K.  Compared against your Mississauga example (and assuming a similar retail house price....say $250K....this implies a $600K pricetag  for the tiny lot.  This is crazy!! To top that off...I have talked to several people who are still investing in TO real estate trying to cash in on quick gains.  They really believe this is a safe proposition! 

I am by no means predicting a GTA real estate crash...but under a scenario where they did I assume the decline would mostly be in the price of the physical land.  I mean the same house would still cost roughly $250k to purchase.  In other words, if land prices Ontario wide declined by 50% (not likely...but just as an illustration)....the Toronto property owner would take a $300K haircut.  My property....1 hour to the west would take a $25k haircut ($50k - 50%). Enough said!

How things actually play out in the short run and long run are beyond me but the warning signs are pretty obvious as far as I'm concerned.
Title: Re: Garth Turner - Real Estate in Canada
Post by: bizaro86 on March 07, 2016, 11:36:55 AM
At least people have stopped including Calgary in the grouping of global cities.

I love Calgary, live here, and own investment RE here. (Sold >50% of it in 2014, so that worked out)

Anyone who tells you 1MM people on the prairies is a global city is either 1) an idiot or 2) trying to sell you overpriced real estate there. (Or possibly both).

Calgary is wonderful. Great access to mountains, rivers, outdoorsy stuff. Good parks, restaurants (best Vietnamese food outside Vietnam, IMO), healthcare and schools. But it's not going to attract the super-rich looking for a place to personally live. The arts and culture and selection of high end dining are insufficient for that, and the climate hurts us. (Although this winter has been great).

Rents here are declining (I took a call from a tenant today who wanted a reduction, which I granted), and I expect them to continue to do so. Interestingly, my highest priced rental unit is rented to two students from China who took high school here and are now taking post secondary.
Title: Re: Garth Turner - Real Estate in Canada
Post by: cwericb on March 07, 2016, 12:22:51 PM
Liberty, talk about coincidence. I clicked on your original link posted on page one of this thread back in 2012 and it took me to what is apparently today’s rant on the same subject.

I guess if you keep re-hashing the same column year after year it might come true. But after four years of crying wolf Turner might have a bit of a credibility issue.
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 07, 2016, 12:57:35 PM
Agreed, separate the land from the serviced lot.

The scarce commodity is land within easy walking distance of a subway. It’s a local, finite resource; and with inflation and increasing demand from immigration – it can only continue to rise in value over time. The dwelling you put on it, is just a place to live.

Simple 2% inflation will double the cost of the land in roughly 36 years (72/2), and quintuple it in 72 years. 72 years of city growth (immigration) have also put what used to be farmland – firmly within the city boundary. At 3.25% average growth, that 75K house purchase in 1944 - is worth 750K today. No speculation involved, just mathematics.

Pokey, refurbished 72 year old house in a great location; or a way more functional house < 5 years old, 45 minutes away. It’s a life style decision.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 07, 2016, 01:03:53 PM
Liberty, talk about coincidence. I clicked on your original link posted on page one of this thread back in 2012 and it took me to what is apparently today’s rant on the same subject.

I guess if you keep re-hashing the same column year after year it might come true. But after four years of crying wolf Turner might have a bit of a credibility issue.

Talking about something for a long time doesn't mean you don't have a point, and being wrong about one aspect of something doesn't mean you're wrong about all of it, just like people who started warning about the dot com bubble in 1997 or 1998 weren't necessarily completely wrong. Timing's always hard, but we all have to do what we feel makes sense.

I just don't believe that Canada is some Shangri-la that isn't bound by the RE logic of the rest of the world, where families making $50k/year can carry mortgages of over half a million and live in ugly old bungalows from the 1970s selling for $800k+, etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on March 07, 2016, 01:38:41 PM
Liberty, talk about coincidence. I clicked on your original link posted on page one of this thread back in 2012 and it took me to what is apparently today’s rant on the same subject.

I guess if you keep re-hashing the same column year after year it might come true. But after four years of crying wolf Turner might have a bit of a credibility issue.

Talking about something for a long time doesn't mean you don't have a point, and being wrong about one aspect of something doesn't mean you're wrong about all of it, just like people who started warning about the dot com bubble in 1997 or 1998 weren't necessarily completely wrong. Timing's always hard, but we all have to do what we feel makes sense.

I just don't believe that Canada is some Shangri-la that isn't bound by the RE logic of the rest of the world, where families making $50k/year can carry mortgages of over half a million and live in ugly old bungalows from the 1970s selling for $800k+, etc.

+1
Toronto Real Estate = A pitch I won't be swinging at.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on March 07, 2016, 01:53:57 PM
I wonder if any of the Toronto Real Estate bulls out there would put there money where their mouth is and sell/write cheap insurance contracts to those with equity in Toronto real estate.
I bet if they looked at things this way....ie. from a risk standpoint as an insurer would, things would start to look different.
The "Greater Fool Theory" seems to be a stronger force than risk aversion and rationality though.  What else is new...to each their own...lol.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Jurgis on March 07, 2016, 02:52:05 PM
I'm just happy that I live in a "global city" Boston and can buy an OK house in OK burbs for $400-500K or so.

Not sure what I would do if I was forced to live in the "global city" of Silly Valley or some other multi-million $ place. Of course, part of my choice was not to live in Silly Valley.

Price ranges differ for different people. For me, the RE is not worth it when you have to pay an amount of money that you could just retire on in cheaper but still OK location. Somewhere in the range of US$1M-2M and up.

Just for fun in OKish exurbs of "global city" of Chicago, you can buy places for $200K or so... Climate not much different from Toronto. ;)
Title: Re: Garth Turner - Real Estate in Canada
Post by: augustabound on March 07, 2016, 03:18:14 PM
I'm just happy that I live in a "global city" Boston and can buy an OK house in OK burbs for $400-500K or so.

We're in an OK suburb (45 minutes) of Toronto and paid $350 4 years ago. Same model of home is currently selling for $500K.

Toronto's not a global city until they can get their pathetic transit issues fixed. We need the Ford brothers back in office to build subways to everywhere. :D
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 07, 2016, 03:35:31 PM
Apparently Toronto did have a bubble in the past - http://www.torontocondobubble.com/2013/02/toronto-housing-bubble-in-1980s.html

A few notes

- Rise of interest rates were one way it got pricked - hitting 12.7%.
- There is a difference between inflation-adjusted and nominal house prices.

"If you bought a condo in downtown Toronto in 1989 and you were to sold it today, you would likely still end up selling your house at a lose and that's not counting the closing costs of a sale. "


Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 07, 2016, 04:57:32 PM
Apparently Toronto did have a bubble in the past - http://www.torontocondobubble.com/2013/02/toronto-housing-bubble-in-1980s.html

A few notes

- Rise of interest rates were one way it got pricked - hitting 12.7%.
- There is a difference between inflation-adjusted and nominal house prices.

"If you bought a condo in downtown Toronto in 1989 and you were to sold it today, you would likely still end up selling your house at a lose and that's not counting the closing costs of a sale. "

The Toronto bubble did not self-implode. Rather a combination of astronomical mortgage rates, a massive increase in unemployment, and a major recession popped the bubble. Even then, house prices only dropped 28%.

And what happened to the lenders? Mortgage arrears in Ontario skyrocketed to 0.72%. Wells Fargo had 0.52% arrears in 2006? Canada's worst housing crash resulted in delinquencies only slightly higher than America's best bank in a boom year?
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 07, 2016, 05:25:06 PM
I just don't believe that Canada is some Shangri-la that isn't bound by the RE logic of the rest of the world, where families making $50k/year can carry mortgages of over half a million and live in ugly old bungalows from the 1970s selling for $800k+, etc.

The RE logic of the rest of the world? What is it?

The more I look at real estate across the globe, the more I see the differences. I wish there were a universal ratio on housing valuation. There isn't.

Within Canada, the price difference between cities is huge and likely widening. Within a city, prices can change a lot between neighborhoods.

Not saying property prices cannot go out of whack and correct. It's a fact that property prices go down less often and less dramatically than stock markets.

I'd love it if someone can present a cogent case on why Canadian housing prices will fall significantly in the near-term. I am all ears.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 07, 2016, 06:27:30 PM
Let me try inverting? Vancouver and Toronto are cheap - what reasons could there be?
Title: Re: Garth Turner - Real Estate in Canada
Post by: beerbaron on March 07, 2016, 06:41:40 PM
I just don't believe that Canada is some Shangri-la that isn't bound by the RE logic of the rest of the world, where families making $50k/year can carry mortgages of over half a million and live in ugly old bungalows from the 1970s selling for $800k+, etc.

The RE logic of the rest of the world? What is it?

The more I look at real estate across the globe, the more I see the differences. I wish there were a universal ratio on housing valuation. There isn't.

Within Canada, the price difference between cities is huge and likely widening. Within a city, prices can change a lot between neighborhoods.

Not saying property prices cannot go out of whack and correct. It's a fact that property prices go down less often and less dramatically than stock markets.

I'd love it if someone can present a cogent case on why Canadian housing prices will fall significantly in the near-term. I am all ears.

Among reasons for corrections in any sectors but applies especially well for canadian real estate are:
Debt serviceability
Increase Competition (in case of real estate, other cities or rents)
Subpar return on capital
Interest rate increase

BeerBaron

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 07, 2016, 07:40:24 PM
I just don't believe that Canada is some Shangri-la that isn't bound by the RE logic of the rest of the world, where families making $50k/year can carry mortgages of over half a million and live in ugly old bungalows from the 1970s selling for $800k+, etc.

The RE logic of the rest of the world? What is it?

Over the long-term, housing tends to follow inflation and incomes. When it diverges from that for too long, it tends to come back to it.

Let's look at the alternative. Let's say what's going on right now in Canada is normal and will keep going on. So in 10-15 years, regular Canadians will have 1-2 million dollar houses while americans are in their 350k houses? First time buyers will get mortgages over half a million to get a crappy starter house, something that would cost more than $2k/month just to service the interests at a more normalized 5% (don't believe interest rates will normalize within 10-15 years?). How high will debt levels be by then? They're already at very elevated levels right now, above where Americans where in 2007...  The rate cut by the BoC stirred the pot, but that can't go on forever either.

I believe that when something can't go on, at a certain point it must stop. Who knows when... But I'd rather buy after that happens than before.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 07, 2016, 07:57:33 PM
Let me try inverting? Vancouver and Toronto are cheap - war reasons could there be?

I personally don't think they are cheap. But I appreciate the fact that they are perennially ranked among the most livable cities on the planet and  they attract people to move there.

And for the many thousands moving from HK, Beijing, and Shanghai to Canada every year, there can be no doubt the prices in V/T are very reasonable when compared to their home markets.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 07, 2016, 08:52:52 PM
Was the US attracting thousands of immigrants before 2008?

Is HK attracting thousands of immigrants? What about Singapore?

I believe Delhi attracts more people than Vancouver, yet the prices there are dropping? To the people moving to Delhi, it is a more attractive option than where they lived prior to moving there? According to the logic that thousands of people moving to a city for a better life - prices should keep going up. Why isn't it working in HK, Singapore or Delhi. Please don't tell me because everyone wants to move to TO or Vancouver. For most of the rich in the world a city like Vancouver doesn't even register.

It is great to sit in Canada and imagine that everyone in world wants to live in Canada. The reality is we only take in 250,000 people a year.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 07, 2016, 09:03:18 PM
Geneva, Bern, Zurich rank very high as livable cities. I don't see them rising 30% a year. I have been trying to understand for years how the mountains in Vancouver allow one to afford their mortgage as the median household here earns $72,000.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 07, 2016, 10:24:34 PM
Was the US attracting thousands of immigrants before 2008?

Is HK attracting thousands of immigrants? What about Singapore?

I believe Delhi attracts more people than Vancouver, yet the prices there are dropping? To the people moving to Delhi, it is a more attractive option than where they lived prior to moving there? According to the logic that thousands of people moving to a city for a better life - prices should keep going up. Why isn't it working in HK, Singapore or Delhi. Please don't tell me because everyone wants to move to TO or Vancouver. For most of the rich in the world a city like Vancouver doesn't even register.

It is great to sit in Canada and imagine that everyone in world wants to live in Canada. The reality is we only take in 250,000 people a year.

First, let me say rising population is a key factor to housing prices. This is so simple because this is demand.

Second, no one was saying rising population is the only factor. Trying to imply what others didn't say is not the way to discuss.

Third, let me leave out Delhi because I know nothing about it.

For the US housing bubble, I think the major cause was low rates and irresponsible lending. But the major bubble cities had huge internal migration - Las Vegas, Phoenix, and Miami. They helped the boom.

In HK and Singapore, both direct immigration and other foreign buying all contributed to the high property prices. As a result, in both markets the government has put in restrictive measures on non-resident buyers. Despite both markets have softened in recent months, those restrictions are still in place.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 07, 2016, 10:43:18 PM
Geneva, Bern, Zurich rank very high as livable cities. I don't see them rising 30% a year. I have been trying to understand for years how the mountains in Vancouver allow one to afford their mortgage as the median household here earns $72,000.

If you can

1) make English the first language of the Swiss people (perhaps harder than making Montreal adopt English) and

2) change the Swiss law on immigration (probably easier to simply invade the country)

then a 30% rise could be in the cards!  :)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Viking on March 08, 2016, 12:15:02 AM
I think it is pretty straight forward to identify a bubble. I think it is near impossible to predict when it will pop and what the cause of the 'pop' will be.

It looks to me like Vancouver is in a housing bubble. Living here, it is taking on the feel of a game of monopoly. Prices up 20% over the last year in some neighbourhoods? Prices up 50% in 5 years? My neighbours sound like they are intoxicated when they talk about real estate.

The one caveat I have is China. If demand from China continues at current levels (people wanting to get their money out) then the Vancouver market could stay elevated. It could even continue to go higher. Bizarre....
Title: Re: Garth Turner - Real Estate in Canada
Post by: SharperDingaan on March 08, 2016, 06:29:03 AM
Mathematics.

The reality in all global cities is that the ‘average’ growth rate on the price of land within the down town of the city, greatly exceeds the ‘average’ wage increase of the local citizen. Compound the difference over an extended time frame, & down town land ownership becomes more and more out of reach of the local citizen. Local citizens live further out (where it is more affordable); & only tourists & the very rich live in the down town. Time & popularity determines affordability.

London, Paris, Rome, etc. have been around for hundreds of years; simple compounding has made their down town living unaffordable. The solution has been separation of land from dwelling, via a lease (UK); to live down town does not mean that you have to own the land – the norm is to rent. If you want to live in a very desirable place, rents are of course - high; no different to any other rental market in the world.

We just don’t want to hear it.

SD
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 08, 2016, 06:50:41 AM
Was the US attracting thousands of immigrants before 2008?

Is HK attracting thousands of immigrants? What about Singapore?

I believe Delhi attracts more people than Vancouver, yet the prices there are dropping? To the people moving to Delhi, it is a more attractive option than where they lived prior to moving there? According to the logic that thousands of people moving to a city for a better life - prices should keep going up. Why isn't it working in HK, Singapore or Delhi. Please don't tell me because everyone wants to move to TO or Vancouver. For most of the rich in the world a city like Vancouver doesn't even register.

It is great to sit in Canada and imagine that everyone in world wants to live in Canada. The reality is we only take in 250,000 people a year.

"The most affordable major metropolitan markets in 2015 were in the United States, which had a moderately unaffordable rating of 3.7.followed by Japan, with a Median Multiple of 3.9. Major metropolitan markets were rated "seriously unaffordable," in Canada (4.2), Ireland (4.5), the United Kingdom (4.6) and Singapore (5.0). The major markets of Australia (6.4), New Zealand (9.7) and Hong Kong (19.0) were severely unaffordable."

Vancouver is a notable exception. But Toronto certainly seems reasonable, at least relative to other major global cities.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 08, 2016, 07:41:58 AM
What currency are they using for that study? With US dollars, the major cities of Canada are relatively cheaper.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 08, 2016, 07:49:02 AM
I guess another question is: at what prices would make you believe that a bubble has formed? Would it considered a bubble if median prices were $3 million, $5 million, $10 million or is there no limit?

Are there some similarities between what's happening in Toronto/Vancouver and Sydney/Auckland/Melbourne. (Would they be considered global cities too?) It seems like Australian prices were fuelled by a combination of foreign demand and lax lending. Thoughts?
http://www.bloomberg.com/news/articles/2016-02-22/one-sign-australia-s-housing-market-is-due-for-a-2008-moment

What about major cities like Chicago, Houston, why aren't they experiencing such elevated home prices.

Apparently, prices in Milton, Ontario(?) Increased by 42% yoy.. Is that even part of the GTA? http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/torontos-hot-housing-market-drives-big-bidding-wars-in-suburbs/article29053048/&ved=0ahUKEwihx4K8s7HLAhWHhywKHTKZA-oQqQIIGigAMAA&usg=AFQjCNHWv6ncMw0Mqn5oVkISEeBae2NXuQ&sig2=ajPFoh6gjTEmrtEBapiJpQ
Title: Re: Garth Turner - Real Estate in Canada
Post by: Studesy on March 08, 2016, 07:50:01 AM
1.  I'm not sure we can classify this so called "bubble" as a Canada wide issue.  Correct we if I'm wrong, but I believe it is mostly a Toronto, Montreal, Vancouver issue.

2.  Justifying why prices will go up or down in these markets over the next couple years is a waste of time.  The obvious thing is that real estate in these markets is not
     a value proposition.  From a "safety of principle" standpoint, I believe a real estate investor would be better protected looking in a more value oriented market (Windsor??...or out side the country).

3.  Assigning values to real estate in general is extremely difficult.  Since the "rents" (cash flows) that derive these values are essentially a commodity, how can one predict these with any certainty            going forward? Somewhat similar to why Buffett avoids commodity companies (with the exception of those with some sort of comp. advantage..ie low cost producer).  One could attempt to use such a "Buffet approach" identifying properties with some type of competitive advantage over the rest of the market, determine the future cash flows, and compute a value based on these factors (the max price one would be willing to pay in order to compound at a given rate over a period of time).

On the other hand, a Graham type approach to RE would be much simpler, principle protecting, and would provide a market beating return over a period of time.  Imagine if you could buy a basket of residential properties at 0.75x tangible book value.  In other words, tangible book = replacement cost or physical value of the home ("the bricks and mortar") +  $0 for the land + say $20,000 for the services to the property.  I suspect this would be an extremely safe long term investment (even if no cash flow was produced early on).  Also, I'm sure such deals exist....especially in 08/09 in certain US cities.

Thoughts?
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 08, 2016, 08:12:17 AM
What currency are they using for that study? With US dollars, the major cities of Canada are relatively cheaper.

These are just multiples to median income, so currency is not a factor.

Chicago is an interesting case. One obvious difference is that chicago population has actually shrunk over the past couple decades. The us median multiple is really helped by rust belt cities like Detroit.

http://www.demographia.com/dhi.pdf

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 08, 2016, 08:17:09 AM
2 possible outcomes going forward:
1) inflation - Canadian debt levels are the highest on record. 100% of GDP - what would the impact be.
2) deflation - asset prices and jobs decrease.

Out of the 3 possible outcomes that I think of you lose in 2 outcomes. The only outcome where you don't lose is if status quo is maintained and people continue to pay up $1 million for houses in suburbs an hour away from downtown in the belief that foreigners will come buy their houses for a higher price.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 08, 2016, 06:22:21 PM
What currency are they using for that study? With US dollars, the major cities of Canada are relatively cheaper.

These are just multiples to median income, so currency is not a factor.

Chicago is an interesting case. One obvious difference is that chicago population has actually shrunk over the past couple decades. The us median multiple is really helped by rust belt cities like Detroit.

http://www.demographia.com/dhi.pdf

This goes to show that income is really just one factor, and far away from being able to explain housing prices.

Much of the discussion has been focused on the demand side of the equation, especially related to immigration and population increase.

The Chicago example is interesting. While there's plenty of similarity between Toronto and Chicago in terms of climate and geography, the glaring difference is Toronto is adding people while Chicago is likely losing.

This is due to both the difference in immigration policy between the US and Canada and the difference in the relative competitive position of these two cities in each country. Toronto remains competitive in Canada, whereas Chicago faces numerous other cities that offer good job opportunities and lifestyle choices.

What has been mostly missing from this discussion so far is the supply. Is Canada building enough houses to the meet the rising demand? If not, then prices can surely rise.

This is just a question and I haven't looked up the answer. Anyone who has the answer please contribute.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 08, 2016, 06:29:00 PM
If this was a simple shift in the supply-demand equilibrium because of growing population, wouldn't rents be up with the prices of housing? As things are, as far as I know, the ratio of owning to renting is out of whack with historical normals and with the averages in other countries.

As for supply, I've seen the statistic a few times in recent years that Toronto had more condos under constructions than all of the other cities in North-America.

http://www.cbc.ca/news/business/130-highrise-building-projects-in-toronto-lead-north-america-1.2504776

Most people I know have these beliefs about canadian RE:

1) It can't go down.

2) It'll keep rising at rates similar to the past decade.

3) FOMO, buy now or be forever priced out.

4) HELOCs are free money.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 08, 2016, 06:50:36 PM
I guess another question is: at what prices would make you believe that a bubble has formed? Would it considered a bubble if median prices were $3 million, $5 million, $10 million or is there no limit?

Are there some similarities between what's happening in Toronto/Vancouver and Sydney/Auckland/Melbourne. (Would they be considered global cities too?) It seems like Australian prices were fuelled by a combination of foreign demand and lax lending. Thoughts?
http://www.bloomberg.com/news/articles/2016-02-22/one-sign-australia-s-housing-market-is-due-for-a-2008-moment

What about major cities like Chicago, Houston, why aren't they experiencing such elevated home prices.

Apparently, prices in Milton, Ontario(?) Increased by 42% yoy.. Is that even part of the GTA? http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/torontos-hot-housing-market-drives-big-bidding-wars-in-suburbs/article29053048/&ved=0ahUKEwihx4K8s7HLAhWHhywKHTKZA-oQqQIIGigAMAA&usg=AFQjCNHWv6ncMw0Mqn5oVkISEeBae2NXuQ&sig2=ajPFoh6gjTEmrtEBapiJpQ

There is a huge similarity between Canada, Australia, and New Zealand. They offer the most mature and systematic schemes for foreigners to move into their country.

They are English speaking, so attract people from every country (Unlike Spain is attractive only to South Americans).

All three countries offer both good job/business opportunities and social welfare.

And luckily for the immigrants all three countries have cities that are highly livable by global standards.

On this issue the US is very different. The US mostly takes in people with family ties. So while you can pretty much fill out a few forms (after meeting certain standards) and then wait for your turn to get into Canada, you can't do that to get into the US.

Now as I said repeatedly, many demand/supply factors influence housing prices. The US is a particularly curious case. Despite having one of the highest incomes in the world, the US homes to my knowledge are probably the cheapest on an absolutely basis when adjusted for quality and certainly the cheapest relative to income globally.

There is not enough space and time to get into why that is the case. But this means if Canada is merely more expensive than the US, Canada is not expensive at all. Every country is more expensive than the US. The Yanks are quite lucky.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Uccmal on March 08, 2016, 07:07:56 PM
I guess another question is: at what prices would make you believe that a bubble has formed? Would it considered a bubble if median prices were $3 million, $5 million, $10 million or is there no limit?

Are there some similarities between what's happening in Toronto/Vancouver and Sydney/Auckland/Melbourne. (Would they be considered global cities too?) It seems like Australian prices were fuelled by a combination of foreign demand and lax lending. Thoughts?
http://www.bloomberg.com/news/articles/2016-02-22/one-sign-australia-s-housing-market-is-due-for-a-2008-moment

What about major cities like Chicago, Houston, why aren't they experiencing such elevated home prices.

Apparently, prices in Milton, Ontario(?) Increased by 42% yoy.. Is that even part of the GTA? http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/torontos-hot-housing-market-drives-big-bidding-wars-in-suburbs/article29053048/&ved=0ahUKEwihx4K8s7HLAhWHhywKHTKZA-oQqQIIGigAMAA&usg=AFQjCNHWv6ncMw0Mqn5oVkISEeBae2NXuQ&sig2=ajPFoh6gjTEmrtEBapiJpQ

There is a huge similarity between Canada, Australia, and New Zealand. They offer the most mature and systematic schemes for foreigners to move into their country.

They are English speaking, so attract people from every country (Unlike Spain is attractive only to South Americans).

All three countries offer both good job/business opportunities and social welfare.

And luckily for the immigrants all three countries have cities that are highly livable by global standards.

On this issue the US is very different. The US mostly takes in people with family ties. So while you can pretty much fill out a few forms (after meeting certain standards) and then wait for your turn to get into Canada, you can't do that to get into the US.

Now as I said repeatedly, many demand/supply factors influence housing prices. The US is a particularly curious case. Despite having one of the highest incomes in the world, the US homes to my knowledge are probably the cheapest on an absolutely basis when adjusted for quality and certainly the cheapest relative to income globally.

There is not enough space and time to get into why that is the case. But this means if Canada is merely more expensive than the US, Canada is not expensive at all. Every country is more expensive than the US. The Yanks are quite lucky.


I think concentration plays a role as well.  For higher end employment in Canada you need to be in one of the big cities... Toronto, Van. Calgary, and Montreal perhaps.  The advent of telecommuting was supposed to work opposite and allow people to work from anywhere.  In reality work has become more concentrated in the biggest cities.  New Zealand has the one city, and Australia has Sydney, Melbourne, and  perhaps Perth. The Us has dozens of big cities, which may be dispersing the population a little better. 

Or Toronto is in a horrible bubble of epic proportions. 
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 08, 2016, 07:18:27 PM
If this was a simple shift in the supply-demand equilibrium because of growing population, wouldn't rents be up with the prices of housing? As things are, as far as I know, the ratio of owning to renting is out of whack with historical normals and with the averages in other countries.

As for supply, I've seen the statistic a few times in recent years that Toronto had more condos under constructions than all of the other cities in North-America.

http://www.cbc.ca/news/business/130-highrise-building-projects-in-toronto-lead-north-america-1.2504776

Most people I know have these beliefs about canadian RE:

1) It can't go down.

2) It'll keep rising at rates similar to the past decade.

3) FOMO, buy now or be forever priced out.

4) HELOCs are free money.

These beliefs are coincident indicators. It seems the market is strong for now.

There is probably stock broker research that analyzes the supply/demand picture. One of the key factors to future pricing in my view is if the current housing construction will continue to grow and at some point exceed demand (as the property developers too extrapolate the past trend).

A bad downturn would require a few things to take place, ideally simultaneously - weak economy and job losses, inflation failing to fall and hence limiting rate cuts, new supply coming on stream and exceeding demand, China going through a huge slowdown and wealth being destructed, Canada deciding to tighten immigration rules, banks tightening lending due to regulators' concerns, etc.

A proper bear case needs to examine all these factors and weigh the negatives and positives.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 08, 2016, 07:43:03 PM
Oh, there is no bear case yet on the immigration front -

Canada’s Liberal Party, headed by Prime Minister Justin Trudeau, promised to create a more welcoming immigration program and to “fix the problems” created by his predecessor, Stephen Harper. Last week, they made good on that promise, introducing amendments to Canada’s Citizenship Act.

“The main point I think is that I want to do more to help international students become permanent residents because Canada needs immigrants,” Canada’s immigration minister, John McCallum, said at a news conference today. “We are an aging society. We need more immigrants for sure. I think international students are arguably the most fertile ground, the best place to find new immigrants because they know about Canada.”

http://www.barrons.com/articles/canada-fast-tracks-asian-students-for-residency-1457491661?mod=BOL_hp_highlight_5
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 09, 2016, 07:13:15 AM
http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/personal-finance/mortgages-real-estate/more-than-one-in-10-vancouver-condos-sit-empty-in-city-desperate-for-affordable-housing&pubdate=2016-03-09

Another study saying foreign ownership is not a factor
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 09, 2016, 07:19:29 AM
http://www.theglobeandmail.com/report-on-business/top-business-stories/bc-ontario-2-frothy-housing-markets-3-stats/article29070884/

I wonder how much of it is because of speculating and builders building inventory financed by credit. Credit continues to grow faster than GDP even though private debt is now = 100% of GDP for the first time.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 09, 2016, 08:05:56 AM
http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/personal-finance/mortgages-real-estate/more-than-one-in-10-vancouver-condos-sit-empty-in-city-desperate-for-affordable-housing&pubdate=2016-03-09

Another study saying foreign ownership is not a factor

The article doesn't say that at all.

It says vacancy rates are low for detached homes, and are high for condos.

It seems the overall vacancy rates are relatively low in Canada. I recall seeing data suggesting 10% of all homes in Australia are vacant.

All else being equal, low vacancy rates indicate fewer speculative activity.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 09, 2016, 08:19:11 AM
http://www.theglobeandmail.com/report-on-business/top-business-stories/bc-ontario-2-frothy-housing-markets-3-stats/article29070884/

I wonder how much of it is because of speculating and builders building inventory financed by credit. Credit continues to grow faster than GDP even though private debt is now = 100% of GDP for the first time.

I wonder about that too. It just seems like the housing market is too big for foreign capital to have such a big impact. Too bad there's no data on this.

I was looking at this BBC article on Australian housing: "Last year Chinese buyers spent a record A$12bn on Australian property, boosting house prices at a time when locals were already feeling anxious about the rocketing cost of property."

http://www.bbc.com/news/world-australia-35601102

Not sure if that's accurate, but if it is, then it's tiny compared to Australia's outstanding housing-related debt of $1.5 trillion. The growth in housing credit (7.6%) last year or $108 billion is significantly higher than the $12 billion of Chinese buyers.

http://www.rba.gov.au/statistics/tables/xls/d02hist.xls?v=2016-03-09-11-13-12
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 09, 2016, 05:43:12 PM
http://www.theglobeandmail.com/report-on-business/top-business-stories/bc-ontario-2-frothy-housing-markets-3-stats/article29070884/

I wonder how much of it is because of speculating and builders building inventory financed by credit. Credit continues to grow faster than GDP even though private debt is now = 100% of GDP for the first time.

I wonder about that too. It just seems like the housing market is too big for foreign capital to have such a big impact. Too bad there's no data on this.

I was looking at this BBC article on Australian housing: "Last year Chinese buyers spent a record A$12bn on Australian property, boosting house prices at a time when locals were already feeling anxious about the rocketing cost of property."

http://www.bbc.com/news/world-australia-35601102

Not sure if that's accurate, but if it is, then it's tiny compared to Australia's outstanding housing-related debt of $1.5 trillion. The growth in housing credit (7.6%) last year or $108 billion is significantly higher than the $12 billion of Chinese buyers.

http://www.rba.gov.au/statistics/tables/xls/d02hist.xls?v=2016-03-09-11-13-12

mcliu,

I think two factors may help you understand the numbers cited better.

1) The Chinese buyers mentioned here could be foreigners buying only. Once you become a citizen/resident, you are likely counted as domestic buyers.

2) Roughly half of the Chinese population in Australia live in Sydney. So their buying is very concentrated and has a large impact to the local market. Sydney prices are far away the most expensive in Australia and serve as the most important guidepost for the overall Australian market.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 11, 2016, 01:45:12 PM
I thought it was interesting that the average new detached home in the US is about 400 square-feet larger than the average new detached house in Canada. Another thing to keep in mind when comparing prices.

http://www.demographia.com/db-intlhouse.htm
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 11, 2016, 04:53:12 PM
I bet US house prices aren't rising by $100k each month unlike Vancouver either. In some cases, this is happening in a day.

I love it when people say this is expected.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 11, 2016, 07:11:12 PM
Prem Watsa in the recent Fairfax letter:

Quote
As we have said a few times before, the collapsing commodity prices will not spare Canada. Canadian housing prices, particularly in Toronto and Vancouver, have gone up significantly, driven by lax policies at CMHC (Canada’s equivalent to Fannie Mae and Freddie Mac). Canadians have accessed their increasing real estate wealth through lines of credit easily available from the banks. Sounds familiar? This is exactly what happened in the United States before the financial crisis in 2008/2009. If history is any guide, this will reverse and we continue to be shocked at the massive debt levels incurred by young people (below 45 years old), with no financial buffer against hard times as the C.D. Howe report, Mortgaged to the Hilt, shows.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 12, 2016, 05:29:44 AM
I bet US house prices aren't rising by $100k each month unlike Vancouver either. In some cases, this is happening in a day.

I love it when people say this is expected.

not only expected, but expected for the foreseeable feature.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 12, 2016, 12:57:02 PM
Thought this was interesting. According to the Canadian Real Estate Association (not exactly a transparent organization, but still), the average house in Canada was $470k as of January 2016.

http://www.crea.ca/housing-market-stats/national-average-price-map/

Van and Toronto are really driving it, though:

http://www.cbc.ca/news/business/housing-crea-january-1.3449838

According to Statscan, the median household income in 2013 was $76k (or about $38k per person if you assume two earners).

Median house price in the US seems to be around $185-215k depending on the source.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 13, 2016, 08:01:22 PM
Thought this was interesting. According to the Canadian Real Estate Association (not exactly a transparent organization, but still), the average house in Canada was $470k as of January 2016.

http://www.crea.ca/housing-market-stats/national-average-price-map/

Van and Toronto are really driving it, though:

http://www.cbc.ca/news/business/housing-crea-january-1.3449838

According to Statscan, the median household income in 2013 was $76k (or about $38k per person if you assume two earners).

Median house price in the US seems to be around $185-215k depending on the source.

So A does not equal B. I don't see anything interesting so far.

Where is the analysis? Can you arbitrage?

Economists call housing nontradable goods for a reason.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 14, 2016, 12:35:42 AM
Prem Watsa in the recent Fairfax letter:

Quote
As we have said a few times before, the collapsing commodity prices will not spare Canada. Canadian housing prices, particularly in Toronto and Vancouver, have gone up significantly, driven by lax policies at CMHC (Canada’s equivalent to Fannie Mae and Freddie Mac). Canadians have accessed their increasing real estate wealth through lines of credit easily available from the banks. Sounds familiar? This is exactly what happened in the United States before the financial crisis in 2008/2009. If history is any guide, this will reverse and we continue to be shocked at the massive debt levels incurred by young people (below 45 years old), with no financial buffer against hard times as the C.D. Howe report, Mortgaged to the Hilt, shows.

Just some blogger's data. Overall debt doesn't appear to be high. But there may be an issue with debt distribution as Watsa seems to suggest.

"Table 3 sets out some basic parameters by which to judge the vulnerability of the housing market from the perspective of household wealth. In the past 12 months, households' net worth to disposable income has increased by more than 2%. At the same time, debt-to-assets remain constant at a very low level of 17%. And, most importantly, owner's equity in their homes remains constant at 73%, indicating that homeowners have amassed a considerable amount of equity. Hence, there is an adequate buffer within the household sector, providing stability in the housing market."

http://soberlook.com/2016/03/canadas-changing-financial-landscape_13.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: bizaro86 on March 14, 2016, 05:28:42 AM
If net worth to income is up, and debt to assets is constant, its necessary that debt to income is up as well. Debt servicing to income might not be since interest rates are down, but that makes any shock from rising rates worse.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 14, 2016, 06:45:24 AM
Thought this was interesting. According to the Canadian Real Estate Association (not exactly a transparent organization, but still), the average house in Canada was $470k as of January 2016.

http://www.crea.ca/housing-market-stats/national-average-price-map/

Van and Toronto are really driving it, though:

http://www.cbc.ca/news/business/housing-crea-january-1.3449838

According to Statscan, the median household income in 2013 was $76k (or about $38k per person if you assume two earners).

Median house price in the US seems to be around $185-215k depending on the source.

So A does not equal B. I don't see anything interesting so far.

Where is the analysis? Can you arbitrage?

Economists call housing nontradable goods for a reason.

Just like I wouldn't pay $60k for a Toyota Corolla, I won't pay the multiples of replacement cost, rents, income, inflation, etc, that houses are going for in my area right now, so I'm happily renting until things are more rational. Also, I can judge sentiment by talking to people and reading, and it is not a healthy market to be a buyer in right now. There's bubble "can't lose/FOMO" mentality, though that's starting to soften around here (apparently not in GTA and Van, though).

(http://i.imgur.com/D21t9IJ.png)

(http://i.imgur.com/K8ELThh.png)

(http://i.imgur.com/i7WKdkR.png)

(http://i.imgur.com/qVwu5Vy.png)
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 14, 2016, 07:28:45 AM
Comparing Canada to Britain, Sweden, Australia using that Economist data gives a very different picture.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 14, 2016, 07:50:38 AM
Comparing Canada to Britain, Sweden, Australia using that Economist data gives a very different picture.

Not being the worst in the world is hardly a great consolation. I probably wouldn't buy RE in these markets either unless renting is even more overpriced (which it isn't where I am).

Canada and the US are neighbours with very interlinked economies and have traditionally more or less tracked each other.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 14, 2016, 08:03:57 AM
Thanks a lot for the economist relative housing prices link. Very informative!
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 14, 2016, 08:31:14 AM
Canada and the US are neighbours with very interlinked economies and have traditionally more or less tracked each other.

I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 14, 2016, 08:54:25 AM
Canada and the US are neighbours with very interlinked economies and have traditionally more or less tracked each other.

I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation.

You don't agree that the US was in a housing bubble in 2007 and that Canada is now way way higher than that point? Other indicators are also pretty high, like the 165% debt-to-income level, rents-to-buying ratios, inflation has been low and house prices usually track inflation, etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 14, 2016, 10:54:23 AM
Canada and the US are neighbours with very interlinked economies and have traditionally more or less tracked each other.

I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation.

You don't agree that the US was in a housing bubble in 2007 and that Canada is now way way higher than that point? Other indicators are also pretty high, like the 165% debt-to-income level, rents-to-buying ratios, inflation has been low and house prices usually track inflation, etc.

Liberty
I agree that Canada's housing market - especially in Vancouver , where I am, has gone nuts and a correction is overdue.  However, I do not believe we have the same issue as that of the US bubble experience in 2007 /08 though --
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 14, 2016, 11:03:35 AM
Canada and the US are neighbours with very interlinked economies and have traditionally more or less tracked each other.

I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation.

You don't agree that the US was in a housing bubble in 2007 and that Canada is now way way higher than that point? Other indicators are also pretty high, like the 165% debt-to-income level, rents-to-buying ratios, inflation has been low and house prices usually track inflation, etc.

Liberty
I agree that Canada's housing market - especially in Vancouver , where I am, has gone nuts and a correction is overdue.  However, I do not believe we have the same issue as that of the US bubble experience in 2007 /08 though --

I guess it depends how you define "same", but in broad strokes, Canadians are paying more than they can afford for housing, and that will stop at some point. Sentiment will change. If you look at the charts I posted, there was a correction in the early 1990s and it took until the middle 2000s to get back to the previous high in real terms, but everybody in the country has already forgotten that these things can happen.
Title: Re: Garth Turner - Real Estate in Canada
Post by: rukawa on March 14, 2016, 11:21:43 AM
Quote
I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation.

I think the opposite. The US is the least distorted housing market. Although I still regard the US market as hugely distorted.

To me, 30 year mortgages are a ridiculous concept. And 3% mortgage rates even more ridiculous. How many other consumption or even investment markets are there which involve so much OPM and with such generous terms.

I define a non-distorted housing market as the one that existed before the Great Depression where mortgage financing was minimal. To you I guess its the exact opposite...a non-distorted housing market is one that involves maximum mortgage financing.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 14, 2016, 12:03:42 PM
I think two big factors encourage canadians to put everything they have in real estate.

During the 2000s, they've been burned many times by the stock market.

GICs and savings accounts aren't attractive either because of the low interest rates.

On the other hand, houses have been going up fast as far as anyone can remember (which isn't very far), and it doesn't cost much to get into a very expensive house (a few years ago you could do 0% down and amortize over 40 years, now it's mostly 5% down and 25 years, but you also have tons of lease-to-own schemes and cashback mortgages which mean pretty much 0% down). And since people buy houses like they buy cars - they look at the monthly payment and if they can afford it things are fine - the absolute amount of debt is rarely considered (how many hours, after tax, must the average wage slave work to pay down an average mortage + interests over 25 years at the average interest rate over those 25 years?).

It's basically a momentum strategy. People are piling on the thing that has been going up and getting out of the things that have been going down. There's a lot of social pressure to buy, and renting is basically seen as a failure and "wasting money". I also think that, perversely, what happened in the US reinforced the bubble here because when things didn't go down much, it cemented in most people's minds that Canada was immune. Americans, who had the bargains of a lifetime in RE recently, weren't buying because they had a very fresh memory of a painful event.

All of this probably helps explain why the saving rate is just 4% (US is 30% higher at 5.25%, iirc -- that's pretty damn low too, but 4% is really really low. A high-earning $100k/year household could maybe buy a Camry after saving for 5-6 years...).

All the reasons used now to explain why Canadian RE is different and solid sound to me like "halo effect" artefacts. Just like a company doing well is said to have good management, a good strategy, good products, etc, and as soon as it starts to go wrong then it has bad management, bad strategy, etc, I expect that when things go wrong suddenly Canada will become a country with crappy weather, where it gets dark at 4 PM for half of the year, a moribund economy, too much dependency on commodities, big structural issues at the provincial level, high taxes, crumbling infrastructure, etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 14, 2016, 12:25:44 PM
Quote
I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation.

I think the opposite. The US is the least distorted housing market. Although I still regard the US market as hugely distorted.

To me, 30 year mortgages are a ridiculous concept. And 3% mortgage rates even more ridiculous. How many other consumption or even investment markets are there which involve so much OPM and with such generous terms.

I define a non-distorted housing market as the one that existed before the Great Depression where mortgage financing was minimal. To you I guess its the exact opposite...a non-distorted housing market is one that involves maximum mortgage financing.

Bernake drops a bomb. It causes a Tsunami in Canadian housing prices. It doesn't cause a ripple in U.S. prices.

You're right that the Canadian market is more distorted. But it should be distorted.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 14, 2016, 01:22:23 PM
I attached the "Mortgaged to the Hilt" report that was mentioned in the Fairfax annual letter. Some of the findings are downright scary.

ex. Household Debt to Disposable Income has risen from 200% in 1999 to over 350% in 2012 for Ontario. The percentage of households with Debt-to-Income >500% has risen from ~2.5% to ~12.5% in Ontario and ~7.5% to >20% in BC over the same period.

Interestingly, while total debt has gone up significantly, RBC's affordability report suggests that ownership costs have not risen as a result of lower interest payments.

I wonder how much further this can continue, I mean at some point, you have to wonder whether households can afford to repay the principal amounts.

On the bright side, if housing does ever wobble and consumers face a balance sheet recession, BoC can always keep cutting rates now that there's no zero bound.  ;D 0% mortgages anyone?

Also, does anyone here actually invest in Vancouver/Toronto residential real estate and have some data on unlevered/levered rental yields?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 14, 2016, 02:12:22 PM
Recently I have seen commercial real estate in Vancouver with unlevered yields of sub 3%.

Residential is lower - around 2 to low 2's.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 14, 2016, 02:18:11 PM
But on residential properties prices in Vancouver are increasing at $100k a month. So it is the best investment in town. Every showing has tons of people and usually around 10 offers. In areas where property prices used to be over a million you need to bid at least $200k to $500k over asking to have a chance.

In the suburbs where younger families are moving, you can get away with just $60,000 to $100,000 over asking.

Everyone is getting rich and it is wonderful.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 14, 2016, 03:15:01 PM
http://www.theprovince.com/business/Former+wholesaler+lifts+dark+side+Vancouver+real+estate+market/11771306/story.html

This is fairly common practice in Vancouver at this time.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 14, 2016, 03:18:16 PM
Recently I have seen commercial real estate in Vancouver with unlevered yields of sub 3%.

Residential is lower - around 2 to low 2's.

Thanks wisdom. Would the yield be before or after CAM/opex, taxes, maintenance capex?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 14, 2016, 03:32:24 PM
Sorry, I had an error - 3% vacancy. 5% expenses. After taxes and strata.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 15, 2016, 06:24:57 AM
they look at the monthly payment and if they can afford it things are fine - the absolute amount of debt is rarely considered (how many hours, after tax, must the average wage slave work to pay down an average mortage + interests over 25 years at the average interest rate over those 25 years?).

There's a lot of social pressure to buy, and renting is basically seen as a failure and "wasting money".

Both of these are true where I live as well. I hear both arguments a lot. Here houses are primarily overvalued due to taxation rules by the government (you can subtract mortgage payment from income taxes) but that will change eventually.

No way I'll buy a house for these ridiculous prices. I'll start to slowly consider it after the prices drop by at least 50% from here (which I doubt they will).
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 15, 2016, 07:13:31 AM
they look at the monthly payment and if they can afford it things are fine - the absolute amount of debt is rarely considered (how many hours, after tax, must the average wage slave work to pay down an average mortage + interests over 25 years at the average interest rate over those 25 years?).

There's a lot of social pressure to buy, and renting is basically seen as a failure and "wasting money".

Both of these are true where I live as well. I hear both arguments a lot. Here houses are primarily overvalued due to taxation rules by the government (you can subtract mortgage payment from income taxes) but that will change eventually.

No way I'll buy a house for these ridiculous prices. I'll start to slowly consider it after the prices drop by at least 50% from here (which I doubt they will).

Another thing that most people don't realize: If you have a huge mortgage, you are renting, even if you don't realize it. Rather than renting a  house or an apartment, you are renting a big pile of money from the bank, which you then turned around and bought house with.

If the cost of paying interests on that pile of money plus maintenance and taxes (all the thing you don't pay as a renter) are higher than the rent on the equivalent property, why buy it? By saving the difference (and more) I can build equity faster, with less hassle, and if I wait for a less overheated market to buy, I can save on that side too (and all the saved interest over time).
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 15, 2016, 08:55:44 AM
they look at the monthly payment and if they can afford it things are fine - the absolute amount of debt is rarely considered (how many hours, after tax, must the average wage slave work to pay down an average mortage + interests over 25 years at the average interest rate over those 25 years?).

There's a lot of social pressure to buy, and renting is basically seen as a failure and "wasting money".

Both of these are true where I live as well. I hear both arguments a lot. Here houses are primarily overvalued due to taxation rules by the government (you can subtract mortgage payment from income taxes) but that will change eventually.

No way I'll buy a house for these ridiculous prices. I'll start to slowly consider it after the prices drop by at least 50% from here (which I doubt they will).

Another thing that most people don't realize: If you have a huge mortgage, you are renting, even if you don't realize it. Rather than renting a  house or an apartment, you are renting a big pile of money from the bank, which you then turned around and bought house with.

If the cost of paying interests on that pile of money plus maintenance and taxes (all the thing you don't pay as a renter) are higher than the rent on the equivalent property, why buy it? By saving the difference (and more) I can build equity faster, with less hassle, and if I wait for a less overheated market to buy, I can save on that side too (and all the saved interest over time).

Except renting has no upside; owning does !     That's what the RE-owners will tell you LOL.

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 15, 2016, 09:12:07 AM
Except renting has no upside; owning does !     That's what the RE-owners will tell you LOL.

Indeed. What they forget is that with upside potential comes downside potential (and since a lot of people are super-levered in their houses, a drop of 5-10% can wipe out many people's equity, and more than that can drag them underwater).

And if I build up equity outside of the place where I live, I can invest it, and there is upside (and downside) there too. It's not like the only alternative to putting money in a house is putting it under a mattress.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 15, 2016, 09:19:02 AM
they look at the monthly payment and if they can afford it things are fine - the absolute amount of debt is rarely considered (how many hours, after tax, must the average wage slave work to pay down an average mortage + interests over 25 years at the average interest rate over those 25 years?).

There's a lot of social pressure to buy, and renting is basically seen as a failure and "wasting money".

Both of these are true where I live as well. I hear both arguments a lot. Here houses are primarily overvalued due to taxation rules by the government (you can subtract mortgage payment from income taxes) but that will change eventually.

No way I'll buy a house for these ridiculous prices. I'll start to slowly consider it after the prices drop by at least 50% from here (which I doubt they will).

Another thing that most people don't realize: If you have a huge mortgage, you are renting, even if you don't realize it. Rather than renting a  house or an apartment, you are renting a big pile of money from the bank, which you then turned around and bought house with.

If the cost of paying interests on that pile of money plus maintenance and taxes (all the thing you don't pay as a renter) are higher than the rent on the equivalent property, why buy it? By saving the difference (and more) I can build equity faster, with less hassle, and if I wait for a less overheated market to buy, I can save on that side too (and all the saved interest over time).

My monthly expenses will actually be lower if I buy instead of rent. However, you are:

1) Much much less flexible (if you want to move you need to find a seller)
2) Have well over 100% invested in real estate. I would never use that much leverage in any other type of investment and now I'm buying something which is unlikely to be undervalued and in a market (RE) outside of my circle of competence
3) If the government changes how it subsidizes houses this will increase your monthly expenses AND lower the value of the house considerably.
Title: Re: Garth Turner - Real Estate in Canada
Post by: lessthaniv on March 15, 2016, 09:35:06 AM
http://www.bnn.ca/News/2015/10/6/Canadas-real-estate-market-wont-crash-says-Riocans-CEO.aspx

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 15, 2016, 10:55:14 AM
My monthly expenses will actually be lower if I buy instead of rent. However, you are:

1) Much much less flexible (if you want to move you need to find a seller)
2) Have well over 100% invested in real estate. I would never use that much leverage in any other type of investment and now I'm buying something which is unlikely to be undervalued and in a market (RE) outside of my circle of competence
3) If the government changes how it subsidizes houses this will increase your monthly expenses AND lower the value of the house considerably.

Where are you? Are you comparing buying & renting an equivalent house?

But you are right, there are definitely other considerations (pros and cons) to renting and buying that can pull things in one direction or the other.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 15, 2016, 11:34:41 AM
For those not familiar, this is what many people do to get around the 5% downpayment rule. On TD's website:

(https://pbs.twimg.com/media/Cdm_0iuUAAAQbty.jpg:large)
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 15, 2016, 11:36:45 AM
My monthly expenses will actually be lower if I buy instead of rent. However, you are:

1) Much much less flexible (if you want to move you need to find a seller)
2) Have well over 100% invested in real estate. I would never use that much leverage in any other type of investment and now I'm buying something which is unlikely to be undervalued and in a market (RE) outside of my circle of competence
3) If the government changes how it subsidizes houses this will increase your monthly expenses AND lower the value of the house considerably.

Where are you? Are you comparing buying & renting an equivalent house?

But you are right, there are definitely other considerations (pros and cons) to renting and buying that can pull things in one direction or the other.

Netherlands.
Title: Re: Garth Turner - Real Estate in Canada
Post by: 50centdollars on March 15, 2016, 03:00:02 PM
http://finance.yahoo.com/news/warren-buffett-explains-why-market-bubbles-occur-190745165.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 15, 2016, 03:05:10 PM
http://finance.yahoo.com/news/warren-buffett-explains-why-market-bubbles-occur-190745165.html

Good stuff, thanks.

Quote
“It’s a totally sound premise that houses will become worth more over time because the dollar becomes worth less,” he said. “It isn’t because — you know, construction costs go up.  So it isn’t because houses are so wonderful, it’s because the dollar becomes worth less, and that a house that was bought 40 years ago is worth more today than it was then. And since 66 or 67 percent of the people want to own their own home and because you can borrow money on it and you’re dreaming of buying a home, if you really believe that houses are going to go up in value, you buy one as soon as you can.  And that’s a very sound premise.”

That's how it starts.

"Soon the price action — or at some point the price action takes over, and you want to buy three houses and five houses and you want to buy it with nothing down and you want to agree to payments that you can’t make and all of that sort of thing, because it doesn’t make any difference:  It’s going to be worth more next year," Buffett said.

And it's not just the homebuyers.

"[The] lender feels the same way," he said. "It really doesn’t make a difference if it’s a liar’s loan or you know what I mean?  [Unintelligible] something because even if they have to take it over, it’s going to be worth more next year.  And once that gathers momentum and it gets reinforced by price action and the original premise is forgotten, which it was in 1929.”

"...the price action becomes so important to people that it takes over the -– it takes over their minds, and because housing was the largest single asset, around $22 trillion or something like that, not above household wealth of $50 trillion or $60 trillion or something like that in the United States.  Such a huge asset.  So understandable to the public -– they might not understand stocks, they might not understand tulip bulbs, but they understood houses and they wanted to buy one anyway and the financing, and you could leverage up to the sky, it created a bubble like we’ve never seen."
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 15, 2016, 03:28:08 PM
I cannot justify residential real estate as having higher avg annual gains over many years than most quality stocks/companies. Either the world is upside down due to something (low interest rates?) or BC is so exceptionally desirable that like a high PE stock it will grow into the valuations. But I'm not sure how regions and countries can be measured for value. Some criteria might be climate, space, social system, taxes, etc..
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 15, 2016, 05:02:07 PM
So how do we explain the phenomenon that many listings in Vancouver are now getting multiple offers - so for each one accepted offer there are 4 or 5 or even more groups that have not found a "home".  I made an offer for a duplex a few weeks ago - I went $100k over asking but was the bottom 3 of 12 offers - the accepted offer was $221k over asking.  I am and many of those making The offer are not developers speculating.  we are simply trying to find a place to live !

I wonder if there is data from census or whatever that would allow us to look at the demand side of the market more scientifically.   
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 15, 2016, 05:06:26 PM
So how do we explain the phenomenon that many listings in Vancouver are now getting multiple offers - so for each one accepted offer there are 4 or 5 or even more groups that have not found a "home".  I made an offer for a duplex a few weeks ago - I went $100k over asking but was the bottom 3 of 12 offers - the accepted offer was $221k over asking.  I am and many of those making The offer are not developers speculating.  we are simply trying to find a place to live !

I wonder if there is data from census or whatever that would allow us to look at the demand side of the market more scientifically.

What do you mean? Why does it have to be explained any more than the fact that people were willing to bid things up in any other bubble (Nortel shares, Las Vegas houses, tulip bulbs, whatever).

Nobody's saying that the market isn't hot or that there isn't real demand. The problem is that people are overpaying and many people who probably shouldn't be buying are buying because of FOMO/now-or-never/social pressure/cashback mortgages/family giving them a downpayment/the belief that nowhere else is worth putting money into/whatever.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 15, 2016, 05:33:14 PM
So we have:

migration (30%?) - are the migrants coming in with lots of money as opposed to purchases from domestic wages and business?

low interest rates (20%?) - are monthly mortgage costs low?

limited space in a desirable location (40%?) - bylaws do not allow building up so even domestic and international buyers are competing for limited houses.

bubble  - mania above & beyond the above. Doesn't seem that it's more than 10-20% here unless we adjust the above say migration 20%, low interest rates 10%, good location 30%. Then speculation is still only about 40%. Maybe that's worthy of being called a bubble. As Buffett recently said in those regulatory filings, a bubble usually has a sound premise - in this case sound 50-60% or so, it's the other 40% with leverage that could be lethal. But I'm not convinced a bubble shouldn't be defined as something like 90% speculative, 10% fundamental. I mean is it a bubble when locals have the choice to emigrate from the region who can't afford it, thus leaving say a city with many upper middle class and everyone else moving to smaller cities or distant suburbs?

Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 16, 2016, 12:06:04 PM
another thought I had was why haven't we heard the real estate meltdown in Calgary and Edminton amid the worst oil crisis in recent history - if Edmonton is down 5% is jt something we should expect to see in Vancouver when we see the eventual correction ?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 16, 2016, 12:25:09 PM
A lot of places in Vancouver and around are up 100% in the last 18 months. As Gary stated you are only in the game if you bid just $100,000 over asking if you want a house an hour out of the city i.e. the valley.

Closer to the city I am seeing offers anywhere from $200k to $500k over being accepted. This is why the prices have risen $100k to $1mil in the first 3 months of the year so far.

It is very cool to watch the frenzy.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 16, 2016, 12:28:45 PM
It reminds me a lot of late 1999 in the stock markets - the euphoria and FOMO is over powering.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 16, 2016, 12:45:06 PM
It reminds me a lot of late 1999 in the stock markets - the euphoria and FOMO is over powering.

Any idea how to profit from this?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 16, 2016, 12:55:01 PM
If you are in the market - sell! LOL

No idea.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 16, 2016, 02:42:36 PM
If you are in the market - sell! LOL

No idea.

Can't sell what I don't have. Even if I did the market can stay irrational longer (and more extreme!) than I can stay solvent ...
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 16, 2016, 06:41:24 PM
http://www.moneysense.ca/spend/real-estate/cmhc-banks-should-pay-deductible-on-mortgage-insurance/
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 16, 2016, 07:31:18 PM
Liberty not sure if they can make it retroactive. It is already too late in the game to have much of an impact - i.e deductibles.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 17, 2016, 05:53:27 AM
Liberty not sure if they can make it retroactive. It is already too late in the game to have much of an impact - i.e deductibles.

Too late to avoid damage if defaults rise, but not necessarily too late to affect the marginal buyer going forward and make banks tighten their lending standards. This might not be the thing that does it, but could be one more step in that direction.
Title: Re: Garth Turner - Real Estate in Canada
Post by: bizaro86 on March 17, 2016, 10:14:14 AM
Post from another forum I thought was interesting. Data not sourced, so YMMV.

Here is a Chronology of CMHC rules & mortgage data:

1954-1990- Somewhere along this time, 10% became minimum down payment.
1990- 5% was introduced as a trial run, officially accepted in 1999.
2001 – Genworth (GE Capital) enters the Canadian mortgage insurance market
2001 – CIBC offered below-prime mortgages.
Pre-2003 – CMHC: 5% down with price limit depending on area, 25 yr amortizations, no price limit if 10% or more down
Sep 2003 – CMHC: 5% down, 25 yr amortizations, removed all price ceiling limitations. Now any mortgage would be insured regardless of the cost.
Mar 2004 – CMHC: Flex-Down product allows 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured)
Mar 2006 – AIG enters the Canadian mortgage insurance market
Mar 2006 – CMHC: 0% down, 30 yr amortizations (Genworth announces 35 yr amortizations)
Jun 2006 – CMHC: 0% down, 35 yr amortizations, interest only payments allowed for 10 years
Nov 2006 – CMHC: 0% down, 40 yr amortizations, interest only payments allowed for 10 years
Oct 2008 – CMHC: 5% down, 35 yr amortizations, investors need 5% down.
April 2010- CMHC did some minor tightening of their guidelines, investors need 20% down.
March 2011- CMHC only allows 30 yr amortizations, restrictions on pulling equity out
2012 - CMHC only allows 25 yr amortizations, insured mortgages limited to $1 million, home equity refinance drops from 85% to 80%.

The amount of credit expansion and loosening that occurred from 2003 to 2006 was crazy. Any wonder home prices almost doubled in 30 months?
Calgary SF Median (January 2005) +/-$240,000
Calgary SF Median (July 2007) +/-$440,000
Title: Re: Garth Turner - Real Estate in Canada
Post by: bbarberayr on March 17, 2016, 12:17:58 PM
In case you haven't seen this, the Teranet web site is good:

http://www.housepriceindex.ca/default.aspx

What's interesting is many cities have done pretty much nothing pricewise for 5 years now, the Vancouver and Toronto/Hamilton areas continue to do well.

I'm also not sure why the Vancouver market is so heavily weighted - more than Calgary and Edmonton combined.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 17, 2016, 05:44:31 PM

What's interesting is many cities have done pretty much nothing pricewise for 5 years now, the Vancouver and Toronto/Hamilton areas continue to do well.


If this is accurate, it indicates the boom in V and T is mostly not due to nationwide factors, such as interest rate or mortgage policy. It likely reflects a combination of individual fundamental investment merits and fundamentals-fueled speculation.

As scorpioncapital already suggested earlier, the key is to figure out how much of the boom is due to sustainable fundamentals vs. unsustainable speculation. That'd be a much more productive discussion.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 17, 2016, 06:04:25 PM
10% moves in a day - can there really be any fundamentals in play.

How can a house be worth that much more overnight.
Title: Re: Garth Turner - Real Estate in Canada
Post by: merkhet on March 17, 2016, 06:05:50 PM
10% moves in a day - can there really be any fundamentals in play.

How can a house be worth that much more overnight.

Two words: platform value
Title: Re: Garth Turner - Real Estate in Canada
Post by: Jurgis on March 17, 2016, 06:09:46 PM
10% moves in a day - can there really be any fundamentals in play.

How can a house be worth that much more overnight.

Two words: platform value

That was very good! ROFLMAO.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 17, 2016, 07:18:43 PM
10% moves in a day - can there really be any fundamentals in play.

How can a house be worth that much more overnight.

Can you please list the houses that moved 10% a day? How many? What are the quotes over time?

Most houses don't have quotes most of the time. Because of this, housing value can be less certain. A 10% difference in prices offered by two different buyers is normal.

In a competitive auction, prices can move up dramatically. A 10% move doesn't indicate anything unusual.

Stocks move up 10% easily. Are those moves all speculation?

Please explain your logic.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 17, 2016, 07:24:26 PM
Some are saying tax evasion is causing some of these price gains, not sure it's possible:

http://www.theglobeandmail.com/news/investigations/questionable-tactics-encourage-bc-homebuyers-to-avoid-taxes/article28758483/?utm_source=facebook.com

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/foreign-investors-avoid-taxes-by-buying-real-estate-in-canada/article26683767/?utm_source=facebook.com

http://www.vancouversun.com/touch/story.html?id=11720846

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 17, 2016, 09:46:49 PM
http://bc.ctvnews.ca/house-flipping-concerns-as-368-vancouver-homes-sold-at-least-twice-since-2014-1.2769801

Jbtc since you asked I will refer you to some stuff that is common knowledge in this market. Not sure where you live or how informed you are about Vancouver or just trolling.

Because of privacy I am not giving you specific addresses but it is common to see houses that are up 100% or more in 18 months or to see bids of $200-500k over asking.

I can only imagine that you have no idea about what is happening in this market to make the statement  you just did. I would ask you to look into the general market, you don't need any specific address.

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

Let me know how many more examples would you like.

http://globalnews.ca/news/2506976/rapid-home-flipping-in-vancouver-maybe-this-is-when-it-will-be-caught/

Look at increase on the average house.

http://www.ctvnews.ca/business/expert-tips-to-lock-down-properties-in-vancouver-s-red-hot-housing-market-1.2805228

http://bc.ctvnews.ca/red-hot-or-reprehensible-vancouver-home-sells-for-735-000-over-asking-1.2792911
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 18, 2016, 02:22:27 AM
http://bc.ctvnews.ca/house-flipping-concerns-as-368-vancouver-homes-sold-at-least-twice-since-2014-1.2769801

Jbtc since you asked I will refer you to some stuff that is common knowledge in this market. Not sure where you live or how informed you are about Vancouver or just trolling.

Because of privacy I am not giving you specific addresses but it is common to see houses that are up 100% or more in 18 months or to see bids of $200-500k over asking.

I can only imagine that you have no idea about what is happening in this market to make the statement  you just did. I would ask you to look into the general market, you don't need any specific address.

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

Let me know how many more examples would you like.

http://globalnews.ca/news/2506976/rapid-home-flipping-in-vancouver-maybe-this-is-when-it-will-be-caught/

Look at increase on the average house.

http://www.ctvnews.ca/business/expert-tips-to-lock-down-properties-in-vancouver-s-red-hot-housing-market-1.2805228

http://bc.ctvnews.ca/red-hot-or-reprehensible-vancouver-home-sells-for-735-000-over-asking-1.2792911

Hey wisdom,

First let me apologize. I knew your statement of "10% a day" was a bit of an exaggeration, but I was too tempted to not tease a little. That wasn't nice. My bad.

I also need to come clean. I was trolling. I don't live in Vancouver, but have a lot of interest in the housing market there.

I am biased to a degree, because I have had direct property investments and always like them. For all sorts of reasons including luck, I never lost money in property. The same cannot be said of the stocks I own, despite I exert 10x more effort on the stock market.

I don't doubt at all there's significant speculation in Vancouver. My view is large speculation can only take place in the presence of strong fundamentals. Not too many are speculating in Montreal. Why?

The key task for me is to figure out how much of the prices can be justified by fundamentals, and how much due to speculation. If prices do fall, what price should I consider good?

I am a little disappointed in some of the discussions that involve mostly opinions, anecdotes, and whining (sorry), rather than level-headed facts, data, and analysis. I would always want to hear both the bull case and bear case.

Thanks for the articles though.

So one article says that 5.58% of the homes sold since 2014 were sold twice. How bad is that? I have no idea. If you have an insight, I am all ears.

In another article, quote -

"We have no idea the scope of the problem, about how much it may be inflating the real estate market," Eby said.

That's exactly what I was wondering. Too bad no one seems to know.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 18, 2016, 06:20:28 AM
I think that what will turn out to have been part of the problem in Canada is that there's a real lack of transparency in the market.

My understanding is that in the US, you can get info on almost any house, see what it sold for in the past, how long it's been on the market, etc. There are sites like Zillow and such that allow access to everyone.

In Canada, most of that info is held by the realtors associations, and they release their own frankennumbers that are heavily massaged, and their press releases are republished as fact by the media. The average person has very little insight into what actually goes on in the market, and since a large part of the current market is driven by sentiment, the realtor-distorted reality helps keep that sentiment strong and prolongs things.

Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 18, 2016, 06:55:08 AM
JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 18, 2016, 07:21:43 AM
JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.
Interesting. The fact that anecdotes like that exist seems to points to a frothy market. I mean in how many other cities can you flip a house in a day for a 10% gain?
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 18, 2016, 07:55:37 AM
JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.

Post the US housing bubble I bought houses in Las Vegas and Phoenix in 2011, which are up nicely.

Somehow I am not confident there will be a similar profit opportunity in Vancouver and Toronto. Too many people want to live there. You need a massive overbuild to offset the demand factor. Vancouver can easily be a speculator's paradise - it's pretty, the only warm town in a cold country, and has an ocean in the west, mountains in the north, and a border in the south, all limiting expansion.

I hope you are right and I am wrong.
Title: Re: Garth Turner - Real Estate in Canada
Post by: bbarberayr on March 18, 2016, 08:26:45 AM
WARREN BUFFETT: The foundation of every market bubble is a 'sound premise'

http://finance.yahoo.com/news/warren-buffett-explains-why-market-bubbles-occur-190745165.html

The reality is there are reasons for house prices in Vancouver and Toronto to have gone higher. 

In Vancouver, you've got a desirable moderate climate and limited land supply due to the mountains and ocean.  Plus it is geographically close to the far East which is looking for ways to get some of its money out.

Similarly in Toronto, you have Canada's economic engine and the designation of the Ontario Greenbelt around Toronto which really limits new development and causes a supply / demand change for Toronto homes.

But, as Buffett says, "And the price action becomes so important to people that it takes over the -– it takes over their minds…”  The real question is has price action overtaken fundamentals - I think so, but hard to know for sure and, even if it has, even harder to know when it stops.  But, if it has, there will be a lot of downside in both markets when this comes apart.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 18, 2016, 09:24:33 AM
The rate it is moving at - this cannot be sustained for long. Feels like it is near the end but I am guilty of having thought that before too. It is going to catch a lot of people swimming naked when the tide goes out.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 09:54:47 AM
The rate it is moving at - this cannot be sustained for long. Feels like it is near the end but I am guilty of having thought that before too. It is going to catch a lot of people swimming naked when the tide goes out.

So didn't HK have a real estate crash before?  Didn't Londo , Paris , New York , etc do too?
But why do they continue to be the most expensive places on the planet?     

So if Vancouver has a 20% correction - and then over the next 10 years go up another 50% - what's the risk here ?
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 18, 2016, 10:43:10 AM
So if Vancouver has a 20% correction - and then over the next 10 years go up another 50% - what's the risk here ?

There was a RE crash in Toronto in the late 80s-early 90s. It took until about the mid 2000s for prices to reach their previous peak, and I'm not even sure if that was in real terms.

But if you believe that there's no risk and prices will always go up, I suppose the way to play that is to buy a bunch of properties using borrowed money. That's what everybody else is doing, and I'm sure they'll all turn out to be right.

BTW, I don't believe Vancouver is London, Paris, New York, etc.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 18, 2016, 10:49:01 AM
The only people buying are speculators, developers and people buying their 2nd, 3rd, 4th, 5th..20th rental property. A newcomer cannot enter the market. Everyone refinances and buys more properties and flips them which increases prices allowing them to again refinance and buy more properties.

An average person is buying condos or houses 1.5 hours away from the city - this is in a city of 2.5 mil or 1/4th of the cities Vancouver is being compared to.

Obviously none of this makes sense to me, but, it does to most others.

Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 11:06:49 AM
The only people buying are speculators, developers and people buying their 2nd, 3rd, 4th, 5th..20th rental property. A newcomer cannot enter the market. Everyone refinances and buys more properties and flips them which increases prices allowing them to again refinance and buy more properties.

An average person is buying condos or houses 1.5 hours away from the city - this is in a city of 2.5 mil or 1/4th of the cities Vancouver is being compared to.

Obviously none of this makes sense to me, but, it does to most others.

Liberty & Wisdom
are you guys from Vancouver?
I think most of these purchases are just ordinary people looking to grow the family - 
we have a few luxury real estates sold to Chinese newcomers - ($3 ~ 10M)
baby boomers are therefore cashing out to find a cheaper place - such as a large condo or a house outside of Metro Vancouver (~ 1.5M); keep the change for travelling / medical needs (~1M) and anything left goes towards helping the kids to buy their first house (~0.5 ~ 1M).

The kids who got help can buy a $1.5M ~ 2M house with parent's downpayment, savings, and a $800K mortgage?




Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 18, 2016, 11:24:34 AM
Gary - how large is your sample? Are you in the industry?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 11:35:58 AM
Gary - how large is your sample? Are you in the industry?

Sort of in the industry -

We are actively in the market looking and making low ball offers lol
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 11:40:24 AM
Also - most of the prices appreciation that's gone up is since last summer (2015 April) - I believe since then there's max 30 year amortization; and 10% down payment for homes over $700K -    (i don't think there's any house under $700K in metro vancouver).

Title: Re: Garth Turner - Real Estate in Canada
Post by: bbarberayr on March 18, 2016, 11:51:40 AM
Don't kid yourself, New York has had tough times in the past:

http://9640-presscdn-0-28.pagely.netdna-cdn.com/wp-content/uploads/2015/09/Manhattan-Real-Estate-Roaring-20s-and-Great-Depression.png

http://www.jparsons.net/housingbubble/new_york.html

I couldn't find a chart for the 1960's to early 1970's, but that was a tough time too when NYC almost went bankrupt.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 18, 2016, 12:00:50 PM
True, you would have to go into the Valley to find something decent around $700k. Most decent places as far as Langley will be in around a mil.

From what I know the market went absolutely nuts in the fall and is accelerating.

I am not saying families don't bid, just that you are competing with others who are not long term or end users.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 18, 2016, 12:19:21 PM
BC's saving rate is interesting:

Quote
British Columbia’s household saving rate (saving as a percent of household disposable income)fell back into negative territory in 2014 (-1.9%), after climbing to 0.4% in 2013. British Columbia’s saving rate has been negative in all but one year since 1996, making it the only province that has persistently had a negative saving rate during this period, although other provinces such as Nova Scotia (-4.0%), P.E.I. (-1.5%) and New Brunswick (-0.9%) have also seen negative saving rates during some of this period.

Between 1999 and 2010, BC's average saving rate has been -4.2%:

(https://financialinsights.files.wordpress.com/2011/02/personal-savings-rate-canada-20111.jpg)

I suppose that they can keep putting everything on their HELOCs forever...

I'm sure incomes are really high to be able to afford these million-dollar bungalows. Let's see:

Quote
At $48,048, real per capita GDP in British Columbia remained below the national average ($49,171) [...] Real per capita household disposable income in the province was $28,809 in 2014, up from $28,797 in the previous year. This was the second-highest per capita income in the country, after Alberta ($36,714).

http://www.bcstats.gov.bc.ca/Publications/Infoline/15-11-10/Issue_15-74.aspx
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 12:22:28 PM

Quote
At $48,048, real per capita GDP in British Columbia remained below the national average ($49,171) [...] Real per capita household disposable income in the province was $28,809 in 2014, up from $28,797 in the previous year. This was the second-highest per capita income in the country, after Alberta ($36,714).

http://www.bcstats.gov.bc.ca/Publications/Infoline/15-11-10/Issue_15-74.aspx
[/quote]

Most foreigners have no income in BC or Canada - yet they are minting well over $500K at 15% tax rate in Asia.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 18, 2016, 12:27:29 PM
Most foreigners have no income in BC or Canada - yet they are minting well over $500K at 15% tax rate in Asia.

Source?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 12:39:54 PM
Most foreigners have no income in BC or Canada - yet they are minting well over $500K at 15% tax rate in Asia.

Source?

don't need one - just look around in my own family, their friends, high school friends, university classmates and you can confirm what everybody knows here.

mom and dad are in a group of oversea chinese -  there are a few exceptions but most are extremely wealthy.  we are the poor ones...

i don't see asian taxi drivers , do you?
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 12:45:11 PM
Quote
The Immigrant Investor Program (IIP) aims to have experienced business people contribute to Canada’s growth and long-term prosperity by investing in Canada’s economy. Investors must:

show that they have business experience
have a net worth of at least C$1,600,000 that was gained legally and
invest C$800,000.
Citizenship and Immigration Canada (CIC) will divide your investment between participating provinces and territories. They will use it for projects to develop their economies and create jobs for five years.

Your investment is guaranteed. CIC will return it, without interest, about five years and three months after payment.

If we approve your application, you must make your investment before we issue a permanent resident visa. You must usually do this within 30 days. The visa office will send you a letter that explains what to do. Learn more about making your investment.




How much money do you think a Chinese immigrant net worth is - buying a $3M house + $800K for the government ?   
They probably also know they won't be able to earn the same kind of living in Canada -  their lifestyle in Asia is probably costing the family $100K ~ $200K / year. 

Do the math - they have to have well over $500K earnings and a lot of money saved up before committing to moving to another country for the next 10 or 15 years or whatever for the length of the children's study.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 18, 2016, 12:55:32 PM
I can buy a house in California with an even more moderate climate than Vancouver in a country with overall somewhat lower taxes and lower cost of fuel, food, etc..and finance it with a 30 year mortgage. I am not convinced Vancouver is so great as to justify such high prices based on geography alone.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 18, 2016, 01:05:09 PM
Most foreigners have no income in BC or Canada - yet they are minting well over $500K at 15% tax rate in Asia.

Source?

don't need one - just look around in my own family, their friends, high school friends, university classmates and you can confirm what everybody knows here.

mom and dad are in a group of oversea chinese -  there are a few exceptions but most are extremely wealthy.  we are the poor ones...

i don't see asian taxi drivers , do you?

Anecdotal. Okay.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 18, 2016, 01:15:46 PM
I agree - I would be looking at Florida, Hawaii, California rather than Vancouver. Only individuals in Vancouver believe that every rich person in the world wants to move here.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 18, 2016, 05:48:28 PM
The rate it is moving at - this cannot be sustained for long. Feels like it is near the end but I am guilty of having thought that before too. It is going to catch a lot of people swimming naked when the tide goes out.

So didn't HK have a real estate crash before?  Didn't Londo , Paris , New York , etc do too?
But why do they continue to be the most expensive places on the planet?     


+1

Speculation is real, but fundamentals are also real.

We'll all learn more and analyze better if we are open-minded about all the possibilities.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 18, 2016, 05:57:15 PM
So enough of the anecdotes. I was trying to look at population data, but Canadian census is done every five years and the last one was in 2011.

From 2006 to 2011, the metro population growth

Vancouver +9.3%
Toronto +9.0%
Montreal +5.2%
Calgary +11%

Looks like we don't any data for the last few years. Population growth is the first thing a property investor should look at. Every person moving into a city needs a roof.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 18, 2016, 07:33:22 PM
So enough of the anecdotes. I was trying to look at population data, but Canadian census is done every five years and the last one was in 2011.

From 2006 to 2011, the metro population growth

Vancouver +9.3%
Toronto +9.0%
Montreal +5.2%
Calgary +11%

Looks like we don't any data for the last few years. Population growth is the first thing a property investor should look at. Every person moving into a city needs a roof.

Population growth alone can't explain the increase in prices because the number of houses is also increasing. Housing stock actually increased by 9.8% over the same period. Note that housing prices increased 39% from 2006 to 2011.

(It could be the case that there's a severe shortage of homes in 2006. Inventory was indeed at an all time low in 2006. However, inventory increased from 650 units in 2006 to 3,500 units in 2011. So in that period they've added more housing stock than the market absorbed. CMHC Data Portal)

"The 2011 Census shows the number of occupied dwellings to be
891,340. The 2011 Census figure of 891,340 occupied private
dwellings is an increase of 74,300 dwellings units over the 2006
Census. The region’s private housing stock grew by 9.8% since the
2006 Census, higher than the 8.4% (58,320 units) during the preceding
five years (2001‐2006)."

http://www.metrovancouver.org/services/regional-planning/PlanningPublications/MV_Housing_Data_Book.pdf#search="housing%20book"
The rate it is moving at - this cannot be sustained for long. Feels like it is near the end but I am guilty of having thought that before too. It is going to catch a lot of people swimming naked when the tide goes out.

So didn't HK have a real estate crash before?  Didn't Londo , Paris , New York , etc do too?
But why do they continue to be the most expensive places on the planet?     


+1

Speculation is real, but fundamentals are also real.

We'll all learn more and analyze better if we are open-minded about all the possibilities.


Which fundamentals metrics do you think are relevant?

Usually people look at Price-to-Income and Rental Yields.. I don't think I've see any P/CF based valuation metrics which shows Vancouver undervalued.

The only metrics that show Vancouver being under valued would be something like a comparable on a $/sq.ft. basis against New York/London/Shanghai/Hong Kong, etc..
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 18, 2016, 08:31:19 PM
mcliu,

Thanks for the data.

By fundamentals, I don't mean just valuation.

It's both the demand factors (population growth, household formation, tendency to own vs. rent, income growth, wealth growth, interest rates, mortgage and tax policy, climate and livability, quality of schools, and more) and the supply factors (new construction volume, land availability, land release policy, competition between builders, zoning policy, etc).

Without going through all the key items, it would be difficult to make a conclusion.

I haven't had a chance to go through the data book you sent. Just on p22, it seems ownership housing starts didn't increase much at all during 2011-14.

That's crazy, isn't it? You have home prices going through the roof, but new construction didn't increase. Why? I know nothing about the specific circumstance here, but the general reasons are:

1) there is no more land.
2) there is land but the government refuses to release (citing greenbelts, protecting the environment, all sorts of things).
3) there is land but the developers are hoarding it.
4) some other reasons that don't offer developers incentives to build.

Hope your guys who live in Vancouver can provide some insights.

Also in 2011, 65% of the households in Vancouver were owners, and the rest were renters.

Thanks about it, the vast majority of the residents are beneficiaries of the boom and happy. These people are rich, more powerful, and have greater representation in politics. So chances are the government policy is skewed towards protecting these people's interests.

This in my humble opinion is partly why housing is generally a good investment most of the time in most places.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 18, 2016, 10:11:45 PM
This in my humble opinion is partly why housing is generally a good investment most of the time in most places.

That's fair and indeed in general it has been true but what about the times when it hasn't been true?

I mean, at what point does a good investment turn bad? For an extreme example, if prices hit $100 million for a house in Vancouver while population and incomes grow at 2%, does that signal a bubble or should we continue to justify prices?

$100 million is extreme but going down from there, there is still a point where you can safely declare that prices have far surpassed fundamentals. Maybe it's there already, maybe it'll take another 2x, 3x, 10x gain to convince people. (Although I guess, counterintuively, the higher prices go, the less people will be convinced that there is a bubble.) Based on the data that I've seen, the situation is pretty clear...

“You don’t have to know a man’s exact weight to know that he’s fat.” – Ben Graham
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 18, 2016, 11:30:23 PM
i know from this webiste we can look at statistics about inventory

http://www.rebgv.org/home-price-index

the 'active' listing is at all time low - very few "asking"; and many "bids"

if rich people don't spend money in vancouver real estate; what else should they do?  rich people like buying real estates together.  they also like 2nd citizenship (no diff than Conrad Black liked a British citizenship) -  for most in Asia  , Canada is the most easy to get; and close enough to the US but not in the US.
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 19, 2016, 06:53:12 AM
very few asking, many bids, have none, get one, have one, get more. price spiking. buy now or pay more later, it will never come down, even if it does, it will be small correction, leverage up, ratios don't matter, it's the new era.

sounds familiar?
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 19, 2016, 07:29:00 AM
I really don't understand how crashes occur in general. I don't even understand how the 2008 RE crash happened. I mean with stocks or RE, my first assumption is that nobody is obligated to sell anything ever. You can get much poorer based on "paper losses" and you may be uncomfortable but if they are excess savings or a house you live in , it is just a personal upset. The real problem is if you can't pay the financing cost and RE is almost always leveraged. To not be able to pay such cost you must lose your job or the payment must go up alot.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 19, 2016, 07:52:01 AM
I really don't understand how crashes occur in general. I don't even understand how the 2008 RE crash happened. I mean with stocks or RE, my first assumption is that nobody is obligated to sell anything ever. You can get much poorer based on "paper losses" and you may be uncomfortable but if they are excess savings or a house you live in , it is just a personal upset. The real problem is if you can't pay the financing cost and RE is almost always leveraged. To not be able to pay such cost you must lose your job or the payment must go up alot.

It's generally caused by a number of factors happening at the same time.

In 2008, business cycle started to turn down and jobs were lost.

Mortgage rates started to go up after the teaser rate period.

As sentiment weakened, prices began to fall.

There were too many speculators heavily leveraged, and their game was up once prices fell.

People overstated their incomes. They were able to keep their homes initially only because prices were going up. Once that stopped, they had trouble making monthly payments.

In other words, if jobs are stable, rates are stable, not too many leveraged speculators, mortgages are properly underwritten, the owner occupiers should be able to withstand certain price falls.

Of course in 2008 the bad mortgages ultimately caused the entire financial system to break down, which in turn made the housing bust worse.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 19, 2016, 08:09:56 AM
Yeah you really need a snowball event - and a major recession. Otherwise even a drop of 20 or 30% in house prices is not enough to really get the ball rolling downhill - although the media will probably be screaming at even a 10% drop.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 19, 2016, 08:27:14 AM
I can buy a house in California with an even more moderate climate than Vancouver in a country with overall somewhat lower taxes and lower cost of fuel, food, etc..and finance it with a 30 year mortgage. I am not convinced Vancouver is so great as to justify such high prices based on geography alone.

If your personal circumstance allows that, I can see that makes sense.

But the majority of people in Vancouver don't have that choice. This is because there is a border between Vancouver and California.

Just two hours drive south of Vancouver, Seattle is cheaper in housing and almost everything else. It has more jobs and higher income. It has lower mortgage rates. But most Canadians cannot simply move there to live.

This is why comparing housing prices across countries has limited practical value most of the time.

And the Vancouver housing speculators know this too well.  ;)
Title: Re: Garth Turner - Real Estate in Canada
Post by: Viking on March 19, 2016, 10:19:45 AM
I think a key cause of the real estate popping in the US was they ran out of fresh meat. By 2007 if you had a pulse you 'owned' a home. Income did not matter. Job did not matter. The market simply exhausted itself.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 19, 2016, 10:38:20 AM
I can buy a house in California with an even more moderate climate than Vancouver in a country with overall somewhat lower taxes and lower cost of fuel, food, etc..and finance it with a 30 year mortgage. I am not convinced Vancouver is so great as to justify such high prices based on geography alone.

If your personal circumstance allows that, I can see that makes sense.

But the majority of people in Vancouver don't have that choice. This is because there is a border between Vancouver and California.

Just two hours drive south of Vancouver, Seattle is cheaper in housing and almost everything else. It has more jobs and higher income. It has lower mortgage rates. But most Canadians cannot simply move there to live.

This is why comparing housing prices across countries has limited practical value most of the time.

And the Vancouver housing speculators know this too well.  ;)

Good point, I think you've hit on an essential aspect of globalization and even perhaps part of the Canadian real estate market flare. While it's true most citizens cannot easily be resident in another country on account of being born in Canada, a quite large proportion of people have dual residence/citizenship this almost creates a 2-tier system because while non-residents can invest and buy property here and while immigration is not as difficult as in some other countries, non-residents have some key benefits, namely usually low to no tax back home as well as being able to avoid capital gains, gst, and other major taxes here. Not sure at what % of non-resident immigration this can really heat up the market. But the stats are old (from 2006) showing ~20% of Canadians are foreign born. However this is *not* an accurate reflection of citizenship/residence issues. Many countries allow even Canadian born with parents or grandparents from another country to re-establish citizenship there very easily and thus I would put the % of residents who can in fact play "residence arbitrage" at much higher than 20%. We'll see when the census comes out but I'd say it's 50% if not higher at this point. Of many countries out there including UK & USA, I think Canada is one of the few that has really gone with the large foreign population policy, after all it's a newer country and with a small base to start from.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 19, 2016, 10:43:00 AM
the best way to invest in Canadian real estate, however, is to be a resident for income purposes.  this is because the principal residence is completely tax free. 

so what I've often seen is the husband is a non resident - working somewhere in Asia - and the house is in the child or wife 's name - who are residents - and enjoy tax free gains
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 19, 2016, 10:55:41 AM
the best way to invest in Canadian real estate, however, is to be a resident for income purposes.  this is because the principal residence is completely tax free. 

so what I've often seen is the husband is a non resident - working somewhere in Asia - and the house is in the child or wife 's name - who are residents - and enjoy tax free gains

I'm not so sure this structure of claiming non-residence while your immediate family is here wil or can work for long,

"The most important thing to consider when determining your residency status in Canada for income tax purposes is whether or not you maintain, or you establish, residential ties with Canada.

Significant residential ties to Canada include:

a home in Canada;
a spouse or common-law partner in Canada; and
dependants in Canada;"

This is from the CRA website. Anyway I'm sure this and using shell corporations to buy/sell real estate to avoid taxes is a minor factor but one thing struck me as the world globalizes and people come and go EVERY country is having real problems integrating their benefits, social systems among people with various nebulous types of status. I hope this gets sorted out to make it easier, especially as cross-country mobility and trade expands.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 19, 2016, 12:55:04 PM
One should look at the snowbird phenomenon or how many Canadians bought properties in phoenix, Florida, palm Springs to understand how easy it is for Canadians to move between Canada and US.

It is leverage that kills and Vancouver cannot be any different. The longer this continues the more leverage is used and more unstable the system.

I do not believe any other factors matter in the long run as all markets eventually turn.
Title: Re: Garth Turner - Real Estate in Canada
Post by: CalvinL on March 19, 2016, 01:06:11 PM
I can buy a house in California with an even more moderate climate than Vancouver in a country with overall somewhat lower taxes and lower cost of fuel, food, etc..and finance it with a 30 year mortgage. I am not convinced Vancouver is so great as to justify such high prices based on geography alone.

I agree except the lower taxes part and that may be true from your perspective. Now imagine a family born and raised in China whose first language is Mandarin?

Equal opportunity for ethnic Chinese is important. Racism issue, cultural acceptance, community where you can feel you belong...it's there in a smaller scale in California but it's also differences in the details.

Services in Chinese similar to what they could get in China is important. The moment you walk off the airport - Chinese Signs, Mandarin broadcast, Chinese restaurants, beauty salon - Not exactly as good but close enough. And then you have a few neighbours who speaks Mandarin as well. Pack Chinese food for lunch to school and it's just a common sight. These are part of the ecosystem that created a "monte carlo" for Chinese rich people. it's similar to how Japanese were buying up Hawaii back in the 1970s-1980s.

That being said, this bubble could pop someday. Vancouver could have some sort of uncontrolled racial riots, tax targeting immigrants/high price property ownership, or a tighter immigration policy for the rich. China could try to limit capital flight, or their economy could collapse, or China could become such a great place that people decided to move to China....

Most RE market price is a function of rate and income. Debt % and housing price to GDP could tell if it's overheated or not.  Vancouver just isn't another regular market.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 19, 2016, 01:21:52 PM
Except, it's not just Chinese people buying up the million-plus dollar SFD homes/condos in Vancouver/Toronto/Adelaide/Melbourne. The global housing market is too big.

Ex. The Chinese buying those homes are probably worth at least 100 million RMB or C$20 million. There's less 100,000 people in that bracket in China.

There are 10 million people in China that has a net worth of 10MM RMD or more. That's roughly 1/3 the population of Canada. And this number should be used as a base estimate as there are countless black book and under-the-radar captial. Based on a survey I've read a few years ago, around 60% have plans to immigrate, and almost all considered sending their kids to college overseas. 

There are only around 1 million US$ millionaires in China. That's only 3% of Canada's population. You can't just make up these numbers..

http://www.hurun.net/EN/ArticleShow.aspx?nid=4558

Hurun 2014: "The country has 1,090,000 millionaires and 67,000 super-rich, an increase of 3.8% and 3.7% respectively from last year."
"millionaires (defined as individuals with personal wealth of CNY 10 million, equivalent to US$1.6 million and GBP 1 million)"
"super-rich (defined as individuals with personal wealth of CNY 100 million, equivalent to US$16 million and GBP 10 million)"



The US by far has the most millionaires. Canada has around the same number of dollar millionaires as China. The myth that there are millions of extremely wealthy Chinese investors looking to buy global real estate is just not accurate..

http://www.cnbc.com/2015/10/13/countries-with-the-most-millionaires.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: CalvinL on March 19, 2016, 01:55:43 PM
o my thank you for the correction mcliu. I read it from Hurun as well but got the figure wrong by 10 fold.  :o

I agree with you that it's not just the Chinese, it's more likely that the global 1% are moving and investing into these cities.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 19, 2016, 05:11:07 PM
I would again propose that it is mainly equity being withdrawn from the increase in real estate prices being leveraged once gain to buy more property. I would also say that for most the amount of debt is increasing at a faster rate than their networth.

It could be that this is just my observation. Not sure why everyone is ignoring this.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 19, 2016, 06:41:01 PM
One should look at the snowbird phenomenon or how many Canadians bought properties in phoenix, Florida, palm Springs to understand how easy it is for Canadians to move between Canada and US.

It is leverage that kills and Vancouver cannot be any different. The longer this continues the more leverage is used and more unstable the system.

I do not believe any other factors matter in the long run as all markets eventually turn.

The snowbirds are mostly older people who spend 6 months of the year in the US. Because they need to go back to Canada after the winter, they must maintain a home in Canada too. If they were allowed to stay for 12 months, I suspect some of them might sell their homes in Canada which would increase housing supply.

For most people who still work, moving to the US is not easy. Of course the highly skilled Canadians can find work in the US easily (say Justin Bieber).

The border between the US and Canada is real. This is different from other rich neighboring countries.

In Western Europe, there is complete freedom for people to move and settle across countries. London has higher prices than Paris, partly because numerous Frenchmen now work and live in London, not vice versa.

In Australia and New Zealand, citizens of the two countries can live and work anywhere completely freely. The immigration flow is mostly from New Zealand to Australia because of better weather and higher pay. This forces the New Zealand government to adopt a very generous policy to attract Asian immigrants.

I agree that the quantities of leverage and speculative buyers are important to future outlook. Which is why we want to quantify both as much as we can, not merely pointing out they exist.

I posted the link below before. It shows Canadian household debt to assets is 17% and owner's equity in housing is 73%. These are benign numbers.

Are there other data that look more worrying? Are there certain market segments that are more vulnerable?

http://soberlook.com/2016/03/canadas-changing-financial-landscape_13.html
Title: Re: Garth Turner - Real Estate in Canada
Post by: merkhet on March 19, 2016, 07:19:12 PM
Interesting numbers, JBTC. Too bad they didn't segment it out in terms of metro. Would be interesting to see if owner's equity is significantly lower in Vancouver & Toronto.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 19, 2016, 09:14:49 PM
I posted the link below before. It shows Canadian household debt to assets is 17% and owner's equity in housing is 73%. These are benign numbers.

Is it that benign though? The same metric for the US was around 17% in 2006/2007.
The ratio subsequently spiked in 2008 and 2009 as asset prices came tumbling down..

http://3.bp.blogspot.com/-geOLT7b-_7w/VQiPDlkVIAI/AAAAAAAAS78/Wii0qaRArl0/s1600/Household%2Bleverage.jpg

Are there other data that look more worrying? Are there certain market segments that are more vulnerable?

Look at the charts and reports that I've attached in this post:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/garth-turner-greaterfool/msg258546/#msg258546

1) Over 20% of BC households had a household debt to income ratio of over 500% in 2012. Imagine what it is today given that the Household Debt to Income metric has climbed ~20% since 2012 for the country overall.
2) RBC's affordability report shows that ownership costs for a SFD home in Vancouver is over 100% of median household income.

How is that not worrying?  :o
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 19, 2016, 09:44:58 PM
Debt to disposable income was 90% in Canada until 2000. Now the same figure stands at 165%. My understanding has always been that cash flow services debt and not assets.

Private debt to GDP has also touched 100%. A figure never seen in Canada before in its modern history.

As liberty has pointed out BC has had a negative savings rate for 20 years now bar for one year. How long can this be sustained . Are these signs of people leveraging or a sign of an extremely rich society.

Total vehicle financing in Canada was $15B in 2008. Today that figure is over $65B. I am sure someone will come up with the argument that the cars are worth more because they are new. Thus, the assets have gone up in value ( newer cars).

I would argue that our GDP has not gone up by 4x, thus, this increase is unsustainable.
Title: Re: Garth Turner - Real Estate in Canada
Post by: merkhet on March 19, 2016, 09:57:32 PM
Out of curiosity, how are people playing this? Short Canadian banks? Canadian development companies?
Title: Re: Garth Turner - Real Estate in Canada
Post by: alertmeipp on March 20, 2016, 06:00:34 AM
say u make 100k in Canada, u take home about 5k per months, with 200k down, and 3% mortgage (historical low)...

the max u can afford is like a 500k house.

http://www.canadamortgage.com/calculators/affordability.cgi

Average Vancouver income is 75k.

 :o
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 20, 2016, 07:18:43 AM
There's some good data in the earlier posts. I'll make a few observations.

1) Rising debt is not unique to Canada, although Canada has indeed behaved worse than most. See the article below. Of the G7, only Germany and Japan delevered during 2000-14.

http://business.financialpost.com/investing/outlook-2016/canadians-household-debt-highest-in-g7-with-crunch-on-brink-of-historic-levels-pbo-warns

2) Debt has increased as interest rates have fallen. So debt servicing capacity didn't increase nearly as much. RBC's affordability report is useful in this regard (thanks to mcliu).

3) As of 2014, Canada's household debt to disposable income was 166%, just behind Sweden, Australia, Ireland, Norway, Netherlands, and Denmark. Denmark was the global champion at 305%. See data below. The debt ratios vary greatly by country. This to me reinforces the notion that there is hardly any ironclad law in economics.

https://data.oecd.org/hha/household-debt.htm

4) In terms of debt level, Vancouver seems the canary in a coal mine for Canada. Globally, perhaps Australia is the one to watch. The two countries are highly similar - key immigration destinations and commodity-driven, and Australia has higher housing prices and debt.

5) For Vancouver, the RBC report suggests that condo affordability has in fact improved. So it's really the single detached that has gone crazy. This is important - so a large portion of the market is mostly ok, and only the high-end is the most problematic.

6) The question becomes - how worrying is the high-end market in Vancouver? What's the consequence if this part of the market falls?

I assume these houses are most likely bought by high-income people, but there is no data. If the poor people fake their incomes and get into these houses, then risk is high. If, as gary suggested, it's the rich Asians who buy them to store their wealth, then risk is low.

Then there are other factors to consider - will the rest of the Canadian economy decline, and drag down housing? Could rates go up? If not, then debt servicing may be ok for now. Any other potential shocks?

I'll stop. Let's dig some more.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 20, 2016, 08:07:12 AM
From what I see - as I don't have the data to back this up.

I do not believe the major buyers are rich Asians, even though they get all the media attention. They are on the margins.

The biggest player from what I see -  a lot of people have become builders over the last decade or so. Depending on how big these guys are - each individual needs to buy at least 1 property each year if not 2. The slightly larger players are south Asians and iranians. The so called builders often own 10-20 properties. All these properties are financed and at different stages - i.e. some have just been bought as inventory for the  following year projects (20% or so), others have had plans submitted to the city another 20% as these will soon be demolished and construction will begin, another group of properties that are mid-way to being completed, and the last group that is completed and on the market.

Participants from Asia do not even come close to their numbers in the market nor do they hold the same number of properties. Construction has become a very large part of the local economy.

I will add there was a perception here and in the market that Asian buyers were paying cash and I have pointed out several times before that they are also using leverage.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 20, 2016, 08:16:27 AM
Asians use leverage because the bank deposit rates in China / Taiwan / Hong Kong are higher than the mortgage rates in Canada

HSBC would lend you X based on deposits in GIC in their Asian branches.   and they just pay the mortgage - but the funds are secured.   Further , this practice also demands higher down payment - I believe 30% or more -

my concern with this is if the Chinese economy has a hard landing , our banks will be repossessing some of these Properties.  will they be worth what they are now ?
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 20, 2016, 08:20:01 AM
So we can't compare real estate prices across different countries, but it is OK to compare their debt levels?

I would prefer to compare with historical numbers - Canadian median houses have over the long run been $10k cheaper than the US. Today we are on average $200k higher.

Our median house used to be 2.5x income, today it is  lose to 6x.

Median house to median household income used to be under 5x in Vancouver and now it is over 12x.

Debt to gdp for Canada was 60%, today 100% and increasing faster than GDP.

Every single number you compare with historical stats, it is way off. It is always possible that Canada has solved a problem the Americans and Europeans were not able to = more leverage leads to ever inceasing prosperity or we have reached a higher plateau.

I remain a skeptic.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 20, 2016, 08:26:45 AM
Gary - China has been trying to shut down outflows for a while. Initially it was $50k per person. Then Macau got shut down - was a major source. Then HK bank route got shut down.

People were playing with the $50k limit. So now there is a new $200k total limit. So now fake exports are the main source of funds leaving China.

What are the chances that authorities in China actually succeed. If that was the sole reason for Vancouver real estate market going up, I would be even more concerned.
Title: Re: Garth Turner - Real Estate in Canada
Post by: mcliu on March 20, 2016, 10:11:49 AM
Out of curiosity, how are people playing this? Short Canadian banks? Canadian development companies?

I struggled with that, unfortunately, there's no good instrument to short housing. It's hard to figure out the magnitude/timing and carrying costs for the trade is high. Nothing with attractive risk/reward trades like CDS.
Some possibilities but nothing really worthwhile:
1) Short mortgage insurance (Genworth MI), but carrying cost is high.
2) Short mortgage investment company. Only good candidate is ERM (Eclipse MIC, second tranche of first mortgage + uninsured mortgages), but liquidity is low, sub $30 million market cap, and also high carrying cost.
3) Short banks, but banks carry low LTV or insured mortgages.

Maybe the only option is to long government bonds, since a housing crisis will likely lead to big rate cuts. However, the bubble is centered around 2 cities, and US rates are rising.

If you live in these cities, maybe you can sell your house, or rent. Become a builder, but there's liquidity risks there if you don't complete in time.

Would love to hear if you guys have any ideas.

The biggest player from what I see -  a lot of people have become builders over the last decade or so. Depending on how big these guys are - each individual needs to buy at least 1 property each year if not 2. The slightly larger players are south Asians and iranians. The so called builders often own 10-20 properties. All these properties are financed and at different stages - i.e. some have just been bought as inventory for the  following year projects (20% or so), others have had plans submitted to the city another 20% as these will soon be demolished and construction will begin, another group of properties that are mid-way to being completed, and the last group that is completed and on the market.

Do you know what kind of financing they're getting and from where?

Gary - China has been trying to shut down outflows for a while. Initially it was $50k per person. Then Macau got shut down - was a major source. Then HK bank route got shut down.

People were playing with the $50k limit. So now there is a new $200k total limit. So now fake exports are the main source of funds leaving China.

What are the chances that authorities in China actually succeed. If that was the sole reason for Vancouver real estate market going up, I would be even more concerned.

Also, there's the fact that the amount of mortgage/consumer debt that's been added in the past 7 years in Canada/Australia is much larger than the possible capital outflow that China can inject into the foreign real estate..
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 20, 2016, 10:55:19 AM
Mcliu - there are many sources of financing - all the way from traditional bank spec financing (Prime + 2.25%) to private financing (14%).

For smaller players most of the financing is done on HELOC's on their residence at prime + 0.5% plus a 50% land loan on the new property.

Larger players go to banks and are paying around prime + 2% plus fees of 1-1.5%.

A lot of pools have come up where  investors pool their funds and lend at 12-14%. They net around 7% after costs. Often the 20% down payment required by the regulators is in fact borrowed from these sources as well which I believe leads to under reporting of the real issue. Individuals are also active in this market. Everytime you hear an ad from a fund or broker that you will be approved as long as you have equity in real estate, this is the source. My understanding is no regulator has any idea about the size of this market.

The thing that scares me about these pools is that the money invested in them also includes individuals borrowing on their residences at 3% or so and earning a 4% net spread. This is a source of income for these individuals. If the market ever shuts down, not only  will these individuals lose their incomes and capital, but will owe the amount borrowed against their equity in their residence.

For private builders who are not sophisticated or are in a rush, this private financing is often a source of funds. These are usually few in number but the highest risk players. So far the ever increasing prices keep bailing them out.

One has to remember this works till the music is playing. The only source of payment on these projects is from the sale of property. If the music stops, the builders will not have the cash flow to even debt service as I believe most properties would not be cash flow positive today if people accounted for maintenance. Several of the properties are at different stages of development and there are no cashflows from them. That is when this market should get interesting.

 The music has not stopped for 16 years now - the longest cycle so far.

The belief is absolute that we live in the only special place in the world and we are headed to having an average house valued at $2 mil now on median household incomes of $75, 000.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 20, 2016, 11:45:03 AM
Out of curiosity, how are people playing this? Short Canadian banks? Canadian development companies?

I'm renting.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 20, 2016, 12:09:22 PM
Out of curiosity, how are people playing this? Short Canadian banks? Canadian development companies?

I'm renting.

Would you ever buy? 
Under what condition in this country would you enter the RE market?
Title: Re: Garth Turner - Real Estate in Canada
Post by: RichardGibbons on March 20, 2016, 12:34:33 PM
Would you ever buy? 
Under what condition in this country would you enter the RE market?

For me, living in Vancouver, I'd buy a detached home when the cost to buy that detached home is negligible relative to my net worth.  So, I'd treat it like buying a luxury car--a depreciating asset I'd buy for fun, but expect to lose significant amounts of money on.

(Alternatively, I'd buy it when the math made sense, but that looks unlikely from here.)
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 20, 2016, 03:24:04 PM
The way I look at it - why is there a compulsion to buy when things don't make sense. It is different if you understand the math, yet choose to buy because you feel it meets your emotional needs.

 Upto an individual whether they believe the emotional benefits are greater than the potential risks.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 20, 2016, 06:51:51 PM

A lot of pools have come up where  investors pool their funds and lend at 12-14%. They net around 7% after costs. Often the 20% down payment required by the regulators is in fact borrowed from these sources as well which I believe leads to under reporting of the real issue. Individuals are also active in this market. Everytime you hear an ad from a fund or broker that you will be approved as long as you have equity in real estate, this is the source. My understanding is no regulator has any idea about the size of this market.


This is bad. These people will dump when the tide turns.

Would be good to know the size of this market indeed.

Out of curiosity - do they belong to certain ethic groups, or are they everybody?
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 20, 2016, 07:17:36 PM
So we can't compare real estate prices across different countries, but it is OK to compare their debt levels?

I would prefer to compare with historical numbers - Canadian median houses have over the long run been $10k cheaper than the US. Today we are on average $200k higher.

Our median house used to be 2.5x income, today it is  lose to 6x.

Median house to median household income used to be under 5x in Vancouver and now it is over 12x.

Debt to gdp for Canada was 60%, today 100% and increasing faster than GDP.

Every single number you compare with historical stats, it is way off. It is always possible that Canada has solved a problem the Americans and Europeans were not able to = more leverage leads to ever inceasing prosperity or we have reached a higher plateau.

I remain a skeptic.

wisdom,

Thanks for pointing out a seeming inconsistency on my part. But let me make myself clear.

I don't encourage blind comparisons, not housing prices, not debt.

I listed the debt data to suggest one thing - just like Canada, many other countries also have the highest debt level now in their entire history. Not suggesting Canada is not bad; it's worse than most. But this fact helps think about what other factors than Canadian housing might also be at play.

Out of all countries, I cautiously mentioned we may need to look at Australia, because of the relative similarity. Australia is worse than Canada in ramping up debt and housing prices, and is holding up for now. But even they are different. For example, Australia allows negative gearing. But let's see.

I would not think Denmark is comparable to Canada. I have no clue about what's happening there. But it does us good when we are aware (not comparing) of such debt levels. Denmark and Sweden are among the most prosperous nations on the face of the planet. Maybe they collapse tomorrow, but how are they even sustaining their debt levels? Can some of you live in the Nordic countries help us out?

My general approach - the more data the better, generally respect the differences in the world, not in a hurry to conclude, but when data is overwhelming, conclude and invest accordingly.

Charlie Munger said it best - All reality must respect all other reality.

Our job is to gather these realities and make them respect each other.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 21, 2016, 01:11:44 AM
Hottest housing market in the world at the moment, according to the article below.

1) New Zealand
2) Australia
3) Sweden
4) Ireland
5) Canada

Somehow I am not very surprised.

http://www.valuewalk.com/2016/03/hottest-housing-market-world/?utm_source=mailchimp&utm_medium=email&utm_campaign=EMAIL_DAILY&utm_content=quick_link&utm_source=ValueWalk+Newsletter&utm_campaign=4549b8ca67-%3DUTMDaily&utm_medium=email&utm_term=0_299e40291b-4549b8ca67-50202589&mc_cid=4549b8ca67&mc_eid=afd3376b93
Title: Re: Garth Turner - Real Estate in Canada
Post by: wachtwoord on March 21, 2016, 04:17:23 AM
I would not think Denmark is comparable to Canada. I have no clue about what's happening there. But it does us good when we are aware (not comparing) of such debt levels. Denmark and Sweden are among the most prosperous nations on the face of the planet. Maybe they collapse tomorrow, but how are they even sustaining their debt levels? Can some of you live in the Nordic countries help us out?


Especially Sweden is making the worst socio-economic choices imaginable and I'm expecting an enormous collapse. Norway is already writing contingency plans for closing the border with Sweden (and break the Geneva convention! something huge) if that happens.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 21, 2016, 06:58:05 AM
Out of curiosity, how are people playing this? Short Canadian banks? Canadian development companies?

I'm renting.

Would you ever buy? 
Under what condition in this country would you enter the RE market?

Sure. I'll buy when I find a house here at a price that I think makes sense. I'm just buying one house, so I'm not basing this on broad market indicators or anything like that.
Title: Re: Garth Turner - Real Estate in Canada
Post by: gary17 on March 21, 2016, 09:35:44 AM
It will be interesting if any of this will lead to some break on the rapidly accelerating bubble lol

http://www.theglobeandmail.com/news/british-columbia/bc-premier-vows-to-end-shadow-flipping/article29289313/
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 21, 2016, 10:47:49 AM
Impossible to know what will be the trigger. Be prepared for things to stay irrational for longer than anyone can imagine. Have no expectations and it is far easier to deal with any outcome.
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 21, 2016, 06:07:51 PM
It will be interesting if any of this will lead to some break on the rapidly accelerating bubble lol

http://www.theglobeandmail.com/news/british-columbia/bc-premier-vows-to-end-shadow-flipping/article29289313/

The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

In other hot markets, government actions can often slow the market meaningfully.

But for anyone hoping for a crash, it's best to let the speculators run wild and prices go as high as possible.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 21, 2016, 06:37:24 PM
It's very hard to have major bubbles in a highly regulated economy (Canada may be in the middle of the socialism spectrum but it leans more that way than say the US). This is because pretty much the only thing you can do is squeeze your citizens and most times they just take it.



Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 22, 2016, 01:35:48 AM
"Sydney home values fell the most in seven years in the December quarter as a regulatory crackdown amid record prices pushed up mortgage rates and sapped demand.

The residential property index in Australia’s biggest city dropped 1.6 percent, the first decline in 13 quarters, according to government statistics released Tuesday. Sydney prices have, however, recovered in the first two months of the year, more recent data from research firm CoreLogic Inc. showed March 1.

Home-price growth in Australia’s biggest cities is expected to slow as mortgage-rate increases and tightening lending standards, introduced as prices climbed to a record, hurt buyer affordability. Sydney home values have climbed about 70 percent since the end of 2007, while in Melbourne they have risen about 50 percent, data from the statistics bureau show.

Home values across the largest cities in the country expanded 0.2 percent in the December quarter, according to the data. The total value of Australia’s 9.6 million residential dwellings increased A$31.6 billion ($24 billion) to A$5.9 trillion, the data show."
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 22, 2016, 08:49:07 AM
The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become.

A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next?
Title: Re: Garth Turner - Real Estate in Canada
Post by: KCLarkin on March 22, 2016, 09:00:27 AM
The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become.

A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next?

Politics is less an issue in Canada than it was in the U.S. The bigger worry is that they will cause a hard-landing by tightening too quickly.

The main problem is that the tools that would be most effective (higher interest rates) would have a broader impact on the economy. It would also hurt weak markets like Alberta.
The other problem is that most of the really nasty shenanigans are happening outside the federal regulatory regime.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 22, 2016, 09:18:01 AM
Politicians could make the market way more rational by regulating the RE industry so that there's more transparency and realtors are prevented from at least the worst kind of shenanigans (some of what goes on would put those in the financial industry in jail). RE in Canada is super opaque, anti-competitive and anti-consumer (I guess it's like many other industries in Canada..).

In fact, it's so opaque that most people don't even realize how opaque it is. You have to go see how it is in some other countries to realize that buyers and sellers have a lot more info about what's going on and don't get all their info funneled through salespeople organizations.
Title: Re: Garth Turner - Real Estate in Canada
Post by: scorpioncapital on March 22, 2016, 10:17:04 AM
Transparency usually comes after the bubble is pricked because it helps to prevent the next one, but when in the middle of the bubble, politicians want the opposite since going from opaque to transparent could very well burst it.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 22, 2016, 10:51:02 AM
Transparency usually comes after the bubble is pricked because it helps to prevent the next one, but when in the middle of the bubble, politicians want the opposite since going from opaque to transparent could very well burst it.

Agreed.
Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 22, 2016, 11:59:46 AM
Anecdote from Vancouver, FWIW, shows some of the mindset going on and the way people get houses they can't really afford:

Quote
“There is mass hysteria here as people rush to buy now or be priced out forever. I thought things were crazy before, now they are just beyond absurd. It seems like people are doing whatever they can do buy now, including (probably) pledging their firstborn children. Some have this mentality that they must buy to ensure the future of their children, otherwise their kids will never be able to afford a place years down the road, since people seem to have forgotten that Vancouver isn’t the only city in Canada, or the world, that has houses.

“A friend of ours has been looking to buy for months, to no success. Outbid on many properties, until they finally found one that had no other offers. Bad location, they made an offer and it was accepted. Price is $800k for a 3 bed townhouse. The bank gave them the bad news: they didn’t qualify for the mortgage. No s**t sherlock, hard to justify a $750k mortgage when the family income is only $70k per year. Following some fancy footwork by the broker (something that seemed to involve kiting cheques between family members)-voila! The deal is done, townhouse is theirs. It seems outrageous to me but this seems like a fact of life these days that it’s an any-price type of game….doesn’t matter what the price is, the broker can help you get the place you want. If the bank doesn’t follow through, private lenders can step in too.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 22, 2016, 12:16:44 PM
Another interesting anecdote - a lot of investors/speculators are buying with closing dates out a year or so. They are hoping to flip the property before the closing so that they do not have to qualify for a mortgage. And earn a large return on their deposit on the contract (which can be less than 5% of the purchase price).

This can get interesting if they fail in their bid to flip and have no plan B (can not qualify for financing to complete the purchase). The seller may have already signed up on a new purchase. When the buyer does not complete on the initial sale, what happens to the seller? Can they carry 2 mortgages? Where do they get the funds to put down 20% on the their purchase?

How long will this game of musical chairs continue?

Title: Re: Garth Turner - Real Estate in Canada
Post by: Liberty on March 22, 2016, 12:43:11 PM
Another interesting anecdote - a lot of investors/speculators are buying with closing dates out a year or so. They are hoping to flip the property before the closing so that they do not have to qualify for a mortgage. And earn a large return on their deposit on the contract (which can be less than 5% of the purchase price).

This can get interesting if they fail in their bid to flip and have no plan B (can not qualify for financing to complete the purchase). The seller may have already signed up on a new purchase. When the buyer does not complete on the initial sale, what happens to the seller? Can they carry 2 mortgages? Where do they get the funds to put down 20% on the their purchase?

How long will this game of musical chairs continue?

Reminds me of the Globe & Mail article a few months ago about how some agents can flip a house 2-3 times before closing, taking a cut each time.

Here it is, fascinating stuff:

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

(http://www.theglobeandmail.com/news/national/article28634862.ece/BINARY/w940/image.jpg)
Title: Re: Garth Turner - Real Estate in Canada
Post by: JBTC on March 22, 2016, 05:56:41 PM
The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become.

A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next?

You are absolutely right the government has an enormous self-interest in maintaining high housing prices. This is partly why most of time owning a house is a rational choice for most people.

Here the issue is if the prices are going up too quickly, they make a reversal more likely. Therefore, if the authorities are wise and experienced, it's better to intervene early, and then back off when prices soften. In high-priced markets such as HK, Singapore, Australia, and New Zealand, the authorities do that often.

In the news article I sent earlier about Australia, it says prices weakened due to regulatory crackdown. There are numerous things the government can do and they will be effective.

My guess is the Canadian government is still not too worried. And with weak commodity prices, they probably want housing to support the economy.

In terms of how much more prices can run, although Canada has done a great job catching up, Australian home prices are still 30% higher. I hope Canada doesn't get there soon.
Title: Re: Garth Turner - Real Estate in Canada
Post by: wisdom on March 22, 2016, 06:31:46 PM
Both Canadian and Australian private debt is at 100% of GDP . Does that imply that Canadians are even more leveraged than the Aussies?

The Canadian government has been trying to target the housing market since 2008 when you could buy with 0 down and amortize a mortgage over 40 years.
Title: Re: Garth Turner - Real Estate in Canada