Author Topic: Garth Turner - Real Estate in Canada  (Read 487199 times)

KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #340 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.


wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #341 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.
« Last Edit: February 12, 2015, 02:42:12 PM by wisdom »

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #342 on: February 12, 2015, 02:27:45 PM »
I live in Vancouver - so I am biased by our local market.

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #343 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.




Range

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Re: Garth Turner - Real Estate in Canada
« Reply #344 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)

cwericb

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Re: Garth Turner - Real Estate in Canada
« Reply #345 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.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #346 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.

cwericb

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Re: Garth Turner - Real Estate in Canada
« Reply #347 on: February 12, 2015, 05:58:58 PM »
Yeah you missed my point. Iím suggesting that todayís prices may not be as out of line historically as they appear. A much higher percentage of todayís mortgage payment go towards actually paying down the debt.

Politicians and diapers must be changed often, and for the same reason. - Mark Twain

Potato

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Re: Garth Turner - Real Estate in Canada
« Reply #348 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...

LongHaul

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Re: Garth Turner - Real Estate in Canada
« Reply #349 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!!!!