Author Topic: Garth Turner - Real Estate in Canada  (Read 488399 times)

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #390 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.
« Last Edit: March 30, 2015, 01:45:54 PM by Liberty »
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KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #391 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.

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #392 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.


alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #393 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.




alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #394 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.

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #395 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.
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Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #396 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:



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cwericb

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Re: Garth Turner - Real Estate in Canada
« Reply #397 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.
« Last Edit: March 30, 2015, 05:05:21 PM by cwericb »
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merkhet

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Re: Garth Turner - Real Estate in Canada
« Reply #398 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.)

Uccmal

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Re: Garth Turner - Real Estate in Canada
« Reply #399 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. 
GARP tending toward value