Author Topic: Garth Turner - Real Estate in Canada  (Read 486671 times)

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #670 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).







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KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #671 on: March 14, 2016, 07:28:45 AM »
Comparing Canada to Britain, Sweden, Australia using that Economist data gives a very different picture.

« Last Edit: March 14, 2016, 07:43:14 AM by KCLarkin »

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #672 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.
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wachtwoord

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Re: Garth Turner - Real Estate in Canada
« Reply #673 on: March 14, 2016, 08:03:57 AM »
Thanks a lot for the economist relative housing prices link. Very informative!
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KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #674 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.

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #675 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.
« Last Edit: March 14, 2016, 09:26:05 AM by Liberty »
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gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #676 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 --

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #677 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.
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rukawa

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Re: Garth Turner - Real Estate in Canada
« Reply #678 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.
« Last Edit: March 14, 2016, 11:28:11 AM by rukawa »

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #679 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.
« Last Edit: March 14, 2016, 01:11:17 PM by Liberty »
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