Author Topic: Garth Turner - Real Estate in Canada  (Read 487208 times)

KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #680 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.


mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #681 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?

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #682 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.

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #683 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.
« Last Edit: March 14, 2016, 02:20:18 PM by wisdom »

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #684 on: March 14, 2016, 03:15:01 PM »

mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #685 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?

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #686 on: March 14, 2016, 03:32:24 PM »
Sorry, I had an error - 3% vacancy. 5% expenses. After taxes and strata.
« Last Edit: March 14, 2016, 03:37:00 PM by wisdom »

wachtwoord

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Re: Garth Turner - Real Estate in Canada
« Reply #687 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).
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Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #688 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).
« Last Edit: March 15, 2016, 07:48:43 AM by Liberty »
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gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #689 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.