Author Topic: Garth Turner - Real Estate in Canada  (Read 507057 times)

CalvinL

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Re: Garth Turner - Real Estate in Canada
« Reply #760 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.


mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #761 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
« Last Edit: March 19, 2016, 01:43:33 PM by mcliu »

CalvinL

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Re: Garth Turner - Real Estate in Canada
« Reply #762 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.

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #763 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.

JBTC

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Re: Garth Turner - Real Estate in Canada
« Reply #764 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

merkhet

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Re: Garth Turner - Real Estate in Canada
« Reply #765 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.

mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #766 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
« Last Edit: March 19, 2016, 09:26:01 PM by mcliu »

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #767 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.

merkhet

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Re: Garth Turner - Real Estate in Canada
« Reply #768 on: March 19, 2016, 09:57:32 PM »
Out of curiosity, how are people playing this? Short Canadian banks? Canadian development companies?

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #769 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