Author Topic: Garth Turner - Real Estate in Canada  (Read 488287 times)

JBTC

  • Sr. Member
  • ****
  • Posts: 255
Re: Garth Turner - Real Estate in Canada
« Reply #790 on: March 22, 2016, 01:35:48 AM »
"Sydney home values fell the most in seven years in the December quarter as a regulatory crackdown amid record prices pushed up mortgage rates and sapped demand.

The residential property index in Australia’s biggest city dropped 1.6 percent, the first decline in 13 quarters, according to government statistics released Tuesday. Sydney prices have, however, recovered in the first two months of the year, more recent data from research firm CoreLogic Inc. showed March 1.

Home-price growth in Australia’s biggest cities is expected to slow as mortgage-rate increases and tightening lending standards, introduced as prices climbed to a record, hurt buyer affordability. Sydney home values have climbed about 70 percent since the end of 2007, while in Melbourne they have risen about 50 percent, data from the statistics bureau show.

Home values across the largest cities in the country expanded 0.2 percent in the December quarter, according to the data. The total value of Australia’s 9.6 million residential dwellings increased A$31.6 billion ($24 billion) to A$5.9 trillion, the data show."


Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11280
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: Garth Turner - Real Estate in Canada
« Reply #791 on: March 22, 2016, 08:49:07 AM »
The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become.

A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next?
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

KCLarkin

  • Hero Member
  • *****
  • Posts: 1649
Re: Garth Turner - Real Estate in Canada
« Reply #792 on: March 22, 2016, 09:00:27 AM »
The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become.

A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next?

Politics is less an issue in Canada than it was in the U.S. The bigger worry is that they will cause a hard-landing by tightening too quickly.

The main problem is that the tools that would be most effective (higher interest rates) would have a broader impact on the economy. It would also hurt weak markets like Alberta.
The other problem is that most of the really nasty shenanigans are happening outside the federal regulatory regime.

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11280
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: Garth Turner - Real Estate in Canada
« Reply #793 on: March 22, 2016, 09:18:01 AM »
Politicians could make the market way more rational by regulating the RE industry so that there's more transparency and realtors are prevented from at least the worst kind of shenanigans (some of what goes on would put those in the financial industry in jail). RE in Canada is super opaque, anti-competitive and anti-consumer (I guess it's like many other industries in Canada..).

In fact, it's so opaque that most people don't even realize how opaque it is. You have to go see how it is in some other countries to realize that buyers and sellers have a lot more info about what's going on and don't get all their info funneled through salespeople organizations.
« Last Edit: March 22, 2016, 09:34:32 AM by Liberty »
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1676
    • scorpion capital
Re: Garth Turner - Real Estate in Canada
« Reply #794 on: March 22, 2016, 10:17:04 AM »
Transparency usually comes after the bubble is pricked because it helps to prevent the next one, but when in the middle of the bubble, politicians want the opposite since going from opaque to transparent could very well burst it.

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11280
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: Garth Turner - Real Estate in Canada
« Reply #795 on: March 22, 2016, 10:51:02 AM »
Transparency usually comes after the bubble is pricked because it helps to prevent the next one, but when in the middle of the bubble, politicians want the opposite since going from opaque to transparent could very well burst it.

Agreed.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11280
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: Garth Turner - Real Estate in Canada
« Reply #796 on: March 22, 2016, 11:59:46 AM »
Anecdote from Vancouver, FWIW, shows some of the mindset going on and the way people get houses they can't really afford:

Quote
“There is mass hysteria here as people rush to buy now or be priced out forever. I thought things were crazy before, now they are just beyond absurd. It seems like people are doing whatever they can do buy now, including (probably) pledging their firstborn children. Some have this mentality that they must buy to ensure the future of their children, otherwise their kids will never be able to afford a place years down the road, since people seem to have forgotten that Vancouver isn’t the only city in Canada, or the world, that has houses.

“A friend of ours has been looking to buy for months, to no success. Outbid on many properties, until they finally found one that had no other offers. Bad location, they made an offer and it was accepted. Price is $800k for a 3 bed townhouse. The bank gave them the bad news: they didn’t qualify for the mortgage. No s**t sherlock, hard to justify a $750k mortgage when the family income is only $70k per year. Following some fancy footwork by the broker (something that seemed to involve kiting cheques between family members)-voila! The deal is done, townhouse is theirs. It seems outrageous to me but this seems like a fact of life these days that it’s an any-price type of game….doesn’t matter what the price is, the broker can help you get the place you want. If the bank doesn’t follow through, private lenders can step in too.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

wisdom

  • Hero Member
  • *****
  • Posts: 741
Re: Garth Turner - Real Estate in Canada
« Reply #797 on: March 22, 2016, 12:16:44 PM »
Another interesting anecdote - a lot of investors/speculators are buying with closing dates out a year or so. They are hoping to flip the property before the closing so that they do not have to qualify for a mortgage. And earn a large return on their deposit on the contract (which can be less than 5% of the purchase price).

This can get interesting if they fail in their bid to flip and have no plan B (can not qualify for financing to complete the purchase). The seller may have already signed up on a new purchase. When the buyer does not complete on the initial sale, what happens to the seller? Can they carry 2 mortgages? Where do they get the funds to put down 20% on the their purchase?

How long will this game of musical chairs continue?


Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11280
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: Garth Turner - Real Estate in Canada
« Reply #798 on: March 22, 2016, 12:43:11 PM »
Another interesting anecdote - a lot of investors/speculators are buying with closing dates out a year or so. They are hoping to flip the property before the closing so that they do not have to qualify for a mortgage. And earn a large return on their deposit on the contract (which can be less than 5% of the purchase price).

This can get interesting if they fail in their bid to flip and have no plan B (can not qualify for financing to complete the purchase). The seller may have already signed up on a new purchase. When the buyer does not complete on the initial sale, what happens to the seller? Can they carry 2 mortgages? Where do they get the funds to put down 20% on the their purchase?

How long will this game of musical chairs continue?

Reminds me of the Globe & Mail article a few months ago about how some agents can flip a house 2-3 times before closing, taking a cut each time.

Here it is, fascinating stuff:

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

JBTC

  • Sr. Member
  • ****
  • Posts: 255
Re: Garth Turner - Real Estate in Canada
« Reply #799 on: March 22, 2016, 05:56:41 PM »
The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become.

A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next?

You are absolutely right the government has an enormous self-interest in maintaining high housing prices. This is partly why most of time owning a house is a rational choice for most people.

Here the issue is if the prices are going up too quickly, they make a reversal more likely. Therefore, if the authorities are wise and experienced, it's better to intervene early, and then back off when prices soften. In high-priced markets such as HK, Singapore, Australia, and New Zealand, the authorities do that often.

In the news article I sent earlier about Australia, it says prices weakened due to regulatory crackdown. There are numerous things the government can do and they will be effective.

My guess is the Canadian government is still not too worried. And with weak commodity prices, they probably want housing to support the economy.

In terms of how much more prices can run, although Canada has done a great job catching up, Australian home prices are still 30% higher. I hope Canada doesn't get there soon.