Author Topic: Garth Turner - Real Estate in Canada  (Read 230380 times)

rb

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Re: Garth Turner - Real Estate in Canada
« Reply #1570 on: April 20, 2017, 09:46:31 AM »
Yeah, I've read that. It's such a joke and so bad that I didn't even think it merits a take down.

I thought the analysis of Cap Rate spreads was interesting. Do you see any flaws in that approach?
I don't think that looking at cap rates spreads to 10 yr bond is bad as a data point. But I do think that his data is crap. One of his sources is globalproperty guide.com... please. Then he bounces between GTA cap rates and condo cap rates. Then on the spread graph he uses a nation average cap rate. Just a back of the envelope cal will tell you that the Toronto cap rates between 3-5% is bullshit. There have been way better studies that put the Toronto cap rate around 2%. Then he has the national cap rate at 6%. Since Toronto is at 2%, Vancouver isn't better, you must have some crazy cap rates in the rest of Canada to pull the average to 6%. That's just not true... so i call bullshit on that too.

Add to the fact that he talks about Toronto as a global city comparing it to New York, London, and Tokyo as a reason for why housing should be unaffordable but leaves out the fact that both New York and Tokyo are more affordable than Toronto and not by just a bit.

In addition his Demographia numbers are wrong. I don't know if he fudged them or used an outdated report. All these things add up to the fact that the numbers in that report are seriously unreliable. The author is either bullshitting or he's incompetent. In the end it doesn't matter the value of that report is the same.

TBW

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Re: Garth Turner - Real Estate in Canada
« Reply #1571 on: April 20, 2017, 03:59:53 PM »
I think Liberty's point above was the right one on these announcements.  This tax does not need to be effective it just needs to change the psychology.

Housing bubbles need 2 things, cheap/easy to access credit and psychology (typically due to some narrative, houses only go up, supply, foreigners etc.).

Credit is being restricted by the big 6, everyone I talk to it's harder to get a mortgage from them.  The next providers were the HCG's/EQB's of the world that sourced from the Broker network.  HCG announcement should mean that credit availability will be much more scrutinized and brokers more wary to cheat.  So credit is availability is shrinking quickly.

The last thing is the psychology, this seems to be cracking (just from hearing what the average person is saying, newspaper headlines, comment sections etc), so if a new tax can kill the narrative for the last buyers this thing ends soon.

My view and portfolio position is that this is over.


physdude

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Re: Garth Turner - Real Estate in Canada
« Reply #1572 on: April 21, 2017, 05:31:37 AM »
I think it is really important who the marginal buyer is. If the marginal buyer is from HK or China, they have the advantage of a currency that has appreciated significantly against the CAD in the last 3-4 years as well as much higher local prices to use as the benchmark. For them, Toronto probably still looks cheap on a relative basis. OTOH, if the marginal buyer is a Canadian (not just in respect of nationality or permanent residence but with respect to closest economic connections), the price is clearly out of whack. We might have an interesting transition if and when the marginal buyer's identity shifts for any reason.

(For reference, a nominally 1000 sq ft condo in the outskirts of HK (real floor area by normal measures being about 800 sq ft) retails for about C$1.5 million at this point and a similar one in a more central area could easily be C$2.5 million or more. But HK has very limited land availability so it is not really a fair comparison.)

TorontoRaptorsFan

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Re: Garth Turner - Real Estate in Canada
« Reply #1573 on: April 21, 2017, 07:49:14 AM »
Until interest rates climb it will be status quo.

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physdude

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Re: Garth Turner - Real Estate in Canada
« Reply #1574 on: April 21, 2017, 08:26:49 AM »
Until interest rates climb it will be status quo.

Or until the Chinese real estate bubble pops!  ;D (HK real estate prices only recently crossed their 1997 bubble peak and have been on a tear since)

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #1575 on: April 21, 2017, 09:21:56 AM »
An interesting take on how to separate bubbles from mere overvaluation (h/t @ac_eco):

http://www.mauldineconomics.com/the-10th-man/how-to-identify-bubbles#

Quote
The true part is that a lot of things are currently overvalued. I would say stocks are overvalued. Most people would agree. I would also say bonds are overvalued. Some people would agree. I would say corporate credit is overvalued, real estate in certain parts of the country is overvalued, and maybe a few other things.

But these are not bubbles.

So, what is the difference between something being overvalued and something being in a bubble?

Since you askedÖ

A bubble is a psychological phenomenon that occurs when an asset class becomes overvalued and is accompanied by an obsession or preoccupation with that asset class. For example, you probably heard that the Dow just hit 20,000. It is not a bubble. Nobody is obsessed or preoccupied with the stock market. You donít have Coast Guard guys day-trading it like when I was still in the service in 1999. That was a bubble. In fact, nobody really gives a crap about todayís stock market. Usually they have CNBC on in the locker room at my gym. Nobody pays any attention to it.

By that standard, there are very few bubbles in the world right now. But there is a bull market in people running around calling everything a bubble. Please ignore those people. The only real, honest-to-goodness asset price bubbles out there are in residential real estate in Canada, Australia, and Sweden. They are going to end up in the landfill in New Mexico with all the Atari E.T. cartridges. [...]

Thatís the thing about bubbles. Just when you think they are stupid, they can get a lot stupider. Thatís been my experience with Canada, as house prices went from stupid in 2013 to very stupid in 2015 to OMG so stupid in 2017
« Last Edit: April 21, 2017, 09:26:54 AM by Liberty »
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50centdollars

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Spekulatius

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Re: Garth Turner - Real Estate in Canada
« Reply #1577 on: April 22, 2017, 06:46:17 AM »
Until interest rates climb it will be status quo.

It's going to pop. the reason may not be known and it does not really matter. These bubbles are reflexve, due to positive feedback mechanisms. Prices rise, because prices rise and the inverse logic applies as well. Interest rate rises or government interventions may do it. Once prices stop to rise, the marginal buyers (Flippers etc.) will be gone, the natural buyers won't feel buying pressure any more and hold out, and prices start to fall. It will take a while to show up in numbers, but a change in buyers perception can change in a month or two all of a sudden. I have seen this happen several times in different markets. Real estate is one of these things that feels like a better buy to most people, when it's expensive and getting more expensive.
To be a realist, one has to believe in miracles.

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #1578 on: April 22, 2017, 01:20:06 PM »
"Most haystacks don't even have a needle." |  I'm on Twitter  | Kaizo Trap

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #1579 on: April 22, 2017, 04:43:27 PM »
http://business.financialpost.com/personal-finance/mortgages-real-estate/ontario-slaps-15-tax-on-foreign-buyers-expands-rent-control-in-16-point-plan-to-cool-housing

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The tax will have exemptions for skilled workers in the Ontario worker nominee program and refugees will be exempt. Anyone obtaining a permanent residency or Canadian citizenship within four years of purchasing their home would receive a full rebate of the NRST. Any international student enrolled full-time for at least two years would receive a full rebate. If youíve worked in Ontario from the date of purchase of your home, you also get a full rebate.

The last one seems like a big loophole. Register an Ontario corp and hire yourself or/and spouse. Voila, you get a full rebate. What am I missing?

True, need to see the details.

But I think the rent control is going to remove quite a bit of demand.