Author Topic: Garth Turner - Real Estate in Canada  (Read 510804 times)

Otsog

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Re: Garth Turner - Real Estate in Canada
« Reply #170 on: August 28, 2014, 01:42:44 PM »
Annualized, thats growth of less than 1%/year. My house has gone up in value 35% over the last 2 years. That doesn't make sense to me. How many rich people in this world want to come and live in canada?

Vancouver is going to be faster than Canada, so I grabbed these #'s:

http://www.cmhc-schl.gc.ca/en/corp/about/cahoob/data/data_008.cfm
http://www12.statcan.gc.ca/census-recensement/index-eng.cfm
http://www.metrovancouver.org/planning/development/strategy/RGSBackgroundersNew/RGSMetro2040ResidentialGrowth.pdf

35% over 2 years doesn't make sense to me either.  Idk if a crash, correction, soft landing, slow down, stagnation or apocalypse are coming.  If one of them does Canada looks pretty attractive to me. 

If I have seen further it is by standing on the shoulders of giants.


wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #171 on: August 28, 2014, 02:49:19 PM »
You will be surprised how many of the so called rich immigrants have actually bought using financing. In Canada, a new immigrant can get 65% of the property financed without any credit (FICO) or income. Apparently, a similar product in the US was responsible for the subprime debacle - NINJA loans. You could add no credit to that in Canada if you have been in Canada for less than 5 years.

You could sell an apartment in Beijing for $1 mil and use that as a down payment and buy a house for $2 mil. If you get a HELOC you have a interest only payment of under $3,000 a month while you wait for capital appreciation and then sell. This has worked well for the last 10 yrs. Why would it not work in the future?

Few more points to consider:
For perspective - US which has 10 times our population has 7000 visa's for Chinese investors.

http://money.cnn.com/2014/08/27/news/economy/china-us-visa/index.html?iid=HP_LN

Even if Vancouver gets 100% of our investor immigrants from China - assumption based on our population - 10% would be 700 immigrants.
Could 700 individuals be responsible for the prices in a city of 2.5 mil?

Another interesting stat to look at - the correlation between increase in debt in BC and property prices. It says to me that the increase in prices is not due to cash purchases, but, rather financed by debt.

augustabound

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Re: Garth Turner - Real Estate in Canada
« Reply #172 on: August 28, 2014, 03:00:19 PM »
You will be surprised how many of the so called rich immigrants have actually bought using financing. In Canada, a new immigrant can get 65% of the property financed without any credit (FICO) or income. Apparently, a similar product in the US was responsible for the subprime debacle - NINJA loans. You could add no credit to that in Canada if you have been in Canada for less than 5 years.

At the international arrivals at Pearson in Toronto, right at the end of the ramp coming out into the concourse there's a CIBC kiosk.
A large kiosk. I'd say it's about 20' by 40' with huge signs for people new to Canada to apply for different products.

Last Friday I picked up my wife coming home from Portland and I counted 12 staff members from CIBC. 
"Serenity now, insanity later." - Lloyd Braun

gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #173 on: August 28, 2014, 04:01:30 PM »
Let's do a bit of math here

If an entry level house is $1M in Vancouver - like an old 50 year old house with a basement suite that can be a mortgage-helper -- 

Let's assume 10% down - so $900K mortgage , 3.5% , amortized for 25 years,
my excel formula:  =PMT(3.5%/12,12*25,900000)   = $4500 / month for the mortgage.
The basement suite is probably going to rent for $1500 - so mortgage is $3000. 
$3000 x 12 = $36000.    And if this is 80% of pre-tax income = > the household is making $45000 pre-tax.   This doesn't make any sense.    I don't believe a family making $45,000 in Vancouver are living in $1M homes - they are more likely to be in $300 - $400K condos. 

On the other hand, if say a couple earns $100,000 gross and spends $80,000 on mortgage a year = $6666 / month + $1500 mortgage-helper = $8100 => $1.6M house.   

I'd say I don't know of any couple earning $100,000 living in $1.6M homes. 

What I see are the rich Asian money in $4M ~ $6M homes , cash deal.  Last week a friend of ours came from China and dropped $3M on a lot with a creek - cash deal; and didn't even bother with inspection.    They probably have a printing press for RMB in China so they don't give a >>>> if there's a correction in Canada - they just want the money out of communist reach.  And be available for their children!

---

Now to answer your question:  I'd say immigrants are likely responsible for 30% of new high-end houses in West Van and Vancouver West-side. (i.e., $3M+ homes)   Then there's the $1.5M - $2.0M range for the successful professionals in town -- (doctors, lawyers, good value-investors, etc)   

And then there are high end condos $800K - $1.5M for those who are downsizing from their big home in West Van (i.e., after selling it to the Chinese for $3M+) 

And then you have the working class people (earning $60K - $100K a year) living in $500K - $800K condos

As always, when the thing collapses it'll be the working class people getting their equity in condos wiped out while the high-end houses will not likely be affected because there's limited supply & there the top 1% of 1.5B people is a lot of demand. 

I use Chinese - but don't forget there are a lot of wealthy Canadians from Calgary (oil money), US, Europe, etc.    They too likely don't have a mortgage. 

Gary

edit: On debt: I don't know how that's calculated - I think there are a lot of house builders here that leverage their principal home to build a spec-house to then sell to others....  That could be a source of debt....     I suppose if those people get into trouble we could see quite a few real estates up for grabs - but I'd say as soon as there's a 10% below market price, it'll be gone .   I'm still seeing a lot of multiple offers at 10% - 20% over asking in decent areas...    Every weekend I think about: where do they all print their money????



 

Gary, you seem to be agreeing with me that the locals have taken on a lot of debt to keep up with the high prices - whatever the reason for the high prices. Isn't that a bubble when people do something because others are doing it and it has worked for the last 10 years?

I would ask you to consider what portion of housing sales are made to new immigrants and the percentage of sales to residents. I would assume immigrants buy well under 5% of the properties. Most immigrants are not wealthy and cannot afford to buy within the first 5 to 10 years. This is why a lot of imigrants migrate.

Check out the historical housing affordibility for Vancouver from the RBC study. It shows an average person now has to use 81% of their pre-tax income to buy a bungalow v 50% before this run up started.
http://www.rbc.com/newsroom/_assets-custom/pdf/20140828-HA.pdf

If you were a betting man, how would you bet on this? Is it more likely that a house will get more expensive relative to income or cheaper.
« Last Edit: August 28, 2014, 04:07:11 PM by gary17 »

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #174 on: August 28, 2014, 04:27:21 PM »
clearly, I hear many jump in now because they believe the price is only going to go up.

I haven't seen mid inome ppl buying more than one in presales event, their thinking is price can only go up.

We only need a slight price drop to make ppl worry.


wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #175 on: August 28, 2014, 04:41:19 PM »
Sorry, I should have been clearer. I was talking about Metro Vancouver. The median household income is $68,000 and median house is approx $680,000.

gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #176 on: August 28, 2014, 04:58:17 PM »
Gary, but what happens when you renew your mortgage in 5 years and you pay 6 or 7 % or higher?

You think in 2020 interest rate will be 10%?

gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #177 on: August 28, 2014, 05:09:11 PM »
Sorry, I should have been clearer. I was talking about Metro Vancouver. The median household income is $68,000 and median house is approx $680,000.

Got it - no it is a problem -  look, i'm not dilutional - there's a reason why i haven't got a house - I am hoping the resources here and a correction would help me afford a house eventually -    and it is unfortunate when the premium product keeps on getting more expensive, the regular stuff gets inflated too!  This is mainly because there's a shortage of trades here -- when they are all hired at $30/h or higher to work on luxury homes in the good areas; nobody is left to build the 'affordable' housing... so we end up with condos in the metro Vancouver area being more expensive than they should've been - it makes no sense; but the shortage of labour is the cost of brining the products to the market.  The cost of concrete construction is about $300 /sf and wood-frame is $200   - 
single family is about $150 for entry level and $200 - $250 for high end and $300 for luxury. 

And then there's the land.   

So these developers are still pocketing about 50%  ($300 + land @ $150 - $200? = $600 - but pre-sell them for $800 - $1500/sf)       I'd say there's still enough margin for the developers to let them go at a discount.  That'd be interesting to think about if the developers need to let their inventories go at cheap prices.

My point is we could see a correction; but don't hold your breathe for the $8 WFC or BAC shares type of deal in VancouverRE --- I really don't think that'll happen.

Gary


SharperDingaan

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Re: Garth Turner - Real Estate in Canada
« Reply #178 on: August 28, 2014, 05:47:38 PM »
Those 800K-1.5M condos are debt free & often bought by active & retired boomers. Lux, new, one-floor, & in the centre of the action; no different to someone buying a 1/4 floor in New York - just cheaper. They will live there a good 10yrs+, & eventually use a reverse mortgage against the place to finance their dotage. Long-term money.

Nobody forced that medium income to buy a house at 10x income. Thousands of people move further out of the city & commute; 60-90 minutes each way is pretty normal for a London, New York, Toronto, etc. If you don't want to commute, you made a lifestyle choice - so pay the freight & stop whining.

Nothing says you have to buy in Vancouver either, you could have rented. If you sold your West Van house nothing prevents you from buying lux condos in other cities, renting them out, & using some of that CF to pay your rent in Vancouver. Again, if you want to live in Vancouver you have made a lifestyle choice - so pay the freight.

Nothing prevents anyone from either downsizing to a smaller place, or teaming up with other generations to jointly buy & live in a larger place that has been re-modelled. Common practice in both Indian & Arabic communities, & it often comes with built-in baby sitting. If you are that concerned about cost - either change your lifestyle, or pay the freight your choice generates.

Life is full of hard choices.

SD

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #179 on: August 28, 2014, 06:25:37 PM »
As an investment, buying a house makes no sense given the cap rate and income to price ratio unless you think the price is going to go up.

But having a house gives some people peace of mind and sense of pride which is cool too.