Garth Turner - Real Estate in Canada

[Viking]

My guess is interest rates are the key. As long as rates stay low the machine will continue to roll. Once mortgage rates move up a couple of percent things will get interesting.

[Liberty]

http://www.bnn.ca/News/2014/12/3/Canadians-now-owe-more-than-15-trillion-in-consumer-debt.aspx

[50centdollars]

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/price-for-detached-home-in-greater-vancouver-nears-1-million/article21887389/

[50centdollars]

http://www.theglobeandmail.com/report-on-business/economy/bank-of-canada-says-housing-market-overvalued-by-as-much-as-30/article22021768/

[Liberty]

I thought this was interesting, especially the graph on page 3:



http://policyschool.ucalgary.ca/sites/default/files/research/kneebone-unemplfinal.pdf



Found via: https://twitter.com/fcfyield/status/553599644719407104

[enoch01]

Hilariously, Mr Market is still pricing Canadian banks at about 2xBV.

[LongHaul]

I may agree that Canada is in a bubble - I need some more data.

Just curious - if I buy an average home or condo in Canada what is the unlevered cap rate for the owner?
This should basically be rent minus taxes, home insurance, maintenance, hoa fees if any and other misc.  I would exclude leasing fees, vacancy, utilities (pd by owner I assume if he rented it to a tenant).   For maintenance I would assume $1 a SFT for a home which is probably roughly right.

This helps me quantify the unlevered return (excluding appreciation/depreciation) of buying a home.

For example - in Southern California the cap rate for average places went to ~2% in 2006.  That is a P/E of 50 unlevered and makes no fundamental sense. 

My area in Texas is ~ 5%   15k on 300k home which is nothing great but not so horrible either.

Thank You

[no_free_lunch]

Where I am, ballpark, 3-5%.  5% would be a multi-tenant building and would assume 100% occupancy and minimal problems from tenants, e.g. not realistic long-term.  That is also after property tax/insurance/maintenance/etc but before income tax.

EDIT: Also that is based on current rental prices which have risen substantially (roughly 100%) over the past decade.

[moody202]

I may agree that Canada is in a bubble - I need some more data.

Just curious - if I buy an average home or condo in Canada what is the unlevered cap rate for the owner?
This should basically be rent minus taxes, home insurance, maintenance, hoa fees if any and other misc.  I would exclude leasing fees, vacancy, utilities (pd by owner I assume if he rented it to a tenant).   For maintenance I would assume $1 a SFT for a home which is probably roughly right.

This helps me quantify the unlevered return (excluding appreciation/depreciation) of buying a home.

For example - in Southern California the cap rate for average places went to ~2% in 2006.  That is a P/E of 50 unlevered and makes no fundamental sense. 

My area in Texas is ~ 5%   15k on 300k home which is nothing great but not so horrible either.

Thank You

The cap rates also vary by type of property. As an example the lower priced properties have a higher cap rate....the slums have the best cap rate!!!

Also -- In my area I have found single family homes have higher cap rates than condos but also come we more headaches.

[mcliu]

http://www.airdrie.ca/getDocument.cfm?ID=2722

http://renx.ca/wp-content/uploads/2014/10/14oct16-ColliersQ3-caprates1.pdf

Sub 4.5% cap rates in Vancouver/Toronto for multi-family units.