Author Topic: Garth Turner - Real Estate in Canada  (Read 512392 times)

gr33ngi4nt

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Re: Garth Turner - Real Estate in Canada
« Reply #290 on: February 12, 2015, 06:35:22 AM »
I came across these charts yesterday. I suspect the mix for Toronto (which doesn't break out multis vs. singles) is more heavily skewed to multis than in the Ontario chart. Pretty scary.

I just signed a lease for a 1br condo in Toronto. During the viewing and negotiating process you could really sense how desperate the agents/landlord are to get the units rented. Mind you, it is in the middle of winter, kids still in school, and multiple condos completed during the same month. 


frommi

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Re: Garth Turner - Real Estate in Canada
« Reply #291 on: February 12, 2015, 07:26:15 AM »
Does it make sense to short canadian banks based on this insight?
« Last Edit: February 12, 2015, 07:46:07 AM by frommi »

LongHaul

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Re: Garth Turner - Real Estate in Canada
« Reply #292 on: February 12, 2015, 08:00:41 AM »
Thanks for the replies of why Canadian homes didn't crash.

I am in the US and I think it may be easier to spot bubbles when you are outside of the country.  Less koolaid being offered daily!  I think homes in Canada are about 75% overvalued.  I got that from looking at the economist website and comparing the average long term real price and price to rent and both work out to ~75% overvalued.  The US wasn't that overvalued overall.  If I owned one of these overpriced homes I would immediately sell and rent.  That can be a very significant amount of money.

I agree that a bunch of other places are in bubbles too, China, Australia, etc.

mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #293 on: February 12, 2015, 08:14:14 AM »
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #294 on: February 12, 2015, 08:18:49 AM »
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)

Interest rates are similarly low in many other places, yet houses aren't as expensive as in Canada.

I think what will matter in the end is that house prices have completely disconnected from wages. People are barely able to afford housing even with the help of super low interest rates. Most people justify buying because they think prices will keep rising and 1) if they don't buy now, they'll never be able to and 2) over time they'll make money on their house.

As soon as sentiment changes and people realize that trees don't grow to the sky, I think things can start to happen fairly quickly.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

petec

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Re: Garth Turner - Real Estate in Canada
« Reply #295 on: February 12, 2015, 08:24:24 AM »
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)

Interest rates are similarly low in many other places, yet houses aren't as expensive as in Canada.

I think what will matter in the end is that house prices have completely disconnected from wages. People are barely able to afford housing even with the help of super low interest rates. Most people justify buying because they think prices will keep rising and 1) if they don't buy now, they'll never be able to and 2) over time they'll make money on their house.

As soon as sentiment changes and people realize that trees don't grow to the sky, I think things can start to happen fairly quickly.

+1 and I fear the UK is in the same position.   Although, I do think that a decade or so of ultralow rates is a possibility, as per the previous post.

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #296 on: February 12, 2015, 08:28:03 AM »
+1 and I fear the UK is in the same position.   Although, I do think that a decade or so of ultralow rates is a possibility, as per the previous post.

That's possible, but I don't think interest rates have to rise for sentiment to change (at least in Canada, I'm less familiar with other markets).

The current oil crash could be the final nail in the coffin. Mining (esp. junior) has been depressed for a few years, and now this. That's a big chunk of the Canadian economy, and especially, a very visible chunk. Bad news are hard to ignore when you have no margin of safety (record debt levels, etc).
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

LongHaul

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Re: Garth Turner - Real Estate in Canada
« Reply #297 on: February 12, 2015, 08:29:58 AM »
Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages.

Adjusting for that, maybe housing prices aren't as overvalued as it seems?

That obviously changes if mortgage/interest rates go back to or above historical averages.

However, what about the off chance that we have another decade or two of low/declining/negative interest rates?  ::)


Both are fair points.  I have no idea when interest rates will rise.   We are in some weird times with interest rates though.
~140 year lows on the 10 year US treasury yield.  140 years!  http://www.multpl.com/interest-rate/
Negative interest rates in Germany too.  Which is just insane to me.
For interest rates to stay low you would have to believe investors would accept 0 or negative real interest rates for an extended period which I think is unlikely.   But who knows - I am no expert and if you had told me German interest rates would be negative I would not have guessed that.  BTW - German residential real estate seems roughly fairly valued.  Japan is probably also.

I think there is a benefit for the levered buyer on a present value basis. But the risk seems to be on the downside at these prices.

A lot of people attribute the current central bank actions of lowering rates to causing bubbles, etc.  It may be partially the reason - hard to say how much though.  In the late 1920's, ~2000, and 2006 interest rates were higher and there were bubbles in addition to many other times.  No real estate bubbles in Germany and Japan housing that I know of now.  So it seems to me that the overriding point is human nature which which gets caught up in bubbles like teenager drinking beer.

petec

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Re: Garth Turner - Real Estate in Canada
« Reply #298 on: February 12, 2015, 08:33:50 AM »
+1 and I fear the UK is in the same position.   Although, I do think that a decade or so of ultralow rates is a possibility, as per the previous post.

That's possible, but I don't think interest rates have to rise for sentiment to change (at least in Canada, I'm less familiar with other markets).

The current oil crash could be the final nail in the coffin. Mining (esp. junior) has been depressed for a few years, and now this. That's a big chunk of the Canadian economy, and especially, a very visible chunk. Bad news are hard to ignore when you have no margin of safety (record debt levels, etc).

I don't think interest rates have to be the trigger either.   But (speaking for the UK, and specifically London) I think the psychology of ownership is so strong that it will take time, or a real crisis, to change it.   It's just been so long since anyone really got hurt owning property here that people don't consider the downside.   I'm not even sure most have any way to visualise the downside and the leverage.   And they don't have to because so far every dip has been temporary since the 1970s.   Housing is a) basically the only investment option most laypeople have, b) a surefire winner in the popular psychology, and c) an essential that seems only to get more expensive.   You can understand why the mindset exists and I do think it will take time, or a crisis, to turn.

petec

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Re: Garth Turner - Real Estate in Canada
« Reply #299 on: February 12, 2015, 08:35:59 AM »

A lot of people attribute the current central bank actions of lowering rates to causing bubbles, etc.  It may be partially the reason - hard to say how much though.  In the late 1920's, ~2000, and 2006 interest rates were higher and there were bubbles in addition to many other times.  No real estate bubbles in Germany and Japan housing that I know of now.  So it seems to me that the overriding point is human nature which which gets caught up in bubbles like teenager drinking beer.

Surely it's the direction of rates that matters, not the level?   My underdstanding is that pretty much every bubble has been preceded by easing monetary policy.   But clearly the teenager/beer psychology is also key - the two interact with each other.