Author Topic: Garth Turner - Real Estate in Canada  (Read 512491 times)

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #320 on: February 12, 2015, 12:39:28 PM »
Don't NY or San Francisco have land restrictions? If yes, why is that any different in Canada - why does it result in higher prices in Canada. NY median houses are cheaper than Toronto. Does that imply Toronto is more desirable and people will leave NY to move to Toronto.

Does Canada have less desirable cities (as a %age) or is it just Toronto and Vancouver that everyone lives in? Would someone move from Windsor/Winnipeg to Miami. Not sure how that makes any difference to affordibility, highest ever debt levels, highest ever homeownership.

All I can say is all the power to individuals that think this is a good bet to make and a place to have their capital as I am not comfortable putting my hard earned capital  at risk when the odds aren't in my favour.

We should list - numbers/facts that are at historical highs in Canada - those are easier to layout rather than stories that can be used to rationalize what has happened.

If most of the numbers are against buying - then the odds are your capital is at risk. I do not expect everyone to agree as there is always some story that can be used to rationalize any decision.
 
Nor does it imply a crash is imminent. But, once the music stops watch out.

EDIT: That should read NY metro and GTA, not NY and Toronto.
« Last Edit: February 12, 2015, 12:42:23 PM by wisdom »


Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #321 on: February 12, 2015, 12:52:28 PM »
All the excuses I hear about Canada being different ring hollow to me. Vancouver is not Paris or New York, Canada isn't 2x more desirable to live in than the US, our economy isn't booming, land is not scarce, our debts are incredibly high.

I don't know what stats you are using but remember that averages are misleading. Average U.S. housing prices might appear cheaper but most of the cheap cities are not desirable. Anyone want to move from Toronto to Detroit, Buffalo, or Cleveland? The really desirable cities (San Francisco, LA, San Diego, NY, Miami) are expensive even after the housing meltdown.

The other factor that people are ignoring is land use policies. Land is scarce in Vancouver and Toronto. In 2005, the Ontario government introduced the Places to Grow Act designed to promote intensification. This has limited the supply of single family homes (and resulted in a condo boom).

Housing prices are certainly elevated but when you can control for supply constraints and interest rates, I don't know that we can be certain there is a bubble. We will only know in retrospect.

I know all this. Still doesn't make sense to see housing totally disconnect form wages and inflation for so long. Do we foresee people making 60k/year buying $3-4 million houses in 10 years? Where does this stop? Either wages go up a lot to catch up, or housing comes down a lot. Because in the meantime, the delta between wages/inflation and housing has been filled with debt, and there's a limit on that too.
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mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #322 on: February 12, 2015, 12:57:05 PM »
Would it be possible that people can just afford to pay more for a house?

This is just a back-of-the-envelope calculation:

Toronto Median Detached Home in 2005 was ~$350K. Avg. Mortgage Rate: 6%. Median Household Income ~$65K
Toronto Median Detached Home in 2014 was ~$600K. Avg. Mortgage Rate: 3%. Median Household Income ~$72K

If you assume a 70% LTV at those rates, interest expense in 2005 would be $15K and in 2014 would be $13K. Given that household income has risen while interest expense has declined..

http://creastats.crea.ca/treb/mls/mls05_median.htm
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #323 on: February 12, 2015, 01:10:51 PM »
This tool is pretty neat (you can isolate countries in the list on the right, say, Canada and the US):

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
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wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #324 on: February 12, 2015, 01:20:54 PM »
That is true at this point in time. Is it different in US, Japan or Europe? Why are their houses cheaper?

I do not anticiapte everyone to have trouble with their mortgages. Just on the margins.

So what matters is the number of individuals who will have trouble servicing the debt during financial stress:
1) longterm home ownership rates in Canada are around 63%. Today around 70%. In the long run could it go back to 63% or is it different this time.
2) debt to disposable income was around .90 until the late 1990s. Now 163%. Is this a permanent state where we can carry 60% more debt over the long run.
3) Consumer debt per capita in early 2000s was around $19,000. Today $29,000. In British Columbia it is at $38,000.
4) total private debt is close to 100% of GDP at a historical high.
5) Can first time buyers afford to buy. Where is the future demand coming from?
6) A median house is 5.5x median income. In the US it is 2.5x. Are the rates not low there? Are their incomes that much lower?

This is the same point Liberty raised when he talked about - individuals are looking at the payments and not the total cost of owning. What is the difference between a $200,000 mortgage v $400,000 using the long term average 5 year mortgage rate in Canada - most mortgages in Canada are amortized over 30 to 40 years. What will the total cost over the 30 or 40 years be.
« Last Edit: February 12, 2015, 01:29:03 PM by wisdom »

mcliu

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Re: Garth Turner - Real Estate in Canada
« Reply #325 on: February 12, 2015, 01:36:06 PM »
That's the whole point though. Even though debt-to-income has risen by 70%. The cost of carrying that debt has dropped by more than 50%. So on a net basis, the carrying cost of your debt may have actually declined over the past 2 decades.

From an affordability perspective, it's actually cheaper to buy a $600K today than to buy a $350K house in 2005, even though the price has nearly doubled. So you end up with a mortgage twice as big, but the cost of that servicing that mortgage is actually lower..

Obviously, if you believe that rates will go back to the levels in the early 80s, then the debt service is unlikely to be sustainable. However, you can't rule out the possibility that rates will continue to go lower.. I mean it's been going lower for the past 4 decades..

P.S. I actually think housing prices are ridiculous in the GTA area, but I just wanted to make sure we're covering all the possibilities.

KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #326 on: February 12, 2015, 01:37:27 PM »
Don't NY or San Francisco have land restrictions? If yes, why is that any different in Canada - why does it result in higher prices in Canada. NY median houses are cheaper than Toronto. Does that imply Toronto is more desirable and people will leave NY to move to Toronto.

If I wanted to sell my detached house in Toronto (great neighborhood) and move to Manhattan, could I buy a similar house for the same price?

Nope, I just looked on Trulia. If I want a townhouse in a nice neighborhood in Manhattan, I will need to sell 10 of my houses. There is a small vacant lot in East Harlem that is only 50% more than my house in Toronto, though.

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #327 on: February 12, 2015, 01:40:28 PM »
Is the median income in Manhattan and East Harlem the same as the neighbourhood in Toronto?

KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #328 on: February 12, 2015, 01:42:02 PM »
Is it different in US, Japan or Europe? Why are their houses cheaper?

Why do you think their houses are cheaper?
https://financialpostbusiness.files.wordpress.com/2014/11/fp1106_world_property_markets_940_ab.jpeg?w=620&h=666

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #329 on: February 12, 2015, 01:43:32 PM »
I beleive the median house price in metro San Fran and greater Vancouver is around the same.

The median household income in SF is just below $100k whereas in Vancouver it is $69,000. I believe SF might have more billionaires and millionaires than Vancouver. Does that explain the high debt levels individuals have?

SF and Vancouver have land restrictions. Both have low rates.
« Last Edit: February 12, 2015, 01:48:55 PM by wisdom »