Garth Turner - Real Estate in Canada

[Liberty]

Yes, it will be ugly. Many of the high end homes were purchased by the riches.. so those might be ok.

But many of the smaller houses are owned by normal families with big mortgages.

But I am in the camp that BoC won't raise rate even if US does. They just can't.

You mean ever?

Money will just stay free forever and that's the solution. Case closed. Is that something you want to bet on?

Maybe houses will also keep appreciating at multiples of wage growth for a decade or two also, the difference can just be made up of even more debt...

Where do you see the CAD vs the USD in 2-3 years if the Fed methodically raises during that time?

[augustabound]

Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?

We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario. 

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question 
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

[alertmeipp]

Yes, it will be ugly. Many of the high end homes were purchased by the riches.. so those might be ok.

But many of the smaller houses are owned by normal families with big mortgages.

But I am in the camp that BoC won't raise rate even if US does. They just can't.

You mean ever?

Money will just stay free forever and that's the solution. Case closed. Is that something you want to bet on?

Maybe houses will also keep appreciating at multiples of wage growth for a decade or two also, the difference can just be made up of even more debt...

Where do you see the CAD vs the USD in 2-3 years if the Fed methodically raises during that time?

For sure, not forever.
CDN can go all the way to 60 cents. And the houses will look even cheaper for the foreigners.

Canada gov really in a difficult position, they really can't do much, burst it and we will lots of job losses. The real estate industry probably hire tons of ppl directly and indirectly....

[SharperDingaan]

You might want to revisit your ‘investment’ analysis

ASSUME that BOTH house buyer and professional landlord are WISE speculators.
Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto.

The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff.

Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit.

Most folk have a much lower risk tolerance than a speculator.
If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket.

Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option.

Your choice.

SD

[alertmeipp]

Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?

We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario. 

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question 
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

Interesting, thanks. I heard a new site near Aurora had 100s of ppl lining up. And some buy more than 1.

[wisdom]

Liberty while it will not be ever, it could be a while before rates go up.

Think about this -
1) unless commodities bounce back - just had a 15 year run
2) housing continues booming - has been booming for 15 years
3) manufacturing comes back - it will take time before manufcturing starts coming back.

Where do blue collared workers who lose jobs in the resource field get jobs that pay as much.

At the sametime, we have the highest debt loads in recorded history. The only way they can counter it is by having the loonie at a low level v USD. Beggar thy neighbor.

At this point I don't know how to think about it because if the loonie drops too much that could lead to inflation and thus, higher interest rates.

The authorities have chosen to be risk averse and take the easier route in the last 20 odd years, so I expect them to choose lower rates rather than have the population deal with the pain of defaults and higher interest rates.

While I say this, I realize these things are impossible to predict.

EDIT:
I was reading an article about those big yellow trucks at mining sites. The drivers are paid $200,000 a year. And a lot of companies are in the process of buying self driving trucks over the next 5 odd years. No one is going to pay a truck driver $200,000 anywhere else.

[alertmeipp]

You might want to revisit your ‘investment’ analysis

ASSUME that BOTH house buyer and professional landlord are WISE speculators.
Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto.

The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff.

Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit.

Most folk have a much lower risk tolerance than a speculator.
If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket.

Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option.

Your choice.

SD

The strategy works when things keep going up.
It's a confidence game. Once ppl realize house prices can drop. Unsold houses will jump. Speculators stuck with houses and they can't afford P+I or just I.

Will be ugly.

[Yours Truly]

Wow, I didn't really the madness goes all the way up there. Any idea who are those buyers (local or from oversea)?

We're the next best option for those moving out of the city. When the developer opened about 7 years ago, most were from Woodbridge, Mississauga, Richmond Hill and Newmarket.
Five minutes to the 400, 20 minutes to Barrie, 10 minutes to Newmarket and we have a GO station.

I'm not sure the demographics of the resale buyers. So far the house across the street was bought by an Asian couple with no kids. They look to be our age (late 30's), both drive Mercedes and they spent a month renovating before they moved in. They renovated a new house, yes.
Same with our friends house up the street, same scenario but his family has young kids.

The demographic for Bradford was predominantly white with a fairly large Portuguese population and Italian when the new homes started.
The last couple of years Bradford looks more like a typical GTA town, more diverse.
Those that are leaving Bradford from our neighbourhood seem to be cashing in and moving further North. Innisfil, Barrie etc.

We bought in 2011 for $349 and as of last January when new phases were released, our model is up to $505. Our next door neighbour who just sold for $629 paid $369 in 2011.
Yes, in Bradford, Ontario. 

In a town that had 18000 before the developers showed up will have added something like 3000 homes in 8 years. Our developer is closing in 3 years and will have built 1200 homes in 10 years.

Edited to actually answer your question 
They all seem like they've just moved from elsewhere in the GTA. Some neighbours I spoke to that moved from Woodbridge etc have done this before. Buy a new home before the ground has broken, live there a couple of years rinse, repeat a bit further North.
I'm pretty sure the diversity in our town now is just people moving from the GTA rather than completely new Canadians or investors.

I know a handful of acquitances that have bought in Bradford with the sole intention of buying pre-construction, adding cosmetic touches only to flip it a few months to a year later.  They think it's guaranteed money with zero risk and so far they've been spot on.

[alertmeipp]

Liberty while it will not be ever, it could be a while before rates go up.

Think about this -
1) unless commodities bounce back - just had a 15 year run
2) housing continues booming - has been booming for 15 years
3) manufacturing comes back - it will take tiem before manufcturing starts coming back.

Where do blue collared workers who lose jobs in the resource field get jobs that pay as much.

At the sametime, we have the highest debt loads in recorded history. The only way they can counter it is by having the loonie at a low level v USD. Beggar thy neighbor.

At this point I don't know how to think about it because if the loonie drops too much that could lead to inflation and thus, higher interest rates.

The authorities have chosen to be risk averse and take the easier route in the last 20 odd years, so I expect them to choose lower rates rather than have the population deal with the pain of defaults and higher interest rates.

While I say this, I realize these things are impossible to predict.

Yes, if you believe CDN will go lower, buying FTP is the way to go. 
The exchange rate saved them lots of headache.
We should open another thread to talk about idea that will benefit from lower CDN.

[enoch01]

You might want to revisit your ‘investment’ analysis

ASSUME that BOTH house buyer and professional landlord are WISE speculators.
Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto.

The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff.

Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit.

Most folk have a much lower risk tolerance than a speculator.
If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket.

Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option.

Your choice.

SD

I'm glad I don't have to get into the game of trying to justify low single digit rental yields because I'm too dumb to understand what any of the above means.