Housing market correction? Nah, that's never going to happen
I thought the COVID crisis would blow this all up, but it hasn't. In fact rural land values keep climbing because of wealthy Torontonians now seeking to have cottages and the like outside of the city.
I don't even know what to say about it at this point. Admittedly the economic situation isn't as dire here because the gov't has spent freely to help keep people afloat, but it just seems so irrational to me that housing prices continue to go up at almost 10% a year when the economic fundamentals are so messed up.
You can see the Canada housing bubble represented in that Canadian households are among the most indebted on the planet (it's heavy with mortgage debt).
Here's a chart showing the prominent split with the US, where they go different directions after 2007-2008 (Canada's bubble and debt accumulation kept going and the US began deleveraging and improving its household fiscal condition and debt to equity ratio in housing):
Median wealth per household is about 200k vs 77k in the USA.
Edit: used per-household stats instead
If you get taxed harder in Canada but then don't have to pay for healthcare or education privately than in the US, then it makes no sense to just say 'look disposable income in Canada is lower, thus debt:disposable income is higher, thus Canada is worse off'. You'd first have to correct for the fact disposable income is lower because taxes are higher, because healthcare and education are publicly financed and therefore individuals require less disposable income and could be just as well off.
Second, just look at mortgage delinquency rates between the US and Canada for an impression on affordability.[0]
Third, debt doesn't matter much, not all debt is made equal. A 15% creditcard loan for $10k is much worse than a $20k 3% loan, in terms of bankruptcy risk, even if the debt to income ratio is worse on the latter loan. You can't just look at debt to income, and again, especially not disposable income between countries which very different systems without correcting for it.
Absolute debt doesn't say much, debt servicing does, and in particular servicing of interest rates. That's actually at historic lows for Canada [1], which is totally different from the US[2]. Canada's debt servicing ratios are much lower than in the US. And that's why, in part, the delinquency rates are much, much lower, and why it's not quite so simple to conclude that Canada is in a RE bubble compared to the US.
[0] https://i.insider.com/596f5f88a47cb502028b4f17?width=750&for... [1] https://www.macleans.ca/wp-content/uploads/2014/03/can_mort_... [2] https://www.macleans.ca/wp-content/uploads/2014/03/us_mort_d...
Canada is a politically stable economically stable and fairly wealthy place (in the major cities) with fairly high immigration rates, and the immigration is merit based and fairly prosperous. So growth has been steady.
That growth kinda snuck up on us, though, even for those of us living here it seems crazy that these cities are "worth" so much now.
A salary will be like 25% less but cars are 25% more expensive? Yet I see some really fly automobiles flying around the TO.
Base salaries for our industry look like they've been improving lately in the GTA. But not so much for other industries.
Except the big one of health care. Daycare, tuition, infrastructure, etc. are also mostly covered depending on where you are. So a lot more is paid for by taxes.
> job offers I turned down from Toronto based tech companies.
Tech salaries are much lower here to be sure, but we just have satellite offices of large tech firms beyond Shopify.
The brain drain south is a well known issue up here. If it were not for the healthcare nonsense in the USA, I probably would have gone too.
1. Canada's immigration system is merit-based. Firms in Canada import skilled immigrants to fill tech vacancies in a way that US-based companies cannot. In Canada, it can take as little as a few weeks to get a temporary work permit for a foreign tech worker. Once they are in the country, they can apply for permanent residency through a provincial program and have PR status (this is like a green card) within a year.
2. Canadian tech firms are generally smaller. It is well known that smaller firms pay less across the board, in all industries, let alone tech.
Yes!
A dollar is a good just like any other. If there is more of it, it is worth less. If you print more money, the dollars that people hold and have are worth less.
That said, the US has gotten away with printing dollars for a very long time with very little inflation in basic consumer goods. It seems to mostly end up in real estate, stocks, etc. where most are happy to see prices shoot up. Except, of course, those who are just getting started and can't afford to get in on the inflated prices.
We need to go after these people hard because they are collapsing our civilization. There need to be punitive actions that correct the market and drive it back to something that actually produces people living in homes for a low price and development moving in a resilient, frankly boring manner. This in turn produces a populace with more free time, a requirement for training & education, something that will have to be done with increasing frequency as time goes on. This drives wages up naturally, as more people can choose to work less or not work. This shrinks sustenance & panic borrowing, which is another reason FIRE likes keeping us on their hook. This stops much property crime, which shrinks the need for police forces, jails, & the circus of pornographically perverse incentives that surround our criminal justice system.
In no uncertain terms let me say this: if we tanked the price of housing, tanked the rental market, and got humans into houses instead of some wealth-dreaming deluded landlord or scummy bank that wants to reap what they never sow, we could easily transition into the future we desire. The loss people fear with this action isn't actually a fear of the loss of wealth, it is the fear of losing the ease-of-mind and projected future peace associated with ownership of the asset. We would do well to begin considering how to provide that for one another without harming one another.
Why not just eliminate private property all together? Everyone should just rent stuff from the government.
That is something that could be done, to a degree.
You can increase transfer taxes and offer a partial refund over the course of some number of years, provided that the home has the homeowner exemption in place.
Increase the property tax rate while also increasing the homeowner exemption so that the total tax paid is the same as it was before.
Etc.
If tomorrow a law came about that said 'you can own no more than one home, full stop', watch how many renters buy their first home on firesale.
If you limited home purchases to say, one per year or two, it would open back up the lower cost market. Not every house needs to be flipped.
The current system works perfectly for what it was designed to do. The cycle repeats endlessly funneling money from the lower class upwards.
At the same time, it could also be accurate to assert that without some organization propping up the economy, short term losses, and possibly long term harm, would greatly exceed whatever the delta ends up being on the Fed's purchases/sales.
What's happening instead is that money is funneled almost directly from Federal Reserve accounts into equities markets, making only a brief appearance in the hands of consumers. There, it mostly seems to prevent deflation -- which keeps people buying stuff and avoids massive unemployment (and causing even more deflation).
At some point the market will correct, and the outflow will go... somewhere. A lot of that money will simply vanish, leaving us with massive debts owed by the government to the banks and large bond buyers. That will be a whole different kind of crash.
[1] https://www.bls.gov/charts/consumer-price-index/consumer-pri...
* Big Tech use skyrockets taking the market higher.
* Fed pumping trillions inflates asset prices.
If inflation comes and it becomes necessary to raise interest rates, that would cause a correction.
Since there is so much cash floating around and no good places to put it, when people have to exit the market new money floods in, keeping asset prices up. In January PE firms had 1.5T cash ready to invest. I'm sure that will get deployed as bankruptcies start to happen.
2019 - 15.4 trillion.
2020 - 18.3 trillion and growing...
(M2 dollar volume)
As they say - the market can stay irrational longer than you can stay solvent...