Canadian property bubble nears systemic failure
betterdwelling.com
betterdwelling.com
It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.
But it never does. Prices are still high because demand is high and supply isn't keeping up. Demand is high because our financial laws allow criminals to launder money through housing, and because we're a desirable country for wealthy immigrants. Supply is low because cities have too many NIMBY politicians that are against density increases.
I wish it would just pop so we can all get on with fixing the root problems.
Right now it seems like to buy a house you have to offer no conditions, so no housing inspections etc. which is probably going to lead to a good number of screwed people when they find out their 900k home needs an extra 200k in work.
Western nations all deciding to encourage homeownership looks like a bad decision in retrospect. Having a large percentage of voters with a large percentage of their net worth in a particular asset class practically guarantees bad policy with respect to that asset class. The same sort of thing is no happening with pension programs being replaced by investment schemes that encourage widespread stock ownership.
Both are going to get bailed out by governments the same way, by inflating asset values. At least with the individual investing in the index fund directly, they get to save money by not having to pay the pension fund board members and actuaries and lawyers and all that overhead.
Multi employer funds also got bailouts via all the asset inflation, but I assume you are referring to an explicit cash transfer bailout, which I am not aware of. I am simply referring to the continuing trend of devaluing currency and inflating assets to fulfill debt obligations. In which case pension funds only serve as unnecessary middlemen where a target date fund from Vanguard/Fidelity/Schwab will do just the same.
I'm starting to come to the view that you should only be able to own one house, and you've got to live in it otherwise you pay full market rent on the vacancy.
I think about the housing situation as an almost existential economic threat. With the scale 'money' sitting in housing the banking sector is acting like a parasite starving potential capitol from growth opportunities.
It's really grim.
Joe Walker: "Sydney and Melbourne are 2 of the most expensive cities in the world..."
Tyler Cowen: "AND THEY SHOULD BE! Great food, great views, relatively competent government. Are there 2 nicer places to live on Earth? Maybe these places are actually undervalued?"
Turns out really great places to live are extremely rare (Toronto, Vancouver) and expensive for good reason.
Anyway, as we were boating about the proper harbour side mansions that sit close to the water. I noticed a few things. A lot of them were empty. I asked about this and the finance guys with us mentioned that most of them were land banking assets for Chinese money which isn't safe in CCP banks. I'm not sure how real this is, but if I owned a home on the waterfront in Sydney, I'd never leave the balcony.
Anyway, the effect is that rich foreigners own the places where our rich countrymen used to live. So now they've moved a street back and pushed all the upper middle class into the inner suburbs and now the regular professional folk our on the outer rim. And if you aren't rich, then your over mortgaged and live in a flood plain. Which just flooded.
Sydney is nice, but it's getting less nice, we generally need more cities in Australia. But what we really need is people to treat the family home as that. A place for families to grow and not some asset class.
It could be a simple as using a multiplier. Own 3 taxable properties? Your rate for each is 3x the base rate. Unsustainable? Great, lower the base rate.
And worse it’s that way for a super rich elite that buys assets and leaves them unused for most of the year.
The thing is, none of these things are a function of previous owner or landlord, so why should I be paying them for these great things?
Put another way, I'm honestly glad to pay lots of money to live in Toronto, because what I get for that is amazing. But I'd rather just pay that directly to the people who made the city great (the community as a whole), rather than someone who simply had the luck to buy at the right time.
None of it made much difference. Homes are selling after just days on the market, and as much as half a million above asking.
Putting a for sale sign on your lawn is akin to chumming shark infested waters. It begins a bidding frenzy.
I don't know what the solution is, but I'm ready to throw in the towel and leave the country for more affordable locales as soon as my lease is up. I don't work a local job, there's no reason for me to be here aside from the fact that I love the city and the country.
Build more homes.
It's part of a solution, but a shift to higher density housing is also required.
Housing is essential. It's bordering on a human right. When only the people who already own property can afford the prices, you've effectively created an insurmoutable barrier between the haves and the have-nots. The solution is to build more homes in the areas with jobs, and to make it unprofitable for private actors to own rental properties.
You have to rent them, and at that point they're part of the rental supply and not contributing to the problem anymore.
An excellent way to drive up rents into the stratosphere, both by reducing the rental stock and by having the landlords pass the tax right on to the renter (remember, landlords don't run charities and will adjust rents accordingly). So all you're doing with that high tax is giving even more of a subsidy to homeowners at the expense of renters. Regressive taxation in all but name.
not sure how it is in canada, but money laundering is taken fairly seriously in australia.
As for wealthy immigrants, the amount of purchases by foreign investors are few compared to locals purchasing.
> get on with fixing the root problems.
and nobody agrees what the root problem is.
The marginal buyer[1] has pricing power, so it doesn’t need to be a huge number. Pricing is complex though so I’m not sure that’s really what makes sense to call the root cause.
[1] http://www.jnrealty.ca/buyers/what-is-a-marginal-buyer-/
But the article has no date. Seems like marketing copy to me.
https://www.bcrea.bc.ca/practice-tips/2021-changes-to-your-a...
> The U.S. Department of State has designated Canada a “major money laundering country” where foreign drug-trafficking gangs are exploiting weak law enforcement and soft laws.
via https://globalnews.ca/news/5102137/us-canada-major-money-lau...
> Tim Hudak, president of the Ontario Real Estate Association, said he was “very nervous” that Toronto’s housing market could see an influx of dirty cash as B.C. regulators crack down. “I’m very nervous that the Greater Toronto area will become the epicentre for dirty money in Western democracies,” Hudak told Global News. “For some reason, Canada still seems to be in a bit of the dark ages when it allows drug dealers to hide behind numbered companies and snap up real estate.”
https://globalnews.ca/news/6608644/canadian-real-estate-abys...
I highlighted this in another comment: foreign ownership is banned in New Zealand but they are going through the same speculative asset bubble.
Interest rates are at record lows. Stocks and other assets are at record highs. People are buying and selling NFTs for millions of dollars. Canada and other governments have erected policies that solely benefit homeowners (e.g. no capital gains on appreciation of your principal residence). Why isn’t occam’s razor sufficient here?
I’m not saying money laundering or foreign ownership aren’t happening. I am saying that at best, it is one of a number of factors.
There are a lot of loopholes to exploit, especially in regards to real estate.
> too many NIMBY politicians that are against density increases
Now I'm sure you can argue that there's no real contradiction between these two statements, but I can't help but feel that these are one and the same problem, and that we need some idea beyond the supply-demand or nimby-yimby binaries. Do these concepts really model the reality well, or perhaps more importantly lead us towards the reality we want to see? Isn't this high-density housing also just another way for real estate people to speculate?
I think we have to start looking at this problem like we do healthcare: the markets are _the_ problem. Housing should be something more like a right.
Thinking about it. China itself is a good example. A fifth of the entire housing stock are vacant concrete boxes despite China having the biggest construction boom in human history for 20 years in a row (Chinese construction industry builds one California worth of housing every 2-3 months.)
Rents are very low though, rent to buy ratios above 100 are not rare.
Food for thoughts.
From my point of view it's the real estate industry that's propping up the bubble. Evan Siddall came out telling the truth. https://www.thestar.com/business/2021/03/02/canadian-press-n...
Fired immediately because of outrage by the FIRE industries. The problem with Canada is that we taxed all our industries out of existence. We only really have FIRE industries or our economy crashes. There is technically only 1 way for it not to crash. Hyperinflation will fix the problem, though yes grandma and grandpa have to go back to work.
>It was just about to pop 6 years ago when I bought my condo. It was about to pop when values stopped increasing so dramatically 3 or 4 years ago. It was about to pop when the COVID-19 pandemic halted most sales. It's about to pop now because everyone is leaving the cities because of WFH rule changes.
Technically the bubble has existed since about late 90s and worse yet the federal government(Harper) spent significant tax payer money to keep our housing bubble from popping. https://4.bp.blogspot.com/-T_t1vRHF1Wk/Tl_578DBn3I/AAAAAAAAD...
That graph shows the problem. The USA took the hit in the face but we didn't.
https://tradingeconomics.com/canada/households-debt-to-incom...
The problem is that interest rates are so tremendously low and in some countries even going negative because it's a bubble that the governments are propping up. They'll risk everything to not be the last guy holding the bubble. It has gotten to the point that Canada's governments are not releasing financial information and even blocking evictions and such. Exacerbating the problem.
>I wish it would just pop so we can all get on with fixing the root problems.
It will continue so long as the government runs deficits. Everyone gave Kathleen Wynne a hard time about deficits but Ontario's deficits are not going to at least 2030. By Ford... the guy most likely to balance the budget. Meanwhile Trudeau's deficit of ~400 billion in a single year is equivalent to about 20 years of government debt.
The deficit problem is so bad that they are planning to simple print money. If your debt is locked in at 6% or so like ours is. If inflation is 50%. The problem goes away quickly. They will do that before letting our last industry fall. Especially given our taxes are so connected to the value of what is on the property.
I make more money alone than both parents did at my age. And I cannot afford even 1/3 of the house they bought when they were my age. And not some Toronto house. Just this thing on the edge of Waterloo. The house is worth 1200% what it was in 1989.
Luckily remote work allowed me to move to rural Ontario but even here prices are exploding. At this point I'm expecting my house to be worth a lot less one of these days, but I think it inevitably will appreciate in value long term.
Living in or near Toronto isn't even a possibility anymore.
It's not sustainable generally and political will for ever growing prices will have to shift as demographics age and non-owners grow relative to population.
And if interest rates start going north in any real way it's going to be severe with some of the debt load you hear about so many people taking on.
because there are even higher earners buying, pricing them out. So are they really 'high' earners?
I think the lack of supply is the true source of the problem.
There are of course still limitations to the impacts of higher density as well, the desired living conditions of many buyers is yard+reasonable commute, so there is an absolute physical constraint here as well.
Or a solution that speaks to that. E.g. A progressive tax like income is but in total residential property value.
Something like <$1m is 0%. $1-3m is 1%... Etc. Make the top rate untenable to own more than $Xm in residential like 10% + top rate for anything held under obscure ownership structure.... or whatever bands/percentages that seem right.
There is an increasing small group of people that own/inherit significant residential ownership. And while there is a physical constraint side of housing, fixing residential as investment vs place to live can take a heap of pressure off and is a much easier/faster point of solution I feel.
I cant remember where I heard but someone said residential property can either be good for investors or owner occupiers. Not both. Ultimately the government needs to prioritise occupiers in my view anyway as not just for happy people, but this brings stability and economic benefits to a society.
Interest rates in the east 80s were in the teens. Today they are around 10x less at 1.5%. Over 25 year amortization that makes a big difference in total interest payments.
Also the house in question doubled in value in just the last number of years alone when rates were already basically zero.
Low rates are quite something. My mortgage is fixed at under 3%. As a result I'm actually discouraged from paying off my mortgage because all my index fund investments return way above that.
Total payments over 25 year amortization:
$50k —> $192,125 $600k —> $719,885
So yeah, interest rates don’t explain it. We are paying too damn much up front!
I have a house in Kitchener but also a farm in PEC. The situation in rural Ontario is an order of magnitude worse and certain to crash. I bought farmland (with pretty bad soil) in 2014 for under $2000/acre—basically it’s agricultural value. A one acre lot across the street from me on a similar old farmstead sold for 100x that price this winter. This is not sustainable, I mean our wells go dry all summer. I get high speed internet such as it is through a complex direct LTE setup. This demand won’t last.
Today? $25,000-$30,000/acre and farmers pay… $150-$200/acre. Far worse return. Yet there is a frenzy anytime land comes available.
Waterloo is a legit school, not unexpected for it to draw international students and of course they have money, international tuition ain’t cheap.
Supply in KW is far more constrained that GTA. I bought here in 2019 after selling a Brooklyn condo and had to buy something under construction. There was nothing reasonable (ie didn’t need a ton of work) on the market.
The thing about Canada is that we seem to take everything slower and more moderately. To put simply, we're like American policy put through a low pass filter, smoothing down the extremes.
Should we be more protectionist? Probably. Will we do so? Probably. Will we rush to implement significant and severe new policy? Probably not.
In my opinion things are so bad, I don’t know how these politicians aren’t getting killed. Maybe young people are too ignorant to know everyone is screwing them and that’s why we have no civil unrest.
I'm not killing politicians because it's bad
Everything else you cite here seems to be random arm waving in the general direction of capitalism.
The thing about the past was that we built a lot of housing, I think creating an environment where politicians can openly support building a lot more housing would actually address the "capitalism" problems.
If property wasn't affordable (by whatever definition you choose) a few years ago, then it still won't be.
The interplay of interest rates, QE, life extension, centralisation, and property value amount to generational warfare.
A 30% crash would be good news.
This is such a great comment. It is partly generational warfare, partly class warfare, and partly institutional-vs-retail warfare.
Now matter how you look at it though, there are winner and losers and policy-makers have chosen those winners and losers by way of policy.
Unfortunately, this is easy which is why it is done -- people feel pain but the network of cause-and-effect is too complex for people to put a finger on the root cause.
High property taxes can then be offset by lower income and sales taxes which only affect people who actually live in these cities. The end result is cheaper housing even after taxes.
Numbers off the cuff but something like <$1m is zero. $1-3m is 1%... Etc. Make the top rate untenable to own more than say $50m in residential like 10% + top rate for anything held under obscure ownership structure.
This way peeps can own a normal home at no cost, even have an investment property. But the person with 300 apartments who buys another 10 every year is encouraged to move their money to alternate assets.
To give you a real world example, NYC's Long Island suburbs are notorious for having some of the highest property taxes in the nation (mostly the school taxes). Despite this, LI home values continue to go up at a pretty high rate, an average/very basic starter home is around $500-600k.
This is because despite the high property taxes and not great weather, the demand for homes there highly outpaces supply. In the case of Long Island, the demand is due to things like having easy access to NYC's huge job market and NYC itself, the quality of schools, low crime rate, etc.
For you to make property taxes high enough to make a meaningful dent in demand, they'd have to be so high that any decrease in the cost of the home would essentially be cancelled out by the astronomical property taxes.
Time and time again, the root cause of high home values has shown to be that the increase of supply isn't keeping up with increase in demand. To fix that, the factors slowing down new supply need to be removed. These factors vary by location, and include things like a slow/expensive permit process, overly restrictive zoning, allowing NIMBY groups to slow down or block new development with constant town hall meetings, etc.
In the case of the crown jewel of places that are horrible at keeping up with housing demand, California, all 3 of those are at play simultaneously, and the housing costs there show it.
The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).
Wouldn't simply ONLY building new buildings/housing be more effective? This way, the wealthy can continue to purchase, but the investment would become worse and worse in returns and essentially provide subsidized housing to renters. This is somewhat the case in NYC where rents are far lower than ownership carry for identical units because the units are sometimes treated as stores of value.
If they rent for a partial recovery, then isn't that good as renters get a good deal?
Because they are too lazy?
And look this https://news.ycombinator.com/item?id=26610167
Paying people money to avoid the vacancy tax sounds bizarre, beyond idiotic, but somebody does it, and it's there. They will prefer to pay money rather than bothering flying to Canada every month to collect rent, and making sure that renters keep the apartment pristine.
Yes, the vacant house tax is just politics, Vancouver has had some actual success with build-build-build but that strategy is limited by NIMBYs in many areas.
Same with downtown Toronto, the suburbs are a pricing disaster but condo prices are not following as steep a curve simply because there is supply being built.
And there instantly came ads for services to keep appearance of home being occupied on https://www.vansky.com/ =D
Basically, property owners pay those guys to go and live there!
> in San Francisco – as well as many other high-cost cities such as Vancouver, London, and New York – we see a different phenomenon: an extremely tight housing market with skyrocketing rents, that puzzlingly also has a high vacancy rate.
...
> It is difficult to know whether an “absentee” or foreign buyer has an intent to occupy the unit or rent the unit, or whether the unit is intended solely to be an investment property.
...
> In August 2017, CoreLogic estimates that absentee buyers purchased 15.8% of homes in the San Francisco Bay area. In September, this number increased to 17.1%. 23 Thus, while we do not know how many of these units purchased by absentee buyers in the Bay Area may be held vacant, it seems to be a significant amount of ongoing sales in the region.
https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/CR...
Vancouver has actually seen some price declines as recently as 2018 and CMHC says it is driven by new construction - any jurisdiction where you can't build will attract investors that can afford to sit on empty properties and still expect a reasonable return. It is just the iron law of modern real estate.
Why is this the best option? Are wealthy Chinese forbidden from buying foreign stocks?
Yes, does it sounds surprising to you?
The property is specially attractive because unlike socks, you can do one big effort to move money out in one go, and then forget about it for a few years. Plus, the customary blindness of Western law enforcement institutions to dirty money in property transactions.
Before the pandemic this was not an uncommon sight.
Stock market gains over the last 10 years may be impressive, but they're nothing compared to housing in certain key cities.
—-
There’s diversification across asset classes and within asset classes. If you add a large non-diversified asset even in a different class, to a diversified portfolio your average diversification goes down, not up.
Or in other words—REIT sure, but a significant fraction of your wealth in a single, idiosyncratic, illiquid, high carrying and transfer cost asset is not diversification.
> Canada is a great place to launder money because of our lack of ownership transparency ... criminals can park large amounts of illicit cash in real estate and hide the purchases behind numbered corporations or shell companies located in offshore tax havens.
> Canadian real estate has been “extensively exploited” by the problem of money laundering and all financial sectors need to fight against it.
~Half of all transaction fail basic AML/KYC compliance.
https://globalnews.ca/news/6608644/canadian-real-estate-abys...
I viewed many properties during the pandemic, and when we saw other potential buyers (e.g. had the appointment before or after us), they were all white couples in their 30s or 40s.
After a couple tries, we bid on a home and won (I am white citizen). We have since moved in, and I’ve observed that the other homes that sold on our street all now have white families living in them.
This is obviously inconclusive, but I believe “it’s all foreign money” is mostly a convenient scapegoat and doesn’t really capture what’s going on.
(Also I find it strange that in your story, the homeowner would break a contractual agreement to sell and go with someone else. I’m not a lawyer, but that seems like obvious grounds for a lawsuit. Note that in 2017 in Ontario a buyer broke an agreement to buy and was ordered to pay hundreds of thousands of dollars in the ensuing lawsuit.)
https://www.thestar.com/news/gta/2018/04/11/couple-ordered-t...
“CBC's analysis suggests foreign buyers account for about 1.8 per cent of total home purchases in the GTA (Toronto plus the regions of York, Peel, Durham and Halton) since the tax was imposed in April 2017.”
A common rebuttal to this is “well they use corporations to shield the true origin of the money”. Why not just park your money in the US where no such taxes exist and is overall less hostile to foreign ownership?
https://www.cbc.ca/news/canada/toronto/ontario-foreign-buyer...
Base rate matters here. They are measuring `Sales subject to foreign buyers tax`, not the impact of foreign buyers.
This percentage of foreign buyers THAT ALSO pay their taxes. The foreign capital that flows into residential real estate mostly held in numbered corporations which are not captured in the above data.
> Why not just park your money in the US where no such taxes exist and is overall less hostile to foreign ownership?
After 9/11 the USA (relative to Canada) got very serious about prosecuting money launderers. Tax rates are less important than getting dirty money clean.
> government inaction is putting Canadian banks in an awkward position as they seek more growth south of the border. Americans are keenly aware that criminals exploit [Canada's] weaker laws.
https://www.theglobeandmail.com/business/commentary/article-...
Folks should note that New Zealand literally banned foreign ownership and is similarly going through a property bubble.
https://www.theguardian.com/world/2021/mar/23/new-zealand-mo...
To add value to this discussion, it would help others and myself if you could elaborate on why it “does not add up”. Just stating that without providing details is a disservice to those who you claim are trying to shape the narrative.
FYI: I did not downvote any comments on this topic. I'm looking to hear everyone's thoughts.
Population of China : 1,427,647,786
Shanghai alone has 27,000,000 people. There are 12,500,000 households in Canada.
It would take less than 1% of the Chinese population purchasing a home in Canada to double demand.
https://en.wikipedia.org/wiki/Population_of_Canada
https://en.wikipedia.org/wiki/Demographics_of_China
https://en.wikipedia.org/wiki/List_of_cities_in_China_by_pop...
https://www150.statcan.gc.ca/n1/daily-quotidien/170913/t001a...
The root cause of the anti-Asian sentiment (and most anti-other tribe sentiment) is the loss of relative socioeconomic status.
For example, in previous decades, almost everyone in China was socioeconomically lower than everyone in Canada. You can insert any undeveloped country and developed country here, but you frequently saw Americans/Canadians/Europeans vacationing in developing countries, buying vacation homes, real estate to diversify, businesses, etc.
Now the populations in those developing countries has caught up, and they’ve caught up by taking some of the economic value that used to be provided by populations in the developed countries. See income/wealth gap widening over the previous decades.
So now you have people in developed countries having to compete with people from previously developing countries, and more competition means life is not as easy. And people get tribal when looking for who to blame. But really, the only tribes that matter are those who are able to capture economic value and those who are not.
The owner or person who has control over the real estate is accepting the offer, not the real estate agent.
The transactions were all brokered /over/ asking price in cash and are sitting empty ever since. They remove the snow, they do basic maintenance, and everything is again documented via video and shipped off to confirm a job done.
Many families came for the listing but all were outbid with much more favourable terms, quick closing, no inspection, no approval required for funds, etc.
The money is definitely being parked in many pockets of the city via Real Estate. Is it exclusively Chinese? No, but they are by far the larger demographics that parks the money in the home and keeps it empty. I've seen others invest in Canada as a means to get citizenship faster but they usually rent out the homes to generate some money back.
Whats there to complain about? Agents are making their commission, the city is getting their taxes, the province is cashing it on their taxes. Everyone is happy.
Of course, this isn't the only factor. There are probably dozens of factors that are causing prices to rise but Chinese investors are highly price insensitive because doing anything with the CAD they have is better than letting them sit around. What else are they supposed to put the money into after all?
Is that madness? Cities trying to clamp down on Airbnb are just shooting themselves in the foot again along with NIMBY housing regulations.
There's incredible demand for housing in cities that isn't being met, and the cities which refuse to allow supply to rise will face the same problems and eventually lose out to more dynamic cities.
We have zoning laws, restrictive covenants, and boarding house licensing rules for a reason. If there is demand, then have a public referendum like we’ve seen for cannabis laws, overturn the legislated barriers and allow it. But right now, it is illegal in most places and consequently hammering the market for actual residents.
Whether there is demand is not up for debate, as there clearly is. The question lies in how it is handled. Making short-term rentals illegal will almost certainly not work. Allowing short-term rentals, and allowing enough housing to be built to accommodate them, along with those who wish to own is the only solution likely to work.
Maybe I'm crazy, but I see nothing wrong with any of these.
I've got no problems if hosts want to put up a guest bedroom to get some side income, but the amount of "furnished apartments" that are converted to basically hotels, without paying taxes as a business, or operate within the regulations is pretty staggering.
When the first lockdown happened, a rash of "furnished apartments" started appearing on rental sites, trying to stay afloat.
But it's far easier to blame foreign ownership alone, and ignore significant parts of the complete problem.
When you purchase a home in Ontario, as a buyer, you are expected to pay an additional 2-5% of the purchase price in taxes. You need to have this money when you close, in addition to your down payment, and it is remitted immediately to the government.
This can be the equivalent of 5-10 years in property taxes, depending on the purchase price and how your home was assessed. And you pay it every time you move (and buy a new home)!
This pushes the tax burden disproportionately onto new homeowners, and incentivizes folks to stay in their homes for longer (don’t forget the additional 5% paid to agents).
It reminds me of Prop 13 in California, which similarly disproportionately taxes new homeowners and incentivizes people to hold onto property forever.
(Note: my numbers here are fuzzy, and I’m not a real estate expert, so someone here is welcome to correct me if I’ve incorrectly interpreted all this.)
These cities are immigration destinations, a large number of Canada’s > 300k annual immigrants becomes residents of these cities every year. These immigrants are educated and quite often asset owners in their own countries. So lots of foreign money flows to these cities through immigrant population. Also culturally immigrants invest more in real estate as countries they have come from don’t have great investment alternatives beside real estate.
Because interests rates have been falling for last 20 years property prices have increased tremendously. This has created tremendous wealth for property owners, who then learned that they can cheaply get money out through home equity line of credit. This money is then invested in other properties which are rented out to pay for mortgage and expenses, creating a loop which further expands the price growth.
At this point property owners are making more money just by living or holding their properties than by working. So its becoming extremely attractive form of investment.
All of this is propped up by lax regulation, low housing starts, green belts, few public housing options. It is a dire situation and now young people are getting frustrated. Because the wages haven’t kept up and savings have been inflated away by a government which loves to print money.
Now this not even a big city phenomenon, the leverage available has caused prices in small cities to rise tremendously as well. Young local population is getting priced out because numbered companies are hoarding up houses and making them rentals.
There are some solutions, like banning non residents to own residential property in Canada. Asking for over 50% downpayment for 2nd residential property, 75% on 3rd. Taxing vacant properties.
In the end government needs to realize that residential properties are social assets not financial assets. The goal should be to create vibrant communities, and that cannot be done if people are unable to own a residence.
“ This has the potential to destroy the livability of every major community, create two classes of citizens, cement a wealth divide, disenfranchise an entire cohort, create structural household debt, make shelter unaffordable and hobble the economy as billions a week flow into vaporous housing equity. In short, it’s an epic policy failure. It’s time those who have greased the wheels – realtors, central bankers, political leaders and our federal housing agency – stand accountable.”
For Canadians that can't buy, I suggest you lobby your Gov to force Corporations to implement mandatory WFH for at least 80% of employees (that can). This should allow you to live in rural Canada somewhere and participate in property ownership. The other solution is to sell millions of acres of Crown Land to Canadians who are first time property owners.
I've seen it often thrown around for housing markets but it seems out of touch, since it doesn't line up with a lot of median incomes of home owners vs median prices in metro areas.
It's not uncommon to see many people putting 50% of their income or more to rent, so why would mortgage be different?
I bought a town house in 2015, downtown Vancouver. Within a year it went up 50%. For a bit it was even 75% at the peak of the market pre the new regulations. Depending on the time of year it hovers between those two ends. Since it's downtown I'm not worried about a crash affecting it too much. However a crash would benefit us for selling and moving further out to a detached home where prices tend to fluctuate more.
That said, again, it's been a decade of people talking about the bubble bursting but I don't see what would cause it?
* Vancouver, like San Francisco, is limited in growth by the geography of the area. So it's not like new development will lower the market prices.
* We don't have a mortgage issue like the US did for the 2008 recession. In fact mortgage practices have become even stricter.
* The distance from the distant suburbs of Vancouver to downtown is paltry compared to commute in the Bay Area or LA. There's room to grow out in that direction. The public transit system is also much better than most American places I've been to. So living further isn't as much of a burden.
Point being: yes the market sucks. But I don't see what would cause a crash? Yes it's unaffordable for many. But I don't see that as a metric for a crash either, just a metric for growth outside of the core.
I consider that desire just as realistic as the desire to live in a fully detached home and work in downtown Toronto.
Life is full of compromises, I'd rather not have a lawn to mow, but thems the brakes!
Alaska and southern Ontario are about as comparable as Vermont and Florida.
An argument could be made that people move to Canada for political stability, though.
> In the Vancouver region, where housing prices rose more than 70 per cent in five years, “I certainly believe that money laundering played a part,” James said.
> Such a share of transactions is “sufficiently large to have an observable impact on real estate prices,” the report said.
> It estimated that dirty money pushed B.C. home prices 3.7 per cent to 7.5 per cent higher than they would be in the absence of laundering.
Its not 'bubbling' everywhere - just the meccas of Toronto and Vancouver and their bedroom communities are going nuts. Move to western Canada and prices are still very reasonable.
Calgary detached homes are up 9% year over year, in a pandemic, with Alberta's oil industry haemorrhaging jobs. The only way 9% is low is in relation to the rest of Canada. BC (Victoria, Nanaimo, Kelowna, etc, all outside Vancouver) are up 30%. Nova Scotia is up 30%+ even outside Halifax.
[0] https://www.cbc.ca/news/canada/calgary/calgary-real-estate-b...
Here's a chart showing the actual average prices: http://www.chpc.biz/uploads/9/7/9/5/9795010/chart-calgary1j_...
The top purple line shows single family homes which peaked at about 500k in 07, about 14 years ago. Now they are supposedly about 550k which is only a few percent rise per year. This is totally consistent with my own house values.
The CBC article says prices are up 9% from last year. It doesnt bother to mention that they aren't much different than 14 years ago.
Edit: I recall about 10 years ago when someone built a house in a nice part of Calgary that was over 3M and people were surprised there was a house that expensive. A quick check shows there are several homes for sale over 10M now and there are over fifty at 3M and up. The high end stuff keeps rising astronomically.
Also not a surprise that Calgary peaked in 07, as that is when the oil price peaked.
Everywhere outside of Alberta (and maybe Sask) is going mental. Not just the GTA and the Lower Mainland.
Also, don't know if anyone or your partners are into HGTV style shows about house hunts and stuff - but man, most of them take place in the states in places like Tennesee, CA, NC etc... and it's like young couples going shopping or doing renos to decide to buy new or sell and they're throwing 100k at something or buying new at 200-400k. That's a shed in Toronto. I know I know, different income levels/rates/healthcare/they're in middle of nowhere developments etc... .but man...just adds to the depression.
I know they dont care much, but theres an entire country outside of those two metropolis but welcome to western Canada, where you can buy a very decent 3 bedroom home in Calgary for 400k and and only have to save up for 2.5 years.
Very reasonable indeed.
But with the COVID situation people are moving all over, and smaller communities in rural or small town southern Ontario (like my own) are being hit with real estate practices that used to be just confined to Toronto. Things going way over list, blind bidding, unconditional offers no inspections, rural places that would normally sit for 4-5 months (because of the complications of selling a rural place) off the market in a week, etc.
Towns like London and Windsor that have had depressed real estate markets for a long time are suddenly hot. Forget about places like Collingwood that might be considered luxury lifestyle places by some.
And then it's spreading out of Ontario; I've seen articles about the Nova Scotia real estate market starting to go crazy as people from Ontario are buying things there sight unseen, etc. Have to admit, we've looked ourselves. Why not work remote from NS? It's super nice there.
And forget about B.C. Last year we were browsing homes in Squamish as it was still "relatively" affordable relative to Vancouver. Prices seem a good 30-40% higher than when we looked a year ago. Interior BC is off the charts and not just in Kelowna where it's always been pricey. I've been watching various ski town (Golden, Revelstoke, etc.) prices for a while. They've gone bonkers over the last year. Friends of friends sold their acreage here in Ontario recently (for a ridiculous price) and relocated to Vancouver island hoping to cash out and get out; reportedly they found it really hard to find a place in Victoria and got caught in multiple bidding wars.
Buyers in Toronto and Vancouver have Stockholm syndrome in regards to the real estate market. They are used to practices that were just not a thing elsewhere in the country. And as they leave the city they're bringing those practices (and their frankly unethical real estate agents...) with them...
Here's the income data for 25 to 34 year olds in Vancouver: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=111002...
We're talking about incomes of only $46k CAD. Is the author really expecting a young couple saving 9k per year to come up with a down payment on a detached home in one of the most expensive cities in the world?
If this is indeed the case, Toronto's housing will not price correct: ultimately, capital from China/wherever needs a place to be parked, and it will flow most to the places where taxes are lowest: hence Toronto (see above), Vancouver (see articles listed in this discussion along with some steps taken to patch the issue), SF Bay Area/California (Prop 13 makes it attractive).
I ran through this thought experiment now to understand why East coast real estate (e.g., Boston) as well as Seattle don't see as much absentee buying.
Most young people buying a home in a big city are getting downpayments from family or they are saving more than 10% a year. Add in the rsp savings, tfs accounts and the actual calulations are more complex.
The drop in the condo market because of the drop in airbnb makes that sector an attractive entry for young Canadians.
You can get a fairly big house outside of the downtown core (45/50 by 120+) for a fair price or you can get a rundown older house postage stamp close to downtown for 4 times more.
I see raises in prices for all detached homes for the next two years followed by a period where people try to move back to major cities causing a price increase in major cities and a drop in cottages / smaller cities.
A bubble is driven by price momentum, which in this case is a result of poor policy (zoning), too big to fail dynamics (what would happen to the pension funds in a crash?), and a blind eye to illegal activity (money laundering).
Supply is going to have to increase to almost illogical levels to temper this momentum. I could imagine a public construction company tasked with nothing but building new towns outside the cities, complete with universities and subsidized employment opportunities, could begin to make a dent.
It's annoying now when housing is expensive, but when food prices start climbing were gonna have a real problem.
Population isn't growing as fast as it was, that is true, but it's still growing too fast, or so I think at least.
The supply of housing (condos, townhouses, duplexes) is increasing, it’s just people aren’t too happy with “lowering their living standards” by having to live in a condo or townhouse, or having to move out of their neighborhood to a suburb.
Land is an issue in Vancouver. We have mountains to the North, ocean to the West, and farm land to the East and South.
What little land is available does get converted to “dense” accommodations, but it could be more dense. For example, in my area 10 years ago there were maybe 3 or 4 detached houses on the land. Now there are 450 condo and townhouse units. This could be significantly more dense by building a high-rise (6+ floors I think) instead of the low-rise (5 or fewer floors). However, we don’t really have the correct road infrastructure to accommodate huge density increases. Pre-pandemic a 20-25 minute drive to work already takes around 1.5-2 hours during the weekday.
The detached housing that remains detached is converted from, for example, a 3bed 2 bath rancher to some sort of luxury home with 6 bed 4.5 bath. Doubling or tripling of value is not uncommon.
I can’t find it right now, but articles in the local papers have talked about changing communities from being all single family detached to a mix of condos, townhouses, detached. This way new buyers can start at a condo, move to a townhouse, then upgrade to a detached house as equity builds up, the family increases their income, and the family expands.
The problem with this is the people who own the detached houses don’t downsize when their kids leave, so these rarely come on the market, or people are buying more house than they need at that point in their life to counteract rising house prices.
Yes, people have expanded outwards. For example, my mom and step-dad moved approximately 1.5 hours East of their last house (now a 20 minute commute for my stepdad instead of the previous 60-70 minute commute). The problem here is that the house prices have risen here too for detached houses. Places on my parents street are 650-800k. Go over one block to the next cul-de-sac/ street and they go for 800k - 1.2 million. These are all new detached houses built [edit: on previously vacant land] in the last 3-5 years. Spreading out hasn’t actually caused prices to drop. Spreading out has done the opposite. They call it half-doubling or something here. Half the price for double the house if you move outwards.
Who knows what will happen.
> 73%: Percentage of mortgage holders with fixed-rate mortgages in 2020 Down from 74% in 2019
> 22%: Percentage of mortgages that have variable or adjustable rates Down from 21% in 2019
https://www.canadianmortgagetrends.com/2021/03/the-state-of-...
America is used to things like 30 year term, 30 year amortization. This is an American fixed product.
I’m Canada, that doesn’t exist.
In Canada, you have things like 5 year term, 25 year amortization. That’s a fixed product (and it’s expensive).
After many years of locking terms, I just use floating rates for financing all my Canadian real estate. Huge savings.
Though I believe a lot more people are using insured high ratio mortgages given how low the rates are.
Second: it's more complex than "no 30 year fixed". I have a 30 year mortgage, but I need to 'renew' (renegotiate) it for a new term whenever my term ends- typically 5 years, though I chose a 3-year term last time. The internet rate is fixed throughout the term. At renew, it's totally normal to change banks if they offer a better rate.
However, I've since had 2 cases that make the fixed rates more understandable. 1. In order to lower mortgage payments and provide longer stability in monthly payments that I could pass on to tenants, I got a 10yr fixed rate (around 3.4%) amortized over 30 years for an investment property 2+ years ago
2. I recently had to renew my own variable mortgage and I tried to go with variable again, however my mortgage provider wouldn't give me the variable rates advertised on ratehub.ca cause they were only for new customers. It resulted in me having to go with a 5yr fixed rate with another provider cause that was the next lowest that would work for me. I wasn't happy.
Buy with 20% down and housing prices drop 10%? You’ll need to cough up that money.
https://www.google.com/amp/s/betterdwelling.com/canadian-pro...
How will you keep a job that supports the mortgage? Companies are exceedingly disloyal and looking to cut labor costs whenever possible, whole industries go through huge labor contraction, not to mention accumulating effects of automation.
Even if I saved a downpayment, I would not feel comfortable entering into a mortgage like this at all. It just adds stress to your life and you get none of the independence or peace of mind you expect to get from private property ownership.