mcliu

I agree with the folks that believe taxes are important. IMO society may not function as well if wealth continues to accumulate to the few. Eventually it may lead to revolutions. However, getting the amount and type of taxation right is difficult. I do think they should get rid of things like the principal-residence exemption. Even up the playing field instead of favouring one asset-class over another. Especially when that market is clearly overheating.

On the other hand, wouldn't it be truly a top when 5 out of 5 banks rate real estate a buy? That's when you really know everyone's bought the story and there are no skeptics.. ::)

No way the CAD can fall that much. Canada actually has a real and productive economy should. Should CAD fall even a relatively small part of what you're calling far our exports would shoot through the roof which will stabilize CAD. In addition declines in CAD do not alleviate the housing costs for Canadians and make Canadian real estate cheaper for foreign investors in their currency. So I don't really see how a CAD decline fixes a bubble. Unless you're talking about foreign investors getting scared shitless by currency mark to market. Decline in the currency will probably be a result of monetary and fiscal easing to reduce the impact of a housing crash. (Like QE123.) The CMHC will need a bailout in a severe scenario. Housing gets propped up with ever lower interest rates. The government would probably want the effects to disperse through the currency rather than the real economy. Financially prudent Canadians take the hit in their C$ savings. (See Euro and GBP.)

Did Ireland having something equivalent to CMHC?

This report is interesting: http://www.demographia.com/dhi.pdf Page 38's comparison between Greater Toronto and Dallas Fort Worth Area may be worth considering. It also shows that there's still significant room for prices in Toronto and Vancouver to get go even higher if you use Sydney and Melbourne as comps. :o Mortgage rates are also almost 200bps higher in Australia than Canada.. Would whatever happen to Australia will serve as a good indicator of the fall out should a crash ever happen in Canada?

If that's the case, why invest in stocks at all? Why not just put all your money into Canadian housing and watch it double every 5 years? ;D

3) Debt service ratio: I stand corrected by Liberty on the total DSR, which is currently a bit higher than its 25-year average. Interestingly enough, the DSR on mortgages are right at its historic averages so the increase in total DSR is due to the rise in DSR of non-mortgage loans - likely due to more auto loans and substitution of credit cards for cash based payments. RBC report on Stats Canada DSR ratios: http://www.rbc.com/economics/economic-reports/pdf/other-reports/currentanalysis.pdf The DSR is probably significantly higher for Toronto and Vancouver than for Canada as a whole. This RBC Housing Affordability report shows Ownership Costs as a % of Total Income on a city-by-city basis. http://www.rbc.com/newsroom/_assets-custom/pdf/20161221-ha.pdf It shows Canada at 45%. Toronto over 60%. Vancouver over 90%.

What do you think the risks are here? Would higher interest rates impact the business since these investments use a lot of leverage? Also, would there be an impact from potential changes to carried interest taxation?

I guess, the difference here is, there's only one plane, and we're all on it. ::)

Not sure if this means anything but apparently the COO of BMO and CEO of Scotia are putting their houses on the market. ::) http://torontolife.com/real-estate/houses/bmos-chief-operating-officer-is-selling-his-house-for-11-7-million/ http://torontolife.com/real-estate/houses/scotiabanks-ceo-is-selling-his-swanky-church-conversion-condo-for-4-million/

Not sure if you're referring to these reports, but these RBC affordability studies are still being published: http://www.rbc.com/newsroom/reports/rbc-housing-affordability.html

the bank is not taking on much risk $10m first mortgage on a property worth $30m bank only needs to recover the $10m or 33% of purchase price. can Vancouver real estate fall 66%? I guess, the other question is whether that property is really worth $30 million? Isn't the scare that that house was only worth $10 million in the first place, but the "greater fool" came along and paid $30 million for it? Meanwhile, the banks are using the $30 as the "value" to lend against instead of the $10 million that it should be valued at. I mean, if someone else comes along and buys the same house tomorrow for $300 million and takes out a $100 million mortgage. Is the house really worth $300 million? And is the bank really only at a 33% LTV?

How do they get mortgages for these properties? Where's the income coming from? If there's a default, is there recourse?

The one thing I've been struggling with is which factors will drive mortgage rates higher? Rates have kept going lower for the past 30 years. http://www.tradingeconomics.com/canada/interest-rate If housing and the economy slows down, rates will likely be even lower than today.. With negative rates a possibility, BoC can always pay lenders to lend.. Most government would rather see much higher asset prices, lower interest rates (lower C$), and lower unemployment than lower asset prices, higher interest rates (higher C$) and higher unemployment. So given the bias of BoC toward lowering rates, will rates ever "normalize"? Is there even a normal?

I've been collecting some data on Toronto and Vancouver housing. May be interesting: http://www.liucapital.com/p/canadian-housing.html It's surprisingly hard to get historical real estate data. Do you guys have any good sources?

Cash flows don't matter when you're getting double-digit tax-free capital gains each year.. I can just imagine the realtor pitch: "Why settle for 1% taxed income in your savings account, when you can get 10% annual unlevered gains in Vancouver real estate tax-free? Sure win! Prices have only gone up for the past 3 decades!"

I had to comment on this - in every bubble because the timing is unknown those who warn of the bust look stupid because the timing is unknowable. Speculators get more and more confident as the price signal confirms their hypothesis. In reality the price has absolutely nothing to do with value. Many thought Buffett was on old fool in the 1999/2000 internet bubble because he avoided tech. If you are going nuts because it has been 15 yrs - hang in there. Ireland was the same until it blew to smitherines. And the crash will likely be much more rapid and harsh. I am still doing research but Canada seems like a classic real estate bubble with low cap rates in many places. Key question- what are the rough owner cap rates of your city? I define owner cap rate as rent minus all expenses a tenant would not pay (real estate tax, insurance, etc excluding broker commission to rent the place out) in the numerator and in the denominator the unlevered home price. I am trying to get a sense of the unlevered return an owner is making by buying a home excluding appreciation depreciation. San Diego was ~2% at the peak in 2006 for an average apartment. Totally insane. Now we have centuries low interest rates and people think that is normal. I asked the same thing a few pages back. wisdom said it's 2% to 3% in Vancouver. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/garth-turner-greaterfool/msg258551/#msg258551 http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/garth-turner-greaterfool/msg258558/#msg258558

Do you have the population figures for the same periods? I'd be interested to compare. For Toronto, it would also be interesting to look at the larger GTA's area, since at some point toronto proper just runs into the suburbs and these are the ones that grow. Interesting question. I went ahead and ran the numbers. Pop growth 1991 to 2001: Vancouver: 24% (+384,375ppl) ~2,400/sq.km. GTA: 19% (+884,673ppl) ~2,400/sq.km. Pop growth 2001 to 2011: Vancouver: 16.4% (+323,363ppl) ~9,200/sq.km. Toronto: 18% (+1,002,046ppl) ~9,800/sq.km. https://www1.toronto.ca/city_of_toronto/social_development_finance__administration/files/pdf/2011-census-backgrounder.pdf https://en.wikipedia.org/wiki/Demographics_of_Vancouver Maybe another interesting study would be to do this exercise for all the cities, and then also compare the housing prices vs. density across these periods.

It's not. It's a very small sample of the high end market. "Routledge compiled the data by extrapolating from a Financial Times survey of 77 high-end buyers and data from the U.S. National Association of Realtors."

I invested in Valeant after the Philidor scandal and my big take away is to do your own research and not blindly copy other investors, no matter how good of a track record they have.

I struggled with that, unfortunately, there's no good instrument to short housing. It's hard to figure out the magnitude/timing and carrying costs for the trade is high. Nothing with attractive risk/reward trades like CDS. Some possibilities but nothing really worthwhile: 1) Short mortgage insurance (Genworth MI), but carrying cost is high. 2) Short mortgage investment company. Only good candidate is ERM (Eclipse MIC, second tranche of first mortgage + uninsured mortgages), but liquidity is low, sub $30 million market cap, and also high carrying cost. 3) Short banks, but banks carry low LTV or insured mortgages. Maybe the only option is to long government bonds, since a housing crisis will likely lead to big rate cuts. However, the bubble is centered around 2 cities, and US rates are rising. If you live in these cities, maybe you can sell your house, or rent. Become a builder, but there's liquidity risks there if you don't complete in time. Would love to hear if you guys have any ideas. Do you know what kind of financing they're getting and from where? Also, there's the fact that the amount of mortgage/consumer debt that's been added in the past 7 years in Canada/Australia is much larger than the possible capital outflow that China can inject into the foreign real estate..

Is it that benign though? The same metric for the US was around 17% in 2006/2007. The ratio subsequently spiked in 2008 and 2009 as asset prices came tumbling down.. http://3.bp.blogspot.com/-geOLT7b-_7w/VQiPDlkVIAI/AAAAAAAAS78/Wii0qaRArl0/s1600/Household%2Bleverage.jpg Look at the charts and reports that I've attached in this post: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/garth-turner-greaterfool/msg258546/#msg258546 1) Over 20% of BC households had a household debt to income ratio of over 500% in 2012. Imagine what it is today given that the Household Debt to Income metric has climbed ~20% since 2012 for the country overall. 2) RBC's affordability report shows that ownership costs for a SFD home in Vancouver is over 100% of median household income. How is that not worrying? :o

Except, it's not just Chinese people buying up the million-plus dollar SFD homes/condos in Vancouver/Toronto/Adelaide/Melbourne. The global housing market is too big. Ex. The Chinese buying those homes are probably worth at least 100 million RMB or C$20 million. There's less 100,000 people in that bracket in China. There are only around 1 million US$ millionaires in China. That's only 3% of Canada's population. You can't just make up these numbers.. http://www.hurun.net/EN/ArticleShow.aspx?nid=4558 Hurun 2014: "The country has 1,090,000 millionaires and 67,000 super-rich, an increase of 3.8% and 3.7% respectively from last year." "millionaires (defined as individuals with personal wealth of CNY 10 million, equivalent to US$1.6 million and GBP 1 million)" "super-rich (defined as individuals with personal wealth of CNY 100 million, equivalent to US$16 million and GBP 10 million)" The US by far has the most millionaires. Canada has around the same number of dollar millionaires as China. The myth that there are millions of extremely wealthy Chinese investors looking to buy global real estate is just not accurate.. http://www.cnbc.com/2015/10/13/countries-with-the-most-millionaires.html

That's fair and indeed in general it has been true but what about the times when it hasn't been true? I mean, at what point does a good investment turn bad? For an extreme example, if prices hit $100 million for a house in Vancouver while population and incomes grow at 2%, does that signal a bubble or should we continue to justify prices? $100 million is extreme but going down from there, there is still a point where you can safely declare that prices have far surpassed fundamentals. Maybe it's there already, maybe it'll take another 2x, 3x, 10x gain to convince people. (Although I guess, counterintuively, the higher prices go, the less people will be convinced that there is a bubble.) Based on the data that I've seen, the situation is pretty clear... “You don’t have to know a man’s exact weight to know that he’s fat.” – Ben Graham

Population growth alone can't explain the increase in prices because the number of houses is also increasing. Housing stock actually increased by 9.8% over the same period. Note that housing prices increased 39% from 2006 to 2011. (It could be the case that there's a severe shortage of homes in 2006. Inventory was indeed at an all time low in 2006. However, inventory increased from 650 units in 2006 to 3,500 units in 2011. So in that period they've added more housing stock than the market absorbed. CMHC Data Portal) "The 2011 Census shows the number of occupied dwellings to be 891,340. The 2011 Census figure of 891,340 occupied private dwellings is an increase of 74,300 dwellings units over the 2006 Census. The region’s private housing stock grew by 9.8% since the 2006 Census, higher than the 8.4% (58,320 units) during the preceding five years (2001‐2006)." http://www.metrovancouver.org/services/regional-planning/PlanningPublications/MV_Housing_Data_Book.pdf#search="housing%20book" So didn't HK have a real estate crash before? Didn't Londo , Paris , New York , etc do too? But why do they continue to be the most expensive places on the planet? +1 Speculation is real, but fundamentals are also real. We'll all learn more and analyze better if we are open-minded about all the possibilities. Which fundamentals metrics do you think are relevant? Usually people look at Price-to-Income and Rental Yields.. I don't think I've see any P/CF based valuation metrics which shows Vancouver undervalued. The only metrics that show Vancouver being under valued would be something like a comparable on a $/sq.ft. basis against New York/London/Shanghai/Hong Kong, etc..