rb
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Posts posted by rb
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You perfectly outline the dilemma facing first time buyers in Canada today. The recent past has taught that waiting was the wrong decision (and spectacularly so). The other side of the coin is 'if' we are in a bubble of historic proportions and it pops and prices move back to 2012 levels (not that crazy) first time buyers will be wiped out financially. Yes, if they remain in their house prices will rise over the following 10-20 years; however, they will be scarred financially.
I remember the dot com bubble in the late '90's. It was clearly a bubble in 1996 but it did not pop until 2000. I remember people being called stupid for being sceptical of the permanence of the gains in 1997, 1998, 1999 because the dot com stocks just kept going higher... in 2001 people had a very different view of reality.
The big difference between a stock bubble and a housing bubble is leverage. First time housing buyers today are highly leveraged. IF we get a correction of 20-30% first time buyers will get cleaned out.
Psychologically, investors react very differently to gains and losses. A 30% gain feels great; however a 30% loss feels much, much worse. My point is the two are not symmetric. Crazy times for those first time buyers itching to use real estate to get rich (like their parents did). Good luck!
You're right the big difference is leverage. I'd add a little to that. Everyone ignores second order effects and assumes that you can still live in your house.
But in reality, house price declines come with long and bone crushing recessions. So if the house price drops you get wiped out financially and you loose your house because you can't afford the huge mortgage payments anymore because you're suddenly out of a job.
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For 1) assuming that household income is around 78k (typical for Toronto), my view is that a sane price would have to reflect what people could pay off by retirement. Here is my breakdown:
Household income: 78k
After tax: 60k
non-house Living expenses for two people: 30k
Money available to pay for house: 60k-30k = 30k
I assume the average Torontonian has 30 years from ages 30-60 to payoff their house. The rest of the time they are either saving for retirement (60-65) or getting their shit together (23-30). Then the total possible upper limit is: 30k*30years = $900,000. No of course there are interest costs but there are also GDP per capita increases which should translate to salary increases. I assume these balance out (probably a bad assumption since interest costs are paid early and gdp increases come later).
I am curious as to what cwericb number would be for a sane upper limit to house prices? And how he would change the analysis above.
I'm now cwericb but I do have some issues with the analysis.
1. 30K non house living expenses in Toronto? That's really optimistic but ok.
2. You assume that all the other funds (30k) goes to mortgage payment. That ignores carry costs: property tax, insurance, maintenance, repairs, etc. Everyone who owns a house knows that those add up to a surprisingly large amount.
3. Only 5 years of retirement savings. So at retirement the couple has a house and 150k (30x5) in savings.
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To build a little on my previous RRSP post. The biggest drawback of an RRSP is not a situation when you draw a lot of money from the RRSP and loose some relatively small amount of OAS. The biggest drawback is the opposite. When you draw too little out of an RRSP and then upon death the whole amount becomes part of the terminal tax return and gets taxed all at once under a progressive tax system.
Now of anyone has any ideas of how to defray that risk I'm really, really interested.
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I agree with most of what Cardboard said. RRSP can be very useful. Just to add a little bit to it. Through different tax treaties that Canada has, generally you don't pay withholding tax on income/dividends coming into the RRSP but you pay it for cash accounts and TFSAs. So there's another tax deferral benefit of RRSPs.
In addition, it's been a while since i looked at it but as I remember the OAS clawback starts in the 70s. So a married couple can have 150k worth of income before any OAS claw back. Not exactly the stuff of horrors and probably affects very few people.
The way I look at them RRSPs and TFSAs are like 2 different tools in a toolkit like hammer and pliers. They have different features and they do different things. Both are helpful tools.
SD, I like you commentary about long runways and having an old experienced person investing for a young one. There's one little problem with that: For a bunch of really annoying legal reasons in Canada you can't own equity if you're under 18 years of age.
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Timing the housing market does not work. Want proof? This thread was started five years ago. Think about it.
Had someone deferred buying in 2012 expecting a collapse, that same home could now be 50% more expensive.
Purchasing in 2012 instead of renting, one would would have by now:
1) paid down a percentage of his mortgage
2) experienced a substantial gain in the value of his equity
3) had a very nice tax free increase in his net worth
On the other hand, the renter would have:
1) helped his landlord pay off his mortgage
2) probably experienced, or will experience an increase in rent payments.
Yes this is hindsight. Yes housing prices may take a dip. But investing in a house cannot be compared to buying shares in the stock market.
A share is a share. A house is a home. If your shares drop 30% you just lost 30%. If the housing market drops 30% you still have 100% of your home.
Also. Comparing the 2007 American housing market with the Canadian housing market is not an equal comparison. There are major differences, and there is much more to the Canadian housing market than two or three cities.
That's why all of you should just go out there and buy a house. Don't look at the price and don't think. Price doesn't matter in real estate.
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To play devil's advocate, what makes you convinced that Facebook isn't the Valeant of the internet?
- Conversations regarding Facebook tend to drift to a cult of personality around Zuckerberg. How do they plan to generate a reasonable ROE from Whatsapp users? Zuckerberg. How does Oculus fit in? Zuckerberg!
- Revenue growth seems to be driven primarily by channel stuffing (higher % of ads per page) and price increases (market driven based on ad success, to be fair). While user growth continues globally, user growth in areas that have high ARPU is fairly limited (Slides 3 & 12: https://s21.q4cdn.com/399680738/files/doc_presentations/FB-Q4'16-Earnings-Slides.pdf). On one of the calls recently they said they likely can't increase ad volume any further.
- I'd be surprised if a material percentage of new accounts in the US aren't fake. I get an average of ~1 friend request per week that is blatantly fake (girl with lots of pictures from different places all added within the last hour). I'll report these as fake and Facebook doesn't seem to remove them (admittedly I don't usually check).
- I'd also be surprised if daily minutes per daily active using isn't declining. This is a year old at this point but based on anecdotal evidence the decline has continued: http://www.businessinsider.com/facebook-sees-personal-sharing-decline-2016-4?r=US&IR=T&IR=T
- Innovation is fairly limited that I see. People may point to livestreaming but I haven't seen any evidence this is catching on. I don't see anything to indicate that Facebook is becoming the "content hub" of the internet as they'd hoped. Instagram continues to innovate a bit and seems to be stealing market share from SNAP but Stories don't generate any revenue at this point.
- Their strong Q4 was aided by a massive amount of political ads. A lot of people I've talked to are burned out on Facebook because of the election and the post-election. Possible these people just need a break.
Curious for your perspective. I'm short but would like to understand the bull case better. Google I agree is definitely an incredible company and never ceases to amaze me with their new products/services. I recently signed up for Project Fi (their phone service). The international coverage is what I've always wanted but no other company was either willing or capable to do (data nearly anywhere in the world is $10/GB, free text messaging, calls are more reasonable and I think you can use data calls on Wifi).
I'd say that one reason why Facebook isn't the Valeant of the internet is the absence of debt. On top of that they have real cash earnings. Not adjusted cash EBITDA or whatever nonsense Valeant was calling it.
The valuation is another matter altogether. They now have a 400+ B market cap that's 15x sales and 40x earnings. That's really rich. I don't think that Google is cheap. But their valuation is 6x sales and 29x earnings and I think that google is a much more superior company/platform. On top of it Facebook's money is linked to advertising. That is very different from a company like Apple that can invent deices and take greater share of the wallet as people go from owning a PC to a PC, smartphones, laptop, tablet and a retail operation supporting the whole ecosystem.
The global pool of advertising dollars isn't expanding a lot. So for them to be worth their valuation they need to pull some really serious market share. Now they may be able to do it but a whole lot of things need to go their way for that to happen. So the way I see it is that best case scenario you make a normal rate of return. Otherwise it's worse. Or maybe I'm wrong ad something brilliant happens. Either way, it doesn't have that ring of a fat pitch.
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You know you've got something special when even realtors start calling it a bubble driven by speculators. I've attached the report they mention in the article. It's definitely worth a read.
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What you guys are describing has been the norm in Vancouver.the fact it has arrived in Toronto could man that this is the end game.
Ha! CMHC also rates Saskatoon and Regina as ridiculously overpriced. When it happens to Red Deer we'll know that we're truly fucked.
Actually if there are any members from Saskatoon or Regina I'd be really curious to hear what are the reasons realtors are giving there why prices are ok and it's a good time to buy. Shortage of land? Immigrants?
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So that makes it 4 out of 5 banks that have called this a bubble. CIBC of course still believes it's a great time to buy a home.
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.. ::)
Nah man.... they wouldn't be CIBC if they got one of these things right.
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I don't think anybody is going to take out HCG. I'd say that foreigner are probably gonna sit this one out and it's too small for Canadian FIs to matter. Since 4 of the 5 banks called the real estate situation a bubble I doubt they'd spring for a sub prime lender. But who knows Lauratian has done dumb things before.
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My question was why don't the negative carry owners sell? She had no idea but thought they should...
Hahaha!! You know why they don't sell. They think this is going much higher (because real estate never goes down) and they will be mega gazzillionaires. The money they loose on the negative carry is insignificant in their mind compared to the future gains. Just a minor penalty of doing business.
If I had investment real estate in this market. I would thank my lucky gods, sell and never look back. Of course if one were a rational investor, one would have sold a good while back.
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Banking is fractional reserve almost by definition. If you don't have fractional reserve then what would you have?
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Didn't someone once say, if you believe all this "stuff" why don't you call CRA and offer to give them an extra large voluntary contribution? Already there are so many companies offshore not paying taxes. Instead, let's make the common guy earning $100,000 pay 36% cap gains taxes. There are very few countries dumb enough to try this. I suppose if you want to live in a socialist society and think you get your money's worth, but I don't think in Canada you get what you pay for even in terms of basic services. Half the claims are denied, there are usage fees on top of taxes for everything, and the other half have a 2 year wait list with lines around the room to see the doctor. Keep paying 50% if you think it's worth it, I don't.
Dude I have no idea what you're talking about. "Half the claims are denied?" What claims? The only user fees I pay are for car license, driver's license, and passport and they're reasonable. When I go to the doctor I wait about 15-20 minutes in line. For a specialist there is a waiting period of around 5-6 weeks (less if your condition is serious) - I recently went through this with a family member.
In addition very few people pay 50% income tax. In 2013 people in the top 1% made an average of 455k and paid an average of 152k in income tax. That's 33% for the 1%. To get to 50% you have to be a serious 1 percenter.
Also gotta love it when to guy making 100k a year became the common man.
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The fact that being a millionaire in Vancouver doesn't mean that much these days? :P
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So that makes it 4 out of 5 banks that have called this a bubble. CIBC of course still believes it's a great time to buy a home.
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This is not just true for restaurant or service business, but also for other business lie construction business where you can get incredible value from contractors, if you know how to deal with them. We had some work done in my old house when we were living in the Bay Area for about from Chinese contractors for about half what a regular contractor would charge, and the work was quite good (not the highest attention paid to detail, but pretty decent). However, we could do this, because my wife is Chinese and new the right contacts and how to deal with them in their own language.
In Boston area Vietnamese own the hardwood floor business. I've hired them twice and like you said, I got the 1/2-1/4th the price of the real contractor and good quality. I won't ask where they got materials, where they disposed of garbage and most likely no insurance, no health for employees, etc. :-\
I would have loved to hire them for other jobs, but I don't talk the language so it was hard to ask if they did other jobs and how/etc.
This is also true in the Toronto area. The price for the Chinese contractors is about 1/2 as for the white guy. The work quality I'd say is about 90%. You can find one for about anything. There's also none of the bullshit usually associated with contractors. They quote you a price, they come, do the job, you pay them, they leave. If you have any 1st generation immigrant friends they'll know plenty of contractors. I don't ask for any for any worker's comp proof.
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Right. Because Canada has a long history of confiscating mines. You are free to go invest in Congo if Canada scares you so much. Good luck with that.
Other countries with fairly high capital gains taxes: Germany 30.5%, France 34.5%, Austria 27.5%, Denmark - up to 59%, UK 28%. By the way the wealthy in Canada are doing just fine.
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FWIW, if the government enacts this tax, I think it is collossally dumb. What a way to kill investment.
Al, I enjoy the benefits just as much as the next guy (maybe even more) but I think that that your premise of a hike in the inclusion rate will decrease investment is incorrect.
Remember that up until 2000 the inclusion rate was 75%. When it was dropped to 50% there wasn't a spike in investment. Conversely I don't see why there should be a drop if the inclusion rate is raised.
Also if we were to be cold and rational about this. A lot of lower cap gains inclusion doesn't have much to do with promoting investment in Canada. For example: if I buy US shares of BRK, the Canadian gov't gives me preferential taxation via a lower inclusion rate. But my action doesn't benefit Canada from an investment perspective at all.
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I didn't make any changes for a couple of reasons.
1. I actually don't know if there's gonna be any change.
2. I can't actually do much because I'm sitting on huge capital gains. It doesn't really make sense to have a huge tax bill right now. It makes more sense to keep compounding the capital even if I have to pay tax at a higher inclusion rate in the future.
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In my very humble opinion, the Canadian Medicare system could be greatly and immediately enhanced by a simple modest deductible - say just $25 per visit with a maximum of $250 per year. Or to put it another way, the price of about two packs of cigarettes per visit.
Not only would it stop tens of thousands of frivolous visits to the doctor or outpatients, it would also inject some cash into the system.
For those who really can’t afford it, Social Assistance would be paying it anyway.
I've always thought that is a great idea and we'll probably get there eventually. Making doctors issue multiple refills on drugs for chronic diseases is another measure that would lower cost. Doctors will loose their shit when that happens.
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How do you explain bankers teaching people how to beat the system to get a few more mortgages so that they can keep meeting their goals. Is that what banks are supposed to do?
I'm not a lawyer but I would call that something along the lines of conspiracy to commit fraud. I'm sure when the investigations happen they will call it helping the customer achieve his dream of owning a home.
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Of course all businesses upsell. But it gets to a point where it starts to be ridiculous bordering on felonious. Car service is one area that's been there for a long time. With banks today it's somewhere around that point. It's also a bit different with banks because depending on what you're selling you may need a license and many times prevents you from selling product that is inappropriate for the client - the line of credit with your grocery money example above I think kinda fits here.
Al, in regards to Bell they used to hassle me a lot as well. Until the point when I told them that if I get another sales call I switch to Rogers. That seems to have gotten the point across really quick. Oh and if you're in Ontario and you ever wanna see a Bell rep crap their pants just mention Teksavvy.
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I'm unfamiliar with these banks, but the comments on this thread have piqued my interest.
Looking at ROE, it seems that over the past 20 or so years Royal Bank of Canada has topped all of the others (TD, BNS, BMO). The second place would go to BNS. Can anyone who follows these banks comment on why that is the case?
To give you a bit of equivalence. TD is like WFC (in more ways than one it seems). It started a transformation with a new CEO in 2003. It's been retail focused and customer friendly. Very good risk management. Expanded a lot in the US mainly east coast.
RBC is kinda like JPM. It has a large retail business in Canada but they like to be the big boy and do flashy deals. So for the past decade or so they've focused a lot on investment banking and wealth management. They wanna become a big global investment bank.
BNS is pretty conservative in it's Canadian operation. It's also pretty international. In that it has a large Latin American and Caribbean operation. I sold my BNS stock a few years back because in my opinion their risk management in Lat-Am has deteriorated. Also has less investment banking than RBC or TD and they own the former ING direct discount bank in Canada.
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I'm guessing there won't be a TFSA contribution increase since they just lowered it.
23-25% marginal tax on cap gains would imply you're pretty much in the top few % of income. For most people it's lower. I also don't think there will be a mass exodus if cap gains taxes were to be increased. In Canada you pay an exit tax when you leave. Effectively you realize all your gains at once. That can be a costly proposition under a progressive tax system.
Too late to sell before budget?
in General Discussion
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Sure but then why bother using an RRSP in the first place? By that mentality, if I have enough money to live, pay taxes now, pay taxes later, who cares....