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wisdom

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    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    http://business.financialpost.com/personal-finance/mortgages-real-estate/how-lenders-are-sidestepping-canadas-mortgage-rules-with-bundles-of-debt

     

    The regulators and media seem to be noticing it since this is now 12.5% of the market. I don't believe sub prime in US ever got that big.

     

    This is in addition to home owners whose houses are assessed at $1.6 mil being considered financially strapped. Thus, the government is giving them a break of $570 on average. That should make those $1.6 mil homes more affordable.

     

     

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    Things have been getting tough over the last few months. So the industry is excited as it gives them something to work with. But, at a price point of $750k, all you can buy in most of the lower mainland  are townhouses or condos. Which does not change the fact locals cannot buy SFD.

     

    If SFD prices keep dropping, at some point they should get close to townhomes. Not sure how things play out at that stage.

     

    PS. This improves the probability of her winning. The polls have already improved since the 15% tax. This should give her another boost.

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    Purpose is to win the election. Please all the sides - condo prices should go up along with sales - so they can claim to have helped the builders along with the average family.

     

    Single Family detached sales have stalled - they can claim to have chased away the foreigners (who in reality were responsible for 3% of sales) that were apparently buying up all the real estate (perception). People conveniently forget that Canadian banks were financing 65% of those purchases with no income, no job in Canada and no explanation of how people were able to get $1 mil plus out from a country that had restrictions of $50,000 per person per year. Bonuses must have been pretty good.

     

    My experience says - the problem is - the locals who have bought multiple properties using 100% financing or by beating the system. Thus, the government to an extent does not understand the problem on the ground level. The reason for the market stalling is because people now actually have to use cashflow to be able to borrow.

     

     

    Bank of Canada study released yesterday. Scroll down to the section on mortgage loan to income ratios. For reference - the number of households with mortgages over 450% of income used to be 3% approximately 16 years ago (going by memory here). Look at these numbers in Toronto and Vancouver and it is scary.

    http://www.bankofcanada.ca/2016/12/fsr-december-2016/

     

     

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    It is all about an election coming up in May.

     

    There is a lot of pressure on the government from realtors, builders, etc. and the market has stalled and they are hurting. They are big contributors.

     

    The government probably needed to be seen as trying to take care of them as well. So they are playing both sides.

    Canada Economy

    in General Discussion

    Posted

    We had a heated debate on US presidential race, now time for a discussion on Canada as we have so many board members who are very familiar with Canada.

     

    Here are some factors to consider:

     

    Housing prices in Canada are more expensive than the U.S. where the average is around 189K per Zillow.

     

    http://www.livingin-canada.com/house-prices-canada.html

    http://www.zillow.com/home-values/

     

    Consumer taxes in Canada are higher than the U.S.

     

    Average wages are higher in Canada than the U.S

     

    http://www.livingin-canada.com/work-salaries-wages-canada.html

    http://www.tradingeconomics.com/united-states/wages

     

    Finally, the US trade deficit with Canada is dropping - it is expected to be the lowest this year since 1992 (pre NAFTA). While this can be partially attributed to drop in commodity prices, likely this is due to the strength in Canadian economy and the wealth of citizens.

     

    http://www.freedomthirtyfiveblog.com/resources/median-and-average-net-worth

     

    The median net worth of a Canadian household is much higher than that of a median American house hold.

     

    Canadian GDP is at 1.8 trillion, the U.S Trade (export+import) is about a third of the economy.

     

    Inspite of the commodity crash, the GDP has continued to grow - building on the wealth from last decade.

     

    The questions are as follows:

     

    Canadian GDP and wealth will grow in the next five years

    Candian GDP and wealth will stagnate/decline in the next five years

    Canadian currency will decline further in the next five years

    Canadian currency will appreciate against the U.S dollar in the next five years

    Canadian govt offers better(and more) services to its citizens compared to US

     

    Answers:

    1) Probably

    2) Not likely

    3) Currency - at the moment it tracks the price of oil which is interelated to the US dollar.

    4) Some yes, some no.  In some cases it is better to use Europe and GB as comparators.  Partly of the reason the US is so innovative is the nature of its winner take all society.  The most innovative people in many industries go to the US.  Elon Musk being an obvious, non Asian example.  Why didnt he build Tesla in Ontario, Canada?  There are a whole host of reasons.  Its better to be poor and disadvantaged in Canada, GB, or EU, than in the US.  It is better to be highly skilled and ambitious in the US.

     

    2) I am not sure because most of the networth is made up of equity in housing combined with highest debt loads in Canadian history. If housing prices go back to long term averages, that leveraged equity could disappear very quickly. With the steps that cities, provinces and Feds are taking to reign this in, I expect things to be very difficult over the next 5 years.

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    Vacancy tax approved - 1% and $10,000 a day penalty if not declared.

     

    http://www.cbc.ca/news/canada/british-columbia/city-of-vancouver-approves-empty-homes-tax-1.3853542

     

    It will be interesting to see if this increases the rental supply and drops rentals.

     

    My view remains that the shortage is because of the local developers holding multiple properties.

     

    All 3 levels of government have enacted laws/rules to shut this down and the rising interest rates to top it off.

     

     

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    Interesting developments in Hong Kong real estate - 30% tax on foreigners and 15% stamp duty on locals.

     

    Plus the down payment requirements in cities like Beijing having a huge impact on sales there - 40-70% in down payments.

     

    Not sure how this will play out, but governments in Australia, Canada, UK, Singapore, Hong Kong and China seem to be coming down on real estate.

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    SFD is not the benchmark.

     

    Where has the largest drop in sales been? SFD, townhomes, condos?

     

    I have so far only talked about SFD.

     

    Dig through the numbers and you will realize what I am saying could potentially be true even if the benchmark number is what it is.

     

    PS. I don't need anyone to agree or believe me. I am writing what I see. Do with it what you choose.

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    The 20% drop is from the peak in June. Thus, it will not show up in the YoY numbers until next year. But it is coming.

     

    I am not sure most people understand the gravity. They are really in denial or are so used to it bouncing back everytime over the last 16 years, they think they just have to wait a few months and it will be back to the good old days.

    Garth Turner - Real Estate in Canada

    in General Discussion

    Posted

    Speaking to realtors and developers. I had started hearing that prices were down 15% by September end but was waiting for more people to confirm. Now I have spoken to enough people and I am confident in what I am saying.

     

    Banks that used to do 65% financing for foreign nationals with no income and credit in canada. I am hearing from internal sources that has stopped. Earlier a foreigner could land with $5 million and the banks would give them a $10 million mortgage. Thus, the top of the market has been taken out.

     

    Even for locals getting 65% financing is tightening up.

     

    You could live at home with low networth and low income and still buy a revenue property using rental income. Now it isn't consider prudent.

     

    FI's have started hitting their caps on lending to developers because the cities had slowed down approvals. Thus, they are unable to lend to these developers even though they have several homes that they purchased earlier this year during the frenzy and need to close on them in the near future.

     

    At the Same time, the demand has disappeared because of the tightening. So not sure who will buy the completed homes. And if they can't sell their completed homes, I am unable to figure out how they pay their mortgages on properties they own.

     

    Shadow banking was handled by brokers. Their money came from investors who had borrowed against their homes and their earning was the spread. If prices continue dropping, this capital could be written off and individuals who thought this was easy money will be left with no income on the capital but will have their outstanding mortgage/HELOC against their primary residence.

     

    New rules that start to role out next week will require banks to hold more capital against mortgages. I expect this to make mortgages unprofitable unless rates are increased. Thus, I expect banks to start pulling back even more starting next month.

     

    Realtors, etc believe this to be temporary because they can not  believe the government will let things collapse.

     

    All this is happening in a economy that has a very high reliance on real estate.

     

    Any business that is housing related will have a tough time going forward -Reits, banks, retail sales (no home equity as ATM), etc. In my opinion, this is the last pillar holding up the Canadian economy and it too is on the the way down. We should feel the ripple effect right across. Not sure if there will be any safe place to hide other then exporters and businesses that benefit from a low loonie.

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