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Is it wise to buy a house in GTA (Toronto) or GVA (Vancouver) now?


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Was going to move to either Vancouver or Toronto last year. COVID changed things. And now, houses in both locations are like 30% 40% more (yes, from 700k to 1.1 million )....

 

Our relatives there are saying there is no sign of slowing down neither.

 

My wife thinks we should defer our move until the insanity eases.

 

Thoughts?

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My rule of thumb is if you are going to be living in the area long term then buying is an ok option. The key is ‘fit’: personal and financial. Below are details of how my wife and i went through this process.

 

My wife and i have recently decided to move (Langley to North Dunbar area of Vancouver). We will be renting a 4 bedroom house ($5,000/mo) and selling our house in Langley. (For interest, it costs about $3-$3,500 to rent a 4 bedroom house in Langley - located in the suburbs - about 60 minute drive from downtown Vancouver.) The house we will be renting is worth about $2.7 million.

 

We made the decision looking at two buckets:

1.) personal situation - this is the driver

2.) financial situation - also a consideration

 

Our view is we will be improving both our personal and financial situation with the move / sale / rental.

 

Personal: our youngest (of three) is just graduating from high school. All 3 of our kids will be attending the same university in the fall (UBC) located on the other side of Vancouver (from where we live today). We chose to live in Walnut Grove, Langley because it was a great place to raise kids (great schools, quiet, safe, lots of other kids, parks, shopping, community centre, bike trails - most everything walking distance from our house).

 

But now that our kids are gone both my wife and i are wondering what is next for us. So we decided to move to a really fun part of Vancouver - we found a rental that is in an established community and walking distance to beaches, shopping and great restaurants. I’m a biker and there are lots of great options for exercise. Our new place is also 20 minutes from UBC (Langley was about 70 minutes away). Our kids will be living on campus but it will be great to be closer (we are already lining up family dinner night when they are back in classes this fall).

 

Financial: we will net a significant gain on the sale of our house tax free. We will be able to drop about 1/3 of this gain into our TFSA (which we drained the past couple of years). I did the math and we have earned 15% per year since buying our house 11 years ago. If i can earn mid single digit returns on the proceeds from selling the house we will be living close to rent free in our rental. If i do better than mid single digit returns we will be making money.

 

Our current house in Langley is about 30 years old and needs about $80,000 in renovations. I estimate it would have cost us about $2,000-$2,500 per year to continue to live here (interest on small mortgage, property tax, maintenance, needed renovations etc). So spending $5,000 is ‘costing’ us an additional $2,500/month. And i can now invest the proceeds :-)

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I'm in downtown Toronto and there has been a pretty big divergence between home prices and rent with rent falling noticeably. The supply of homes for sale is also much lower than normal so my view is that it might be one of the best times to rent rather than buy right now.

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How permanent is your move, and what is the reasoning? Where do you live now?

 

If you're sure you're going to like it and live there forever you could maybe justify buying. Its seemed like a bubble for a long time, it could keep going. If you plan to be in the market for 30+ years maybe the entry point isn't that important anyway.

 

I bought a house in Calgary 12 years ago, and its been worth more than I paid for it for about 3 weeks the entire time I've owned it. Happily those are the most recent three weeks. I would have absolutely been financially better off renting over that time, but owning has had other benefits (stability, can customize, etc).

 

I think it depends how big a portion of your net worth the house will be as well. If this is going to be your main asset, having it depreciate significantly and then needing to sell would be disappointing.

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Either way you kind of have a problem.

 

If you are quite wealthy or have a huge hoard of cash sitting around, your money is being devalued by the current printing extravaganza. People have been crying about housing bubbles in Canada for as long as I can remember. You willing to sit on cash for another decade? If not, and you are investing it, well, when/if the bubble pops the cash is probably not going to want to be pulled from your investments which will likely be depressed. In which case you will need financing. Except during blowups getting financing is a best a total bitch and at worst pretty damn hard.

 

My 2c would be to do what I did. Settle on something in the suburbs about 45 minutes to 1 hour from the big city. Its definitely going to be cheaper. Not as inflated in price, and if you like the area and want to live there long term who cares? Buy something you know you can afford, dont reach. You can always renovate as well. Then down the line if things or life changes, you can operate from a position of strength.

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My 2c would be to do what I did. Settle on something in the suburbs about 45 minutes to 1 hour from the big city. Its definitely going to be cheaper. Not as inflated in price, and if you like the area and want to live there long term who cares? Buy something you know you can afford, dont reach. You can always renovate as well. Then down the line if things or life changes, you can operate from a position of strength.

 

Unfortunately the biggest run ups we have seen in the greater Toronto area are in the suburbs, thanks to COVID. :-/

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My guess is crazy low interest rates are THE key driver of this current mania. Currently in Canada you can get a 5 years fixed rate mortgage (the norm in Canada) for about 2%. Historic low (about). And central banks have confirmed rates will be kept crazy low until at least 2023. So my guess is prices will continue higher and perhaps much higher.

 

Covid has crated a situation where a whole bunch of things are happening at the same time creating a record spike in prices. Over the next 3 to 6 months, as Covid is hopefully brought under control and we return to a more normal situation, the question becomes how will behaviours change again?

1.) will demand to move out of the city and into the suburbs slow?

2.) will supply of houses in the suburbs increase with more people comfortable selling?

 

Demand from Speculators: And now speculators are jumping in with both feet. Real estate has been the gift that keeps on giving (since 2000 in Canada) and NEVER goes down. A one way train = easy money.

 

Demand from immigration: The government in Canada wants to jack immigration post Covid to 400,000 per year and these new citizens will need to live somewhere (buy or rent). Canada’s population is 37.8 milion.

 

Demand from overseas money and money laundering: little data but both are perhaps significant drivers of steady demand and unlikely to slow.

 

Cost for new build: is increasing dramatically (just look at lumber).

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Either way you kind of have a problem.

 

If you are quite wealthy or have a huge hoard of cash sitting around, your money is being devalued by the current printing extravaganza. People have been crying about housing bubbles in Canada for as long as I can remember. You willing to sit on cash for another decade? If not, and you are investing it, well, when/if the bubble pops the cash is probably not going to want to be pulled from your investments which will likely be depressed. In which case you will need financing. Except during blowups getting financing is a best a total bitch and at worst pretty damn hard.

 

My 2c would be to do what I did. Settle on something in the suburbs about 45 minutes to 1 hour from the big city. Its definitely going to be cheaper. Not as inflated in price, and if you like the area and want to live there long term who cares? Buy something you know you can afford, dont reach. You can always renovate as well. Then down the line if things or life changes, you can operate from a position of strength.

 

Very smart advice .. and just to build on it ...

 

For the 1st year, rent vs buy, and rent in the bedroom communities around Toronto.

Right now, you know squat: no idea how long this will be for, the better vs poorer communities/neighborhoods, costs, trains/traffic, internet connectivity, schools, etc. All you can hear is drumbeat - I have to get on the property ladder now, or I'll never get on! No different to a neophyte trying to buy units in a Bitcoin ETF.

 

You get a lot more house for the money in a bedroom community.

In 'normal' times, price for the same kind of house goes down roughly 100K+ for every community AWAY from Toronto. Live in a Bronte Creek, or a Milton - and the price will be at least 300K+ cheaper in return for the DT commute. If you don't work DT, or only have to go in 2-3 times/week  - keep the discount.

 

Sure there's a cost, but there's also a cost to screwing up.

Most would expect that by 2 years+ out, the current price distortions will have worked themselves out, and new builds will be back in the market. Can't take advantage of that if you don't know where you would like to live, and don't have the means to pay for upgrades to your future abode (lofts, finishes, combining units, etc.) at the time it is being built.

 

SD

 

 

 

 

 

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We are thinking to rent as well. But rental availability in the area that we are interested in are absolutely scarce.

 

Many moved out from downtown to Suburban due to COVID and WFH. And some owners want to sell now rather than rent their properties out.

 

The move will be permanent (for now) and I am afraid to carry a big mortgage as I think the real impact of COVID and consequences of government policy during it is yet to come...

 

Thanks everyone!

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I don’t really know the rent vs buy math in those specific areas but one thing I do know is that trying to buy a house when buyers are out there in force and panic buying basically everything is not a good proposition. This is not only because of the high price one needs to pay, but also because it is I likely to get the house you like as well. My experience is that those panic buying periods don’t last and eventually things are calming down, when though prices as indicated may not.  In an more evenly balanced market, even if prices remain high, it is much easier to pick the house you like, negotiate contingencies with sellers etc and make home buying a much better experience.

 

So my inclination would be rent first and wait it out little. That also has the advantage that you get to know the area you live in much better and sometimes, there are relative deals to be had just watching closely and you will find that certain pockets can be desirable for you because of traffic patterns for your commute etc.

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My wife and i have recently decided to move (Langley to North Dunbar area of Vancouver). We will be renting a 4 bedroom house ($5,000/mo) and selling our house in Langley. (For interest, it costs about $3-$3,500 to rent a 4 bedroom house in Langley - located in the suburbs - about 60 minute drive from downtown Vancouver.) The house we will be renting is worth about $2.7 million.

 

I took 2 things away from this.

 

1. Your life sounds very nice and congratulations on this set up. Sounds like a great family setup and overall lifestyle.

 

2. Holy shit, I knew Canada housing was expensive but that is another level of insanity. That’s like less half the gross rental yield in my area, and many would consider housing in wealthy suburban DC to be “expensive”.

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I'm in downtown Toronto and there has been a pretty big divergence between home prices and rent with rent falling noticeably. The supply of homes for sale is also much lower than normal so my view is that it might be one of the best times to rent rather than buy right now.

 

I think the same thing has happened in Vancouver; rents have come down quite a bit year over year. However, the provincial government has announced that all universities will be full in class instruction in the fall (no online or hybrid) so demand from domestic and international university students will spike demand for rentals. Once travel opens up (further down the road) the Airbnb supply (converted to rentals because of covid) will be taken out of the rental market. So my guess is it will take 6 to 12 months for supply to get tight and prices (rents) to spike.

 

The challenge for landlords in Vancouver is the rental market is heavily regulated by the government. Once they drop their rent it is very difficult to quickly get it back to what it was (if you have a long term tenant). Here the government actually sets the maximum allowable rent increase = 2.5% in 2019, 2.6% in 2020 and 1.4% in 2021. Crazy low.

 

So if you are able to find a good rental at a good price with a landlord that wants to rent long term this is a very good time to rent in the urban parts of Vancouver.

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My wife and i have recently decided to move (Langley to North Dunbar area of Vancouver). We will be renting a 4 bedroom house ($5,000/mo) and selling our house in Langley. (For interest, it costs about $3-$3,500 to rent a 4 bedroom house in Langley - located in the suburbs - about 60 minute drive from downtown Vancouver.) The house we will be renting is worth about $2.7 million.

 

I took 2 things away from this.

 

1. Your life sounds very nice and congratulations on this set up. Sounds like a great family setup and overall lifestyle.

 

2. Holy shit, I knew Canada housing was expensive but that is another level of insanity. That’s like less half the gross rental yield in my area, and many would consider housing in wealthy suburban DC to be “expensive”.

 

From a financial perspective, the housing market in areas like Vancouver and Toronto is predicated on continuing price appreciation. For buyers at todays prices to make money they need to see continued price appreciation for their ‘investment’ to pay out. But it has been happening since 2000 so why would it not continue? The new wrinkle, with the recent price explosion, is they also need cheap money to stay cheap (5 year fixed mortgage rates to stay at 2%).

 

The interesting thing about Vancouver is it is a small city. It appears an enormous amount of money is flowing  in from Hong Kong (due to China’s crack down - people are looking to get out once and for all). More money is flowing in from China. There always has been a big amount of drug money laundered through the housing market here. All of these money flows have nothing to do with return; they are all about capital preservation. Add it all up and you get a spike in prices that has nothing to do with the local economy and what the average family earns.

 

Today residential housing is now 9.2% of Canadian GDP; i think the US is a shade under 5% (and was about 6.7% during the 2008 housing bubble). Interesting times :-)

 

- https://betterdwelling.com/canadas-over-30-more-dependent-on-real-estate-than-the-us-in-2006-shows-gdp/

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Was going to move to either Vancouver or Toronto last year. COVID changed things. And now, houses in both locations are like 30% 40% more (yes, from 700k to 1.1 million )....

 

Our relatives there are saying there is no sign of slowing down neither.

 

My wife thinks we should defer our move until the insanity eases.

 

Thoughts?

 

Vancouver and Toronto are 2 very different cities on opposite ends of the country. Have you ever tried living in either? It's basically like Chicago/NYC vs Seattle.

 

I purchased a home outside of Vancouver in December. I had to put in a bully offer 4 hours after the property was listed, after getting outbid on a number of other properties. Since then the market has apparently gotten even crazier with fewer listings on the market. The vacancy rate in the city I purchased is currently under 1%.

 

Logically one would think it is a good time to pick up a condo in downtown Toronto with the mass exodus caused by the pandemic, but all of the government bailouts seem to have prevented a significant correction in prices at least for now. There was an article in the G&M a few weeks ago about bidding wars returning at some condo buildings.

 

As others have mentioned the government policy to prop up Canada's lagging productivity is to increase immigration rates to some of the highest in the world. As long as this policy continues it will create pressure on the real estate market. There is tons of red tape and regulatory issues with building new housing units in Canada right now.

 

 

 

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Was going to move to either Vancouver or Toronto last year. COVID changed things. And now, houses in both locations are like 30% 40% more (yes, from 700k to 1.1 million )....

 

Our relatives there are saying there is no sign of slowing down neither.

 

My wife thinks we should defer our move until the insanity eases.

 

Thoughts?

 

Vancouver and Toronto are 2 very different cities on opposite ends of the country. Have you ever tried living in either? It's basically like Chicago/NYC vs Seattle.

 

I purchased a home outside of Vancouver in December. I had to put in a bully offer 4 hours after the property was listed, after getting outbid on a number of other properties. Since then the market has apparently gotten even crazier with fewer listings on the market. The vacancy rate in the city I purchased is currently under 1%.

 

Logically one would think it is a good time to pick up a condo in downtown Toronto with the mass exodus caused by the pandemic, but all of the government bailouts seem to have prevented a significant correction in prices at least for now. There was an article in the G&M a few weeks ago about bidding wars returning at some condo buildings.

 

As others have mentioned the government policy to prop up Canada's lagging productivity is to increase immigration rates to some of the highest in the world. As long as this policy continues it will create pressure on the real estate market. There is tons of red tape and regulatory issues with building new housing units in Canada right now.

 

The interesting thing is immigration numbers the past year are at historic lows (% of population) and housing prices have spiked and at at historic highs. So i don’t think immigration is the issue today.

 

Now, moving forward, if the government does expand immigration to 400,000 per year then this increased demand for housing will impact prices.

 

There are so many one time ‘historically high or low’ factors impacting the economy in general it is pretty much impossible to predict with any certainty where we go from here. Stay inquisitive and open minded (as Druckenmiller likes say).

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Is it just me or have posts begun getting cut up for ad placement?

 

If so, Sanjeev...can we solve this problem the way everything else in the world gets solved? Those who dont want to see ads everywhere pay a few bucks to prevent this?

Ad.thumb.jpg.4fda2678a056f86f26be1c0f913b55f3.jpg

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Is it just me or have posts begun getting cut up for ad placement?

 

If so, Sanjeev...can we solve this problem the way everything else in the world gets solved? Those who dont want to see ads everywhere pay a few bucks to prevent this?

 

<Off topic> :

 

Greg,

 

I suppose ads started popping up embedded into posts [and embedded posts] a few months ago.

 

Personally, I'm with you on this matter. It would be nice with an optionality here.

 

[PS: I just visited RedTube ..., At least no "cookie reaction" here by that! [ ; - D ].]

 

<End off topic> & <Back to topic>

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