Garth Turner - Real Estate in Canada

[Liberty]

So how do we explain the phenomenon that many listings in Vancouver are now getting multiple offers - so for each one accepted offer there are 4 or 5 or even more groups that have not found a "home".  I made an offer for a duplex a few weeks ago - I went $100k over asking but was the bottom 3 of 12 offers - the accepted offer was $221k over asking.  I am and many of those making The offer are not developers speculating.  we are simply trying to find a place to live !

 

I wonder if there is data from census or whatever that would allow us to look at the demand side of the market more scientifically.

 

What do you mean? Why does it have to be explained any more than the fact that people were willing to bid things up in any other bubble (Nortel shares, Las Vegas houses, tulip bulbs, whatever).

 

Nobody's saying that the market isn't hot or that there isn't real demand. The problem is that people are overpaying and many people who probably shouldn't be buying are buying because of FOMO/now-or-never/social pressure/cashback mortgages/family giving them a downpayment/the belief that nowhere else is worth putting money into/whatever.

[scorpioncapital]

So we have:

 

migration (30%?) - are the migrants coming in with lots of money as opposed to purchases from domestic wages and business?

 

low interest rates (20%?) - are monthly mortgage costs low?

 

limited space in a desirable location (40%?) - bylaws do not allow building up so even domestic and international buyers are competing for limited houses.

 

bubble  - mania above & beyond the above. Doesn't seem that it's more than 10-20% here unless we adjust the above say migration 20%, low interest rates 10%, good location 30%. Then speculation is still only about 40%. Maybe that's worthy of being called a bubble. As Buffett recently said in those regulatory filings, a bubble usually has a sound premise - in this case sound 50-60% or so, it's the other 40% with leverage that could be lethal. But I'm not convinced a bubble shouldn't be defined as something like 90% speculative, 10% fundamental. I mean is it a bubble when locals have the choice to emigrate from the region who can't afford it, thus leaving say a city with many upper middle class and everyone else moving to smaller cities or distant suburbs?

 

 

[gary17]

another thought I had was why haven't we heard the real estate meltdown in Calgary and Edminton amid the worst oil crisis in recent history - if Edmonton is down 5% is jt something we should expect to see in Vancouver when we see the eventual correction ?

[wisdom]

A lot of places in Vancouver and around are up 100% in the last 18 months. As Gary stated you are only in the game if you bid just $100,000 over asking if you want a house an hour out of the city i.e. the valley.

 

Closer to the city I am seeing offers anywhere from $200k to $500k over being accepted. This is why the prices have risen $100k to $1mil in the first 3 months of the year so far.

 

It is very cool to watch the frenzy.

[wisdom]

It reminds me a lot of late 1999 in the stock markets - the euphoria and FOMO is over powering.

[wachtwoord]

It reminds me a lot of late 1999 in the stock markets - the euphoria and FOMO is over powering.

 

Any idea how to profit from this?

[wisdom]

If you are in the market - sell! LOL

 

No idea.

[wachtwoord]

If you are in the market - sell! LOL

 

No idea.

 

Can't sell what I don't have. Even if I did the market can stay irrational longer (and more extreme!) than I can stay solvent ...

[Liberty]

http://www.moneysense.ca/spend/real-estate/cmhc-banks-should-pay-deductible-on-mortgage-insurance/

[wisdom]

Liberty not sure if they can make it retroactive. It is already too late in the game to have much of an impact - i.e deductibles.

[Liberty]

Liberty not sure if they can make it retroactive. It is already too late in the game to have much of an impact - i.e deductibles.

 

Too late to avoid damage if defaults rise, but not necessarily too late to affect the marginal buyer going forward and make banks tighten their lending standards. This might not be the thing that does it, but could be one more step in that direction.

[bizaro86]

Post from another forum I thought was interesting. Data not sourced, so YMMV.

 

Here is a Chronology of CMHC rules & mortgage data:

 

1954-1990- Somewhere along this time, 10% became minimum down payment.

1990- 5% was introduced as a trial run, officially accepted in 1999.

2001 – Genworth (GE Capital) enters the Canadian mortgage insurance market

2001 – CIBC offered below-prime mortgages.

Pre-2003 – CMHC: 5% down with price limit depending on area, 25 yr amortizations, no price limit if 10% or more down

Sep 2003 – CMHC: 5% down, 25 yr amortizations, removed all price ceiling limitations. Now any mortgage would be insured regardless of the cost.

Mar 2004 – CMHC: Flex-Down product allows 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured)

Mar 2006 – AIG enters the Canadian mortgage insurance market

Mar 2006 – CMHC: 0% down, 30 yr amortizations (Genworth announces 35 yr amortizations)

Jun 2006 – CMHC: 0% down, 35 yr amortizations, interest only payments allowed for 10 years

Nov 2006 – CMHC: 0% down, 40 yr amortizations, interest only payments allowed for 10 years

Oct 2008 – CMHC: 5% down, 35 yr amortizations, investors need 5% down.

April 2010- CMHC did some minor tightening of their guidelines, investors need 20% down.

March 2011- CMHC only allows 30 yr amortizations, restrictions on pulling equity out

2012 - CMHC only allows 25 yr amortizations, insured mortgages limited to $1 million, home equity refinance drops from 85% to 80%.

 

The amount of credit expansion and loosening that occurred from 2003 to 2006 was crazy. Any wonder home prices almost doubled in 30 months?

Calgary SF Median (January 2005) +/-$240,000

Calgary SF Median (July 2007) +/-$440,000

[bbarberayr]

In case you haven't seen this, the Teranet web site is good:

 

http://www.housepriceindex.ca/default.aspx

 

What's interesting is many cities have done pretty much nothing pricewise for 5 years now, the Vancouver and Toronto/Hamilton areas continue to do well.

 

I'm also not sure why the Vancouver market is so heavily weighted - more than Calgary and Edmonton combined.

[JBTC]

 

What's interesting is many cities have done pretty much nothing pricewise for 5 years now, the Vancouver and Toronto/Hamilton areas continue to do well.

 

 

If this is accurate, it indicates the boom in V and T is mostly not due to nationwide factors, such as interest rate or mortgage policy. It likely reflects a combination of individual fundamental investment merits and fundamentals-fueled speculation.

 

As scorpioncapital already suggested earlier, the key is to figure out how much of the boom is due to sustainable fundamentals vs. unsustainable speculation. That'd be a much more productive discussion.

 

[wisdom]

10% moves in a day - can there really be any fundamentals in play.

 

How can a house be worth that much more overnight.

[merkhet]

10% moves in a day - can there really be any fundamentals in play.

 

How can a house be worth that much more overnight.

 

Two words: platform value

[Jurgis]

10% moves in a day - can there really be any fundamentals in play.

 

How can a house be worth that much more overnight.

 

Two words: platform value

 

That was very good! ROFLMAO.

[JBTC]

10% moves in a day - can there really be any fundamentals in play.

 

How can a house be worth that much more overnight.

 

Can you please list the houses that moved 10% a day? How many? What are the quotes over time?

 

Most houses don't have quotes most of the time. Because of this, housing value can be less certain. A 10% difference in prices offered by two different buyers is normal.

 

In a competitive auction, prices can move up dramatically. A 10% move doesn't indicate anything unusual.

 

Stocks move up 10% easily. Are those moves all speculation?

 

Please explain your logic.

 

[scorpioncapital]

Some are saying tax evasion is causing some of these price gains, not sure it's possible:

 

http://www.theglobeandmail.com/news/investigations/questionable-tactics-encourage-bc-homebuyers-to-avoid-taxes/article28758483/?utm_source=facebook.com

 

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/foreign-investors-avoid-taxes-by-buying-real-estate-in-canada/article26683767/?utm_source=facebook.com

 

http://www.vancouversun.com/touch/story.html?id=11720846

 

 

[wisdom]

http://bc.ctvnews.ca/house-flipping-concerns-as-368-vancouver-homes-sold-at-least-twice-since-2014-1.2769801

 

Jbtc since you asked I will refer you to some stuff that is common knowledge in this market. Not sure where you live or how informed you are about Vancouver or just trolling.

 

Because of privacy I am not giving you specific addresses but it is common to see houses that are up 100% or more in 18 months or to see bids of $200-500k over asking.

 

I can only imagine that you have no idea about what is happening in this market to make the statement  you just did. I would ask you to look into the general market, you don't need any specific address.

 

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

 

Let me know how many more examples would you like.

 

http://globalnews.ca/news/2506976/rapid-home-flipping-in-vancouver-maybe-this-is-when-it-will-be-caught/

 

Look at increase on the average house.

 

http://www.ctvnews.ca/business/expert-tips-to-lock-down-properties-in-vancouver-s-red-hot-housing-market-1.2805228

 

http://bc.ctvnews.ca/red-hot-or-reprehensible-vancouver-home-sells-for-735-000-over-asking-1.2792911

[JBTC]

http://bc.ctvnews.ca/house-flipping-concerns-as-368-vancouver-homes-sold-at-least-twice-since-2014-1.2769801

 

Jbtc since you asked I will refer you to some stuff that is common knowledge in this market. Not sure where you live or how informed you are about Vancouver or just trolling.

 

Because of privacy I am not giving you specific addresses but it is common to see houses that are up 100% or more in 18 months or to see bids of $200-500k over asking.

 

I can only imagine that you have no idea about what is happening in this market to make the statement  you just did. I would ask you to look into the general market, you don't need any specific address.

 

http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/

 

Let me know how many more examples would you like.

 

http://globalnews.ca/news/2506976/rapid-home-flipping-in-vancouver-maybe-this-is-when-it-will-be-caught/

 

Look at increase on the average house.

 

http://www.ctvnews.ca/business/expert-tips-to-lock-down-properties-in-vancouver-s-red-hot-housing-market-1.2805228

 

http://bc.ctvnews.ca/red-hot-or-reprehensible-vancouver-home-sells-for-735-000-over-asking-1.2792911

 

Hey wisdom,

 

First let me apologize. I knew your statement of "10% a day" was a bit of an exaggeration, but I was too tempted to not tease a little. That wasn't nice. My bad.

 

I also need to come clean. I was trolling. I don't live in Vancouver, but have a lot of interest in the housing market there.

 

I am biased to a degree, because I have had direct property investments and always like them. For all sorts of reasons including luck, I never lost money in property. The same cannot be said of the stocks I own, despite I exert 10x more effort on the stock market.

 

I don't doubt at all there's significant speculation in Vancouver. My view is large speculation can only take place in the presence of strong fundamentals. Not too many are speculating in Montreal. Why?

 

The key task for me is to figure out how much of the prices can be justified by fundamentals, and how much due to speculation. If prices do fall, what price should I consider good?

 

I am a little disappointed in some of the discussions that involve mostly opinions, anecdotes, and whining (sorry), rather than level-headed facts, data, and analysis. I would always want to hear both the bull case and bear case.

 

Thanks for the articles though.

 

So one article says that 5.58% of the homes sold since 2014 were sold twice. How bad is that? I have no idea. If you have an insight, I am all ears.

 

In another article, quote -

 

"We have no idea the scope of the problem, about how much it may be inflating the real estate market," Eby said.

 

That's exactly what I was wondering. Too bad no one seems to know.

 

[Liberty]

I think that what will turn out to have been part of the problem in Canada is that there's a real lack of transparency in the market.

 

My understanding is that in the US, you can get info on almost any house, see what it sold for in the past, how long it's been on the market, etc. There are sites like Zillow and such that allow access to everyone.

 

In Canada, most of that info is held by the realtors associations, and they release their own frankennumbers that are heavily massaged, and their press releases are republished as fact by the media. The average person has very little insight into what actually goes on in the market, and since a large part of the current market is driven by sentiment, the realtor-distorted reality helps keep that sentiment strong and prolongs things.

 

 

[wisdom]

JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.

[mcliu]

JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.

Interesting. The fact that anecdotes like that exist seems to points to a frothy market. I mean in how many other cities can you flip a house in a day for a 10% gain?

[JBTC]

JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.

 

Post the US housing bubble I bought houses in Las Vegas and Phoenix in 2011, which are up nicely.

 

Somehow I am not confident there will be a similar profit opportunity in Vancouver and Toronto. Too many people want to live there. You need a massive overbuild to offset the demand factor. Vancouver can easily be a speculator's paradise - it's pretty, the only warm town in a cold country, and has an ocean in the west, mountains in the north, and a border in the south, all limiting expansion.

 

I hope you are right and I am wrong.