Garth Turner - Real Estate in Canada

[rb]

I was speaking more about Toronto. The Van numbers line up better though they still seem a bit off. Just to be clear I'm not saying that prices are not going up but it seems that CREA is pumping up the number even more in reports.

 

Also whether homes go over listing price isn't really relevant when we're talking about YoY price changes. But to your point, yea Van went up a lot.

[rb]

We should ask the MPs and Mr. Prime Minister if as the highest paid public post in Canada he can afford to live in Vancouver LOL!!!!

I think the highest paid public post in Canada is Poloz. At about half a mil he could afford to live in Vancouver. But he gets much nicer digs in Ottawa for that money.  8)

[alertmeipp]

I was speaking more about Toronto. The Van numbers line up better though they still seem a bit off. Just to be clear I'm not saying that prices are not going up but it seems that CREA is pumping up the number even more in reports.

 

Also whether homes go over listing price isn't really relevant when we're talking about YoY price changes. But to your point, yea Van went up a lot.

 

Which area u live? Ask anyone in Toronto or Vancouver. Those numbers are for real.

[rb]

I was speaking more about Toronto. The Van numbers line up better though they still seem a bit off. Just to be clear I'm not saying that prices are not going up but it seems that CREA is pumping up the number even more in reports.

 

Also whether homes go over listing price isn't really relevant when we're talking about YoY price changes. But to your point, yea Van went up a lot.

 

Which area u live? Ask anyone in Toronto or Vancouver. Those numbers are for real.

I live in Vaughan. And seriously what you're saying is like saying the stock market has gone up. Gee thanks. And ask anyone in the city isn't going to produce any more concrete information. Nobody is denying that the market has gone up. But there is a big difference between the market has gone up 10% or 20% don't you think? And I think it's a bit of an issue when CREA says both of those things in 2 different mediums. Do you have anything to add on that? Or should my market analysis be based on what the guy on the street says?

[alertmeipp]

all u have to do is to talk to some realtors, they have all the sale records

[rb]

Yes, realtors, the most reliable and truthful source of information.

[alertmeipp]

come on, the sales data isn't fake.

[gokou3]

I live in a suburb of Vancouver. 20%+ price increase in my neighbourhood yoy.

[RichardGibbons]

I live in Vaughan. And seriously what you're saying is like saying the stock market has gone up. Gee thanks. And ask anyone in the city isn't going to produce any more concrete information. Nobody is denying that the market has gone up. But there is a big difference between the market has gone up 10% or 20% don't you think?

 

The funny thing here is that RB is coming down really hard on anyone using anecdotal data.  Why?  Because their data doesn't line up with his gut feel, which seems to be largely based on anecdotal data.  His righteousness in the face of people sincerely trying to discuss his question is pretty amusing, considering....

[rb]

Just to clarify once again, I am talking more about the GTA. Vancouver data lines up better even though over there it's harder to tell what's what because the market has been so crazy.

 

Richard, I really don't understand your post, since you replied to my original post about discrepancies with the housing datasets, so you would know that the issues i raise are not based on my gut feel driven by anecdotes but i raise these issues driven by actual data.

 

In the GTA, actual data isn't available yet from anyone for May 15-May 16 but it is available for Apr 15 - Apr16 which under most circumstances should be a very good approximation unless May 16 has been absolutely gangbusters. Allow me some leeway because I'm not gonna run all the numbers again. This is roughly what you have:

1. Teranet matched pairs sales for GTA 10% YoY. This is the best data series for home sales. However, it doesn't split for different dwelling types.

2. CREA data for GTA, YoY has condos at 7, semis and townhouse at 12, detached at 14, and everything overall at 12

3. Toronto Real Estate Board has detached houses going up at 17.5% YoY

4. CREA comes outs and says for GTA in 905 (which is way bigger than 416) YoY condos did 9, semis did 19, and detached did 21.

 

Now those numbers just don't line up. Anecdotally house prices went up, and for real prices went up. But there's a big difference between 10 and 20 percent and that difference is important.

 

[Liberty]

http://business.financialpost.com/personal-finance/mortgages-real-estate/sorry-kids-no-detached-homes-for-you-at-least-in-toronto-and-vancouver#__lsa=1985-7507

[KCLarkin]

http://business.financialpost.com/personal-finance/mortgages-real-estate/sorry-kids-no-detached-homes-for-you-at-least-in-toronto-and-vancouver#__lsa=1985-7507

 

Young people don't live in detached houses in London, Manhattan, or many other cities. It isn't an inalienable right. The land use policies are designed to encourage more people to live in high density housing.

[gary17]

I find the media missing the point on the RE situation in Vancouver and Toronto.

 

foreign investment and tight supply are part of it. but the biggest driver is the fact flipping RE is tax free if one lives in in for one year.  combine with low interest rates and down payment requirements -- you effectively have a very lucrative return based on financial leverage and is all tax free.

 

Say one buys a $1.5m house in Vancouver with 20% down = cost of $300k.

1 year of 2% interest on $1.2m mortgage is only a few thousand dollars. 

next year sell RE for $1.9m and make $400k tax free.  that's more than 100% return  again tax free

if $400k were to be made from earned wages, that's about $800k for a high income person making over 200k$.  4 years vs 1 year. 

 

I hope the media would report more on this

[scorpioncapital]

Not sure it's such a free lunch with the tax-free principal residence rules. See - http://www.cra-arc.gc.ca/E/pub/tp/it218r/it218r-e.html

 

Essentially, like everything tax related in Canada, there are implied but not-rule based conditions. I.e. if they want to clamp down on "too frequent flipping" they just have to use some of these ideas here and have a judge interpret it as such.

 

Also there are RE commissions which when I put in some random calculator online for 1.5 million spits out about $52,000 round trip..That is almost (but not quite) the capital gains tax on $400,000 of stock gains.

 

[Nelson]

I find the media missing the point on the RE situation in Vancouver and Toronto.

 

foreign investment and tight supply are part of it. but the biggest driver is the fact flipping RE is tax free if one lives in in for one year.  combine with low interest rates and down payment requirements -- you effectively have a very lucrative return based on financial leverage and is all tax free.

 

Say one buys a $1.5m house in Vancouver with 20% down = cost of $300k.

1 year of 2% interest on $1.2m mortgage is only a few thousand dollars. 

next year sell RE for $1.9m and make $400k tax free.  that's more than 100% return  again tax free

if $400k were to be made from earned wages, that's about $800k for a high income person making over 200k$.  4 years vs 1 year. 

 

I hope the media would report more on this

 

I know at least one person who's doing this in the small town where I live on places that are only worth $250-$300k. She's a real estate agent so she saves on commissions, but if she can make money doing this at $300k then it's probably not that hard to do it at $1M+.

[alertmeipp]

just search Kijiji for "Assignment Sale" in Toronto, easy money IF things keep going up.

[gary17]

Not sure it's such a free lunch with the tax-free principal residence rules. See - http://www.cra-arc.gc.ca/E/pub/tp/it218r/it218r-e.html

 

Essentially, like everything tax related in Canada, there are implied but not-rule based conditions. I.e. if they want to clamp down on "too frequent flipping" they just have to use some of these ideas here and have a judge interpret it as such.

 

Also there are RE commissions which when I put in some random calculator online for 1.5 million spits out about $52,000 round trip..That is almost (but not quite) the capital gains tax on $400,000 of stock gains.

 

1  All sellers negotiate commission with the agent

 

2  In Canada it's a you pay tax if you get caught - so many people are willing to take the chances they won't get questioned.  I don't think the property transfer tax office for the province flags transactions to CRA if it is principal residence or investment or income.

[wisdom]

Gary, do these people  you refer to, understand the penalties and how they work?

 

You have to live in a house for 18 months before flipping for the principal  residence exemption to apply if you are a serial flipper. Even then CRA can question whether it is income or capital gains. In addition, CRA can question your past taxes for 7 years.

 

Now it is different that individuals who don't understand  the consequences often cheat. So much so, that I have even come across couples who claim to have 2 principal residences. But, good luck to them if they are caught.

 

 

[gary17]

Gary, do these people  you refer to, understand the penalties and how they work?

 

You have to live in a house for 18 months before flipping for the principal  residence exemption to apply if you are a serial flipper. Even then CRA can question whether it is income or capital gains. In addition, CRA can question your past taxes for 7 years.

 

Now it is different that individuals who don't understand  the consequences often cheat. So much so, that I have even come across couples who claim to have 2 principal residences. But, good luck to them if they are caught.

 

I believe the rule is 12 month

but anyway - most 1st generation immigrants don't know

 

I know in Asia there is actually a household office that keeps track of where people live and transactions of real estate - do we have that agency here?

Isn't it up to CRA to "find" cheats?   

 

Why isn't it the other way around - that you have to proof it is principal residence so you won't get taxed on transaction ? LOL

 

[alertmeipp]

what is the best way to make money when Canadian Real Estate corrects?

[rb]

And alertmeipp took the words out of my mouth. By this time I think it's crystal clear that there's a bubble in the GTA and Vancouver. It's probably time to stop debating that fact and try to figure out a way to make money off this thing. It's an investment forum right?

 

By the way, the reason why i've been torturing myself with data and try to figure out whether prices are going up at 20% instead of 10% is that at around 10 it can still be an overheating market. If it's 20, it may be that part of the bubble when prices go vertical right before that crash. Vancouver's likely already there.

 

My best idea right now would be to short the private mortgage insurers. I'm thinking that they likely insured a lot of grotesque mortgages. MIC paid out $120 million in losses in 2015 when the market was red hot.

[augustabound]

Not investment related but what would the reason a place like Nanaimo has escaped the bubble? We're always on the look out to potentially move west and Nanaimo has some beautiful homes close to everything and have a harbour view for under $600k.

 

Is it the simple fact it's not on the mainland?

 

Edit: in case anyone is interested, this is what $499k gets you. Ten minutes to Discovery Harbour and shopping.

https://www.realtor.ca/Residential/Single-Family/17025284/4299-GULFVIEW-DRIVE-NANAIMO-British-Columbia-V9T6K4-Z4-North-Nanaimo

 

[alertmeipp]

And alertmeipp took the words out of my mouth. By this time I think it's crystal clear that there's a bubble in the GTA and Vancouver. It's probably time to stop debating that fact and try to figure out a way to make money off this thing. It's an investment forum right?

 

By the way, the reason why i've been torturing myself with data and try to figure out whether prices are going up at 20% instead of 10% is that at around 10 it can still be an overheating market. If it's 20, it may be that part of the bubble when prices go vertical right before that crash. Vancouver's likely already there.

 

My best idea right now would be to short the private mortgage insurers. I'm thinking that they likely insured a lot of grotesque mortgages. MIC paid out $120 million in losses in 2015 when the market was red hot.

 

Any particular names?

[kab60]

In the latest Graham and Doddsville Marc Cohodes talks a bit about his Canadian Real Estate short - he's short via Home Capital Group

[nodnub]

Not investment related but what would the reason a place like Nanaimo has escaped the bubble? We're always on the look out to potentially move west and Nanaimo has some beautiful homes close to everything and have a harbour view for under $600k.

 

Is it the simple fact it's not on the mainland?

 

Edit: in case anyone is interested, this is what $499k gets you. Ten minutes to Discovery Harbour and shopping.

https://www.realtor.ca/Residential/Single-Family/17025284/4299-GULFVIEW-DRIVE-NANAIMO-British-Columbia-V9T6K4-Z4-North-Nanaimo

 

Nanaimo is a relatively small city with (IMO), a moderately developed economy. For many years it was not considered one of the nicer cities on Vancouver Island. The downtown core was pretty rundown for a long time (decades).  I think the city is a much nicer place now and perception of it is changing. However, for the last 20 years (IMO) most retirees chose places on the island like Victoria, Saltair, Courtenay, Parksville.

 

Vancouver Island is just far enough away that it acts like a separate market. Residents are somewhat held hostage by BC Ferry access to the mainland.  The crossing takes more than 90min including unloading time and in the summer you often have to arrive more than 60 minutes before departure to make it on the boat if you are bringing a car.  The costs are ~$20/person and $60/regular sized vehicle for a one way trip. It's too expensive and time-consuming for most people to do as a daily commute to Vancouver (although I have met people that do it).