Garth Turner - Real Estate in Canada

[Liberty]

 

Wow!

[wisdom]

Why are detached homes in Vancouver selling for 15-20% lower prices than last June?

 

Did anything other than the ability to borrow because of the tighter mortgage rules change? Or is Vancouver suddenly not as good as Toronto? I thought the argument was that Vancouver was the best and all the rich people were moving here? Suddenly the rich people prefer Toronto?

 

Another thought exercise - last winter/spring - people were flipping homes for $100k more than their purchase within 24 hours. Why did people feel the need to pay $100k more for the same property by the end of the day? Did the lifestyle in Vancouver improve by 10% within 24 hours or was it their incomes that increase by 10%?

 

 

[CalvinL]

Why are detached homes in Vancouver selling for 15-20% lower prices than last June?

 

Did anything other than the ability to borrow because of the tighter mortgage rules change? Or is Vancouver suddenly not as good as Toronto? I thought the argument was that Vancouver was the best and all the rich people were moving here? Suddenly the rich people prefer Toronto?

 

Another thought exercise - last winter/spring - people were flipping homes for $100k more than their purchase within 24 hours. Why did people feel the need to pay $100k more for the same property by the end of the day? Did the lifestyle in Vancouver improve by 10% within 24 hours or was it their incomes that increase by 10%?

 

Its easier to find correlation rather than causation, but there is an interesting correlation here regardless. I find it hard to pinpoint the real reason. Most people say it's the foreigner tax, China capital control etc...

 

Average home price could be misleading. From anecdotes I've read online, prices for homes under $2-3MM didn't come down at all in Vancouver.

 

[Peregrine]

Why are detached homes in Vancouver selling for 15-20% lower prices than last June?

 

Did anything other than the ability to borrow because of the tighter mortgage rules change? Or is Vancouver suddenly not as good as Toronto? I thought the argument was that Vancouver was the best and all the rich people were moving here? Suddenly the rich people prefer Toronto?

 

Another thought exercise - last winter/spring - people were flipping homes for $100k more than their purchase within 24 hours. Why did people feel the need to pay $100k more for the same property by the end of the day? Did the lifestyle in Vancouver improve by 10% within 24 hours or was it their incomes that increase by 10%?

 

There was a rush of sales activity prior to the foreign tax being enacted. Plus changes in mix of sales in any given month so the average figure may not be as comparable. Anyway, y/y February sales prices were up 14% from what I've read. Sales activity is slowing for sure though.

[rb]

Why are detached homes in Vancouver selling for 15-20% lower prices than last June?

 

Did anything other than the ability to borrow because of the tighter mortgage rules change? Or is Vancouver suddenly not as good as Toronto? I thought the argument was that Vancouver was the best and all the rich people were moving here? Suddenly the rich people prefer Toronto?

 

Another thought exercise - last winter/spring - people were flipping homes for $100k more than their purchase within 24 hours. Why did people feel the need to pay $100k more for the same property by the end of the day? Did the lifestyle in Vancouver improve by 10% within 24 hours or was it their incomes that increase by 10%?

Yes, after being up 30% yoy a few months ago which is basically what wisdom said.

 

There was a rush of sales activity prior to the foreign tax being enacted. Plus changes in mix of sales in any given month so the average figure may not be as comparable. Anyway, y/y February sales prices were up 14% from what I've read. Sales activity is slowing for sure though.

[wisdom]

That is not true. In March 2016 when the house prices were increasing by $100k no one knew of the foreigners tax. The market was already slowing down before the government acted.

 

Detached houses are not the same as homes (which includes condos and townhomes). Detached home sales are down over 70% in Vancouver.

 

Calvin - all detached home prices are down - anything over $800k isn't an easy sell right now. This is based on what is happening on the ground in reality and not the real estate boards statements.

 

Frank is your research based on quoting the real estate board figures? I would recommend at least using google.

[Peregrine]

That is not true. In March 2016 when the house prices were increasing by $100k no one knew of the foreigners tax. The market was already slowing down before the government acted.

 

Detached houses are not the same as homes (which includes condos and townhomes). Detached home sales are down over 70% in Vancouver.

 

Calvin - all detached home prices are down - anything over $800k isn't an easy sell right now. This is based on what is happening on the ground in reality and not the real estate boards statements.

 

Frank is your research based on quoting the real estate board figures? I would recommend at least using google.

 

You asked why detached homes were selling below their June 2016 prices. And I proposed that perhaps it was due to: 1) strong sales activity in the run up prior to the foreign buyers tax being enacted; and 2) a different mix of sales making a comparision of average sales prices of detached homes difficult.

 

Yes, I'm aware that the 14% I cited is from a broad index.

[wisdom]

All bubbles go on till credit is available. The Feds have come down on credit and the banks are also pulling back. As long as they don't change their mind, this is done and dusted. Now the government and banks are preparing to deal with the consequences. It is obvious why the government wants the banks to share in losses and the banks want to avoid it at any cost.

 

Even the so called rich Chinese buying in Vancouver were borrowing 65% of the value. Limited properties went for all cash.

 

 

[alertmeipp]

Toronto up 30% yoy

Last month, almost 10%

[scorpioncapital]

"Toronto up 30% yoy "

 

Who needs stocks? And you can get a 15 year fixed loan for what 5%? Seems to beat the pants off even a margin account. And what leverage can you put on that? 10%-20% vs 30% for S&P500 stocks? I expect to see all the Canadians in Ferraris soon enough.

[wisdom]

I don't recall the US market being this hot even in 2006. I wonder how ugly the other side of this bubble will be.

 

US prices rose for 11 years in their bubble.

 

Canada has been going up for 16 years.

 

I believe, Brazil and Indian real estate went through something similar in the last few years. Both have been terrible over the last few years.

[mcliu]

This report is interesting: http://www.demographia.com/dhi.pdf

 

Page 38's comparison between Greater Toronto and Dallas Fort Worth Area may be worth considering.

 

It also shows that there's still significant room for prices in Toronto and Vancouver to get go even higher if you use Sydney and Melbourne as comps.  :o

Mortgage rates are also almost 200bps higher in Australia than Canada..

 

Would whatever happen to Australia will serve as a good indicator of the fall out should a crash ever happen in Canada?

[rb]

Thanks for posting. Demographia always puts out good stuff.

[wisdom]

Vancouver used to be 4 x median household income when this run began in 2000. Today a detached house is at 14x or so.

 

Check out page 12 on this report -22% of households at 500% mortgages. The numbers are from 2012 for BC before the recent run up. The numbers for Vancouver have to be higher. I would guess 25-30% of households in Vancouver would be in that category today.

https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/Commentary_441_0.pdf

 

Page 3 on this report is good too. A median household needed around 60% of their income when this started. Today they need 140% to carry a mortgage in Vancouver on a detached house. Any type of dwelling on average requires 92%.

http://www.rbc.com/newsroom/reports/rbc-housing-affordability.html

 

 

[Guest 50centdollars]

"Using the Toronto Teranet-National Bank Home Price Index, I looked at the appreciation of this index over the last 17 years and compared the results to Japan’s home price appreciation in the 1980s and the US in the 2000s. Since 1999, the Teranet-National Bank Toronto Home Price Index has risen an incredible 200%. In contrast Japan’s home price index rose 193% in the 17 years prior to its peak, and the US S&P/Case-Shiller National Home Price Index rose 152%. As illustrated below, the run up in Japan and US home prices have been almost exactly the same as what Toronto has experienced. When I completed the chart I basically sat and stared in awe of the similarity between these markets".

 

http://www.greaterfool.ca/2017/03/04/its-official-its-a-bubble/

 

Also

https://www.thestar.com/business/wealth/2017/03/04/housing-market-will-burst-like-all-bubbles-do-pape.html

[Liberty]

http://www.torontohomes-for-sale.com/4a_custpage_2578.html

 

https://twitter.com/stephaniefusco/status/838111439034417153

[Guest 50centdollars]

 

 

http://www.cbc.ca/news/canada/british-columbia/td-tellers-desperate-to-meet-increasing-sales-goals-1.4006743

[Liberty]

 

House-prices-to-rent ratio, with range since 1980.

 

 

 

[bizaro86]

I'd like to know which Canadian markets are at ~55 price to rent ratio (the bottom end of that bar). The propertis I own now are probably 150x price to rent ratio.

[CalvinL]

I'd like to know which Canadian markets are at ~55 price to rent ratio (the bottom end of that bar). The propertis I own now are probably 150x price to rent ratio.

 

Actually 200x to 250x is the norm now if it's in reputable school zones.

[rb]

I'd like to know which Canadian markets are at ~55 price to rent ratio (the bottom end of that bar). The propertis I own now are probably 150x price to rent ratio.

That's the lowest point in price-to-rent in the past 27 years. Not current.

[Peregrine]

I'd like to know which Canadian markets are at ~55 price to rent ratio (the bottom end of that bar). The propertis I own now are probably 150x price to rent ratio.

 

Actually 200x to 250x is the norm now if it's in reputable school zones.

 

The chart doesn't show price to rent ratios. It shows a range of price to rent ratios relative to the price to rent ratio in 1980.

[Liberty]

I'd like to know which Canadian markets are at ~55 price to rent ratio (the bottom end of that bar). The propertis I own now are probably 150x price to rent ratio.

 

"Range ratio since 1980."

[rb]

Ok, so on my street in a Toronto suburb 2 semis sold in the past week. Both listed and sold withing the week for about 870k. They were about 1250 sqft and 33 years old.

 

Let's now look closer at what this means. According to the rules, the minimum payment for these houses would be 62K. On top of that you'd have to pay around 14k in land transfer tax and 29k for mortgage insurance. Add in a couple of extra closing costs and you need about 110k upfront.

 

Now if you get a 5 year variable mortgage (25 year amortization) at 2.45% the mortgage payment is about $3,600 per month. Add in $100 for insurance and $300 for property tax and you would need $4,000 after tax per month just to carry the minimums for there house. This is without utilities, or any maintenance/repairs which any homeowner knows are more than you'd expect. However you have to quality for a 5 year fixed @4.64%. Which means that you need pretax family income of about 180k - and you can't have payments on other debt larger than 14k.

 

All of this for a small semi at current interest rates. Totally reasonable and affordable right?

[Cardboard]

This is a bubble and is going to pop. There are too many similarities with other bubbles for this one to not be one or where they seem to be going on forever despite headwinds and all of a sudden, bam!

 

You have tighter requirements on mortgages: money down, life of mortgage, etc. You have restrictions on foreign ownership. You have Revenue Canada having added a special page this year on their Schedule 3 (capital gains) specifically to deal with home flipping. You have an economy that is doing decent with interest rates going up South of the border and how we don't follow eventually?

 

These are all recently new developments that should put the brakes on Canadian housing prices from rising but, they are not in Toronto and Vancouver yet.

 

Cardboard