Garth Turner - Real Estate in Canada

[wisdom]

A lot of Chinese numbers are higher eg: 100% house ownership, etc.

 

My fear is the impact a slow down will have on commodities and inflows from China on Canadian real estate.

[Liberty]

http://www.bnn.ca/News/2014/6/17/CMHC-to-return-to-lower-risk-roots-.aspx

 

 

[wisdom]

https://www.youtube.com/watch?v=enRnv2RLXmw

 

Kyle Bass on Canadian RE

[Liberty]

http://www.macleans.ca/economy/realestateeconomy/why-canada-isnt-immune-to-a-u-s-style-housing-crash/

[Viking]

As the article states at the end, the key is what happens to interest rates. The five year rate currently sits at a generational low of 3%; if it normalizes to 5% (as the author expects) then, yes, we likely will see a decline in prices. The higher interest rates go the bigger the price decline.

[Ham Hockers]

As the article states at the end, the key is what happens to interest rates. The five year rate currently sits at a generational low of 3%; if it normalizes to 5% (as the author expects) then, yes, we likely will see a decline in prices. The higher interest rates go the bigger the price decline.

 

That's only true holding everything else constant.

[Liberty]

17% of condo owners in Toronto, Vancouver bought for investment

 

http://www.cbc.ca/news/business/17-of-condo-owners-in-toronto-vancouver-bought-for-investment-1.2731289

 

This won't end well...

[ukvalueinvestment]

17% is probably low compared to London  ;)

 

[leftcoast]

It's actually "17% of condo owners who live in a condo also own a secondary condo for investment."

 

That's very, very different from saying that 17% of condos are investment properties.

 

From the CMHC report:

The survey did not cover Canadian households that own condominium units in Toronto or Vancouver but do not reside in these CMAs. Foreign investors, and corporate investors are also not covered by the survey.

 

Not sure what one is supposed to conclude from a stat like this.

[blainehodder]

This somewhat obnoxiously ad filled site has some great charts on Canadian housing and income.

 

http://www.chpc.biz/6-canadian-metros.html

[Liberty]

Yeah, the very restrictive definition means that this is a floor. The real number is probably much higher, especially for all those pre-construction condos that people like Brad Lamb are flogging to the unsophisticated masses, claiming they can make triple-digit returns in a few years...

 

I think it's said well here: https://twitter.com/benrabidoux/status/497780348299018241

[SharperDingaan]

There is a wide range of condo size & location within each city. The term 'average' is pretty meaningless here.

 

Most shoebox investment condo's are bought because PIT & condo fees after tax - are significantly less than renting; & little suzy does not have to fight others to get the place. Mom/pop invest by putting up the DP - & suzy rents the condo from them while going to school. Suzy's rent = mom/pops net monthly after-tax cost. Mom/pop will often also be the agent buying/selling the place, & selling directly to other families with sons/daughters in similar positions. Minimal MLS involvement, & a good chunk of the commission $ stays within the family.

 

Raise rates 500bp & the value of all real estate declines, not just condos.

 

SD

 

[Liberty]

 

Question: What will cause the bubble in real estate to burst or put another way, what will cause sentiment to change in the CDN housing market? Will it be interest rates? Will the government lower the amortization period again? Is it a collapse in commodity prices?

 

Cheers

 

No idea, but it's always something. "When something can't keep going, it will stop," as they say.

[leftcoast]

I was sitting with a bunch of people around a campfire recently, and while chatting with the fellow next to me, I learned he was the VP of Credit for a prominent mid-size credit union in the Vancouver area... basically overseeing their residential mortgage business. So of course I started peppering him with questions about his thoughts on the Vancouver real estate market, credit quality, mortgage regulations for credit unions vs. banks, etc.

 

He through me for a loop. He told me that several years ago, he firmly believed that Vancouver real estate was due for a major correction, but after watching prices continue to rise and rise, he's since changed his mind and joined the camp that thinks it will just keep going up because borrowing is so cheap and "everyone wants to live here." I asked what did he think would happen when interest rates rise? He said that he doesn't think they ever will now, because they've been so low for so long that raising them would be hurt too many people, so "it's too late... they can't do it." I asked, but what if they do? He laughed and said, "then I'll be out of a job."

 

It was eye-opening... these are kind the sentiments you've heard from average home-owners and speculators in Vancouver for years. Hearing them from a mortgage lending exec -- an otherwise smart guy -- really drove home how pervasive the irrational exuberance really is.

 

 

[Liberty]

Thanks for sharing. This is what capitulation near the top smells like, I think.

 

Reminds me of the Citigroup exec: "As long as the music is playing, you’ve got to get up and dance."

[gary17]

Thanks for sharing that story left coast. I think the guy is fooling himself, thinking that rates could never rise. That makes no sense. Eventually they will. They will have to if the economy starts booming or Inflation starts rising. This is not going to end well.

 

just look at Japan - it is still low rates there for many , many years --

 

rates could rise in the US - i doubt it'd rise in Canada any time soon as our economy is too dependent on the construction industry...  and we need the low rates to give manufacturing an advantage.  there's no easy way out of this in my opinion...

 

 

[Liberty]

just look at Japan - it is still low rates there for many , many years --

 

And where is Japan's real estate market now compared to where it was at its peak?

 

Not that it matters. Canada is very different from Japan on so many levels, I don't think it's a very useful country to compare it to.

[alertmeipp]

This would go on longer but we all know this won't end well, and the pendulum will swing back. Remember how US bubble get busted, is it because of rising interest rate?

[Liberty]

This would go on longer but we all know this won't end well, and the pendulum will swing back. Remember how US bubble get busted, is it because of rising interest rate?

 

In the same way that the stock market is (somewhat) forward-looking, I think the RE market is. So you won't need a lot of people to lose their shirt before things turn, you'll just need a change of sentiment; people who don't think anything bad can happen change their mind and realize that trees don't grow to the sky. Anything could be a catalyst. Then the marginal buyer who doesn't think twice today about getting a gigantic mortgage will evaporate.

 

Otherwise, what will it be? In 10 years everybody making 65k will live in 2-3 million dollar houses? While similar houses in the U.S. go for maybe 400k?

[rukawa]

My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

[Guest 50centdollars]

My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

 

It didn't stay flat in the late eighties. House prices were cut in half in the toronto area. Housing bubbles always end badly. Won't be any different this time either. The higher it goes up, the harder it will fall.

[gary17]

I don't disagree with a correction.

But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.

 

 

 

 

My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

 

It didn't stay flat in the late eighties. House prices were cut in half in the toronto area. Housing bubbles always end badly. Won't be any different this time either. The higher it goes up, the harder it will fall.

[alertmeipp]

I don't disagree with a correction.

But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.

 

 

 

 

My view was always that US RE experiences short sharp big corrections. Canada RE just goes flat for a long time. So my view is that there will be no correction. Canada will just have flat RE for the next 20 years.

 

It didn't stay flat in the late eighties. House prices were cut in half in the toronto area. Housing bubbles always end badly. Won't be any different this time either. The higher it goes up, the harder it will fall.

 

Check out what happen to RE when the main buyers are foreigners. That's not a positive in longer term.

[Liberty]

Garth Turner writes a lot about the so called 'hot-asian-money' and how it isn't nearly as much as most people think. Lots of media and realtor hype and little substance on a scale that could prop up the whole market. Many Canadians of Asian ancestry are being mistaken for foreigners too.

[ERICOPOLY]

He through me for a loop. He told me that several years ago, he firmly believed that Vancouver real estate was due for a major correction, but after watching prices continue to rise and rise, he's since changed his mind and joined the camp that thinks it will just keep going up because borrowing is so cheap and "everyone wants to live here."

 

Canada is too cold for everyone to want to live there.