Garth Turner - Real Estate in Canada

[clutch]

(I don't know if this is appropriate to ask)

 

Does anyone here live in Toronto / Vancouver AND has enough savings to buy a condo / house, but is waiting for the market correction to buy a condo / house?

 

Curious to know...

[cwericb]

Yes Clutch. If you go back to the start of this thread - 5 years ago - some said they were waiting for the imminent correction before they would buy. Unfortunately no one has a crystal ball, but even if we have a major correction sometime in the near future it is unlikely they will find anything cheaper than it was five years ago.

[Liberty]

Yes Clutch. If you go back to the start of this thread - 5 years ago - some said they were waiting for the imminent correction before they would buy. Unfortunately no one has a crystal ball, but even if we have a major correction sometime in the near future it is unlikely they will find anything cheaper than it was five years ago.

 

Personally I'm in a less frothy part of the country, but I rent because I don't think buying is a good use of capital right now. I've always said that I had no idea about the timing of the market, I just know that if something overpriced because ridiculously overpriced, it doesn't mean that you were wrong to pass on it when it was merely overpriced, just that now the risk is even greater if you buy. I wouldn't buy a Toyota Corolla for $50k, and if 5 years later Corollas are $90k, it doesn't mean I was wrong to not buy it at 50k...

 

If I had been shorting the market for years, that would be considered "wrong" as the carrying costs of the short plus the huge appreciation would make it pretty hard to dig out of that hole. But I'm living in a place that I quite like, I don't feel I'm making sacrifices (and I've actually learned quite a lot from each subsequent place I've rented -- if I had bought a house 5 years ago, it probably would've been the wrong type of house in the wrong area). It's significantly cheaper than owning, and I've put much more money aside that has been growing well in the meantime. Even if the market never corrects, I'm in a better position to buy now than I was 5 years ago, so it's been win-win for us.

[cwericb]

Liberty, I think that is probably the crux of the matter. We are having a national/international discussion on something that is actually very regional. Where I am, probably not that far from you, I would be willing to bet that if the housing market in some of the major cities were to crash, prices in my area would actually continue to increase in value.

[Spekulatius]

Yes Clutch. If you go back to the start of this thread - 5 years ago - some said they were waiting for the imminent correction before they would buy. Unfortunately no one has a crystal ball, but even if we have a major correction sometime in the near future it is unlikely they will find anything cheaper than it was five years ago.

 

Well you never know. I bought a house in CA in 2002 for $320k. The value of my house peaked around late 2005/early 2006 at ~$500k. The the prices started to go down and value of the house bottomed around 2010 @$280-300k. I for sure would have been able to buy a nicer place for the same money around 2011 or 9 years after I purchased my house. I sold it in early 2015 for $465k because I moved elsewhere.

 

So, even though I did not buy at the peak, I could have purchased my house about 9 years later for the same price after the correction caused by the Great Recession. Strange things happen, when people go collectively nuts.

[Liberty]

Well you never know. I bought a house in CA in 2002 for $320k. The value of my house peaked around late 2005/early 2006 at ~$500k. The the prices started to go down and value of the house bottomed around 2010 @$280-300k. I for sure would have been able to buy a nicer place for the same money around 2011 or 9 years after I purchased my house. I sold it in early 2015 for $465k because I moved elsewhere.

 

So, even though I did not buy at the peak, I could have purchased my house about 9 years later for the same price after the correction caused by the Great Recession. Strange things happen, when people go collectively nuts.

 

Are your prices adjusted for inflation?

 

As you can see from the graph I posted earlier, after the smaller late-80s bubble burst in TO, it took over 20 years to get back to the same point inflation-adjusted.

[jeffmori7]

A contrarian view from Baskin Wealth Management: http://www.baskinwealth.com/a-contrarian-view-on-canadian-housing/

 

I don't know enough about this but some of you may give their insights about this.

[lessthaniv]

Jeffmori7,

 

That's a great article and I appreciate you taking the time to post it. I agree.

 

I'll add this article which is from the GVBOT discussing the need to ramp up the supply of affordable housing for 25-35 year olds by speeding up the permit processes for developers. To me, this is a choke point and the lack of affordable homes for "the missing middle" is contributing to the social issues we often hear about in the press and as mentioned in the Baskin article. But, as expressed in the Baskin article the presence of social issues due to affordablility doesn't mean the market is in a bubble.

 

http://www.cbc.ca/news/canada/british-columbia/vancouver-must-speed-up-housing-development-process-greater-vancouver-board-of-trade-1.4073578

 

http://globalnews.ca/news/3386375/housing-affordability-taking-huge-swipe-at-missing-middle-report/

 

I also agree that interest rates are key.

[rb]

All the rationalizations for current RE prices in Toronto will be interesting to revisit in the future.

 

Toronto had more cranes than any other city in North America (in fact, I think I remember that at one point it had more cranes than many other big cities combined), house prices recently went up by 33% from an already very elevated level, everybody's obsessed with real estate, there are bidding wars for million-dollar decrepit old shacks and sellers refuse  to have inspections done... There's nothing fundamental about the situation, it's animal spirits. When it corrects, it'll overshoot in the other direction, as it usually does when things get this crazy.

 

The cranes that you refer to are building condos and there aren't many that are saying that there's a supply concern with condos - though listings there have also tightened. It's single detached homes that are now increasingly uncommon and whose prices have risen 33%. Condo prices have risen near that much.

From CREA stats: GTA Condos 29% YoY. GTA single family 30% YoY.

 

Tell me more about supply.

 

I find it tiresome to discuss with you because you automatically take something I said, conflate it and then present a gotcha-type conclusion.

 

One year numbers can have plenty of noise, but take a look at the following graph and tell me what kind of housing units have been rising faster than others:

 

http://creastats.crea.ca/natl/images/natl_chartC010_xhi-res_en.png

 

I also said that condo supply recently has been tight, but the supply concern isn't chronic like it is with single family detached homes. You'll see a lot of condo completions this year and the next which will help to alleviate some of that tightness currently. In contrast, there is barely any forseeable development of single family housing in the city area.

 

Anyway, I'm done talking to you about housing.

I'm actually not trying to play the gotcha game too much. I was just trying to modulate my sarcasm to your justifications. In your view it's all the realtor line about supply. Let me summarize:

 

Prices going nuts in places that have lots of land: Supply - they just can build because it takes time to get permits:

Prices going up like crazy in Thunder Bay? It's those wealthy Torontonians retiring there. Nevermind that Thunder Bay isn't on any wealthy Torontonian's list of retirement destinations.

Population not going up in Thunder Bay: Well that doesn't prove anything.

By this logic we'll soon get to the point where we're saying that well 20-30% price increases as warranted because Canada is taking in Syrian refugees and they're snapping all the million dollar homes.

 

In all seriousness now. I try look at things using facts and data. I also usually try to employ the scientific method. Namely I accept x premise to be true, what else should I be seeing. This is where a lot of things start to smell about the real estate market.

 

Single family detached did go up more than condos. By about 2% per year over the 12 year time frame you've pointed. But once you take into account the shrinking square footage of condos over that period that doesn't add up to much.

 

You've premised that there hasn't been a lot of single family detached (SFD) construction in Toronto proper so that's the reason why prices are going nuts. Well it's true that there hasn't been a lot of SFD construction in Toronto proper. That's because Toronto is all built up. But it's been all built up since late 70s early 80s. Why haven't we seen 20-30% per year price increases in the 90s? They weren't building SFDs back then and Toronto was getting lots of immigration.

 

In regards to SFDs coming to market, Toronto didn't get a lot of them. But Oakville-Milton did area did build a lot of SFDs. Prices in Oakville-Milton went up more than Toronto as per CREA during the 12 years mentioned. Yes this could be due to economic refugees from Toronto but you did get supply there and prices went up more than Toronto where you didn't get supply.

 

Then take the case of Montreal which is also a highly developed city that gets plenty of immigration. It's also all built out and not one that I would consider cheap. But the price gains there aren't anywhere close to Toronto or Vancouver.

 

You did mention that the condo supply has tightened some in the past year. I didn't check your numbers on that. I believe you. But just because supply tightened somewhat is that reason enough for prices to go up by 30%? Especially after the ocean of supply that came to market in the past years? Is that  a normal market?

 

You may call me an ass. And you may even be correct. But it seems to me that you are grasping at every straw you can find to justify the price action in real estate except for the most obvious one: It's just plain old good old fashion bubble. As TBW said (I paraphrase). If the average family cannot buy an average house it, something smells bad and won't last for long.

[Peregrine]

I don't want to get into another back and forth. And you're clearly putting words in my mouth and taking a couple things I said and disregarding others.

 

In my view, it's both a supply and demand problem. I've made the case that there are supply issues but there's no doubt that when prices rise like this price action follows as well. That is inescapable.

[Liberty]

Do you have a zero-based version of that MLS chart? I think if those lines all had the same starting point it would be easier to compare them. Clearly one is crazier than the others, but all of those don't look sustainable at all for an asset class that historically follows inflation and wages.

[gr33ngi4nt]

Do you have a zero-based version of that MLS chart? I think if those lines all had the same starting point it would be easier to compare them. Clearly one is crazier than the others, but all of those don't look sustainable at all for an asset class that historically follows inflation and wages.

 

Also, those figures seem understated? I remember the February numbers stating that SFD in Toronto were $1.6 mln while the average house (condo, SFD, semi's, etc) reached $1.1 mln. I recognize the chart is dated for Jan 2017 but that seems like too big of a leap in one month.

[Liberty]

Do you have a zero-based version of that MLS chart? I think if those lines all had the same starting point it would be easier to compare them. Clearly one is crazier than the others, but all of those don't look sustainable at all for an asset class that historically follows inflation and wages.

 

Also, those figures seem understated? I remember the February numbers stating that SFD in Toronto were $1.6 mln while the average house (condo, SFD, semi's, etc) reached $1.1 mln. I recognize the chart is dated for Jan 2017 but that seems like too big of a leap in one month.

 

Possibly the difference between "greater toronto" and toronto itself. Would have to look at the methodology.

[Liberty]

Cohodes saying that the guy that HCG brought in to be "Vice President of Underwriting" is out (without a press release):

 

 

 

If true this certainly looks bad after all the recent turmoil with management...

[rb]

Do you have a zero-based version of that MLS chart? I think if those lines all had the same starting point it would be easier to compare them. Clearly one is crazier than the others, but all of those don't look sustainable at all for an asset class that historically follows inflation and wages.

 

Also, those figures seem understated? I remember the February numbers stating that SFD in Toronto were $1.6 mln while the average house (condo, SFD, semi's, etc) reached $1.1 mln. I recognize the chart is dated for Jan 2017 but that seems like too big of a leap in one month.

He's using the HPI benchmarks from CREA.

 

You can download the full data set here:

http://www.crea.ca/hpi-tools-terms-of-use/

[RichardGibbons]

Do you have a zero-based version of that MLS chart? I think if those lines all had the same starting point it would be easier to compare them. Clearly one is crazier than the others, but all of those don't look sustainable at all for an asset class that historically follows inflation and wages.

 

Don't worry about it. The MLS chart actually disproves Frank's point.  The only reason it looks like SFH have gone up more than apartments is because the scale is linear rather than logarithmic. That always makes the higher line on the chart look steeper when in percentage terms, it isn't.

 

If you look at the numbers, two storey SFHs start at $355K and end at $960, an increase of 270%.  Apartments start at $150K, and end at about $425K, an increase of 283%.

[Liberty]

Do you have a zero-based version of that MLS chart? I think if those lines all had the same starting point it would be easier to compare them. Clearly one is crazier than the others, but all of those don't look sustainable at all for an asset class that historically follows inflation and wages.

 

Don't worry about it. The MLS chart actually disproves Frank's point.  The only reason it looks like SFH have gone up more than apartments is because the scale is linear rather than logarithmic. That always makes the higher line on the chart look steeper when in percentage terms, it isn't.

 

If you look at the numbers, two storey SFHs start at $355K and end at $960, an increase of 270%.  Apartments start at $150K, and end at about $425K, an increase of 283%.

 

Thank you, very insightful comment.

[SharperDingaan]

Look at that raw data, & you get a very different story ....

Most people in the major urban centers live in town houses or apartments - not mac mansions 

 

The Mar 2017 aggregate price for a townhouse was 429K. Toronto comes in a 541K; but a 75 minute commute to Hamilton will get you a condo for 421K - the national average.

Most places come in at around 300-350K. Calgary (304K), Montreal (329K) Guelph (340K). Ottawa comes in at 223K - not a problem here, therefore its not a problem anywhere else in the land? 

The Mar 2017 aggregate price for a apartment is 373K.

 

I'm sorry but in 2017, & in most cases - for two people sharing a townhouse/apartment in a major urban center, with a 25% down payment; this shouldn't be the stretch its been made out to be.

This isn't lack of shelter; it's we don't like what it looks like - & we refuse to commute. A lifestyle choice.

 

Agreed that for a new immigrant family, with lots of kids & one earner making minimum wage - this is very, very difficult. Similarly for the elderly on fixed incomes.

However - there are many, and cheaper, ways of addressing it.

 

In Mar-2017 a Vancouver townhouse will run you 685K, 622K in Oakville (35 minute rail commute to DT Toronto).

They are both very nice places, and expensive to live in - but nobody is forcing you to live there, or to even visit the place. To do so is a lifestyle choice.

 

If you are retired & like culture: Sell your Oakville place, & buy it's equivalent in Ottawa. French/English/Culture all in one place & 300K+ of change to help with your upkeep

Or if you prefer the sea ... move to Halifax.

 

Obviously, not a popular view.

 

SD

 

   

 

[Liberty]

OSC on HCG:

 

http://www.osc.gov.on.ca/documents/en/Proceedings-SOA/soa_20170419_home-capital.pdf

 

Yikes!

 

 

[Liberty]

Look at that raw data, & you get a very different story ....

Most people in the major urban centers live in town houses or apartments - not mac mansions 

 

The Mar 2017 aggregate price for a townhouse was 429K. Toronto comes in a 541K; but a 75 minute commute to Hamilton will get you a condo for 421K - the national average.

Most places come in at around 300-350K. Calgary (304K), Montreal (329K) Guelph (340K). Ottawa comes in at 223K - not a problem here, therefore its not a problem anywhere else in the land? 

The Mar 2017 aggregate price for a apartment is 373K.

 

I'm sorry but in 2017, & in most cases - for two people sharing a townhouse/apartment in a major urban center, with a 25% down payment; this shouldn't be the stretch its been made out to be.

This isn't lack of shelter; it's we don't like what it looks like - & we refuse to commute. A lifestyle choice.

 

Agreed that for a new immigrant family, with lots of kids & one earner making minimum wage - this is very, very difficult. Similarly for the elderly on fixed incomes.

However - there are many, and cheaper, ways of addressing it.

 

In Mar-2017 a Vancouver townhouse will run you 685K, 622K in Oakville (35 minute rail commute to DT Toronto).

They are both very nice places, and expensive to live in - but nobody is forcing you to live there, or to even visit the place. To do so is a lifestyle choice.

 

If you are retired & like culture: Sell your Oakville place, & buy it's equivalent in Ottawa. French/English/Culture all in one place & 300K+ of change to help with your upkeep

Or if you prefer the sea ... move to Halifax.

 

Obviously, not a popular view.

 

SD

 

Can you show me a 223k listing in Ottawa please?

 

Disclosure: I live in the Ottawa region.

[Spekulatius]

Well you never know. I bought a house in CA in 2002 for $320k. The value of my house peaked around late 2005/early 2006 at ~$500k. The the prices started to go down and value of the house bottomed around 2010 @$280-300k. I for sure would have been able to buy a nicer place for the same money around 2011 or 9 years after I purchased my house. I sold it in early 2015 for $465k because I moved elsewhere.

 

So, even though I did not buy at the peak, I could have purchased my house about 9 years later for the same price after the correction caused by the Great Recession. Strange things happen, when people go collectively nuts.

 

Are your prices adjusted for inflation?

 

As you can see from the graph I posted earlier, after the smaller late-80s bubble burst in TO, it took over 20 years to get back to the same point inflation-adjusted.

 

The prices are not adjusted for inflation. Even more astounding - my first 30 year fixed loan had an interest rate close to 7%, if I recall correctly, my last refinance around 2011 (for a 15 fixed then) and interest rate of 2,5%. it just shows him disconnected home prices can become from fundamentals.

[Liberty]

The prices are not adjusted for inflation. Even more astounding - my first 30 year fixed loan had an interest rate close to 7%, if I recall correctly, my last refinance around 2011 (for a 15 fixed then) and interest rate of 2,5%. it just shows him disconnected home prices can become from fundamentals.

 

And at least in the US, you have two important advantages that help people afford more expansive houses than equivalent in Canada: Mortgage interest is deductible, it isn't here. And you have these super long 30-year fixed loans (great deal: If rates go up, you keep your lower rate, if they go down, you refinance lower). Here these don't exist and the vast majority of people have 5-year fixed rates that they have to renew every 5 years at whatever rates exist at the time, though lately I hear that more people are going with variable or shorter durations to help reduce their monthly payments.

[EliG]

Can you show me a 223k listing in Ottawa please?

 

Disclosure: I live in the Ottawa region.

 

Townhouse, 200K to 250K range, 155 listings

 

https://www.realtor.ca/Residential/map.aspx#CultureId=1&ApplicationId=1&RecordsPerPage=9&MaximumResults=9&PropertySearchTypeId=1&PriceMin=200000&PriceMax=250000&TransactionTypeId=2&StoreyRange=0-0&BuildingTypeId=16&BedRange=0-0&BathRange=0-0&LongitudeMin=-76.44504615117185&LongitudeMax=-75.3601462488281&LatitudeMin=45.14675498339527&LatitudeMax=45.538639257203286&SortOrder=A&SortBy=1&viewState=m&Longitude=-75.90259619999999&Latitude=45.3430362&ZoomLevel=11&PropertyTypeGroupID=1

[Liberty]

Can you show me a 223k listing in Ottawa please?

 

Disclosure: I live in the Ottawa region.

 

Townhouse, 200K to 250K range, 155 listings

 

https://www.realtor.ca/Residential/map.aspx#CultureId=1&ApplicationId=1&RecordsPerPage=9&MaximumResults=9&PropertySearchTypeId=1&PriceMin=200000&PriceMax=250000&TransactionTypeId=2&StoreyRange=0-0&BuildingTypeId=16&BedRange=0-0&BathRange=0-0&LongitudeMin=-76.44504615117185&LongitudeMax=-75.3601462488281&LatitudeMin=45.14675498339527&LatitudeMax=45.538639257203286&SortOrder=A&SortBy=1&viewState=m&Longitude=-75.90259619999999&Latitude=45.3430362&ZoomLevel=11&PropertyTypeGroupID=1

 

Exactly, that's not the average Ottawa house, that's a bunch of tiny, old, ugly, mostly row-houses on the periphery or in poorer neighborhoods (I'm not judging, I lived in Vanier for a few years... It was a rush when the SWAT team busted the neighboors...) with no or little yard.

 

I don't know about you, but I wouldn't pay $230k to live there (and you know all these places look better on the listing photos than in person...)

 

 

 

 

[SharperDingaan]

If you want shelter cheap (ie: price ONLY, determines it), don't expect a mansion.

It just has to meet  the attributes for the category. If another condo, in a different city, has the same attributes - the two houses are directly comparable. Differences in quality, location, etc. are taken up in the price. The condo in Oakville sells for 3x the price, in part because its in a better neighborhood & probably has higher end finishings - but functionally, it's the same condo.

 

SD