Garth Turner - Real Estate in Canada

[SharperDingaan]

Read the CMHC material for definition of gross income.

You want to play, this is what it is; they could care less if you agree or not. Don't like it, go somewhere else.

 

You don't have the money (TFSA's, RRSP's) you cant buy a 480K house; that simple.

No pay, no play, get over it. Rent, or buy someplace else, where you CAN actually afford it.

 

And the balances in those TFSA's/RRSP's?

You had the same opportunities as every other Canadian; how much you saved, for how long, and keeping it saved, is entirely to you. Yes it isn't easy, but many others before you have done it, and the result reflects your own efforts. Blunt actuals, not shoulda's, woulda's, coulda's, etc. And rude!

 

Not what the real-estate market wants the punters to hear

 

SD

 

 

 

[Liberty]

Read the CMHC material for definition of gross income.

 

Can you provide a link to where it says that you get 0% financing on household gross income please? Because it seems to be what you said in your previous post.

 

You want to play, this is what it is; they could care less if you agree or not. Don't like it, go somewhere else.

 

You don't have the money (TFSA's, RRSP's) you cant buy a 480K house; that simple.

No pay, no play, get over it. Rent, or buy someplace else, where you CAN actually afford it.

 

And the balances in those TFSA's/RRSP's?

You had the same opportunities as every other Canadian; how much you saved, for how long, and keeping it saved, is entirely to you. Yes it isn't easy, but many others before you have done it, and the result reflects your own efforts. Blunt actuals, not shoulda's, woulda's, coulda's, etc. And rude!

 

Not what the real-estate market wants the punters to hear

 

SD

 

 

???

[scorpioncapital]

What I don't like about the Canadian system is the 'hoops' and 'bureaucracy' you have to jump through to get a tax benefit. There are countries where the system is much simpler. If a tax does not exit, there is no records to collect and no hoops to jump. This begging the state for a benefit freely available elsewhere smacks of asking if you can breath a little more oxygen, pretty please.  ;D

[SharperDingaan]

Introducing the First-Time Home Buyer Incentive

https://www.budget.gc.ca/2019/docs/plan/chap-01-en.html

 

Few things to add to this.

 

The private mortgage will have been stress tested at 200-300bp above the current floating rate, and will typically INCLUDE the favourable impact of NOT paying back your RRSP mortgage. The bank WANTS to lend you the money. So if you can't pass the stess test, despite the RRSP mortgage, AND minimal principal repayment every month; you must be a truly sh1te credit. It would be better for everyone if you weren't in the market at all, and without the bank mortgage you will not be; No means no, not 'maybe'. If you really want a house - look at something cheaper.

 

You can have a down-payment as low as 5%; if you can afford it.

But this is Canada, not the US, & it's a recourse mortgage; if there's a shortfall on foreclosure you're on the hook for it. Don't like it, don't buy here, it's that simple.

 

The folks whining, are those who have been turned away by the banks (the sh1te credits); and those whose living depends upon a robust real-estate market (agents, house stagers, marketers, sched B & C banks, pawn brokers, etc). All vested interests, complaining because Daddy wouldn't give the real-estate gamblers what they wanted .... bwaaaaah!

 

Yet when you look at the government incentive programs already in place ....

It's pretty hard to argue that for a 1st time buyer, they are not already very generous.

 

Just a different POV

 

SD

 

 

 

[Liberty]

Introducing the First-Time Home Buyer Incentive

https://www.budget.gc.ca/2019/docs/plan/chap-01-en.html

 

That doesn't say what you said. It only says that under 120k household income you have access to the gov't taking a 5 or 10% equity stake in your house. Doesn't say anything about getting "118K (25%) of a 480K house, at 0% financing" like you wrote.

[SharperDingaan]

Introducing the First-Time Home Buyer Incentive

https://www.budget.gc.ca/2019/docs/plan/chap-01-en.html

 

That doesn't say what you said. It only says that under 120k household income you have access to the gov't taking a 5 or 10% equity stake in your house. Doesn't say anything about getting "118K (25%) of a 480K house, at 0% financing" like you wrote.

 

Excuse me, .... you need to learn how to read.

It was very clearly disclosed.

 

118K (25%) of a 480K house, at 0% financing

- 70K (35K each x 2) of interest free financing from their RRSP

- 48K (10% partiicipation loan) of interest free financing from CMHC

 

Have a good day.

 

SD

 

 

 

[Liberty]

Introducing the First-Time Home Buyer Incentive

https://www.budget.gc.ca/2019/docs/plan/chap-01-en.html

 

That doesn't say what you said. It only says that under 120k household income you have access to the gov't taking a 5 or 10% equity stake in your house. Doesn't say anything about getting "118K (25%) of a 480K house, at 0% financing" like you wrote.

 

Excuse me, .... you need to learn how to read.

It was very clearly disclosed.

 

118K (25%) of a 480K house, at 0% financing

- 70K (35K each x 2) of interest free financing from their RRSP

- 48K (10% partiicipation loan) of interest free financing from CMHC

 

Have a good day.

 

SD

 

Yeah, that doesn't make any more sense to me than it did before.

 

Update: Ah, I see what you meant. Your writing is so abstruse that it missed what you were trying to say until now. I still don't think your assumptions make much sense for first time home buyers, and I wouldn't call using RSP money "0% financing" since there's possibly a bigger opportunity cost than whatever you'd pay for a mortgage if they are invested in equities that compound tax-free inside the vehicle, and the gov't equity stake isn't either, since on sale your forgo any price appreciation on that equity slice, which can potentially also turn out to have had a higher cost than a regular mortgage (who knows, depends on the period, location, etc), but whatever.

[Cigarbutt]

I recently completed an annual "review" with my two older children (22 and 21) and part of the discussion concerned the interest-free loan that an individual or a couple could auto-contribute to a home purchase by borrowing (tax-free if rules followed) from previous RRSP contributions.

 

I showed them real-life scenarios going back in time starting in 1996 (home purchase) and assuming the interest-free loan was reimbursed in the RRSP over 15 years, comparing returns and outcomes:

 

1-house bought near Montreal, RRSP Home Buyers' Plan used

2-house bought near Toronto, RRSP Home Buyers' Plan used

3-funds kept inside RRSP and invested in CDN index funds

4-funds kept inside RRSP and self-managed

 

It will be eventually up to them to decide and the future may not look like the past but this was a useful and instructive exercise.

 

[SharperDingaan]

Keep in mind that opportunity costs are not cash costs.

The RRSP mortgages are also unique. The CRA gave you a tax refund when you put the money into the RRSP, it's an interest free loan from yourself (the RRSP) to yourself (as borrower), and if you dont repay - the non repayment is treated as a taxable withdrawal from your RRSP.

 

Of course, as a 1st time house buyer this should be part of your due-diligence.

But how many 1st time buyers do you know, that actually did it?

 

SD

 

[Cigarbutt]

^I actually don't know any but it looks like around 2M Cdns (about 5% of popn) are participating in the program as first-time buyers and something like 50% of participants do not pay the full required reimbursements, triggering tax payments...and leaving wider unused contribution room across the board...

 

When you think of it, this plan is equivalent to what many folks seem to be doing when they ask for an intra-family loan.

 

It also seems that the program has been losing popularity as 1-the younger generations tend to put temporary savings in TFSAs instead of retirement accounts and as 2-it is said that it's hard to put money aside because of high renting costs!

 

You may have noticed that the fastest growing segment of the mortgage sector by far is the reverse mortgage in more experienced segments of the population.

https://www.mortgagebrokernews.ca/news/reverse-mortgage/reverse-mortgage-growth-reaches-8year-high-252772.aspx

 

Instead of reverse mortgaging, I plan eventually to offer time to high schools in my community in order to give a teaching session on the value of compounding.  The talk will be called "Snowball".

[rb]

^I actually don't know any but it looks like around 2M Cdns (about 5% of popn) are participating in the program as first-time buyers and something like 50% of participants do not pay the full required reimbursements, triggering tax payments...and leaving wider unused contribution room across the board...

In probably nowhere near that bad. I highly doubt that in reality 50% of people do not pay the required reimbursement. The stat is probably flawed by a peculiarity of the HBP. You have to make the payment by Dec 31. Whereas you can make RRSP deposits until the first business day in March. A lot of people make their RRSP deposits in Jan and Feb and probably miss the deadline. It's really not that big of a deal. There's no tax impact. All that happens is that they get dinged a little on their RRSP limit but they probably have plenty to spare. So no biggie.

[Cigarbutt]

^I actually don't know any but it looks like around 2M Cdns (about 5% of popn) are participating in the program as first-time buyers and something like 50% of participants do not pay the full required reimbursements, triggering tax payments...and leaving wider unused contribution room across the board...

In probably nowhere near that bad. I highly doubt that in reality 50% of people do not pay the required reimbursement. The stat is probably flawed by a peculiarity of the HBP. You have to make the payment by Dec 31. Whereas you can make RRSP deposits until the first business day in March. A lot of people make their RRSP deposits in Jan and Feb and probably miss the deadline. It's really not that big of a deal. There's no tax impact. All that happens is that they get dinged a little on their RRSP limit but they probably have plenty to spare. So no biggie.

I agree with your perspective. I'm not sure the majority appreciates the foregone tax-deferred investment gains.

So before the discussion on opportunity costs, one would need to review basic reading skills (government documentation) and how to look at a calendar. :)

[Cigarbutt]

Cigar, if Canada has a housing slowdown or worse the country will be in deep trouble. Real estate has been the road to riches for many. Calculated Risk says to watch inventory closely. When inventory in the US started increasing dramatically (in 2006 I think) he called the top in prices. I am watching inventory in my area and while it has been increasing and is elevated it doesn’t look concerning yet. However, if inventory continues to increase substantially over the next year then perhaps we will see prices start to crack. If the the Bank of Canada continues to raise rates this will also be a risk given how much debt many families have. Interesting times :-)

Recent results from the Greater Vancouver area (prices and inventory on sales) are pretty interesting.

https://betterdwelling.com/city/vancouver/vancouver-real-estate-sales-fall-to-1986-levels-inventory-rises-over-50/

 

The results are presented in a sensational way and other reports suggest that the changes are "policy-driven" but probably worth watching.

 

The policy measures to stem speculation probably "work" to some extent because there are growing price pressures (starting from a very low base) related to foreign investor interest in my area where those policies are still absent.

[Viking]

Cigar, i am not a real estate expert but it looks like Greater Vancouver is experiencing a correction in housing prices, with prices down 7-8% year over year. Inventory is up 40-50% depending on the area and type of residence.

 

If inventory continues to grow and prices continue to come down the risk is does it start to impact consumer confidence and consumer spending amd the broader economy? Or do bargain hunters jump in and we see prices stabilize? I have been so wrong on real estate for so many years (bubble) i have little confidence in my ability to provide a reasonable assessment of where we are going in 2019 and 2020 :-)

[scorpioncapital]

Do lower prices immediately result in bankruptcies? I would imagine it's higher rates and can't pay the mortgage relative to Income.

[Cigarbutt]

Cigar, i am not a real estate expert but it looks like Greater Vancouver is experiencing a correction in housing prices, with prices down 7-8% year over year. Inventory is up 40-50% depending on the area and type of residence.

 

If inventory continues to grow and prices continue to come down the risk is does it start to impact consumer confidence and consumer spending amd the broader economy? Or do bargain hunters jump in and we see prices stabilize? I have been so wrong on real estate for so many years (bubble) i have little confidence in my ability to provide a reasonable assessment of where we are going in 2019 and 2020 :-)

I appreciate the balanced response.

Vancouver is a nice place and warrants a premium :) but, if I were to move there, would probably wait a while before buying.

 

@scorpioncapital

I don't mind investing in stocks that have negative equity, as long as future cashflows warrant it.

[Aberhound]

 

Interestingly Armstrong's model shows rises in the Vancouver market in 2020 and 2022 similar to the fall in 2018 and gives the green light for purchases in those years. I wonder what the model is picking up? Capital flight from the financial crises elsewhere? Much colder winters in eastern Canada with continuing improvement in our winters? It has rarely been as sunny and pleasant as last winter (I'm Vancouver born) and my garden and grass is loving it. As I see the chart isn't it a prediction of the influx of wealth being generated in Asia because of the Silk Road offset by stupid policies light the 20% foreign buyers tax etc.? Vancouver is an Asian friendly city with the attraction of clean air and water and abundant nature so will continue to be a magnet so long as the governments do not get too greedy or too stupid.

[Viking]

Aberhound, perhaps it is crazy low interest rates in the coming years. With the Fed indicating it is done tightening and likely to stop negative QE and to cut rates as a next move we llok to be returning to the free money paradigm. This likely means asset prices will resume their upward path. Good for stocks and real estate.

[Aberhound]

Aberhound, perhaps it is crazy low interest rates in the coming years. With the Fed indicating it is done tightening and likely to stop negative QE and to cut rates as a next move we llok to be returning to the free money paradigm. This likely means asset prices will resume their upward path. Good for stocks and real estate.

 

And maybe the hellholes reported in LA, San Francisco and Seattle in this article will divert some demand back to Vancouver:

 

https://www.zerohedge.com/news/2019-04-17/san-francisco-los-angeles-seattle-3-formerly-beautiful-west-coast-cities-have

[Pauly]

Aberhound, perhaps it is crazy low interest rates in the coming years. With the Fed indicating it is done tightening and likely to stop negative QE and to cut rates as a next move we llok to be returning to the free money paradigm. This likely means asset prices will resume their upward path. Good for stocks and real estate.

 

And maybe the hellholes reported in LA, San Francisco and Seattle in this article will divert some demand back to Vancouver:

 

https://www.zerohedge.com/news/2019-04-17/san-francisco-los-angeles-seattle-3-formerly-beautiful-west-coast-cities-have

 

Jeez, I know it's foolish to read the comments below an article, but it looks like Zerohedge has really become a cesspool.

[alpha]

 

Poloz is now asking the banks to come up with more creative ways to allow people to take on more housing debt, which he justified s by warning them not to repeat the cdo/mbs mess in the 2008 US market.

 

He said there's some momentum in Canada towards the creation of a private market for mortgage-backed securities. Poloz said it would provide a more-flexible source of longer-term funding for uninsured mortgages, which are becoming more popular.

 

They would have to be designed carefully, he said, because mortgage-backed securities were central to the "sub-prime debacle" ahead of the financial crisis more than a decade ago.

 

https://www.bnnbloomberg.ca/poloz-issues-call-to-arms-for-mortgage-market-innovations-1.1254406

 

 

[rukawa]

 

The housing market in Canada is becoming really bizarre, there is such a housing shortage now in West Vancouver they are renting out multi million dollar mansions to groups of students. My friends daughter just rented a 12 million dollar home on the west coast from a Chinese investor, when he told me about it I thought he was joking but apparently there is hundreds of these homes now listed on the market because of the new vacancy tax.

 

https://bc.ctvnews.ca/is-this-real-hundreds-of-vancouver-mansions-for-rent-for-cheap-1.4329826

 

There is nothing bizarre about the housing market. What is truly bizarre is that people seem to have literally zero concern for housing supply on this forum and in general. There are many moves to reduce demand which have had limited effect because as it turns out people actually need to live somewhere. There are a multitude of rules put in place to reduce supply. Zero discussion anywhere about this and zero concern. THAT IS BIZARRE. What is even more bizarre is the number of people who claim to understand economics and don't get that supply is an issue.

 

Its so invisible its crazy. You have these community associations populated by 80 year olds that are actively trying to reduce supply with municipal politicians fighting as hard as they can:

https://www.thestar.com/news/city_hall/2019/05/27/residents-pack-city-hall-as-return-of-omb-looms.html

 

And crickets....that is all I hear. The one person doing something about supply is Doug Ford and no one is paying attention. Its the weirdest thing. But everyone loves to talk about mortgages and interest rates. Threaten to increase supply and you have municipal politicians screaming about affordable housing, sustainable communities, planning process and giveways to wealthy developers.

 

This is what I find bizarre.

[wisdom]

Not all the demand is real in a bubble. Once the demand corrects there will be plenty of supply. Those who thought they needed to own 5 homes will add to the supply when prices drop and the asset has negative cashflow. Just a matter of time.

[Rod]

Not all the demand is real in a bubble. Once the demand corrects there will be plenty of supply. Those who thought they needed to own 5 homes will add to the supply when prices drop and the asset has negative cashflow. Just a matter of time.

 

Also don't discount the supply side. The people who own the development land may be reluctant to sell as long as they believe prices will continue to rise. So you can have speculation on the supply side restricting supply as well as speculation on the demand side. If/when the speculative mentality breaks, I wouldn't be surprised to see all kinds of land coming on stream.

[cwericb]

FWIW

 

I have said in the past that you can't judge all of Canada by one or two cities and think that applies nationally.

 

In the city where I live housing prices have have increased by nearly 40% in the past three years. Apartment/condo vacancy rate is still about 0% 

 

I don't see this changing any time soon.