Garth Turner - Real Estate in Canada

[wisdom]

Sorry, I should have been clearer. I was talking about Metro Vancouver. The median household income is $68,000 and median house is approx $680,000.

[gary17]

Gary, but what happens when you renew your mortgage in 5 years and you pay 6 or 7 % or higher?

 

You think in 2020 interest rate will be 10%?

[gary17]

Sorry, I should have been clearer. I was talking about Metro Vancouver. The median household income is $68,000 and median house is approx $680,000.

 

Got it - no it is a problem -  look, i'm not dilutional - there's a reason why i haven't got a house - I am hoping the resources here and a correction would help me afford a house eventually -    and it is unfortunate when the premium product keeps on getting more expensive, the regular stuff gets inflated too!  This is mainly because there's a shortage of trades here -- when they are all hired at $30/h or higher to work on luxury homes in the good areas; nobody is left to build the 'affordable' housing... so we end up with condos in the metro Vancouver area being more expensive than they should've been - it makes no sense; but the shortage of labour is the cost of brining the products to the market.  The cost of concrete construction is about $300 /sf and wood-frame is $200  - 

single family is about $150 for entry level and $200 - $250 for high end and $300 for luxury. 

 

And then there's the land. 

 

So these developers are still pocketing about 50%  ($300 + land @ $150 - $200? = $600 - but pre-sell them for $800 - $1500/sf)      I'd say there's still enough margin for the developers to let them go at a discount.  That'd be interesting to think about if the developers need to let their inventories go at cheap prices.

 

My point is we could see a correction; but don't hold your breathe for the $8 WFC or BAC shares type of deal in VancouverRE --- I really don't think that'll happen.

 

Gary

 

 

[SharperDingaan]

Those 800K-1.5M condos are debt free & often bought by active & retired boomers. Lux, new, one-floor, & in the centre of the action; no different to someone buying a 1/4 floor in New York - just cheaper. They will live there a good 10yrs+, & eventually use a reverse mortgage against the place to finance their dotage. Long-term money.

 

Nobody forced that medium income to buy a house at 10x income. Thousands of people move further out of the city & commute; 60-90 minutes each way is pretty normal for a London, New York, Toronto, etc. If you don't want to commute, you made a lifestyle choice - so pay the freight & stop whining.

 

Nothing says you have to buy in Vancouver either, you could have rented. If you sold your West Van house nothing prevents you from buying lux condos in other cities, renting them out, & using some of that CF to pay your rent in Vancouver. Again, if you want to live in Vancouver you have made a lifestyle choice - so pay the freight.

 

Nothing prevents anyone from either downsizing to a smaller place, or teaming up with other generations to jointly buy & live in a larger place that has been re-modelled. Common practice in both Indian & Arabic communities, & it often comes with built-in baby sitting. If you are that concerned about cost - either change your lifestyle, or pay the freight your choice generates.

 

Life is full of hard choices.

 

SD

[alertmeipp]

As an investment, buying a house makes no sense given the cap rate and income to price ratio unless you think the price is going to go up.

 

But having a house gives some people peace of mind and sense of pride which is cool too.

 

 

[oddballstocks]

I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

 

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

 

What's an average professional white collar salary up there 150-175?

[gary17]

Oddball -

I think may be I am mistaken with my English

 

When I said a couple makes $60 - 100K  --- i mean the COMBINED earnings of the couple. 

 

I.e., may be 30K + 30K = $60K

Or $50K + 50K = $100K.   

 

Average salary for engineers working in BC  :  https://www.apeg.bc.ca/Careers/Compensation-Survey

 

Gary

 

I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

 

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

 

What's an average professional white collar salary up there 150-175?

[oddballstocks]

Canada is (far) more expensive than the US from housing to groceries. It has higher taxes too as well as semi socialist policies. Generally the competition is not as much as in the U.S.

 

I think Sanjeev and Alanesh are home owners in Vancouver and it would be good to hear from them as well.

 

 

I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

 

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

 

What's an average professional white collar salary up there 150-175?

 

Yeah, I guess I just never realized how much more expensive it was.  I wonder why?  It seems like goods should be just as cheap as in the US, they have plenty of roads, rail and ship lines that connect.  Maybe an import duty tax or something, but I wouldn't think that much.

[oddballstocks]

Oddball -

I think may be I am mistaken with my English

 

When I said a couple makes $60 - 100K  --- i mean the COMBINED earnings of the couple. 

 

I.e., may be 30K + 30K = $60K

Or $50K + 50K = $100K.   

 

Average salary for engineers working in BC  :  https://www.apeg.bc.ca/Careers/Compensation-Survey

 

Gary

 

I'm reading this thread with fascination.  Are salaries really that much higher in Canada?  gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most.  But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO.  The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house.

 

Are Canadians house poor?  I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms.  Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable.

 

What's an average professional white collar salary up there 150-175?

 

Gary,

 

Thanks for the clarification.  Now that I'm looking at these average and median salaries I'm wondering (like everyone else) how anyone can afford a home up there.  The cost and salaries are really out of line.

[NormR]

Median total income: Canada: $74,540 (2012)

 

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm

[gary17]

This is the latest 'high end' condo being marketed right now in Vancouver

 

I stopped by there --  a 2 bedroom condo at the lower floors with no view starts at $1M...  For $800K you can buy a 1 bedroom or a studio... 

 

http://vancouverhouse.ca/      (PS. This was 80% sold - )

 

Or a working couple could spend $500K for a 600sf condo downtown Vancouver

 

http://jamesonhouse.com/2904-gallery

 

 

[oddballstocks]

This is the latest 'high end' condo being marketed right now in Vancouver

 

I stopped by there --  a 2 bedroom condo at the lower floors with no view starts at $1M...  For $800K you can buy a 1 bedroom or a studio... 

 

http://vancouverhouse.ca/      (PS. This was 80% sold - )

 

Or a working couple could spend $500K for a 600sf condo downtown Vancouver

 

http://jamesonhouse.com/2904-gallery

 

That first link is awesome, what a building!  Hope they finish it before a crash, that thing would look hideous half finished.  I much prefer developers build beautiful buildings like that verses the cookie cutter stuff you see here.

 

Norm, thanks for the median stat, it's 50% higher in Canada verses the US ($50k).  Now if everything costs 50% more it's just a wash, interesting eitherway.

[oddballstocks]

Two other data points, Canadians have a wealthier middle class, and as a whole are much wealthier than Americans.  So maybe the prices are just reflecting that Canadians can and will pay more for places?

 

You can get some truly cheap housing in the US.  My brother rents an apartment that's probably 800 sq ft two bedroom.  He has a roomate, they each pay $250 a month.  It's in a nice city, and the building is in nice shape.

 

I wonder if anyone's living in Buffalo and commuting into Toronto each day?  Making Canadian money and paying Buffalo prices, the new wealthy... I guess the same could be true for BC as well.

[Guest 50centdollars]

This is the latest 'high end' condo being marketed right now in Vancouver

 

I stopped by there --  a 2 bedroom condo at the lower floors with no view starts at $1M...  For $800K you can buy a 1 bedroom or a studio... 

 

http://vancouverhouse.ca/      (PS. This was 80% sold - )

 

Or a working couple could spend $500K for a 600sf condo downtown Vancouver

 

http://jamesonhouse.com/2904-gallery

 

That first link is awesome, what a building!  Hope they finish it before a crash, that thing would look hideous half finished.  I much prefer developers build beautiful buildings like that verses the cookie cutter stuff you see here.

 

Norm, thanks for the median stat, it's 50% higher in Canada verses the US ($50k).  Now if everything costs 50% more it's just a wash, interesting eitherway.

 

Reminds me of the condos they built near me in Mississauga. Nicknamed the marilyn monroe buildings.

http://mysquareonecondo.ca/Mississauga/marilyn-monroe-condos/

[NormR]

Two other data points, Canadians have a wealthier middle class, and as a whole are much wealthier than Americans.  So maybe the prices are just reflecting that Canadians can and will pay more for places?

 

You can get some truly cheap housing in the US.  My brother rents an apartment that's probably 800 sq ft two bedroom.  He has a roomate, they each pay $250 a month.  It's in a nice city, and the building is in nice shape.

 

I wonder if anyone's living in Buffalo and commuting into Toronto each day?  Making Canadian money and paying Buffalo prices, the new wealthy... I guess the same could be true for BC as well.

 

There are less expensive places in Canada too.  Rural areas, smaller cities (Windsor, etc.)

 

Also, keep in mind that the figures I linked are for family income (generally 2 earners).  It'll be a bit higher in the big cities.

 

In addition, many big cities follow policies that tend to boost prices.  Zoning restrictions, anti-sprawl legislation.  The feds help boost prices on the insurance side via the CMHC.  Etc.

 

All that said, young families generally have a hard time buying - even with the low rates - without help from family. 

 

The real estate market seems quite stretched to me.  It's got to the point where you could buy a house in a big centre, or opt for one in a smaller town (or the U.S.) and enjoy a modest retirement based on the price difference.

[wisdom]

Oddball - that is family income not per person.

[leftcoast]

But what we do know is that if most of the data comes from realtors, it's going to be heavily biased to help them, not the other way around. That's why they quietly revise last year's numbers downward to make this year's numbers look better or double and triple count sales just because they've been listed in more than one place and stuff like that.

 

Yeah, the realtor boards are shameless, but honestly I can't really blame them... their job is to sell houses, not provide an objective view of the market. Nobody expects a car salesman to give you objective and unbiased advice. Blaming realtors for pooping out dubious market data is like blaming a bird for pooping on your car. That's their job... it's just what they do.

 

Now the media on the other hand... their job is to inform the public and to ask hard questions of authority. So seeing the media just regurgitate the realtors' bad data without questioning it at all is pretty galling. They are either complicit or lazy.

 

And the CMHC, well... I'm not sure even they know exactly what their raison d'être is anymore. But you'd think an agency that is ultimately backstopping most of the residential mortgages in Canada would have some decent data on the internal dynamics of the housing market. But apparently not.

[augustabound]

Is this just in Vancouver city limits or have the suburbs been caught up in this too?

House prices seem reasonable in the burbs. (But I also don't know how nice these other cities are, Abbotsford, Langley, Maple Ridge etc)

 

In Toronto the last decade, as prices rose in T.O. so did the surrounding areas. We left Newmarket because we got more house for $200k less on a new build. But even prices in Barrie (an hour North) have rises quite a bit the last decade.

 

We're contemplating a move West and, at least to us, there seems to be a bit of a disconnect between Vancouver and the surrounding area.

Houses <$450k in our area only lists a few at any time. The same search outside of Vancouver lists lots of homes.

[SharperDingaan]

Travel west from Toronto to Mississauga; & the cost of a very similar house, drops by roughly 70K - just because it is no longer Metro TO. One GoTrain stop, maybe 5 minutes of additional commute, train goes every 30 minutes until 1AM in the morning. Keep going west from Mississauga, & the same thing happens again as you pass through Oakville & Burlington. A similar thing happens if you go north or east of Metro Toronto.

 

Go really west to Hamilton; same GoTrain line (no drive, no parking), but maybe a 90 minute commute to bank land. A many roomed century, & very modernized, mansion may set you back 650-750K; the similar mansion in a Toronto Parkdale (cruddy area) would cost you 1-1.25M, & a 30-40 minute subway commute to bank land. Buy that mansion in Rosedale (Toronto tony area), with maybe 5 minutes less commute, & its 1.75-2.25M. As property tax in Hamilton is less than 35% of what it would be in Toronto (lower value + lower mill rate), the cost of a monthly GoTrain pass is essentially free. Choice of lifestyle cost.

 

Toronto is no different to New York, London, Paris, SFO, etc.

Vancouver is just joining the club.

 

SD

 

 

 

 

 

 

[augustabound]

Hamilton is not "really West" of Toronto. The entire golden horseshoe is just one big sub-division now.

 

I grew up in Hamilton and commuted to Toronto for years (both GO Train and car) before moving North to Newmarket. (After a 1 year in Bloor West Village where it took as long to get to a grocery store as it does for me to get from Newmarket to the 401 on some days  ;D )

All the highways and GO Trains are jam packed from 6AM now. I used to be able to get on the 400 at 6:45 and make decent time to the 401. Now the traffic starts at 5:30 and it started even further North.

 

People are finding Guelph and K-W are better alternative now. As is shown in the traffic on the 401 West of the 407 interchange.

 

I just wondered since we may move West for both of our careers, at times the Greater Vancouver area seems very similar to Toronto and other times is seems nothing alike. (I'm basing this off browsing MLS on the style of homes and prices)

 

So in 10 years a place like Abbotsford may be similar to a Newmarket, Oshawa or Burlington?

[Liberty]

But what we do know is that if most of the data comes from realtors, it's going to be heavily biased to help them, not the other way around. That's why they quietly revise last year's numbers downward to make this year's numbers look better or double and triple count sales just because they've been listed in more than one place and stuff like that.

 

Yeah, the realtor boards are shameless, but honestly I can't really blame them... their job is to sell houses, not provide an objective view of the market. Nobody expects a car salesman to give you objective and unbiased advice. Blaming realtors for pooping out dubious market data is like blaming a bird for pooping on your car. That's their job... it's just what they do.

 

Now the media on the other hand... their job is to inform the public and to ask hard questions of authority. So seeing the media just regurgitate the realtors' bad data without questioning it at all is pretty galling. They are either complicit or lazy.

 

And the CMHC, well... I'm not sure even they know exactly what their raison d'être is anymore. But you'd think an agency that is ultimately backstopping most of the residential mortgages in Canada would have some decent data on the internal dynamics of the housing market. But apparently not.

 

I also blame the media and the regulators, but I don't think realtors are blameless, even if there's no surprise in their behavior. Lying isn't a good thing, y'know.

[wisdom]

Vancouver is a smaller city compared to Toronto - 2.5 mil v 6+ mil.

 

An average commute here would be just north of 30 min whereas in Toronto it tends to be more like an hour.

 

Abbotsford is not included in Metro Vancouver and the transit system will offer you no connectivity. It would take you 1 hour and 15 mins to get into Vancouver from there by car.

 

[Liberty]

Canadians are getting screwed, probably because there's a lot less competition in most industries up here.

 

Retailers might complain about the US being over-retailed, but it has benefits for customers.

[NormR]

Companies in the US also sell 10 times the product they do in Canada so they can offer cheaper prices in the US. It's more expensive to set-up shop in canada.

 

There are still frictions at the border from duties, exchange rates, etc.  Add in higher costs for retail from wages/benefits/real estate, and the gap is fairly easy to explain. 

[Guest 50centdollars]

Canadians are getting screwed, probably because there's a lot less competition in most industries up here.

 

Retailers might complain about the US being over-retailed, but it has benefits for customers.

 

Retail is the only industry where there is competition in Canada. Everything else is either a monopoly or oligopoly.