Garth Turner - Real Estate in Canada

[gary17]

what would happen to RE prices if they implement the cap gain tax for principal residence

 

outside of Canada - i'm curious if there's capital gain on principal residence in europe and US......

 

Gary

[clutch]

i think the RE price appreciation may also be due to the same phenomenon we are seeing in car sales— people not able to spend money travelling or on entertainment so instead using that fund towards buying a new home in an ultra low rate environment.

 

Really? One year saving of travel and entertainment can change one's budget on a new home? That's hard to believe.

 

Not at all. In the US the poor man(or hand to mouth fella) needs 3% plus closing costs to get into a home. If you save $20k by not dining out and vacationing, thats a down payment for some, or another half mil+ of home they can buy.

 

I also think there should be entry taxes for states/jurisdictions. Its a big problem here in the US where you have people living in, and supporting the policies and fiscal irresponsibility of one state, and then not liking the bed they've made for themselves, and then collectively moving to, and starting to ruin new states by moving there and bringing their same philosophical issues and problems.

 

I was thinking of Vancouver prices where gary17 is based in. You need minimum 20% down payment for any homes above 1mil.

[gary17]

An interesting phenomenon in vancouver RE

 

Sub $2M “entry” level homes are on fire

While luxury homes (over $2.5m) are soft , though things are firming up.

 

I suspect lack of buyers being able to travel during covid is having an impact on the luxury market

[matts]

what would happen to RE prices if they implement the cap gain tax for principal residence

 

outside of Canada - i'm curious if there's capital gain on principal residence in europe and US......

 

Gary

 

Don't know the rest of Europe. But in Poland, you don't pay cap gains on ANY real estate if your holding period is at least 5 years (primary, investment, raw land, whatever). If you hold the RE less than 5 years but reinvest the gains into RE anywhere else in EU for primary residence purposes within 1 year, you also avoid the tax. All other circumstances you pay 19% flat cap gains,  which is around the level of the first of 2 income tax bracks.

 

so you can sell your primary residence AND and 3 investment properties in poland, and buy something in a more expensive country like france to live in and avoid all tax even before the 5 years.

 

 

[cwericb]

Just heard a PEI real estate ad on the radio saying that the MAJORITY of their sales last year exceeded the asking price.

[Jurgis]

what would happen to RE prices if they implement the cap gain tax for principal residence

 

outside of Canada - i'm curious if there's capital gain on principal residence in europe and US......

 

Gary

 

Yes, that capitalist paradise of USA taxes the gain on principal residence. Although there's a pretty large margin that is not taxed, so it affects (very?) few.

I'm surprised that our "socialist" Canadian neighbors think that

it [would] be extremely unpopular, it would be very difficult to implement.

 

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home

[clutch]

 

On a side note, there are insane bidding wars going on for detached houses in GTA suburbs. 50+ offers and 20%+ above asking price is common. Everyone expects to WFH forever so seems to be moving out of the city.

[maplevalue]

300,000 dual citizens in Hong Kong must choose between Canada and China after policy change - https://nationalpost.com/news/300000-dual-citizens-in-hong-kong-must-choose-between-canada-and-china-after-policy-change

 

China doesn’t recognize dual nationals under its Nationality Law and Hong Kong residents of Chinese descent are regarded as Chinese citizens. The Hong Kong government has stated that residents, around 300,000 of whom hold Canadian passports, are not entitled to consular protection unless they make a declaration of change of nationality. If that process is successful, they are no longer regarded as Chinese citizens – but it may affect their right of abode in Hong Kong, which allows people to live and work in the territory without restrictions. Foreign nationals can only acquire right of abode after a seven years residency requirement, which gives them the right to vote but not hold a territorial passport or stand for office.

 

Not an expert in this but certainly not a negative for CAD real estate.

[Cigarbutt]

It seems this thread has been going on forever but here's some anecdotal information.

We live in close suburbs to the Montreal area and our area has shown similar (although less marked) pricing trends in real estate versus some other parts of Canada (ie Toronto and Vancouver). Also, foreign capital is not a significant factor and zoning issues continue to have relatively limited impact.

Our second-door neighbors recently put their house for sale (virtually) on a Thursday night at 20h. In the following minutes, there was an avalanche of interest with people being ready to pay variable levels of cash simply to obtain priority to have access to the owner and complete the purchase the next day! End result: the winner of the bidding war obtained one tiny and non-material concession in exchange for all the present owner's requirements including a 7% price over the listed price (which was very high to start with), a necessity to close the deal with official paperwork within 48 hours of listing and with minimal or no recourse from the buyer's point of view.

When i talked to my neighbor yesterday (he made his money managing large real estate projects and investing in real estate, and he knows the local residential market well), he candidly said that he couldn't explain the frenzy (his word). He didn't seem to be aware that the Bank of Canada's share of total federal debt bonds increased from 15 to 40% in the last 12 months and that the BoC has "absorbed" 95% of all federal debt (bills and bonds) in the last 12 months and maybe i'm the one who worries for nothing when avalanches (man-made or natural) haven't occurred in such a long time.

Still, i remember that we had visited that house in 1996 (it was new then) but had chosen the one two doors down. Then, we had negotiated the purchase over a period of three months (!) and the agreed-upon price was clearly at a significant discount to intrinsic value.

 

[Viking]

To add another example: we bought our 4 bed house in suburbs of Vancouver (Langley) in 2010 for a little over $600,000. We sold it last week for over $1,300,000. (28 year old house with lots of original stuff that will need to be replaced soon - windows, plumbing, bathrooms, kitchen, garage door etc; my estimate is it will need about +$80,000 in improvements in the next 5 years.)
 

It was listed on a Wed. Showings were Fri, Sat and Sun (17 in total). Offers accepted Mon at 4pm. We had 7 offers and 6 were subject free. We received about 6% over ask. $100,000 deposit (bank draft attached to offers). Exact close dates we wanted. 
 

We will be renting a 4 bedroom house in a very fun part of Vancouver (close to beaches, parks, trendy restaurants shopping). ‘New’ house is worth about $2.6 million; rent is $5,000/mo. Rents in urban Vancouver are down about 8-10% year ofer year (unheard of in this market). 
 

Old house was a great place to raise a family. New house is great location for our next life stage (and much closer to all 3 kids at university). 
 

PS: i do expect real estate prices to keep rising; key driver being crazy low mortgage rates. But i am a real estate idiot; i thought prices were high when we bought our house in 2010. 

Edited April 10, 2021 by Viking

[SharperDingaan]

We have a neighbor who bought their new build townhouse bungalow in 2011 for around 45OK net of upgrades. It is an airy, spacious and desirable house, in a desirable location, the complex has been complete for some time, the target market is retirees 55+, and there is a longstanding waiting list of buyers. Pre Covid, the median house sold for around 900-925K, and took no more than 10-15 days to sell.

The neighbor is aging, and wanted to assess whether it was worth staying/renovating, or selling/moving elsewhere. They had an agent approach the buyers and ask for expressions of interest. They had their first expression in < 72 hours, at 1.4 million; by end-of-day there were 2 more averaging 1.5 million. Terrified, the neighbor withdrew the house, and chose to stay/renovate. 

The neighbor is well liked, it is a close-knit community, and a great many of the residents are retired/semi-retired senior executives. If the renovation meant they could stay another 10 years; most expected a future sale at around 2M+. The renovation pays for itself, implied nominal CAGR of around 8.25%. 

SD 

 

[cwericb]

And so much for Garth Turner's prognostications.

I feel sorry for those who agreed with Turner's line of thinking back then and rented rather than bought, waiting to pick up a house when the market crashed.

This is nine years on and prices are rising faster than ever. However the big difference is that the dramatic price increases are no longer confined to Toronto, Calgary, and Vancouver, but are spread all across the country.

While the pandemic has caused many in the large cities to look at less densely populated more rural areas, prices in the large cities don't seem to be showing any effects from this.

One thing for certain, the building industry is booming and the price of materials seems to have no ceiling - and price seems no object, only availability. 

We live in very strange times.

 

 

 

Edited April 11, 2021 by cwericb

[SharperDingaan]

Keep in mind that the 2M+ forecast is a projection, and as at 2031 (10 yrs out). I think it a little conservative. It is also not an isolated outlier, and price expectations like this are becoming increasingly common.

8.25% is nominal CAGR. If you expect that the average post-Covid inflation over the period turns out to be 5.00%, the real return is 3.25% - and actually not far off the historic trend. The pricing is rational.

The houses themselves are 2,500ft+,open-concept, 9ft+ ceilings (20ft+ in the great-room), designer kitchen and washrooms, wide passageways to accommodate wheelchairs, etc. Condo clears the snow, mows the grass, shared use of the clubhouse, the complex is surrounded by quality medical, and has an adjacent 4500+ room high-end seniors retirement home.  High-end market, between Hamilton and Oakville, and not on the lake.

SD

Edited April 11, 2021 by SharperDingaan

[bizaro86]

My father-in-law is selling his house in Edmonton. Got an offer after a bunch of showings the first day, full list price. Which he had moved up about 10-15% from what we thought he'd be able to list at. 

Buyers do inspection, but their financing falls through, they don't waive conditions. Back on market. Lots of showings the next day. Two offers, ends up getting another 10k more the second time.

But its Alberta, so the fact that its probably up 10% in the last 30 days still only takes his 3 bedroom bungalow to like 3.5x median family income.

[Jmac42600]

3 hours ago, SharperDingaan said:

Keep in mind that the 2M+ forecast is a projection, and as at 2031 (10 yrs out). I think it a little conservative. It is also not an isolated outlier, and price expectations like this are becoming increasingly common.

8.25% is nominal CAGR. If you expect that the average post-Covid inflation over the period turns out to be 5.00%, the real return is 3.25% - and actually not far off the historic trend. The pricing is rational.

The houses themselves are 2,500ft+,open-concept, 9ft+ ceilings (20ft+ in the great-room), designer kitchen and washrooms, wide passageways to accommodate wheelchairs, etc. Condo clears the snow, mows the grass, shared use of the clubhouse, the complex is surrounded by quality medical, and has an adjacent 4500+ room high-end seniors retirement home.  High-end market, between Hamilton and Oakville, and not on the lake.

SD

In my opinion, expecting post-Covid trending inflation to be 5% is a pipe-dream. Last 10 years Canada could barely crack 2%. Mix that with the demographics bust, debt levels, globalization, and increasing digital transformation, and I find it very hard to believe high inflation is coming back.

This implies (assuming 8.25% nominal CAGR over the next decade again) a 6-7% real return on RE which is pushing it. That being said, one could also argue that low inflation means low rates can be sustained and therefore increased RE prices. 

Crazy times.

[Gregmal]

^Exactly. So in pretty much any scenario(or less emphatically, most highly probable scenarios) real estate, especially of the residential variety....wins. That said, come on down to the US. Our housing bubble 2.0 party is just getting started, and should run for a good decade or two from here. 

[maplevalue]

TVO Interview with Federal MP Adam Vaughn - What Should the Government Do About Housing?

Absolutely terrific interview to understand the mindset of politicians in Ottawa about house prices, and the lack of political will to do anything about it. Basically says we cannot have a 10% correction in house prices, even after a 20%-30% runup, because we need to "protect the investments Canadians have made in their homes".

[Viking]

Greg, I agree. It looks to me like the US housing party is just getting started  

In Canada for single family homes we have record high demand, record low supply and record low mortgage rates. Any one of these three variables being in record territory would cause house prices to increase. Until ALL 3 normalize i think single family home prices will continue to move higher. And i do not see ANY of the 3 factors normalizing until later in 2021 or even 2022 (until covid is in the rear view mirror). So prices will continue to set records. 
 

We are seeing the impact of record low interest rates = spike in asset prices (housing and stocks). This is resulting the ‘wealth effect’ and subsequent boost to the economy that central banks wanted. With all central banks stating that interest rates are staying in record low territory until at least 2023 my guess is the asset price spike party is just getting started. Welcome to the roaring ‘20’s  

Edited April 11, 2021 by Viking

[SharperDingaan]

5% average inflation thing: Agreed, all else equal, there is little reason to expect significant inflation. The problem is that economic conditions are NOT equal, this is a 10-yr interval, and inertia dictates 'stay in place for as long as possible'. Someone wants the house? and cannot wait? just outbid everyone else (it's just money you cannot take with you). When they do - that sets the CAGR.

Compare your cost of living today, to what it was a year ago - it is a lot higher than the BoC target inflation. There is also a limit as to how long asset and consumer inflation rates can be kept separate; eventually you get cost-push inflation at some trailing consumer inflation rate.

Independent, rational decisions, by everyday people, in quantity. We just don't like what it implies.

SD

[fareastwarriors]

The Second-Largest Country in the World Is Running Out of Land

Canadian dream of a house with a yard is becoming unaffordable as real estate prices surge and space to build runs short.

https://www.bloomberg.com/news/articles/2021-05-18/the-second-largest-country-in-the-world-is-running-out-of-land?srnd=premium

[Parsad]

On 5/18/2021 at 12:14 PM, fareastwarriors said:

The Second-Largest Country in the World Is Running Out of Land

Canadian dream of a house with a yard is becoming unaffordable as real estate prices surge and space to build runs short.

https://www.bloomberg.com/news/articles/2021-05-18/the-second-largest-country-in-the-world-is-running-out-of-land?srnd=premium

You also have to remember that certain desirable locations to live like Vancouver, are limited on growth by three natural borders (mountains, ocean and U.S. border).  So a city like Vancouver has only two ways to grow...out towards the valley (east) or up (condos/towers).  That puts additional pressure on prices in the region on top of any bubble.  Cheers!

[maplevalue]

Quote

https://www.bnnbloomberg.ca/population-growth-ticks-back-up-in-canada-despite-closed-border-1.1618294

The nation’s population rose by 0.2 per cent, or 82,366 people, in the first three months of this year to 38.1 million, according to quarterly estimates released Thursday by Statistics Canada. That’s the fastest quarterly population growth since the pandemic hit, and reflects a rebound in international migration. Quarterly growth averaged just under 0.3 per cent in the decade before the pandemic.

Population growth continues, and should pickup in the fall as many Canadian universities are committing to in person learning. If you thought the market was tight now, just wait until September!

[maplevalue]

Canada opens door to immigrants, adding fuel to hot housing market

https://www.reuters.com/markets/us/canada-opens-door-immigrants-adding-fuel-hot-housing-market-2021-12-09/

 

 

Quote

 

OTTAWA, Dec 9 (Reuters) - Canada hopes more immigration can boost economic growth and allay a worsening post-pandemic labor shortage, but new migrants could pour gasoline on that red-hot housing market that the central bank has warned was stoked by "a sudden influx of investors."

 

Prime Minister Justin Trudeau's administration is on track to meet this year's goal of 401,000 new permanent residents and is set to revise up next year's target of 411,000, a government source said.

...
 

Prior to the pandemic, the Peel region - part of the Greater Toronto Area - was welcoming some 45,000 newcomers each year, but that stopped during the pandemic because of border closures, said real estate broker Jodi Gilmour.

"Right now we are seeing a rush of buyers trying to beat the two things that are going to change their position going into 2022, which are rising interest rates and competition from immigrants," she said.

 

 

[scorpioncapital]

will it increase GDP per capita?

 

[SharperDingaan]

Keep in mind that 'housing' is multiple tranches in a housing 'stack'. The same 'stack' in different cities just looks different; re total area (GTA vs Regina), and proportions (higher vs lower price). The article is talking only to higher priced housing across the stacks, and how to maintain/inflate it. We need more immigration !!! ..... but only the rich ones please!  

 

If the intent is to truly help people - Canada needs mass, low-priced housing on the city outskirts, well serviced by city transport, and financed via government issued 25-yr fixed-rate low interest mortgages. Sell, and the government mortgage is paid off in full. If the commute is too much for you, live elsewhere. If you need low cost labour, move your warehouse/distribution centre closer.

 

If you want to continually get elected, give large numbers of people an affordable place to live. The last time Canada did something like this, was to house returning service men shortly after WW II - and it touched off the baby boom. Apparently, too complicated?

 

SD

 

Edited December 13, 2021 by SharperDingaan