Garth Turner - Real Estate in Canada

[Viking]

48 minutes ago, maplevalue said:

https://www.cicnews.com/2022/02/canada-immigration-levels-plan-2022-2024-0221165.html#gs.p4r2bw

 

The Canadian government has just announced its Immigration Levels Plan 2022-2024.

 

Canada is increasing its immigration targets yet again. It will look to welcome almost 432,000 new immigrants this year instead of its initial plan to welcome 411,000 newcomers. The announcement came today at approximately 3:35 PM Eastern Standard Time.

 

Over the coming three years, Canada will target the following number of new immigrant landings:

• 2022: 431,645 permanent residents
• 2023: 447,055 permanent residents
• 2024: 451,000 permanent residents

 

 

 

Also a reminder that over the past 12 months the MLS Housing Price index is up 26.6% (https://www.crea.ca/housing-market-stats/mls-home-price-index/hpi-tool/).

Population growth is one of the key drivers of GDP growth. Strong GDP growth is important input to rising living standards over time. Many developed economies currently have a severe labour shortage and this will slow economic growth (and quality of life) especially if it persists for years. Lots of advanced economies will be experiencing a demographic time bomb in the coming decades.
 

Looks like the Liberals are targeting 55% of total immigration to be economic (help fill labour shortages). Makes sense. My daughter will be graduating from university and a couple of her buddies are international students and they are hoping to stay permanently after they graduate - and would be great assets for Canada.
 

Significant immigration has been a key driver in creating the great country Canada is today (note, i did not say perfect). And lets face it, given its size, Canada still has a tiny population. Are there issues to be worked though? For sure. Just like there is for EVERY generation. (The issues will just be different.) What is clear is collectively our quality of life continues to significantly increase over time.

—————

Japan's demographic time bomb is getting more dire, and it's a bad omen for the country

- https://www.businessinsider.com/japans-population-is-shrinking-demographic-time-bomb-2018-6?r=UK&IR=T

“An aging population like Japan's poses numerous problems. The government will have to spend more on healthcare, and that, coupled with a shrinking workforce and tax base, is a recipe for economic stagnation. It also means, among other things, that there will not be enough young people to care for the elderly.”

 

Edited February 15, 2022 by Viking

[maplevalue]

https://toronto.ctvnews.ca/office-workers-are-returning-to-toronto-but-foot-traffic-on-mondays-and-fridays-hasn-t-bounced-back-will-it-ever-1.5962940

 

Summary of the story is that TTC ridership in Toronto is about 50% of prepandemic levels.

 

With each passing day it seems like hybrid/fully remote is here to stay, in Canada in particular which has less of a hard charging business culture than the US. Toronto housing will probably be fine given there are many reasons people want to live there.

 

I would think Ottawa real estate might struggle given the public sector will likely keep WFH/hybrid more than private sector. Minto REIT (40% Ottawa) has struggled as of late

 

[Viking]

The rental market in Vancouver is absolutely bonkers right now: super tight supply and spiking rents (for new rentals). +$1,500 for one bed and +$3,000 for two bed - if you can find them (and then beat out other applicants to secure the place). Prepandemic it was not unusual for landlords to get +30 applicants when listing units onto the market… and i think we are probably back to those market conditions. 
—————

In my neighbourhood (i rent a house) my guess is rents have increased 20% in the past 18 months (18 months ago supply for rentals was highest in many many years due to covid). Crazy thing here in Vancouver is we have rent control. My landlord was ‘allowed’ to increase my rent 1.5%. Nuts. 

[bizaro86]

18 minutes ago, Viking said:

The rental market in Vancouver is absolutely bonkers right now: super tight supply and spiking rents (for new rentals). +$1,500 for one bed and +$3,000 for two bed - if you can find them (and then beat out other applicants to secure the place). Prepandemic it was not unusual for landlords to get +30 applicants when listing units onto the market… and i think we are probably back to those market conditions. 
—————

In my neighbourhood (i rent a house) my guess is rents have increased 20% in the past 18 months (18 months ago supply for rentals was highest in many many years due to covid). Crazy thing here in Vancouver is we have rent control. My landlord was ‘allowed’ to increase my rent 1.5%. Nuts. 

 

I've had a number of people apply/move into units in Calgary that said they moved here because they could no longer afford rents in Vancouver.

[ICUMD]

1 hour ago, bizaro86 said:

 

I've had a number of people apply/move into units in Calgary that said they moved here because they could no longer afford rents in Vancouver.

In Downtown Toronto, condo rent price increases have severely lagged purchase price for nearly 20 yrs in my older luxury building.  In 2002, I could rent a 1 bed for $1650 or purchase for 200k. Today, the option is rent for $2150 or purchase for $600k. (Not to mention condo fees increasing from $350 to 700 over this time).  Perhaps interest rate increases will narrow this gap?

Edited June 25, 2022 by ICUMD

[Gregmal]

Not that I totally buy it as anything super meaningful, but when you look at the basis for rent vs own for literally everything else in the world, renting a house is insanely inexpensive. 

[SharperDingaan]

Rents are dirt cheap, and the annual rent raise is capped in most places. As most include property tax, mortgage, and condo fees; inflation cost > rent raise is eaten by the landlord. A non issue a long as the landlord has turnover, if not - the landlord needs to sell. Rates of your floating rate mortgage rise > 150bp over 3-6 months, and you're f*****.

 

However, rents are rising rapidly. If the place you live in is sold, your rental deal is off if the buyer is a family that actually wants to live in the place. Not unusual for the displaced to find that the rent on their new place is 2-3x higher than it was on the old. Sticker shock, mostly because the old rent was artificially low.

 

SD 

[Cigarbutt]

On 6/25/2022 at 2:03 PM, bizaro86 said:

 

I've had a number of people apply/move into units in Calgary that said they moved here because they could no longer afford rents in Vancouver.

Interesting. That's also what this potential geographical arbitrage graph/data seems to show:

Three children of mine will likely buy a house within 3 to 7 years and there's this new savings account that's being allowed with amazing tax-protected potential for first time buyers. if this time is not different, this opportunity looks almost too good to be true.

Collectively people vote with their feet but perhaps, individually, should put their money where their mouth is. When asked, i suggested to focus on their individual incomes and the rest should follow.

 

[Peregrine]

On 6/25/2022 at 7:14 PM, SharperDingaan said:

Rents are dirt cheap, and the annual rent raise is capped in most places. As most include property tax, mortgage, and condo fees; inflation cost > rent raise is eaten by the landlord. A non issue a long as the landlord has turnover, if not - the landlord needs to sell. Rates of your floating rate mortgage rise > 150bp over 3-6 months, and you're f*****.

 

However, rents are rising rapidly. If the place you live in is sold, your rental deal is off if the buyer is a family that actually wants to live in the place. Not unusual for the displaced to find that the rent on their new place is 2-3x higher than it was on the old. Sticker shock, mostly because the old rent was artificially low.

 

SD 

 

Well, the feds just pushed the annual rental increase to 2.5% and I suspect that there will be a lot of political pushback against that number given where inflation is.

[maplevalue]

35 minutes ago, Peregrine said:

Well, the feds just pushed the annual rental increase to 2.5% and I suspect that there will be a lot of political pushback against that number given where inflation is.

 

Just Ontario that has this https://toronto.citynews.ca/2022/06/29/ford-government-caps-rent-increases-2023/. Honestly I doubt there is much pushback since Ontario govt just won a majority and 2.5% is peanuts compared to what it 'should' have been (5.3%).

[Gregmal]

RE, especially big city landlord stuff, is classic elite rich folk territory. So on one end, its where all the lobbying dollars come from. Look at VNO and how they operate in NY. But on the other hand, politicians and especially elected ones know that its much easier to cater to the renters vs the landlords, simply because of the population mismatch between the two. 

[Peregrine]

2 hours ago, maplevalue said:

 

Just Ontario that has this https://toronto.citynews.ca/2022/06/29/ford-government-caps-rent-increases-2023/. Honestly I doubt there is much pushback since Ontario govt just won a majority and 2.5% is peanuts compared to what it 'should' have been (5.3%).

 

What I meant was that landlords will push back.

[bizaro86]

On 6/30/2022 at 7:47 AM, Peregrine said:

 

Well, the feds just pushed the annual rental increase to 2.5% and I suspect that there will be a lot of political pushback against that number given where inflation is.

 

Nope, no rent control in Alberta - it isn't Federal.

[maplevalue]

https://www.iwillteachyoutoberich.com/049-eric-elena-part-1/

 

Good podcast episode about a Toronto couple buying a condo and slowly going broke because of it. Good profile of the psychology behind Canadian real estate.

[Viking]

Well the Bank of Canada delivered a shocker today and raised their rate by 1% to 2.5%. The real estate market in Canada peaked in Feb/early March. Looks like a blow off top. Parts of the country that spiked the past 2 years (with 50% increases) are already seeing prices come down pretty hard from the highs (15% or so). Housing sales nationally have fallen off a cliff. What is interesting is inventory is building - but slowly. Canada is clearly in the early stages of a housing correction. And it will only get worse as long as the bank of Canada keeps increasing rates - which looks like the rest of this year at least. House prices are going lower. The only questions are how fast and how far they fall. 
—————

Lots of people are in shock right now. Most felt that with all the debt being carried by consumers in Canada there was no way the Bank of Canada would be able to increase interest rates like they have been doing. Next increase will be in Sept and it is expected right now to be another 50 basis points. More pain to come for Canadian housing.

—————

Canada Is 20% More Dependent On Housing Than The US In ‘06

 

Over the past year, GDP briefly began to outpace residential investment. It was a short-lived period, with the segment rising to 8.0% of GDP in Q1 2022. That’s a 0.3 point jump from the previous quarter and the highest share since Q2 2021. It’s down from the recent peak but way higher than pre-2020 — or any prior period that wasn’t a bubble, in hindsight. 
 

https://betterdwelling.com/canadian-real-estate-was-responsible-for-nearly-half-of-gdp-growth-last-quarter/

Edited July 14, 2022 by Viking

[scorpioncapital]

"Lots of people are in shock right now. Most felt that with all the debt being carried by consumers in Canada there was no way the Bank of Canada would be able to increase interest rates like they have been doing"

 

Unlike the USA, BofC has a sole, not dual mandate. I interpret this to mean, we have no problem to run our population into the ground in a massive recession as inflation is the only mandate. The States has to balance unemployment with inflation to some degree. Of course the mandate may change and/or the inflation target may be moved up. Read an interesting opinion in WSJ that to avoid a recession the US (and probably Canada) would need to raise the inflation target to 4%. Of course that also means your money is wasting away faster.

 

Edited July 14, 2022 by scorpioncapital

[Spekulatius]

2 hours ago, scorpioncapital said:

"Lots of people are in shock right now. Most felt that with all the debt being carried by consumers in Canada there was no way the Bank of Canada would be able to increase interest rates like they have been doing"

 

Unlike the USA, BofC has a sole, not dual mandate. I interpret this to mean, we have no problem to run our population into the ground in a massive recession as inflation is the only mandate. The States has to balance unemployment with inflation to some degree. Of course the mandate may change and/or the inflation target may be moved up. Read an interesting opinion in WSJ that to avoid a recession the US (and probably Canada) would need to raise the inflation target to 4%. Of course that also means your money is wasting away faster.

 

The Bundesbank (as long as the DM existed) had the Single Mandate of price stability as well. This is not the case any more with the ECB now in charge of the Euro.

I like the single mandate better because I do not really think that central banks can fix structural issues in the economy like unemployment. My sense is that if you try to do this, eventually you destroy the money and still haven’t fixed the structural ailment. We are seeing the extreme of this in Turkey where Erdogan seems to be hell bent to run both his currency (Turkish Lira) as well as his economy into the ground with his unconventional central bank policy. 
 

In practice, even the Bundesbank was beholden to politics back in the day but their independence did serve as a counterweight to populist policies affecting the stability of the currency.

 

As for the Canadian dollar, I suspect it doesn’t move against the USD because the Fed will decide on a similar 0.75% move or perhaps even a 1% move on their next meeting.

 

Just a reminder that back in 1980, we had a 5% move at some point.

[scorpioncapital]

I sort of agree. By making unemployment go up a bunch, productivity down and gdp growth stagnate the CB would be sending a political message that the government needs to wise up. However, the backlash (since the people and government control the government presumably) tends to create populism. I am not sure a cb can be independent in a democracy if things get bad enough, they'll just vote themselves into a banana republic!

 

[SharperDingaan]

The BoC is independent. 

No political influence on the BoC. BoC policy doesn't influence the government of the day. 

 

Of course, interest rates (technology) impact economic activity, which impacts employment (social policy). In Canada, use of technology is not regulated, social policy is (democratic election process). The same approach used in the regulation of Canadian banking - a banks use of technology to trade is not regulated, only the trade itself is (KYC, trade/confirmation/settlement, etc.). Different approach.

 

SD

[Parsad]

19 hours ago, Viking said:

Well the Bank of Canada delivered a shocker today and raised their rate by 1% to 2.5%. The real estate market in Canada peaked in Feb/early March. Looks like a blow off top. Parts of the country that spiked the past 2 years (with 50% increases) are already seeing prices come down pretty hard from the highs (15% or so). Housing sales nationally have fallen off a cliff. What is interesting is inventory is building - but slowly. Canada is clearly in the early stages of a housing correction. And it will only get worse as long as the bank of Canada keeps increasing rates - which looks like the rest of this year at least. House prices are going lower. The only questions are how fast and how far they fall. 
—————

Lots of people are in shock right now. Most felt that with all the debt being carried by consumers in Canada there was no way the Bank of Canada would be able to increase interest rates like they have been doing. Next increase will be in Sept and it is expected right now to be another 50 basis points. More pain to come for Canadian housing.

—————

Canada Is 20% More Dependent On Housing Than The US In ‘06

 

Over the past year, GDP briefly began to outpace residential investment. It was a short-lived period, with the segment rising to 8.0% of GDP in Q1 2022. That’s a 0.3 point jump from the previous quarter and the highest share since Q2 2021. It’s down from the recent peak but way higher than pre-2020 — or any prior period that wasn’t a bubble, in hindsight. 
 

https://betterdwelling.com/canadian-real-estate-was-responsible-for-nearly-half-of-gdp-growth-last-quarter/

 

Now we see who has been swimming naked!  This is the comeuppance of a decade of excess, overspending, reckless HELOC's, speculation, etc coming to an end.  All those luxury cars that we see whizzing around Vancouver and Toronto...well, some of them are going to have to join Uber and Doordash to make ends meet!

 

You have multiple leveraged houses with variable rate mortgages...you are in trouble!  You've been using your house as an ATM through HELOC's...you are in trouble!  You've been racking up credit card debt...you are in trouble!  You've been living paycheck to paycheck with no emergency fund and have lots of debt...you are f**ked!  Credit counselling and debt collection are going into a hard market.

 

5 year fixed rate mortgages in Canada are now well above 5% and are expected to hit 6-7% before the end of the year.  18 months ago you could get a 5 year fixed rate mortgage in Canada for 2.9%!  Variable rate mortgages are now at 3.5-4%...double what they were 18-24 months ago, and expected to hit 5% by year end.

 

This reset was sorely needed!  Inflation is forcing Bank Governors to do what the system needed them to do earlier.  Cheers!

[widenthemoat]

10 minutes ago, Parsad said:

 

Now we see who has been swimming naked!  This is the comeuppance of a decade of excess, overspending, reckless HELOC's, speculation, etc coming to an end.  All those luxury cars that we see whizzing around Vancouver and Toronto...well, some of them are going to have to join Uber and Doordash to make ends meet!

 

You have multiple leveraged houses with variable rate mortgages...you are in trouble!  You've been using your house as an ATM through HELOC's...you are in trouble!  You've been racking up credit card debt...you are in trouble!  You've been living paycheck to paycheck with no emergency fund and have lots of debt...you are f**ked!  Credit counselling and debt collection are going into a hard market.

 

5 year fixed rate mortgages in Canada are now well above 5% and are expected to hit 6-7% before the end of the year.  18 months ago you could get a 5 year fixed rate mortgage in Canada for 2.9%!  Variable rate mortgages are now at 3.5-4%...double what they were 18-24 months ago, and expected to hit 5% by year end.

 

This reset was sorely needed!  Inflation is forcing Bank Governors to do what the system needed them to do earlier.  Cheers!

Well said - very well said. 

[lessthaniv]

It's worthwhile to go back and re-read this thread from page 1 mining the content for investment lessons with the benefit of 10 years of hindsight. 

[Gregmal]

What was the average Canadian house worth in 2012 or whenever Turner started his crusade?

Edited July 14, 2022 by Gregmal

[lessthaniv]

41 minutes ago, Gregmal said:

What was the average Canadian house worth in 2012 or whenever Turner started his crusade?

 

https://www.greaterfool.ca/2012/01/08/in-the-end/

 

This blog post of Garth's shows it was a little north of $350K and he references 2008 as the starting point

Edited July 14, 2022 by lessthaniv
edit spell error

[Lazarus]

 According to the Bank of Canada Act, the Bank's mandate is pretty broad: “to promote the economic and financial welfare of Canada.” This goes far beyond fighting inflation.