Garth Turner - Real Estate in Canada

[Gregmal]

4 minutes ago, lessthaniv said:

 

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

Thanks. So it’s up substantially, and even last year was up 26%. But now a 10-15% decline equals “blowing up”. This sort of phenomenon always makes me chuckle. He would just been better off buying a house in 08, or even early last year. 
 

Signed,

someone who knows nothing about Canadian real estate 

[Viking]

3 hours ago, lessthaniv said:

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. 

Great comment. A few lessons for me:

1.) the housing market cycle is nothing like the stock market cycle

2.) crazy low interest rates are rocket fuel to assets, especially highly leveraged assets like housing

3.) bubbles can blow for years and years (Canadian real estate and .com stocks being two good examples)

4.) information available to retail stock investors is much better than the information available to consumers on the housing market

 

One more lesson: all the money i have made on real estate the past 10 years is the result of dumb luck. Priceless

—————

I did sell my house in the spring of 2021 so i am once again a happy renter today. 

Edited July 15, 2022 by Viking

[StevieV]

On 7/5/2022 at 8:04 AM, maplevalue said:

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.

 

I read the transcript for this podcast and I don't think the host made his case.

 

The couple has high expenses including eating out, transportation and music festivals, but, according to the host, there is no way they will change those things.  The host seems more adamant about this than the couple.   The couple spends just about his recommended 28% on housing (they spend 28.6%), but the host spends the whole time telling the couple there is no way they'll cut their expenses and so they should sell the condo.

 

Maybe.  Maybe they should make a big cut in housing to fund the festivals and eating out.  I don't object to the idea that the couple would benefit from spending on music festivals and not housing.  I just didn't made that case OR, importantly, that selling the condo would fix the couple's savings problem.

 

The episode states that the couple was saving money before the condo and not after buying the condo and so that's the problem.  But, here's the key part:

 

"Eric:  [00:31:23] There was COVID, so not much to do. But between us it was great. We were actually saving some money.

 

Ramit Sethi:  [00:31:31] And then what happened? You decided to buy a condo. Walk me through that discussion. "

 

The host says what happened was they decided to buy a condo?  Uh.  What happened is that things opened back up.  Then they threw the condo on top of that.  The couple wasn't saving money because renting allowed them to save.  They saved money because the things they spend money on were shut down.  Now they're not.  Plus, when they weren't spending money on going out "between us it was great."  How that gets to selling the condo and that fixes the savings problems, I don't know.

 

[Spekulatius]

I haven’t listened to this episode (and wont), but if the couple spent on ~28% of their income on housing, thats about what I spent when I bought my first house. I think it is highly likely that purchasing the condo isn’t the problem, they go broke because they spent too much on other stuff.

 

Festivals for example are hideously  expensive and over priced nowadays. Thats where I would start cutting back.

Edited July 18, 2022 by Spekulatius

[maplevalue]

On 7/16/2022 at 11:34 AM, Spekulatius said:

Festivals for example are hideously  expensive and over priced nowadays. Thats where I would start cutting back.

 

The point of me posting the episode was more about hearing the couple's justification for buying a condo. With that said I would tend to agree with the host. You have two 25ish year olds who have been locked away for two years. They are unable to save money, and at the current rate will have to dip into investment savings soon. You could either advise the couple to a) cut back on the things the couple loves doing the most (advice unlikely to be followed, and based on their life stage probably does not make sense) b) rent instead of own a condo (a rip the bandaid type solution which would require some work up front, but after that nothing...i.e. not a hard financial plan to follow). Renting seems like a good solution for these individuals. 

[Spekulatius]

16 hours ago, maplevalue said:

 

The point of me posting the episode was more about hearing the couple's justification for buying a condo. With that said I would tend to agree with the host. You have two 25ish year olds who have been locked away for two years. They are unable to save money, and at the current rate will have to dip into investment savings soon. You could either advise the couple to a) cut back on the things the couple loves doing the most (advice unlikely to be followed, and based on their life stage probably does not make sense) b) rent instead of own a condo (a rip the bandaid type solution which would require some work up front, but after that nothing...i.e. not a hard financial plan to follow). Renting seems like a good solution for these individuals. 

These people are nuts and i think their instinct that the festivals and probably other spending issues are a huge part of their problem is correct. The condo purchase may have been a mistake as well, but it's fixable, I think.

They are both young (25 years old) so their income will rise (it has already) and if they keep plugging along, the burden from the condo should progressively get smaller over time. I know it did for me - when I purchased my house, the mortgage was a bit less than 4x my income (5x for this couple) but it was fixed expense (actually went lower because I was able to refinance) while the salary  kept increasing.

 

Now if this couple want to continue go to music festivals, they just have to budget and probably visit more local ones where they don't have to spent $3k just for travelling. Nobody ask them to totally abandon what seems to be their hobby, but they got to be a bit smart about it.

 

if they sell their condo, they are going to take a lot of friction cost ($50k?), then they have to rent and that rent will keep going up. They probably end up with a budget problem even if they do sell their condo.

 

I think the underlying problem is that this couple does not know how to budget, it's not the condo purchase per say.

[scorpioncapital]

"The couple has high expenses including eating out, transportation and music festivals, but, according to the host, there is no way they will change those things"

 

I think there is something strucurally wrong with the society if you can't do these lifestyle things and still have a home. 

 

 

 

Edited July 19, 2022 by scorpioncapital

[Spekulatius]

3 hours ago, scorpioncapital said:

"The couple has high expenses including eating out, transportation and music festivals, but, according to the host, there is no way they will change those things"

 

I think there is something strucurally wrong with the society if you can't do these lifestyle things and still have a home. 

 

 

 

This couple was traveling to Music festivals far away and spending like $3k a pop. Resources are finite and you have to make choices. Stick with music festivals closer to home by where you can go by car or spent a night at a Bestwestern and you are closer to $500 for the same thing.

 

Or they can decide to be renter for life and then they can do all these things. For me, the choice would be easy, but its up to them.

[StevieV]

5 hours ago, scorpioncapital said:

I think there is something strucurally wrong with the society if you can't do these lifestyle things and still have a home. 

 

That's a stretch.  This couple lives one of the most material comfortable lifestyles in the history of humanity.  They're 25 years old, plan to travel internationally 3 times this year to music festivals plus more local events.  They spent over $600 on Ubers alone at the last music festival.  $200 gym memberships.  $60 sushi meals.

 

Even at that, they can do those things and have a home.  They just are in the red if they do all of those things and just bought a condo.

[Spooky]

I tend to agree that the giant divergence between home prices and incomes / inflation since the early 2000s is the sign of a structural issue in society (primarily in Canada). As a relatively young Canadian, the cost of housing is a huge concern, even with a higher than average salary. I don't know how the average family will get by. Combined with higher taxes, it is a double whammy. Unless we figure out how to make the cost of housing / living more affordable there will be societal unrest or many young people will leave the country.

[Lazarus]

The condo couple is a poor example of the housing problem facing young people. Anyone with half a brain will look at the lifestyle being described - spending money on hobbies and frivolous expenses like festivals instead of funding the basics like their home - and will shake their head in disapproval.

 

But that's not the ordinary scenario. You have lots of young couples with more modest incomes and zero chance of buying a plain ordinary home. The average millennial after-tax family income is just $45,000 per year in Canada. Not easy to buy into the home dream at today's prices even if you are "average", let alone the working poor.

[Gregmal]

Yea dumb dumbs living beyond their means isnt proof or anything but stupidity. 

[Parsad]

My sister-in-law is a Notary and a lot of her business is real estate closings.  For the last year, there have been a lot of cases where buyers are doing last-minute financing closures, as they are still pulling money together at the last minute.  In many cases, they are posting multiple deposit checks as many don't have the full down payment themselves and are reaching out to family and friends.  This has only worsened as interest rates have started rising.  Renewals and refinancing's are also proving tricky now as the 5-year fixed rate has risen from below 3% to closing in on 5-5.5%.  Cheers!

[FCharlie]

1 hour ago, Parsad said:

My sister-in-law is a Notary and a lot of her business is real estate closings.  For the last year, there have been a lot of cases where buyers are doing last-minute financing closures, as they are still pulling money together at the last minute.  In many cases, they are posting multiple deposit checks as many don't have the full down payment themselves and are reaching out to family and friends.  This has only worsened as interest rates have started rising.  Renewals and refinancing's are also proving tricky now as the 5-year fixed rate has risen from below 3% to closing in on 5-5.5%.  Cheers!

Hey, Parsad,

 

Do you, or perhaps your sister, know whether Americans are allowed to buy real estate in Canada currently? There was a lot of talk about a two-year ban on foreign buyers but I never really heard any specifics about it and am not sure if it was ever implemented or not. Thanks.

 

 

[Parsad]

13 hours ago, FCharlie said:

Hey, Parsad,

 

Do you, or perhaps your sister, know whether Americans are allowed to buy real estate in Canada currently? There was a lot of talk about a two-year ban on foreign buyers but I never really heard any specifics about it and am not sure if it was ever implemented or not. Thanks.

 

 

 

No, Americans are allowed to buy real estate presently.  No ban went into effect.  Although some cities like Vancouver have an annual empty home buyer tax, which is 1% of the property value charged to homeowners (Canadian or otherwise) if the home is vacant and not in the long-term rental market.  Cheers!

[Spekulatius]

These seem like very serious declines in the far outskirts of Toronto. I would expect houses to fall first in those newly discovered WFH communities.

https://www.ctvnews.ca/business/where-have-home-prices-dropped-the-most-across-canada-1.6070565

 

But the biggest declines were in the communities that were within a two-hour drive from Toronto. The benchmark price of a home in Cambridge fell 24.5 per cent in the same period while Oakville, London and Kitchener-Waterloo saw declines of 23 per cent.

[Viking]

Well it certainly looks like the air is coming out of the greater Vancouver real estate market. Unit sales are at something like a 30 year low; which is telling given significant population growth. Inventory is growing. And, as expected, prices are coming down (much more in the suburbs). But benchmark prices are still up 4% from a year ago. The problem today is sellers remain anchored to Feb/March bubble highs. And because of much higher interest rates, what buyers can pay has dropped considerably. So we have a bit of a staring contest going on between sellers and buyers. I was wondering if we were going to see buyers step up in Sept and we now have our answer (a resounding no). 
—————

it is fascinating to compare US and Canadian mortgage markets. In Canada today a regular 5 year fixed or variable can be had for around 5%; much lower than the US which i think is closer to 7% (30 year fixed). That is a big spread. That has a very big impact on house prices (affordability).

—————

i am beginning to wonder if we do not see the Bank of Canada follow Australia and pivot dovish. Australia also has a property bubble like Canada - and i think like Canada mortgages are short term in nature (5 years or less). Short term mortgages become a huge problem if we see years of much higher mortgage rates. So i am wondering if the Canadian $ is not the sacrificial lamb. I was thinking Canada’s oil/resource position would support a stronger C$. But weakness in housing likely trumps strength in resources.

—————

- https://members.rebgv.org/news/REBGV-Stats-Pkg-Sept-2022.pdf

- https://www.fvreb.bc.ca/statistics/fraser-valley-real-estate-market-continues-to-stabilize-heading-into-fall-season/

Edited October 5, 2022 by Viking

[Viking]

If anyone is wondering if Canada is in a real estate bubble all you have to do is listen to 15:90-22:30 and 31:40-32.30 for some clues in the video posted below. These are some of the top producing real estate agents in the Vancouver/Toronto markets. Parts of their discussion reminded me of the real estate agent driving in the car (“its just a gully”) and later, the two mortgage brokers, from The Big Short movie (from the Florida scenes). Sorry, no strippers in my video below.
- “Investors are used to cash flow negative”.

- Investors feel downturn “is temporary; will come roaring back.”

- Investors “are not buying for cash flow… are buying for appreciation”.

- “…when are we going to see fire sales? Already are in the assignment market.”

 

What i heard from listening is it sounds like lots of people who own real estate today are bleeding cash (cash flow negative). And with rising interest rates it is getting worse for them (more cash flow negative). At the same time the property they own is also now falling in value. But time is on their side. They think the situation is temporary - Bank of Canada will see their pain and bail them out with much lower interest rates soon (they are too important to the Canadian economy). Yikes. As we peel back the onion this actually looks really frightening.

 

 

Edited October 25, 2022 by Viking

[maplevalue]

https://www.reuters.com/world/americas/canada-targets-record-500000-new-immigrants-2025-2022-11-01/

 

https://www.theglobeandmail.com/canada/article-canadians-more-supportive-than-ever-of-immigration-new-poll-finds-but/

 

500k immigration target for 2025, and attitudes among public generally positive, so immigration a continued tailwind for residential real estate.

[scorpioncapital]

is this a case of if you build it they will come, or if they come we will build it? )

 

[Spooky]

It's more like they are coming but we ain't building...

[mcliu]

Plans for tons of immigrants but no plans to address housing, education, healthcare for either locals or newcomers. Canada is a mess. The system is already straining under current capacity.

[Viking]

3 hours ago, Spooky said:

It's more like they are coming but we ain't building...

Canada has had a 20 year housing boom. In recent years housing has become a massive % of total GDP. Look at all the condo development in Toronto (i think it leads North America). Building has been robust (single and multi family). Where are all the housing units going? 
 

Yes, building will slow moving forward. But i wonder how much of current supply is under-utilized. I just have a hard time understanding how we have had a housing bubble of epic proportions for 2 decades and still have a shortage. And i readily admit - i am a real estate idiot.

[UK]

1 hour ago, Viking said:

Canada has had a 20 year housing boom. In recent years housing has become a massive % of total GDP. Look at all the condo development in Toronto (i think it leads North America). Building has been robust (single and multi family). Where are all the housing units going? 
 

Yes, building will slow moving forward. But i wonder how much of current supply is under-utilized. I just have a hard time understanding how we have had a housing bubble of epic proportions for 2 decades and still have a shortage. And i readily admit - i am a real estate idiot.

 

https://www.bloomberg.com/news/articles/2022-11-01/canada-plans-to-welcome-record-half-million-immigrants-in-2025

 

And also migration of capital from China etc in search of safety not returns?

[Spooky]

New condo / housing development in Toronto has not kept up with net migration into the city for years and years. Also, there is a huge zoning problem in Toronto where large parts of the city are only zoned for single family and the NIMBY's are fighting to keep it that way (https://globalnews.ca/news/3707723/margaret-atwood-condo-controversy-in-toronto/).