Garth Turner - Real Estate in Canada

[Red Lion]

My toddler has Canadian citizenship and is looking for bargains if this tanks the market. 

Edited January 5, 2023 by RedLion

[whatstheofficerproblem]

Edited January 5, 2023 by whatstheofficerproblem

[whatstheofficerproblem]

@RedLion maybe your toddler will create a REIT that will outperform BX and the rest. I can smell the money on this one, better invest when young, will probably be too expensive later on. How can I along with Harvard with combined 8 billion dollars, get a piece of your toddler's REIT. I mean, BX got money from a non-target state school, we can do better than that.

Edited January 5, 2023 by whatstheofficerproblem

[Red Lion]

Just now, whatstheofficerproblem said:

@RedLion maybe your toddler will create a REIT that will outperform BX and the rest.

A proud parent can always dream. Maybe I get some options in the management company…

[whatstheofficerproblem]

Cough.. I'm not too greedy, I just need a board seat.

[mcliu]

The Canadian government's specialty is to create a perception of doing something without actually doing anything.

[longlake95]

7 minutes ago, mcliu said:

The Canadian government's specialty is to create a perception of doing something without actually doing anything.

And spend billions along the way… remember the “budget will balance itself”…

[Spooky]

11 hours ago, Jaygo said:

Never underestimate the incompetence of the liberal government. There are so many levers that could be pulled to help lower the costs of housing. They choose the one that says hey guys we’re world class, give us respect eh. Oh yeah but we’re also fucking idiots. 
 

Perhaps increase construction through reduced red tape, getting town folk building departments to fast track projects, build up our near north communities like Sudbury and Huntsville. Reduce the minimum lot size, dwelling size and allow densification.

Most importantly temper immigration during this short window in time to allow our echo boomers to buy property and form families of native Canadians. Trust me we will need immigration in 10 years when our demographics really hurt, but  right now you have a bulge of echo boomers and slightly younger all battling over shit hole housing over asking. 
 

How the people who regulate these things can’t see the demographic pinch brought on by aging in place elderly coinciding with echo boomers forming families. 
 

guess what, in a decade the elderly will be dead and dying and the echos will have procreated and bought housing with gut wrenching mortgages. Can’t we bring the 750k new Canadians then. 
 

But no,  we will not allow supply to increase at the natural pace of capitalism. We will kill demand and at the same time make us look like we are backwoods yokels. This Won’t do shit to affordability anyway, Crippling interest rates that are too high for our economics will work though. 

 

Exactly - we need to reduce the cost / red tape around building more supply of homes. Really this is a supply and demand problem where all the zoning laws, nimbyism etc. prevent much of any affordable / new housing to be built. Preventing foreign buyers of real estate doesn't make sense in an open capitalistic society. If they are buying homes and not renting them, impose a tax on vacant homes. I was just down in Mexico City and could see myself living down there. It's a big world out there and younger Canadians have more options than ever with the growing prevalence of remote work.

 

 

 

 

 

 

[maplevalue]

1 hour ago, Spooky said:

younger Canadians have more options than ever with the growing prevalence of remote work.

 

On this note, it is remarkable how quiet the Toronto subway is during regular week rush hours. For many younger Canadians I think the case for living close to the downtown core is really weakening.

[Jaygo]

3 hours ago, Spooky said:

 

Exactly - we need to reduce the cost / red tape around building more supply of homes. Really this is a supply and demand problem where all the zoning laws, nimbyism etc. prevent much of any affordable / new housing to be built. Preventing foreign buyers of real estate doesn't make sense in an open capitalistic society. If they are buying homes and not renting them, impose a tax on vacant homes. I was just down in Mexico City and could see myself living down there. It's a big world out there and younger Canadians have more options than ever with the growing prevalence of remote work.

 

 

 

 

 

 

Your point was better articulated than mine. Why in a capitalistic society are we artificially reducing supply. If Patek wants to limit the amount of watches produced than all the best to them, but at what point in time did politicians start to play the same games.

 

I am not a proponent of unfettered construction but the municipalities are drunk on power and regulate everything to the detriment of the community and long term health of our society.

 

I wanted to build a nanny suite over my detached two car garage. It was designed with a nice high ceiling gable roof, 630 sq ft with small bathroom with and kitchenette. Basically what I rented in college.

 

Miles of bullshit to traverse, 3 separate conservation permits, a new septic permit plus the building permit were required. My total construction cost was an estimated $ 80,000.00. The permitting would have cost $ 15,000.00  or almost 20% of build cost. We ended up denied on the building permit since we had a gross floor area of over 25% in a rural area. 

 

Yes it would have provided another living quarters that our community desperately need but no, Its the evil foreigners.

[Jaygo]

One more before signing off, my town has a minimum floor area requirement that is border line mac mansion. We basically yell from the roof tops " poor folk not allowed, you have to look rich to live here "  

 

 

 

 

[Gregmal]

21 minutes ago, Jaygo said:

One more before signing off, my town has a minimum floor area requirement that is border line mac mansion. We basically yell from the roof tops " poor folk not allowed, you have to look rich to live here "  

 

 

 

 

Same. I think mine is 20% not 25%. Had to modify plans for a patio because of this. Got around it for my ice rink because it s not considered a permanent structure.

 

In many of these states and places you don’t really own your stuff. Just got a mail reminder to renew my boat trailer registration….huh? I bought my boat and it came with a trailer. I’ve never once used or seen it, it’s stored at the Marina. But I need to pay this jerk off filled state to have it. Same with my car. Why do I need to pay the state every year?

[maplevalue]

https://www.bnnbloomberg.ca/canada-s-largest-apartment-landlord-reports-record-rent-turnover-in-q4-1.1887499

 

Quote

Canada’s largest apartment landlord is reporting record rent turnovers in its latest quarter.

In a press release on Wednesday, Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) reported a record 24.3 per cent average rent increase on turnover in the fourth quarter. This beat the company’s previous rent turnover peak of 14.2 per cent in 2019.

Rent turnover refers to the price that companies are increasing rent by for the next tenant, after the previous individual moves out.

CAPREIT owns or has interests in “approximately 67,000 residential apartment suites, townhomes and manufactured home community sites well-located across Canada and the Netherlands”, according to the release.

...

Several Canadians have chosen to rent, as elevated home prices and high interest rates keep many individuals priced out of the housing market.

But the higher demand for rental properties has pushed up prices and many experts don’t see it slowing down anytime soon.

According to a report by Canada Mortgage and Housing Corporation, after a tenant moves out of a two-bedroom apartment, the average rent increases 18.2 per cent.

Another report released by Urbanation.Inc said as high immigration levels and home affordability issues continue, there will be “strong upward pressure on rents.”

“While a record high anticipated for combined condominium and purpose-built rental apartment completions in 2023 will bring more availability to the market, it will be met with strong demand as immigration continues to rise and homeownership affordability remains low, supporting further rent increases,” it said in the report.

 

[Viking]

Good update on Canadian real estate. Lots of issues. A frozen market. No one wants to list right now (inventory is super low). Affordability is at historic highs. Investors buying today are cash flow negative. In short, bubble mentality largely continues. 
 

 

[Gamecock-YT]

 https://www.bloomberg.com/news/articles/2023-04-10/canada-s-lenient-banks-are-helping-put-a-floor-under-home-prices

 

Quote

CIBC had about C$52 billion ($38 billion) worth of variable-rate mortgages, or about 20% of its Canadian portfolio, where the borrower’s fixed monthly payments are no longer covering interest, as of the fiscal first quarter ended Jan. 31. Those unpaid amounts are being added to the principal instead, causing a process called “negative amortization” where the loan effectively grows instead of shrinking even as borrowers pay.

 

Because of this change, consumers will take even longer to repay the debt, and CIBC is now expecting many of those mortgages to be amortized over more than 30 years.

 

Toronto-Dominion Bank and Bank of Montreal also allow variable-rate borrowers to extend the period of time in which they’re expected to pay off the debt. For those lenders, mortgages longer than 30 years accounted for about 30% of each banks’ Canadian mortgage books in the first quarter, up from about zero during the same period a year earlier. The banks attribute much of this growth to floating-rate loans that are now facing negative amortization.

 

Don't see this ending well.

 

[Spooky]

Interesting article, thanks for sharing. Looks like roughly 30% of TD and BMO mortgages are longer than 30 years now due to negative amortization up from 0% a year ago. 20% of CIBC's Canadian mortgage portfolio fixed monthly payments are no longer covering interest. RBC doesn't allow negative amortization but 20% of their mortgage book is paying interest only. That's 4/6 of the big Canadian banks and the other two are likely in a similar situation. 

 

What happens next? People keep paying their mortgages indefinitely / in perpetuity hoping that interest rates come down? Essentially the banks are stopping distressed inventory from coming on the market and creating a floor in prices. Does this dam break eventually?

 

[Jaygo]

I dont see the issue with this. People will still pay the mortgage so doesn't this just boost the banks earnings at the expense of the rest of the economy.

 

I owe close to 500k on mine. So in 2025 we renegotiate ours. Lets say it goes from the current 2.5 to 6%  it will be painful but Im still going to have to pay up. I think it works out to be an extra 1000 a month. If its at 8% it will be double what I pay now. 

 

Maybe I take on a bit of extra work or cut back on travel ect. but im not giving the keys back that's for sure.

 

 

[mcliu]

2 minutes ago, Jaygo said:

I dont see the issue with this. People will still pay the mortgage so doesn't this just boost the banks earnings at the expense of the rest of the economy.

 

I owe close to 500k on mine. So in 2025 we renegotiate ours. Lets say it goes from the current 2.5 to 6%  it will be painful but Im still going to have to pay up. I think it works out to be an extra 1000 a month. If its at 8% it will be double what I pay now. 

 

Maybe I take on a bit of extra work or cut back on travel ect. but im not giving the keys back that's for sure.

I think the issue is that a large % of society have excessive leverage because they assumed rates will stay low forever. For the financially prudent as yourself it's not a big problem. Banks are playing this extend and pretend game so they won't recognize any credit losses.

[Spooky]

This is also just part of the story with the bank mortgage books which are higher credit quality mortgages - there is a whole private mortgage industry catering to people who didn't qualify for a mortgage from the bank.

[maplevalue]

Slightly different topic, but one of the things I have found interesting lately is we have seen more op-eds from some of the leading newspapers in Canada questioning the wisdom of the government's immigration policy. This would have been unheard of a few years ago. What really caught my eye was this column from the left-leaning Toronto Star.

 

Dear immigrants: Coming to Canada? Here’s what you’re really in for

https://archive.ph/vsON2

[Minseok]

First hand experience here. My amortization jumped from 30 years to 59 years. Of course it hit the "trigger rate"  where I've got contractual obligations to consider, but before the bank could act first, I increased my payment by $1200. My colleague waited to see what contractual obligations the banks might exercise, and they simply increased the payments on him without any formal notification.  In both cases we were mortgagers with major banks and we passed stress test when qualifying for the loan. So banks knew the increased payment wouldnt be an issue for us to pay. Besides, 20%  of all mortgages may be variable, but only about 25% of home owners have mortgages at all. It means only 5% of homes affected. Even then there is virtually no risk of default due to stress test.

 

Like mentioned above though, if you bought at the april 2022 peak using a third party/private loan going at 10% APR 1 year term loan, you'd see the shit hitting the fan about now. But this period was also a period of historically low sales numbers. There will be distressed sellers, but the numbers are likely to be miniscule. There is a supply shortage anyways.

 

In the GTA these days, homes are still selling fast and around asking price, ther is just not that many out on the market (literally just a couple of homes available in a neighborhood at a time) People simply pay up the increased mortgage payments and refrain from selling. Condo preconstruction projects which is a significant jolt of supply in the hundreds of units still sell out in a few weeks, so it looks like the market is soaking up the extra supply quite readily.

 

Only if when people start loosing jobs and getting paycuts though, its a house of cards waiting to fall down.

 

I dont see it happening though.

 

Edited April 17, 2023 by Minseok

[alxcii]

1 hour ago, Minseok said:

Besides, 20%  of all mortgages may be variable, but only about 25% of home owners have mortgages at all. It means only 5% of homes affected.

 

Where are you getting the 25%?

[SharperDingaan]

The reality is that a lot of the vacant down town office space in a Toronto, is going to be turned into large condo's sold to retirees. Sell the now empty big house in the 'burbs, move downtown near the action, and be near to all the hospitals; direct train to the airport every 15 minutes, taking roughly 15 minutes one-way. 

 

A good chunk of it will also go into smaller, affordable housing, aimed at those on minimum wage. Governments doing 25-50 year leases, developers doing the renovation, tenants paying just the lease and utilities. Pension funds avoiding large write-offs. 

 

Lots of new housing, where it is often needed most, in just the time that it takes to renovate; 2-3 entire floors per tower. Of course if you don't want to hear it ... continue watching your share prices (REIT's) drop. Your choice.

 

SD 

 

[longlake95]

I think it’s more like 25% of home owners are mortgage free, and the other 75% have mortgages. 

[Jaygo]

2 hours ago, SharperDingaan said:

Of course if you don't want to hear it ... continue watching your share prices (REIT's) drop. Your choice.

can you elaborate please. Does this playing out negatively affect some reits?