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What's a millennial to do in this housing market?

16K views 73 replies 30 participants last post by  vivienne 
#1 · (Edited)
Living in Toronto... interest rates at an all-time low for a long time, semi-detatched and detached houses hard to come by, real estate inflated and overpriced, "bubble" is becoming more and more realistic... Vancouver is shambles. Market is crazy hot! But eager to leave home and start fully embracing the challenges and growth associated with being fully independent and responsible... no debt, in a long-term relationship... mid 20's with marriage in the near future, making good income (100k+ combined) but still in our mom's basements, living apart still after 5 years of dating (very frugally and no issues continuing to be frugal), unsure about waiting out the real estate storm...

When do you draw the line between "stay at home and save" and "leave the nest, learn to fly and start your life" when the real estate market is on FIRE? Buying a home is still the ultimate goal, but not if it means a $600k mortgage in this inflated market... Thoughts on renting if your income allows you to save a good amount for a future home while renting? Sure savings grow faster when you're living at home than they would if you're dropping $1700/month for an apartment, but there's something to be said about independence and truly being a self-sustaining adult in your mid-20's...

Second-guessing everything before taking the next big step in life! Advice and tips for the millennials who are watching the real estate market go crazy in the GTA?
 
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#35 · (Edited)
Here is the thing: you can't predict the future with any degree of certainty. It's a game of probabilities. There are several scenarios which may or may not materialize, each impacting Toronto housing market differently. Some of the factors:

- Government changing rules (e.g. BC style foreigner tax).
- Banks imposing additional mortgage requirements to cut risks.
- Inflation going up, pushing interest rates up.
- Inflation going down, pushing interest rates down.
- Oil price going up, boosting incomes.
- Oil price going down, cutting incomes.
- NAFTA falling apart, leading to job losses.
- US economy booming, leading to job gains.
- China imposing further capital controls.
- Increase in construction
- Speculative stream ending based on recent forecasts from industry experts and the banks.
- Impact from increases in immigration under the Trudeau government.
- Things I haven't thought of.

You should really assign a probability and consequence to each of the above events and look at the resulting event tree. Thats a lot of guessing meaning that the outcome is highly uncertain.

Having said this, the risk of the downside is higher than the other way around. You can see that by simply counting the "for" and "against" and looking at the scope for the downside vs upside in interest rates.

In the end of the day decision on buying a home should be primarily based on living requirements rather than investment considerations. If you plan to stay long term (>10 years), short term price movements will be less important. And the downside can be reduced by a prudent selection of location.
 
#37 ·
My suggestion: for investment, hold on. for your own inhabitant , buy it as early as possible.
--- From a Chinese.

I bought my first condo in 2012 in DT and sold it to buy a townhouse in Bayview village in 2015. In 2016, I sold my townhouse and now, I am trying to buy a detached home in Newmarket, and yesterday I lose the bid again(7 times this year). The winner was not Chinese, so I figure, why do I go to non-Chinese forum to see how other buyers think about this market, and how eager they would make offers these days.

When I go through this post, honestly, i checked back and forth to make sure, this post and replies are in 2017, not 2014.I am not an expert in real estate, I just write down what I see and know.

From 2012 to 2017, I saw the richest buyers are not from China but other countries like Russia, Iran and middle east. And, Chinese prefer its own communities, Markham, Richmond hill, now Aurora, Oakville (richer ones). New immigrants from China are rich and willing to purchase big houses, no doubt. But it hurts people like me, Chinese-Canadian, barely you guys, because you dont want to live in Chinese communities, like it never hit me to live in Little Italy or Greek town or Brampton.

Check North York, check midtown, who is building those 3,4 million houses on the ground of 1 million land they just purchased a year ago. the builders, the government, who make the most portion of the hit market? foreign buyers? seriously? Maybe Vancouver, but not the case in Toronto. Refugees(40k last year only), rich immigrants (fr political unstable countries, riches protect their wealth), small builders (buy, flip and sell, quick money), government(tax), are the major players to push the market increase, not foreigners from China.


I am not helping Chinese to defend, I am just telling you something that no one tells you, at least no media in Canada will tell you, that Chinese Government restrict its citizens' money going out to buy other country's property. If you are a Chinese and you are sooooo rich, like you have $1bil Chinese currency in Chinese bank, you want to buy a 1mil house in Canada, no way, because you dont even have $200k CND downpayment. You say ok, can I exchange some? Can not! case close. But you are seeing Chinese buying houses around you, and media say so too. Yes, but they are immigrants, have the same right to buy as you do.

TORONTO IS BECOMING A BIG INTERNATIONAL CITY. THE HOUSE PRICE WAS TOO LOW BEFORE. It is making balance to the other international cities like London, Sydney, Tokyo and Beijing. Because Toronto is top best city to live in this whole world! Everyone is wanting to live here. That is why.

Oh, and green belt. But I love green belt i think it is necessary to exist.

If you dont see the truth(more people coming, less land to build houses) about this market, who is buying, who is winning, where the money come from, is it sustainable, you will not make correct decision, buy or wait. you will still put your hope on the government to increase the tax on foreign buyers. If so, the target is wrong, the price will keep going up, till you can not even afford a condo.
 
#38 · (Edited)
#40 ·
I can provide a bit more context to some points of Ericho's post. Specifically about the case of Chinese currency leaving China. The government has mandated that they can only take out 50k usd per year. This is one factor that will slightly ease the effect of "rich foreign Chinese buyers". This applies to the Chinese immigrants that have landed in Canada to live here as well, as their parents can't give them unlimited cash anymore.

I read somewhere that on Chinese real estate listing websites that there's a huge push to buy in Toronto, cause we're relatively undervalued, especially now that Vancouver is not a good deal for them. Somebody translated a message to the effect of "If you don't buy now, you will cry later".

For those waiting for the crash, I don't think it's coming. 20% yoy growth definitely not sustainable and will slow down, but I doubt that massive crash is coming unless interest rates spike more than 3% all of a sudden.
 
#45 ·
I'm in this boat also, 32, live with gf in rented condo, north of $250k saved myself (gf will be in school the next 2 years, has <$15k).

My point of view was that I wanted to only buy a house when it was time to put down roots (ie have kids). Otherwise, I would stay relatively liquid and not be tied to a leveraged bought property for investment purposes. I have been happy renting, but now rents are starting to creep up, and now property is high anyway.

I am looking at living in Europe for a couple years instead; I hold an EU passport, and always admired the lifestyle there.
 
#49 ·
It's really a bet on the interest rate outlook in Canada for the next few years. If you think the actual/contract mortgage rates won't hit 5% from the current 2-2.5% in the next decade then maybe buying will look smart in hindsight after 10 years.

The inflation rate in Canada is manipulated. When our Loonie went down, everyone was complaining about ever increasing grocery food items, rent and housing is going up, hydro and electricity going up yet Stats Can manage to compute below 2% inflation rate. What products have we not seen go up in price because our Canadian dollar had depreciated against the USD? Inflation has to be reported low in Canada because most provincial and the federal government had been on a debt binge the past few years and increasing interest rates will mean more funds going to servicing debt.

Currently, every payment on a 25-year amortization is 55% principal and 45% interest. This makes it look so much cheaper than renting but of course, you have potential building maintenance and there's property tax to pay.

It is really a crazy market out there.

The good news is I think we are about to peak whether or not there is government intervention. Before the changes to mortgage lending rules, households were allowed to borrow 5.5x of their income. After the qualification at 4.64%, that factor may have dropped to 5x.

If interest rates go up, that factor will keep decreasing.

Let's say the interest rates stay about where it is.

Only 5% of Canadian households make $200k over. These households can afford to buy $1m+ properties but I'm sure most of them have already bought a principal residence and may be delving on investment properties.

I think in the GTA (especially the suburbs), decent sized detached home will peak around $1.6m at the most, semi's maybe around $1.2, and townhomes around $1m. No way will it keep going up unless wealthy foreign buyers exert that much influence.

You can see that is what's happening where the Durham area is now facing the higher increases because the prices are the cheapest within 100 km of Toronto. People are moving east because they can still afford to choose the biggest structure they can qualify for.

Stock markets have hit all time highs so that's additional ammunition for people but the 20-30% returns on indexes is probably a thing of the past until after a minor stock market correction.
 
#50 ·
Can't predict the future but... A large chunk of GTA buyers are speculating. Houses are not really affordable, not even to people with $200K incomes. We need a sparkle and the whole thing will go up in flames. Interest rate rise, even a small one could change the balance. The rate is on the move in the States; Canada will follow with a 6-9 months lag.

Chances are pretty good for a fall in the fall.
 
#53 · (Edited)
Found this on another forum, and it's too crazy to not share. An article from 1988 about bubbling housing in Toronto:

https://www.scribd.com/doc/31450525...source=impactradius&medium=affiliate&irgwc=1#


Some excerpts:

Absolutely everyone from cab drivers to chief executives has a story about Toronto’s crazy housing market. Politicians and tenants’ groups have declared a housing ‘affordability crisis’ – again – and have called for a tax on speculators’ profits to cool down the frenzy. Dark words are muttered about how foreign money is to blame.
In fact, the price explosion has occurred for simpler reasons. Mortgage rates are low… Residents of this huge, rich, expensive urban conglomeration have taken somewhat hopefully to calling their city ‘world class.’ But the price of being world class is ‘Manhattanization.’ Torontonians are getting a taste of the housing problems of the world’s major cities.
Owning a house is now the investment of choice for most of the middle class. Because inflation has outpaced wage gains for most of the decade, salary earners feel they can gain ground only by possessing property. The equity in a house provides – tax free – a major portion of most people’s retirement nest egg. To cope with the high costs, it’s become standard practice for house-poor owners to build and rent out a self-contained apartment.
For many Torontonians, the North American dream of home ownership has already faded, and they’ve joined the ranks of renters, probably for good.[/B] Those intent on owning will find themselves forced to think small.

Seems like deja vu...

But the biggest x-factor in all this that makes it even worse:




Obviously there are differences between now and almost 30 years ago, different economy, etc... but still interesting to see the similarities.
 
#57 ·
Real estate is not a fixed price market, unlike stocks. Even in a bubble you can find deals in real estate. They may not be common, but they are there if you look. I've been picking up places 40-60% below market over the past few years.

If you buy with the correction built in, your downside risk is significantly reduced. If you get into a bidding war, well people in a war generally don't come out unharmed.
 
#60 ·
Mortgage for $690k and making $85K...did I read that correctly?

That is nuts. #forevermortgage

I keep saying this but I would love to see *interest rates go up. That would be great and start putting an end to this madness. It would reward savers too, finally.

*It won't happen. BoC doesn't care.
 
#66 · (Edited)
Realtors often have contacts in the finance area, especially ones that have been doing real estate for a long time. Remember that a realtor only gets paid if they sell a house, so it's in their best interest to find ways to close deals. For some, that means getting people what they want, no matter the cost. I know a few realtors who, like a used car salesman, can always find you financing...the interest rate may be astronomical (as in double digits), but the fools they sell to don't really understand math in the first place. These guys know which appraisers to call to get the right numbers you'll need, or whatever it takes...

Then, a few years later, when the purchaser goes bankrupt from the financial burden, they get the listing again and repeat the cycle...there are big commissions, fees, (kickbacks), interest rates, etc. Enough to go around for everyone...

It's the same as any rent to own, pawn shop, speacialty used car place, etc. They serve a need...supplying "wants" to people who can barely afford "needs", but are to stupid to know better.

We keep telling people they can live their dreams, and anyone can for a little while at least, until reality comes crashing down... we're probably doing people a disservice by doing that, it would be better to have them watch a rocky movie...

“Let me tell you something you already know. The world ain't all sunshine and rainbows. It's a very mean and nasty place, and I don't care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't about how hard you hit. It's about how hard you can get hit and keep moving forward; how much you can take and keep moving forward. That's how winning is done! Now, if you know what you're worth, then go out and get what you're worth. But you gotta be willing to take the hits, and not pointing fingers saying you ain't where you wanna be because of him, or her, or anybody. Cowards do that and that ain't you. You're better than that! I'm always gonna love you, no matter what. No matter what happens. You're my son and you're my blood. You're the best thing in my life. But until you start believing in yourself, you ain't gonna have a life.”
― Sylvester Stallone, Rocky Balboa
 
#71 ·
RE and O&G are two of the largest employers in Canada.. O&G is down and no one knows when that going to come back up.. so govt will not take any measures to create troubles for RE.. % increase also may not happen in the near future unless US raises their rates to 1.5% ..
 
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