# Why Are House Prices So High?



## Berubeland (Sep 6, 2009)

Interesting article I saw today. 

http://www.theglobeandmail.com/repo...demographic-legs-to-stand-on/article25523999/


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## MoreMiles (Apr 20, 2011)

Interesting but wrong. 

Please go visit any open house in GTA or Vancouver for detached homes > $1 m. 90% plus of buyers are from mainland China. You don't need to know a word of English... just talk to them in mandarin. They will tell you when the offer date is and how much to compete

By the way, our loonies have dropped more... You get more bang for your reminbi bucks now. These Chinese buyers are loving it.


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## RCB (Jan 11, 2014)

I really am quite tired of the media bemoaning Canadian house prices. One would think all Canadians live in Vancouver, Toronto, Calgary, Edmonton, or Fort Mac.

In 2003, we bought our first house, for 1.3 times our single, blue collar annual income, with interest in the low 5s, with 5% down. With current value (I have comps), it is still only 1.7 times current income, having doubled in value in 12 years. Without putting any extra money on the mortgage, it will be paid in full in 2 years. Mortgage payments have always been well below apartment rent in the area, never mind comparable houses.

In 2012 we purchased a 3 bedroom rental property with 20% down, and a mortgage at 0.8 times our employment income. Interest rate 3.6. It cash flows well. 

In 2014 we purchased a 6 bedroom rental property with a mortgage at 70% of current value, 30% gifted equity, mortgage 1.4 times blue collar income. Gifted equity due to having used the house as a rental for 2 years prior to purchase. Interest rate 3.1. It cash flows exceptionally well.

This week we signed for another mortgage, this one is 1.6 times the blue collar income. Three bedroom bungalow on the largest fresh water lake in the world, in an area easily accessible to both the Canadian and US markets. 2.84% for 5 years. 10 weeks of rentals will cover the mortgage, a further 3 or 4 weeks will cover all other expenses.

My city is not unlike many Canadian cities. None of these houses have granite, none of them are recently built McMansions. They are standard family homes that have a solid structure, newer roofs, newer windows. #2 and #3 were purchased for cash flow ability, #1 and # 4 for personal use. None were purchased for appreciation, so I quite honestly don't care what the market does. Market change will only affect our children's inheritance hopefully decades down the road.

Getting back to the article, demographics certainly change, and I expect my city will be affected more than the previously mentioned areas. We have a higher than national or provincial percentage of elderly. We will likely flatline soon on selling prices, due to the higher than average home ownership percentage in this area. Vacancy rate of all rentals still remains close to the lowest in the province, at 1% or below.

The media really needs to get out more.


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## CalgaryPotato (Mar 7, 2015)

Interest rates are low, which means people can spend more which causes people to overspend, bid against each other etc. That has happened country wide.

As for Vancouver foreign investment is some of it. But a lot of it is just bidding wars by people because you can't grow Vancouver, people want to live there, and so they keep bidding up the prices, it's been happening for a long time and will keep happening.

Look at the demographics of Canada, people are retiring in mass numbers, and if you talk to people in wealthier cities in Canada like Calgary about where they want to retire guess what most of them say... yep BC. (Consequently you could probably count on one hand the number of people in BC who dream of retiring in Calgary) 

Toronto I don't know as well, I think it's a similar situation, where there is some foreign investment, but mostly just a scarcity of property close to the center.

Foreign speculators makes a great boogey man. But the reality is if people who live in China are buying properties here to make money, they will want to fill them with renters. If they are doing that on mass, that'll lower rental rates. Less value of owning rental properties will in turn lower property values. None of that is actually happening though.


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## OurBigFatWallet (Jan 20, 2014)

Here in Calgary seems like there has been a small decline on $1M+ homes but still solid activity in the $300-600k range. Not sure if that will continue but it will be interesting to see how this plays out. Low interest rates and declining oil prices


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## steve41 (Apr 18, 2009)

My 1950s vintage 1800 sq ft-er in West Van is in the 2.3 Million range. Bidding wars are still the norm here.


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## MoreMiles (Apr 20, 2011)

Great. It's not expensive compared to New York London and many European countries either.


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## rl1983 (Jun 17, 2015)

I'm not sure what's causing it if it isn't foreign money. There isn't that many decent paying jobs around for " everyone " to own a million dollar home. It isn't happening. Most retirees, find themselves in Kelowna, which is very expensive as well. If it is locals spending this kind of cash on homes, they are going to get hurt badly if the interest rates go up. It happened in the early 1980s, it can happen again.

I do think Vancouver has surpassed New York in home prices.


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## none (Jan 15, 2013)

It's simple -- cheap money - and the belief that houses always go up. That's all that it is.


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## Berubeland (Sep 6, 2009)

MoreMiles said:


> Interesting but wrong.
> 
> Please go visit any open house in GTA or Vancouver for detached homes > $1 m. 90% plus of buyers are from mainland China. You don't need to know a word of English... just talk to them in mandarin. They will tell you when the offer date is and how much to compete
> 
> By the way, our loonies have dropped more... You get more bang for your reminbi bucks now. These Chinese buyers are loving it.


I'm pretty sure that I would have noticed the rampaging hordes of Chinese people in the GTA after my years of traipsing around here. I also keep waiting for these hordes of foreign buyers to hire me to manage their properties, again I have a few but most of my "foreign buyers" are people who relocated to work outside the country.


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## steve41 (Apr 18, 2009)

They fly into YVR, the agent (chinese) picks them up and ferries them around the West Side, West and North Van..... _"OK. I'll take that one, and that one, and that one....."_ and then they fly home. All conversing is in Mandarin or Cantonese. A few will rent, but most stay empty. I kid you not.


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## OurBigFatWallet (Jan 20, 2014)

steve41 said:


> They fly into YVR, the agent (chinese) picks them up and ferries them around the West Side, West and North Van..... _"OK. I'll take that one, and that one, and that one....."_ and then they fly home. All conversing is in Mandarin or Cantonese. A few will rent, but most stay empty. I kid you not.


Interesting....thanks for sharing. I don't understand the logic behind spending millions on a place only to have it sit empty, but to each their own I guess


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## MoreMiles (Apr 20, 2011)

OurBigFatWallet said:


> Interesting....thanks for sharing. I don't understand the logic behind spending millions on a place only to have it sit empty, but to each their own I guess


It's very simple. If there is a crisis, banks shut down and restrict ATM withdrawals to $60 per day. Sounds familiar? Then you hope those digits in your bank statements do not get wiped out because a left wing group believes in "sharing".... sounds familiar?

It's better to have real physical ownership than a piece of paper with 7 digits on it.... very simple logic.


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## steve41 (Apr 18, 2009)

Google "Ghost cities of china". On a much smaller scale, drive around False Creek or Coal Harbour at night. Most of the towers are black.


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## onestring (Jul 12, 2015)

MoreMiles said:


> It's very simple. If there is a crisis, banks shut down and restrict ATM withdrawals to $60 per day. Sounds familiar? Then you hope those digits in your bank statements do not get wiped out because a left wing group believes in "sharing".... sounds familiar?
> 
> It's better to have real physical ownership than a piece of paper with 7 digits on it.... very simple logic.


I completely agree with you except for the left wing reference; then again I'm thinking of the latest G20 changes that took place (few if any left wing people there).

It appears that at the G20 meeting in Brisbane, an agreement was made to prevent Governments from being on the hook for bailing out banks (a good thing). 
The changes allow for bail-ins instead. Politicians made some BS statements about only investors and bond holders being on the hook, but I don't believe that for one second. So I agree with you and wonder how safe our savings and investment accounts are if another crisis hits.


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## Getafix (Dec 29, 2014)

I'm from Pakistan, which is also a very corrupt country. It's the same with most corrupt government officials there, they take out all their black money & buy up properties. Except, in their case it's mostly in U.A.E or U.K. If they ever get in trouble & end up going to jail there is no money to be recovered from them as all their assets are abroad. They do a few years, come out & get to keep the millions they squandered.


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## andrewf (Mar 1, 2010)

steve41 said:


> They fly into YVR, the agent (chinese) picks them up and ferries them around the West Side, West and North Van..... _"OK. I'll take that one, and that one, and that one....."_ and then they fly home. All conversing is in Mandarin or Cantonese. A few will rent, but most stay empty. I kid you not.


Even so, this is a speculative bubble. If people are buying property that doesn't generate an economic return beyond price appreciation, they are relying on a greater fool to buy it from them later. Eventually you run out of fools and prices crash.


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## MoreMiles (Apr 20, 2011)

We have done this with gold for thousands of years... it still works. Someone else always want to pay big bucks on something that does not generate any dividend. At least for a house, you have the possibility to generate rent. Even without rent, just treat it as gold hoarding... same idea.


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## Berubeland (Sep 6, 2009)

https://vreaa.wordpress.com/2011/02...rs-a-powerful-force-metro-vancouver-re-cheap/


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## Rusty O'Toole (Feb 1, 2012)

Where are these people when I have a house to sell? Last year I sold a beautiful waterfront property in Thomasburg after having it up for sale for 2 years. Sold it for $25000 less than I had in it.


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## steve41 (Apr 18, 2009)

There was an article in the Vancouver Sun the other day listing the most profligate users of water in the area. Guess who came out as the lowest users of water? West Vancouver. Then someone pointed out..... 

"No wonder. Half the houses in West Van are vacant!"


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## CalgaryPotato (Mar 7, 2015)

So I'm not an expert in economics at all. But if foreigners are truly coming to our country, overpaying millions for houses, not even to use them, just to leave them empty. Isn't that about as beneficial to the overall economically as you can imagine? Sure the downside of higher priced houses is there. But just think of all those billions flowing into our economy, but no people coming with that money that need health care or education, or even using the roads.

If this is really happening to any significant degree shouldn't we be overjoyed that they are doing this?


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## Berubeland (Sep 6, 2009)

Well the only people who don't like it are people who are bidding against them. The disconnect is in the local market, obviously people who are trying to save money are always behind.


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## andrewf (Mar 1, 2010)

Yes, I think overall it would be considered a positive. The only legitimate concern overall is the increased risk in the market. Foreign investors can probably be considered 'hot money', that is more prone to divesting (if the market softens or there are financial problems at home) and taking their capital elsewhere than local investors would be.


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## Causalien (Apr 4, 2009)

CalgaryPotato said:


> So I'm not an expert in economics at all. But if foreigners are truly coming to our country, overpaying millions for houses, not even to use them, just to leave them empty. Isn't that about as beneficial to the overall economically as you can imagine? Sure the downside of higher priced houses is there. But just think of all those billions flowing into our economy, but no people coming with that money that need health care or education, or even using the roads.
> 
> If this is really happening to any significant degree shouldn't we be overjoyed that they are doing this?


They do pay Housing tax you know? And land transfer tax and RE commission.

On top of that, that HELOC credit line you are seeing? That's because the price is propped up by these buyers. Thank god they are not here taking advantage of our health care and public services... Like water for example.


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## james4beach (Nov 15, 2012)

RCB said:


> I really am quite tired of the media bemoaning Canadian house prices. One would think all Canadians live in Vancouver, Toronto, Calgary, Edmonton, or Fort Mac.


OK, not all Canadians. Just 1/3 of them live in cities with clearly over-heated housing markets (that's a lot, by the way).

You forgot Winnipeg and Regina, which are also mentioned in CMHC's warning about home prices.

Vancouver: 2.4 M
Calgary: 1.2 M
Edmonton: 1.2 M
Regina: 0.2 M
Winnipeg: 0.7 M
Toronto: 5.6 M
_Total of above: 11.3 million or 32% of Canada's population_


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## TorontoGQ (May 18, 2015)

*further..*



victorharvey said:


> It basically depend upon the county foreign policies.


Harper vows to track these foreign investors if re-elected. I am not sure how this would keep the foreign investors away and keep houses affordable for Canadians. :hopelessness:


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## Tourist9394 (Jun 11, 2015)

As a foreign investor with a Canadian passport, I am most worried about Socialist Thomas Mulcair.


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## rl1983 (Jun 17, 2015)

TorontoGQ said:


> Harper vows to track these foreign investors if re-elected. I am not sure how this would keep the foreign investors away and keep houses affordable for Canadians. :hopelessness:


Harper will do nothing with the real estate market. All levels of government are enjoying this through increased taxes.

I'm sure the reasoning behind the BOC low interest rates are to keep the housing market from imploding. Alot of people are going to lose their homes when the rates go up.


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## Cal (Jun 17, 2009)

Rates have been low for years, therefore affordability and valuations have been rising for years.....if rates rise, valuations and affordability will slowly decline.

Agreed gov't will do nothing with the RE market, who wants to be the guy that caused your house to be worth less. Not a way to get re elected. If the RE market falters, gov't will try to prop it up as best they can.


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## Melicoy (Nov 15, 2015)

WOW Interesting. (my experience in BC)

1. 10 year visa to Chinese Citizens. 

2. All banks in China are owned by the Govt.

3. Chines person owns condo/house in China worth $800,000 cdn (paid $650,000 for it 3+ years ago)

4. Goes to Chinese bank bribes appraiser gets it valued at $1,100,000 (borrows 90%)

5. Not allowed to buy 2nd house in China brings money to very safe country Canada with 10 year visa

6. Has 10 years to apply and get approved for PR status (or sends child over to attend school)

7. Buys house (quick, now, now, now, before they change the rules...) not much on the market offer $100,000 above if you want to get it.

8. One city in China has a population of 32 million (Guangzhou incl burbs) Almost same pop of all Canada and has SAME amount of MILLIONAIRES as Canada in one city!

9. The demand to purchase by Chinese is FASTER than the amount of NEW product listed for sale.

10. There is very little inventory on the market to buy right now because people are NOT selling as fast as the Chinese are buying.

I will bet $1000 and PROVE everything above in 3 open houses. (alone chinese speaking realtor checking out open house with no clients and taking pictures) 

Just ask. "Hi! Where are your clients?" Realtor-"Oh they are in China and I think they really want this house. I'll just take some pictures and tell them how much to offer to get it".

There is no kink in this armour.


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