# Canadian Real Estate Bubble Thread



## james4beach

Apparently a new OECD report says Canadian real estate is the third most overvalued in the developed world.
Based on rent comparison: overvalued by as much as 60%
Based on income comparison: overvalued by as much as 30%

http://www.cbc.ca/news/business/story/2013/06/05/business-oecd-housing.html
and
http://www.cbc.ca/news/business/story/2013/06/06/housing-market-prices-overvalued.html

I generally agree with the expert opinions quoted there, that is, it's a credit-fueled housing market. It has increased on the easy availability of credit and big mortgages, not on immigration -- and I also think the CMHC has been a huge driver. A couple friends of mine who just bought a house in MB have moderate dual income and were offered up to 800K mortgage. That's an example of the kind of credit nonsense that drives up the price of homes.


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## andrewf

We had a classic procyclical credit bubble. Lending standards were relaxed as house prices rose. Now that house prices are peaking, the government (and lenders) are repeatedly tightening standards.


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## Sampson

value is a relative metric.

housing is more expensive than other countries relative to rent and income, but that does not = 'over'valued. That assumes that housing worldwide should be at mean or median.


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## james4beach

So would you be of the mindset, among developed countries, that the "new normal" is simply a higher level of home prices relative to income etc.? Do you feel that the western countries have sufficient economic strength, income growth, and employment to maintain that steady state at the elevated numbers?


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## Sampson

Can you answer to me what the 'baseline' should be? People across the World live in cities and countries more expensive than our own.

Is real estate in NYC, London, Tokyo, Hong Kong 'overvalued'? Why do all those markets seem to recover after crashes?

I don't know if it is sustainable in Canada, in Toronto or Vancouver, but comparing a bunch of different cities/countries based on average price:rent, price:income isn't necessarily a reliable indicator of impending market crash.


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## Sampson

perhaps rent is simply too cheap in our country? Why focus on only one side of the ratio?


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## james4beach

Yes maybe rent is too cheap here. But they're also doing the income comparison and the "30% overvalued" comes from price:income, compared to historical average.

I'm not certain if they're comparing to a world historical average, or a per-country historical average. Anyone know?


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## andrewf

Samson, prices in NYC, Tokyo, etc. are supported by rents. Rents are high because there's strong demand to live there and constrained supply.


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## Sampson

Do rent increases always come before increase in the price of the underlying homes?

Have migration patterns showed significant decrease in the 'over-valued' markets?

What is the profile of those people buying houses now and what is their affordability level compared with an average Canadian. 

One simple ratio can be suggestive, but if stacked on some incorrect assumptions, like for example that the average Canadian is the one buying a house noe, then the metric falls through. We know home ownership rates in this Country bare extremely high, so they are clearly not the demographic buying homes.

Too simplistic.


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## none

Rents are tied to income and house prices are tied to credit. 

They are also of course linked.


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## CanadianCapitalist

Does anyone have a link to the OECD report. Just to add fuel to the fire, here's a recent _Economist_ article that suggests Canadian RE is overvalued. They are comparing price/rent and price/income to long-term averages:









Source: Boom and gloom


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## Sampson

Not sure there is much of a fire, pretty one-sided I would say.

I personally don't deny that housing is overvalued, and severely overvalued in Vancouver. My biggest problem is the assumption that valuations cannot change. The metrics assume that historical average, or among country comparison is a good basis for evaluating value.


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## Sampson

none said:


> Rents are tied to income and house prices are tied to credit.
> 
> They are also of course linked.


Then by necessity, rents would be highest where income is highest. This is not the case.


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## none

They're not?


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## andrewf

Rents and incomes are pretty highly correlated.


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## Sampson

Evidence?

http://www12.statcan.gc.ca/census-r...g.cfm?Lang=E&T=805&GH=8&SC=1&SO=0&O=A&RPP=144

Wood Buffalo, CA (Alta.) !	$ 74,682
Kitimat, CA (B.C.) !	$ 67,984
Yellowknife, CA (N.W.T.) !	$ 63,417
Cold Lake, CA (Alta.) !	$ 53,211
Petawawa, CA (Ont.) !	$ 51,536
Ottawa - Gatineau, CMA (Ont./Que.) !	$ 50,298
Whitehorse, CA (Y.T.) !	$ 50,086
Oshawa, CMA (Ont.)	$ 49,684
Thompson, CA (Man.) !	$ 48,924
Quesnel, CA (B.C.) !	$ 48,652
Okotoks, CA (Alta.) !	$ 48,392
Windsor, CMA (Ont.)	$ 48,348
Fort St. John, CA (B.C.) !	$ 48,082
Baie-Comeau, CA (Que.) !	$ 47,789
Grande Prairie, CA (Alta.) !	$ 47,029
Centre Wellington, CA (Ont.) !	$ 46,788
Sarnia, CA (Ont.)	$ 46,332	$ 44,959
Prince George, CA (B.C.) !	$ 46,238
Calgary, CMA (Alta.) !	$ 46,189
Hamilton, CMA (Ont.)	$ 46,146
Guelph, CMA (Ont.)	$ 46,008
Williams Lake, CA (B.C.) !	$ 45,922
Barrie, CMA (Ont.)	$ 45,668
Toronto, CMA (Ont.)	$ 45,350

I stopped at Toronto.

BTW, Vancouver and Victoria place 42 and 44 respectively. So all the places ranking with higher earnings have relatively higher rental costs? There are factors outside supply, demand, earnings, interest rates. These are largely psychological, why else would 70% of Canadians own a house?


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## sags

Sampson said:


> *What is the profile of those people buying houses now and what is their affordability level compared with an average Canadian. *


This the factor that I would be most concerned about.

There has been an explosion in CMHC liabilities. By definition, that means the bulk of home purchases was made by people who couldn't scrape together much of a down payment (regardless of their income), and are barely meeting minimum income standards (as evidenced by the slow down in CMHC mortgage granting since the rules were tightened).

The "danger" is low interest rates won't last forever............and people who are maxed out on their income requirements buying highly leveraged homes, are going to be unable to sustain payments at even slightly higher interest rates.

After qualifying for a mortgage at 7%..........if interest rates increase by 1%..........it is much less a problem than qualifying for a 3% mortgage and having the same 1% increase.

This will take time to play out though, as interest rates climb slowly while people await until they have to renew their mortgages.


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## james4beach

Right, sags. The other problem is simply CMHC's existence and their appetite for new mortgages. So far CMHC has taken on about $600 billion. Many home buyers only exist in the marketplace because of CMHC's existence and willingness to take liabilities. In this respect, CMHC distorts and warps the natural supply/demand nature of markets. It boosts the demand artificially, using credit availability.

The continued growth of CMHC's balance sheet is (in my opinion) one of the key drivers of the housing market in Canada.

This balance sheet won't grow forever. If CMHC isn't taking on new debts, for example if their cap is frozen, then there won't be much new mortgage origination in Canada. Banks aren't stupid enough to lend all that money and take the risk themselves. Trust me, when CMHC stops expanding their liabilities, the Canadian real estate market will grind to a halt.

Here's a nice article that shows graphically the magnitude of CMHC and their yearly expansion
http://saskatoonhousingbubble.blogspot.ca/2012/11/cmhcs-600-billion-fiscal-cliff.html


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## none

Sampson et al.: 

I think this krugman article sums up the state of CAN RE nicely.http://www.nytimes.com/2005/08/08/opinion/08krugman.html


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## Just a Guy

I think it's pretty clear that Canadian houses are overpriced in some areas. That being said, I can also see them going higher in some areas for the next decade or more even being overpriced. Other areas, like Vancouver, with mountains on three sides and an ocean on the other have ALWAYS been overpriced. 

Places like Alberta and Saskatchewan are being driven by a boom (which is actually happening there now though the media hasn't caught on) which will drive up demand and prices even though they are already too high. Someday, when its all said and done, somebody is going to wake up and realized that no one actually WANTS to live in northern Alberta, and will be sitting on a worthless house they paid a fortune for. 

As for rents vs. housing prices, I've never seen a correlation between the two, they are driven by different market factors. Take a different thread a few weeks back about the woman trying to sell her condo, no offers after months on the market, but gets 4 inquiries within hours of listing it for rent at $1400+. The cost to own the place would be significantly less, yet people in Edmonton would rather rent. Rents in Vancouver however have remained fairly constant since I was in school many decades ago, in a place where few could even dream of owning. 

Rent is driven by supply and demand as well as overhead. Home ownership is driven by a different supply and demand as well as affordability. 

You want to see a crash, wait for interest rates to rise, and mortgages come up for renewal...until then, most of the country is safe, after that, you may be okay if you live in Alberta...at least for a while.

All that being said, I think the east coast holds a lot of promise, low cost housing, lots of development, the future out there looks promising, if we can get them to stop thinking about fish and welfare.


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## none

The only way I can see prices going up in real terms is if wages increase and/or interest rates go lower.

Debt servicing in many areas of Canada take up a lot of people after tax income and any movement upwards in interest rates (as RBC is doing tomorrow) will result in lower house prices. Simply because the debt servicing costs of owning will go up making the house more expensive to own without any increase in the value of the house.

If you take a reasonable scenario where mortgage rates rise to 6% in the next 4 years (not out of this world) a 500K house will cost $2500 a month rather than the current $1250. There aren' a ton a families currently in 500K houses that could afford $2500 a month (plus taxes,upkeep etc and all that other fun stuff that goes with home ownership).

Anyway, if mortgage rates stay at 3% OR wages rise in real terms significantly I can see house prices staying the same or going up. However i see wages rises rather modestly and rates increasing substantially over the next half decade which can only result in price declines.


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## none

Just a Guy said:


> I
> As for rents vs. housing prices, I've never seen a correlation between the two, they are driven by different market factors.



Here you go: http://theeconomicanalyst.com/content/examining-house-prices-and-rents-major-canadian-cities


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## blin10

that's a reasonable scenario? 6% in 4 years? seriously? dude, you need to be more open minded and not concentrate on the negative angle all the time.. I see you in every real estate thread posting one sided view all the time...6% in 4 years is like 1/100 chance in my opinion, it will never happen



none said:


> The only way I can see prices going up in real terms is if wages increase and/or interest rates go lower.
> 
> Debt servicing in many areas of Canada take up a lot of people after tax income and any movement upwards in interest rates (as RBC is doing tomorrow) will result in lower house prices. Simply because the debt servicing costs of owning will go up making the house more expensive to own without any increase in the value of the house.
> 
> *If you take a reasonable scenario where mortgage rates rise to 6% in the next 4 years (not out of this world) a 500K house will cost $2500 a month rather than the current $1250. There aren' a ton a families currently in 500K houses that could afford $2500 a month (plus taxes,upkeep etc and all that other fun stuff that goes with home ownership).*
> 
> Anyway, if mortgage rates stay at 3% OR wages rise in real terms significantly I can see house prices staying the same or going up. However i see wages rises rather modestly and rates increasing substantially over the next half decade which can only result in price declines.


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## Dmoney

blin10 said:


> that's a reasonable scenario? 6% in 4 years? seriously?


In a historical context, 6% is not unreasonable, but I don't see it happening short of a spectacular economic recovery taking place, with significantly higher inflation than we are seeing right now. I think what we are most likely to see is the so-called "soft landing" where we don't see much if any growth in nominal house prices for a good number of years. This will result in real house prices falling gradually as inflation eats away at their worth. 

In the medium to long term, this should bring all the ratios back in line with where they "should" be, without giving rise to delinquencies or making current homeowners fell house poor and cut back on consumption. 

As long as nominal (or real) wages and rents rise, homeowners will continue to feel wealthy, will be able to service their debt, and won't notice the erosion of their "real" wealth.

Pointing out that mortgages were 15% in the 80s without pointing out that inflation was at a similar level is hiding half the equation.


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## andrewf

Samson, just expand the domain. Include Jakarta, Bangkok, etc.

Also, I recognize more than a few government towns in the middle of nowhere in your list of municipalities by income.


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## CanadianCapitalist

Sampson said:


> I personally don't deny that housing is overvalued, and severely overvalued in Vancouver. My biggest problem is the assumption that valuations cannot change. The metrics assume that historical average, or among country comparison is a good basis for evaluating value.


I think one can make a very good case that some geographies and some housing categories are overvalued. I'm not at all certain that every market in Canada is overvalued. You have a point about "normal" valuations. At today's low interest rates, it's possible that historical valuation measures should be used carefully. 

Even if one agrees RE is overvalued, that doesn't tell us anything about how valuations will normalize. There are two variables in price-to-rent ratios. Yes, RE prices could crash but they could also deflate slowly. Rents could go up. Or some combination of price correction and rent increases. A 2% decline in prices combined with 2% rent increases over 5 years will result in an approx. 20 percent fall in valuations.


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## CanadianCapitalist

BTW, I have no idea whether this story is just anecdotal or whether rent increases are widespread.



> After their year-long lease expires, many condo dwellers are finding themselves facing hikes of 10 to 15 per cent as unit owners try to pass on maintenance and other fees that can jump considerably from those estimated by developers who were pre-selling the units three or four years earlier, tenants and tenant advocates say.


http://www.thestar.com/business/rea...e_blamed_for_twotiered_system_of_renters.html


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## My Own Advisor

Agreed. Not convinced every market is inflated. Ottawa lives in a bubble. Sure Vancouver prices are coming down, but that growth rate was far from sustainable. 

I suppose the media needs to make a big deal about the housing market, since they need to write about something, to sell papers.


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## CanadianCapitalist

My Own Advisor said:


> Ottawa lives in a bubble.


Curious why you think that Mark. Owning is slightly more expensive for single-family detached homes pretty much throughout the city but not outrageously so.


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## andrewf

Ottawa's condo market is a disaster.


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## Sampson

The single largest problem I have with these types of discussions about real estate valuations is that they are not founded on real, academic research.

I can't speak for all of us here, but I know I've not read a lick of real research regarding factors affecting changes in valuations. Hence my problem with fantastical claims that are built out of speculation.

One possible scenario is what we saw in the US, and in some instances, housing prices have recovered significantly, and now the US market is no longer overvalued. All the family and friends I know in the States really weren't impacted in a real way over these past few years. Paper value of their houses dropped for a short (<5 year) period of time, their economy is slow, but no one lost their homes, their jobs, or their standard of living.

This is one very likely and possible scenario for many Canadians.


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## Eder

I was in a large real estate crash in about 1980. My house was sold for half it's listing price...the mortgage was at 18%. I relocated to Alberta....bought a house at about half it's listing price of a year previous and took a 25year mortgage at 16.5%.

Lots of people did the same...no big deal and a few years later real estate was booming again. No need for tinfoil or bullets.

RE goes up and down...those that bet the farm in either direction will get creamed.


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## Jaberwock

Take drive, or a walk, around your neighbourhood and note how many houses have "for sale" signs on the front lawn. In my area, that number has risen dramatically over the last few months, and the biggest impact is in the very high end luxury sector. Expect a price correction, especially if interest rates rise by more than one or two percent.

CMHC is not in trouble - they charge high fees and make healthy profits, it will take a major crash before CMHC becomes a burden on taxpayers. 

Lending standards may have slipped compared to the 1980s but they are nowhere near as loose as they were in the US in 2007. We don't have Ninja (no income, no job) mortgages, and we don't have a lot of people constantly topping up the mortgage to 100% of the house value just to maintain a lifestyle they can't afford, we don't have shady companies writing mortgages, bundling them into packages and reselling them.

There will be a correction in real estate prices, but not a major downturn


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## NotMe

There's also likely an increase in listings now than over the last few months because people with children don't want to move until the school year is totally over.

In my own neighbourhood in Toronot (Don mills and Lawrence, nice but not exactly rosedale) most reasonably priced homes are selling within 2 weeks I'd say and definitely within a month.


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## kcowan

Sampson said:


> One possible scenario is what we saw in the US, and in some instances, housing prices have recovered significantly, and now the US market is no longer overvalued. All the family and friends I know in the States really weren't impacted in a real way over these past few years. Paper value of their houses dropped for a short (<5 year) period of time, their economy is slow, but no one lost their homes, their jobs, or their standard of living...


Part of the reason for the slow recovery is that US homeowners could no longer remortgage to buy a new car or home entertainment system. We have friends in Sacramento who were directly impacted. It is not catastrophic but it does impact them and their local economy. Others got their homes taken away even when they were paying the mortgage. My friend who owned a townhouse in Denver just got $6500 back as part of the class action suit against the bank.


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## andrewf

The pain was felt uniformly across the country, either. The same would be the case in Canada. Edmonton and Calgary seem to have reasonable valuations, while Vancouver is most stretched, with Ottawa and Montreal's markets looking stressed and Toronto also somewhat highly valued, and stress showing up in condos. SFHs in Toronto seem pretty stable for now.


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## Eclectic12

Jaberwock said:


> Take drive, or a walk, around your neighbourhood and note how many houses have "for sale" signs on the front lawn.
> 
> In my area, that number has risen dramatically over the last few months, and the biggest impact is in the very high end luxury sector. Expect a price correction, especially if interest rates rise by more than one or two percent.


So far - the numbers are in line with the number put up for sale as the spring weather brings out the "fair weather" buyers. (Actually, I think there are slightly fewer for sale than last year at this time.) 

There's only two exceptions - one power of sale and one house was left listed over the winter, where a "rent to own" sign is beside the "for sale" sign now.

I'll have to check the high end, luxury type homes as none of them are in my neighbourhood.




NotMe said:


> There's also likely an increase in listings now than over the last few months because people with children don't want to move until the school year is totally over ...


... or those who miscalculated on how much work needed to be done to prep the house for sale for maximum or higher end sale prices. :biggrin:


Cheers


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## kcowan

Canada's Dependence on Housing

Construction jobs, household debt, domestic demand and average house prices all point to bad news coming!


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## sags

We could add..........stagnant wages, insecure employment, and perhaps the most significant "head wind indicator" of demographics to the list.

How will the equation of millions of baby boomers heading into retirement................70% of whom have little or no retirement savings, and have all their net worth in a home...................deal with their personal retirement situation. That is a big unknown at this point.

At the end of the day it all boils down to supply and demand, with the demand side of the equation determined by a lot of the factors that aren't looking favorable for home values increasing in the near future.

With our economy so dependent on home construction..........if there is a steep slowdown in home construction it becomes a vicious circle of lost jobs, fewer home purchasers, and a steady decline in housing demand and prices.

Maybe it is different in the western Provinces. I know that Saskatchewan had a brief run-up, affecting even small town Saskatchewan, but it appears to have slowed again. Farmland in Saskatchewan is increasing in value rapidly, but that has no major effect on the overall economy, and may have a negative effect on local economies as the higher input costs for land reduce local farmer discretionary spending. 

In London, Ontario.............the recent huge increase in job numbers across Canada.........95,000 new jobs, meant an insignificant unemployment rate drop of 0.1% to 9.8%. Not exactly boom times around here.

I have observed from watching the townhome condo market here..........that well priced, well maintained, attractive units are selling very quickly. They are listing from 170K to 200K and are selling in a couple of weeks. Anything above 200K languishes on the MLS listings.

And there is the recent history of home prices. Homes have climbed steeply in value...........is a correction inevitable and overdue?

I think there are three caveats for future home buyers to think about.

1) The need for stable employment and income.

2) Lock in low interest rates for the longest terms.

3) Buy well within your ability to pay, and preferably a home that is undervalued (perhaps an estate sale), to provide a cushion if values were to decline moderately.

Of the three, I think number 3 is the most difficult for young, inexperienced home buyers to deal with.

They don't want a small 1200 square foot bungalow or townhome unit............when all they see on television is 4000 square foot mansions with imported hardwood flooring, marble counters and the latest designer fixtures and lighting.

The bank tells them what they "qualify" for...........and house hunting they go.


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## Berubeland

Hi CC,

Actually the article is correct about rent increases in Ontario except it's 1994 not 1991 after which you can raise the rent as much as you like. However, as much as you like is usually just enough to cover increased costs. So maintenance fees go up $100 per year so does the rent. WTF is wrong with that? It gives me a complete heart attack combined with an aneurysm when I hear people like this writing drivel. Why wouldn't the rent go up? If the cost of a loaf of bread goes up does the guy at the corner store not raise the prices or does he "starve the poor" by refusing to subsidize their bread? 

Stupid people like this is why the rental stock in this city is falling apart and full of cockroaches and bedbugs. Tenants have to pay for the cost of the building. Landlords are a business and a not too lucrative one at that. 

And this craziness is part of the bubble too, because no one expects the landlord to actually sustain his business using the income of rent but rather just hang in there putting his own money into this venture while waiting to cash his winning lottery ticket.


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## Chris L

Berubeland, I had this exact conversation with my tenant of 6 years whom I've never increased the rent (my stupid). Anyway, I said, well now I need a new roof and I had foregone all the previous rent increases so that money's gone to me. However, I now need to be charging market rent today. He says "so what, got nothing to do with me." I say, yeah it does, because if I can't afford to keep the place, I have to sell the rental. He says "well you just can't up the rent like that" I say, well no I can't but if I can't get market rent to pay for the new roof, then I need to sell the place. He says "not my problem." I say, well yeah it is because now you have to find a new place to live. He "says, well how about I pay half the increase." I say, it's not negotiable, maybe you don't understand. I say, either we bring you up to market rent, or I'm selling the place. He agreed to pay market rent, but it took me 2 months to convey the message that when I can't pay to maintain the place, I'm not going to subsidize his living expenses. He knew the law and his rights, but the economics escaped him totally. I was being too nice instead of religiously upping the rent each year assuming that costs would never creep up. Well, looking back 6 years to today, his rent started off at market rent and then got so far behind he had a crazy deal. I told him, from now on, rent increase each year.


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## CanadianCapitalist

CBC Radio ran this story this morning:

Unaffordable Housing: The shifting reality of home ownership



> With Canadian home prices labeled the third-most overvalued in the world, with increasing fears that most people under forty can't afford to buy and predictions that renting will soon dominate ... the very way we plan our cities and view our homes may change.


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## Torontonian

*Grinder*

[HR][/HR]


CanadianCapitalist said:


> CBC Radio ran this story this morning:
> 
> Unaffordable Housing: The shifting reality of home ownership


Why did I just grind my teeth when I hear Garth Turner introduced? He may be correct one day but how long has he been saying the same thing. Some people who took his advice 10 years ago were waiting for the bottom to drop out to get in and are still waiting...


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## Sampson

I think the prevailing attitude that everyone should be able to afford to buy a home is, will, and should change. I've posted before about how Canada has amongst the highest rates of home ownership in the developed World. There is no reason it needs to be that high, or that the Canadian situation won't change to a more 'normal' scenario found Worldwide.

One major influence will be changing demographics, what happens when boomers are gone, and where will new Canadians come from, internally, or via migration, and will those people be able to afford to buy houses?


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## andrewf

Owning is not even optimal for many people. Home ownership contributes to labour market rigidity by making the cost of moving for work astronomical (like, half a year's income+).


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## Sampson

andrewf said:


> Owning is not even optimal for many people. Home ownership contributes to labour market rigidity by making the cost of moving for work astronomical (like, half a year's income+).


This is the middle-ground reality that I think will come to fruition. Prices might fall in the short term, or deflate slowly, but for those people who think housing will suddenly become affordable again to the majority of young Canadians, or normal average Canadians, I don't think this will occur.


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## james4beach

Very few people can afford a home. That's why you need to take out a massive loan.

How many people do you think could purchase a home, if interest rates were a historical norm like 6% right now? Very few. And that's still with the assistance of a huge loan.


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## marina628

james4beach said:


> Very few people can afford a home. That's why you need to take out a massive loan.
> 
> How many people do you think could purchase a home, if interest rates were a historical norm like 6% right now? Very few. And that's still with the assistance of a huge loan.


We have one long term tenant who is paying about $300 -$400 under Market Value ,we just told them we are going to increase their rent $100 this year and expect it to go up $100 next September as well.


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## MoneyGal

james4beach said:


> Very few people can afford a home. That's why you need to take out a massive loan.
> 
> How many people do you think could purchase a home, if interest rates were a historical norm like 6% right now? Very few. And that's still with the assistance of a huge loan.


But what if interest rates were at a historical norm (6%) but houses cost much MUCH less? I bought my Toronto house for a hair over $200K when rates were around 5%.


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## jamesbe

Wasn't that long ago!

I bought my first home, a 1400 sq/ft townhome, typical starter type home for $170k at around 5.9% rate. That was reasonable, that same home 15 years later is over $320k What?


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## Hawkdog

I heard this as well, Garth Turner interviewed.



CanadianCapitalist said:


> CBC Radio ran this story this morning:
> 
> Unaffordable Housing: The shifting reality of home ownership


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## MoneyGal

jamesbe said:


> Wasn't that long ago!
> 
> I bought my first home, a 1400 sq/ft townhome, typical starter type home for $170k at around 5.9% rate. That was reasonable, that same home 15 years later is over $320k What?


My house is 1000 square feet and worth about $450K 12 years later.


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## Hawkdog

andrewf said:


> Owning is not even optimal for many people. Home ownership contributes to labour market rigidity by making the cost of moving for work astronomical (like, half a year's income+).


This is a very general statement, you would have to exclude:
1. The trend for workers to travel to work - ie Newfies working in Fort Mac, most mines.
2. Companies that will pay for moving costs. I have a friend that had his moving cost from NZ to CA paid for.
3. Workers who move from a high cost market to a cheaper market - where you buy a house for half the price or less.

It all depends on the situation.


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## Sampson

james4beach said:


> Very few people can afford a home. That's why you need to take out a massive loan.


But statistics show that 70% of adult Canadians already own a home, and only about 45% of them have a mortgage.

Sure, it is very difficult for Canadians who don't already own to buy in major markets at average incomes, I don't disagree with this, and suspect this will remain true going forward.

Most people are already affording them just fine.


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## MoneyGal

Sampson said:


> But statistics show that 70% of adult Canadians already own a home, and only about 45% of them have a mortgage.
> 
> Sure, *it is very difficult for Canadians who don't already own to buy in major markets at average incomes, I don't disagree with this, and suspect this will remain true going forward*.
> 
> Most people are already affording them just fine.


What he said.


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## andrewf

Hawkdog said:


> This is a very general statement, you would have to exclude:
> 1. The trend for workers to travel to work - ie Newfies working in Fort Mac, most mines.
> 2. Companies that will pay for moving costs. I have a friend that had his moving cost from NZ to CA paid for.
> 3. Workers who move from a high cost market to a cheaper market - where you buy a house for half the price or less.
> 
> It all depends on the situation.


1 is expensive (which is why it's mostly done in industries where there is no local labour and workers are paid well). 2 is expensive as well. 3 tends not to happen, as prices are low because populations are shrinking.

Consider jobs even within cities. The GTA is getting large/congested enough that I would never consider working on the other side of the city without moving. And if moving involved real estate transactions, that could cost 6% * cost of a house. Say $350k house. That's $20k to change jobs. The salary difference would have to be large to justify such a move. This makes labour markets more rigid.


----------



## andrewf

The vast majority of people who own their homes easily afford them. But they don't matter in terms of the market. The people who matter are marginal buyers/sellers. In the US, their real estate crash involved home ownership rates "plummeting" from 69% to 65%. 










I'm not saying that real estate must crash here, just that those who expect real estate to be perpetually expensive here may be blind to what can happen.


----------



## Eclectic12

andrewf said:


> Hawkdog said:
> 
> 
> 
> This is a very general statement, you would have to exclude:
> 1. The trend for workers to travel to work - ie Newfies working in Fort Mac, most mines.
> 
> 
> 
> 1 is expensive (which is why it's mostly done in industries where there is no local labour and workers are paid well).
Click to expand...

True ... though there still seems to be a good market for consultants that travel, in addition to the lawn care owner who commuted out west to work at an airport and balance out for a bad year in the east.



andrewf said:


> Consider jobs even within cities. The GTA is getting large/congested enough that I would never consider working on the other side of the city without moving...
> This makes labour markets more rigid.


So how do the increasing number of people working out of their home over the internet/phone affect the market?

It was pulling teeth when I started working to have enough connections to work for those oncall to fix issues promptly. Now key developers in the top project have moved 500+ Km away, use Skype etc. and are in the office twice a year.


Cheers


----------



## kcowan

20 years ago, I spearheaded moving 129 people out of downtown, to telecommute from the suburbs. We installed a call following system so that the customers still dialed our downtown numbers. We had a set of mobile phones that would reach people on the move.

Seems so trivial now.


----------



## andrewf

I don't know the stats for telecommuting, but it seems to me it is still limited to a few industries. IT is a big one, but even there, telecommuting is only a share of that industry. Many businesses continue to rely heavily on person-to-person interaction, which is made worse by not working in the same location.


----------



## Barwelle

james4beach said:


> How many people do you think could purchase a home, if interest rates were a historical norm like 6% right now? Very few. And that's still with the assistance of a huge loan.





MoneyGal said:


> But what if interest rates were at a historical norm (6%) but houses cost much MUCH less? I bought my Toronto house for a hair over $200K when rates were around 5%.





jamesbe said:


> I bought my first home, a 1400 sq/ft townhome, typical starter type home for $170k at around 5.9% rate. That was reasonable, that same home 15 years later is over $320k What?


But isn't there, _generally_ speaking, an inverse relationship between house prices and interest rates? (just like there is with bonds)

I think you can attribute at least some of that increase in value to the low interest rates we have now... and can reasonably expect that the value could drop if interest rates go up.


----------



## Hawkdog

andrewf said:


> 1 is expensive (which is why it's mostly done in industries where there is no local labour and workers are paid well). 2 is expensive as well. 3 tends not to happen, as prices are low because populations are shrinking.
> 
> Consider jobs even within cities. The GTA is getting large/congested enough that I would never consider working on the other side of the city without moving. And if moving involved real estate transactions, that could cost 6% * cost of a house. Say $350k house. That's $20k to change jobs. The salary difference would have to be large to justify such a move. This makes labour markets more rigid.


As I stated, it depends on the situation. Just pointing out your statement is very general.
Salary should not be the only consideration, if you had to spend 20k to move to a new job that was more fulfilling and less stressful, it would be a small price to pay.


----------



## NotMe

andrewf said:


> The vast majority of people who own their homes easily afford them. But they don't matter in terms of the market. The people who matter are marginal buyers/sellers. In the US, their real estate crash involved home ownership rates "plummeting" from 69% to 65%.
> 
> I'm not saying that real estate must crash here, just that those who expect real estate to be perpetually expensive here may be blind to what can happen.


Nifty graph. But 4% of 300 Million people is still a lot more people than 4% of 30 million people, right? I mean in the states you have cities defaulting on collecting property taxes in total, I just don't see that happening here in Canada. Garth would call me naive and stupid, but he'd call anyone that who disagrees with him.


----------



## MoneyGal

Barwelle said:


> But isn't there, _generally_ speaking, an inverse relationship between house prices and interest rates? (just like there is with bonds)
> 
> I think you can attribute at least some of that increase in value to the low interest rates we have now... and can reasonably expect that the value could drop if interest rates go up.


That was intended to be exactly my point. :love-struck:


----------



## Sampson

NotMe said:


> Nifty graph. But 4% of 300 Million people is still a lot more people than 4% of 30 million people, right?


And that was a subprime crisis after all.

The question is how capable are Canadians of withstanding a several 100 basis point increase in their interest rates. Canadians have already been qualifying for posted rates so we know 2% increase should not be a problem. Additionally, IF banks have been qualifying based on 35% gross salary, then there should be quite a significant buffer zone when you consider people in some markets (Vancouver & Toronto I'm looking at you) are capable of paying upwards of 70% gross income on housing.

All these factors lead me to believe stagnant prices are more likely for most regions.

Heck! Don't know why we haven't discussed this yet, but what do valuations in Canada look like without the big 2 overvalued markets? Probably much lower on the OECD scale.


----------



## andrewf

Another way to think about it... if Canada is one of the most overvalued markets, and half of its real estate market (outside GTA+Vancouver) is not overvalued, that would mean that the other half (GTA+Vancouver) is even more extremely overvalued.

Markets that look dicey: Vancouver, Victoria, Ottawa, Montreal, Toronto. Sure there's areas that look sustainable, like Calgary/Edmonton, but the bulk of the real estate markets are stressed. Inventories are at decade highs.


----------



## Berubeland

Not sure if this matters, but I've lost 3-4 property management clients to sales this month alone. There's an exodus to the exits and some profit taking.


----------



## marina628

Berubeland said:


> Not sure if this matters, but I've lost 3-4 property management clients to sales this month alone. There's an exodus to the exits and some profit taking.


I have to tell you that we are considering exiting as well but hard to sell when the prices are going up 10% a year plus the tenants are paying down another 10% of the mortgage.We bought a freehold house in Bowmanville for $200,000 in January and a smaller model just sold for $234,000.The house we bought in Oshawa in 2009 for $167,000 + $8000 reno now sells for $280,000.But we are not invested in Toronto ,Whitby is the closest we got to the city.


----------



## newfoundlander

Sampson said:


> ...Additionally, IF banks have been qualifying based on 35% gross salary, then there should be quite a significant buffer zone when you consider people in some markets (Vancouver & Toronto I'm looking at you) are capable of paying upwards of 70% gross income on housing.


Are these numbers correct or are you talking about net take home pay?


----------



## Eclectic12

andrewf said:


> I don't know the stats for telecommuting, but it seems to me it is still limited to a few industries. IT is a big one, but even there, telecommuting is only a share of that industry.


Stats would certainly help but it seems clear to me it is on the rise.

It was a shock to be in Tampa, Florida ten years ago when calling Amex to fix a charge and discover through chatting that the call centre rep was in Burlington, Ontario plus working at home.

Then too, as recently as six years ago, most of the training offered for some software used at work was only available at set locations in the US whereas now there are twice as many online courses offered. For some courses, the choice is online or pay a premium to have the trainer provide the course on-site.

I'll have to check with my friends in accounting as they seemed to be on the road in other cities almost as much as the accounting firm's computer consulting division.




andrewf said:


> Many businesses continue to rely heavily on person-to-person interaction, which is made worse by not working in the same location.


Sure ... but unless there are more businesses that do this that are opening up than the number of companies shifting to offering or requiring their employees to work at home, the effect on the market could be easing.

Add in that where I work has been adamant people work onsite and now despite this *policy still being in place*, there's three people working remotely. 


Cheers


----------



## Chris L

What is going to be the catalyst for the drop in prices is buyer fatigue and people's attitudes about real estate. It's the only thing that matters. People will buy right up until everyone else stops buying and then people will sell until everyone else stops selling. There is a huge emotional component and with 20 years of solid buying attitude, it takes a shift for it to sway the other direction. However, because so many people have the capability to exit with over 70% home ownership, things could possibly happen dramatically. As long as the emotion to hold and buy is stronger, that's all that is required. There doesn't really need to be much of a trigger or black swan when things are so precarious. We only need to look at a few items to know how easy it is for people to change their emotions about real estate. 

What separates us from the US in 2008 is that enough people stayed in real estate coupled with enough people buying on lowered interest rates and the Canadian government working hard to calm people that they blew their brains out on personal debt to support the languishing economy. It just had the critical mass of people to keep prices and attitudes lofty. If you look at the differences between the US and Canada, the only thing that separates them was their attitudes about housing as an asset class. While a big macro change will certainly quickly induce a change, attitudes will eventually revert back to their mean as people move out of the buy camp into the sell camp.


----------



## sags

You are right.......home ownership is powerfully emotional, and people will buy for as long as they can make the "monthly" payment, regardless of the price.

As with all forms of debt, people will use it until the lenders say "no".

If home prices continue to rise, interest rates rise, and wages remain stagnant...............the bank's will say "no" (perhaps because CMHC will not insure the mortgage) to an ever increasing number of applications.

If 70% of Canadians own homes already.......how many of the remaining 30% have any interest in buying or would qualify?

In housing, the most important rung on the ladder is the first time home buyer. They buy homes from people who want to buy a bigger home, who buy from people who want a different home.........etc.

The unemployment rate is highest among young people. The wages are lowest among young people. Young people are the overwhelming majority of first time buyers.

I think the pool of qualified buyers is shrinking dramatically from what it was even 10 years ago.

There is nothing in the economy, demographics, or real estate statistics that indicates to me home prices will continue to rise. Rather, it looks pretty clear there is far more supply than demand, given that young people may really desire to purchase a home, but simply don't have the financial means to do it.


----------



## MoneyGal

^ This. 

It's hard to know what I would have done if today's prices were in place when I was buying this house 12 years ago. We had more than 25% down and the total purchase price was just over $200K; the decision to buy seemed like a no-brainer, because I knew we could carry it on one salary (and I was pregnant with kid no. 1 of 2). 

Today, I'd have to spend about $450K to buy this house - fully 10 houses on my (small) street have changed hands in the past year, with one house topping the $1M mark. I commute to my job in downtown Toronto by bike in about 20 mins each way. 

I have a friend who is where I was in life when I bought my first house, and she's just bought her first house (pg with baby no. 1). They spent over $400K and their commute is going to be BRUTAL (more than 1h each way for each of them). I just don't think I would have agreed to those kinds of tradeoffs. Unless they have serious family money (or something?) they'd have to have saved $100K for the 25% down, and their mortgage payments mean they're both going to have to work for as long as it takes to retire the mortgage.


----------



## Hawkdog

Related Article:

http://www.fool.ca/2013/06/06/a-bre...=PersonalFinanceReader&utm_campaign=105152746


----------



## Charlie

No matter how I justify Vancouver real estate prices, it really comes down to MG's post. 

Something's got to give.


----------



## andrewf

High RE prices are not really desirable, from a policy perspective. So, I would not rely on government to do whatever is necessary to maintain high valuations/low rental yields. They have been backing rapidly away from measures meant to support the housing market. They seem to want desperately to shrink CMHC's balance sheet, hopefully without cratering the housing market due to lack of liquidity. Canadian banks are now selling covered MBS in the US market without CMHC insurance.


----------



## peterk

This thread really makes me want to not buy a house! Problem is, I'm not in one of the "trouble cities". I don't know whether a housing decline across the country will affect me...

Meanwhile, unlike the major cities, gross cap rates on rent for small apartment condos are 10-12%, and nicer 2 bed 2 bath condos are 8-10%. I can live somewhere twice as nice for the same price, or somewhere the same for half the price, if I buy!

What's a young guy to do?


----------



## Chris L

peterk said:


> This thread really makes me want to not buy a house! Problem is, I'm not in one of the "trouble cities". I don't know whether a housing decline across the country will affect me...
> 
> Meanwhile, unlike the major cities, gross cap rates on rent for small apartment condos are 10-12%, and nicer 2 bed 2 bath condos are 8-10%. I can live somewhere twice as nice for the same price, or somewhere the same for half the price, if I buy!
> 
> What's a young guy to do?


I'm in a similar area as I don't think prices will be dramatically declining. However, if RE softens, the relative VALUE you get for your dollar will rise dramatically. The average price might seem not to move, but the higher priced homes simply drop down to the average so you get more and better house for your dollar. It just goes so much further in a down market. The selection rises too as does the ability to negotiate. I could replace the rental I just sold, but I'd like to see a little bit of pain in sellers to negotiate and the selection to rise. I don't expect things to get really bad, but I'm not going to buy into a sellers market, it simply makes no sense.

From what I'm seeing, boomer are going to hang onto their houses until the bitter end. They aren't planning ahead, but rather playing their chips until their health declines so much they are forced out of their homes. The expenses steadily catch up to them as far as upkeep and eventually they are forced out of their homes economically and with respect to health. My mom, for example, lives in a 7 bedroom house that she used to raise us kids. We've been out of the house for ten years and I ask her to sell and downsize, but she wont. She doesn't use more than 1/4 of the house and can't afford to heat it. She's not willing to toss in the towel. Many boomers will be like this. While some boomers might be in a good location with reasonably sized houses and not require much maintenance, most will have to move. This is a huge driving force we haven't begin to examine. Eventually, the house just goes up for sale.


----------



## Cal

I sometimes wonder if the RE cartel will shoot themselves in the foot with some of these numbers they come out with. 

We all know the RE market is weakening, and they are afraid demand will soften if the papers run with the stories. Also the papers are afraid their advertising dollars will dry up if the RE market tanks too. But the gov't really doesn't want a bubble or one to burst, nor do they want to increase the fed lending rate at the expense of the economic recovery, so I have wondered if their next move would be to cut back on CMHC coverage for low ratio loans, or increase the minimum downpayment above 5%.


----------



## Potato

For those outside the bubble cities: values may fall in sympathy (from already reasonable to cheap) which isn't really a big deal for many. The issue might be illiquidity: anecdotally, sales volumes dropped in Toronto and prices followed in the 1989 crash, but though some smaller outlying towns had more modest corrections, the market dried up completely. My dad likes to tell the tale of one hamlet in particular that went two years without a single sale (despite some 20-30 listings rotting). I haven't been able to find the stats to back up his fisherman's tale (nor can he remember the name of the town), but it's something to consider.


----------



## sags

I think the number of people who want to live in the country is declining anyways.

Too much upkeep, too much driving, not enough activities for their kids.

A friend of mine owned a beautiful country property.......ranch style bungalow, swimming pool, two story barn shed, and 5 landscaped acres.

I always told me how nice his property was.........and he always told me "thanks, it took myself, my wife and my three kids all weekend to get it looking this way".

When the kids (the grass cutters and trimmers) moved out.............so did he.


----------



## Maybe Later

sags said:


> I think the number of people who want to live in the country is declining anyways.
> 
> Too much upkeep, too much driving, not enough activities for the kids.


I would say yes and no. The kids are exactly the reason we will put our 11 acre place up for sale. That said, when we built our house in 2006 I could look out my window at an aspen stand, a wetland and a hayfield. Now I can see 30+ houses on 3-5 acre lots and after a 2-year hiatus, the bulldozers and earth movers just started last week clearing for the next 50 or so 2-3 acre lots. The appetite is still there for many and most of our neighbors are either families with children that wanted a different lifestyle or empty nesters. When we chose to expand our family we knew this day would likely come, but it will be hard to leave and I don't see (here in the West) country homes being less desirable any time soon.


----------



## jamesbe

I live in the "country". It's an estate community so not completely isolated like a true country home by farm fields.

Anyways, we have peace and quiet, just had a new neighbour move in with a few little ones. I think a lot of people with kids in their early to late teens dislike being far away as the kids are isolated, but younger or no kids is just fine. Or once they can drive.

Beauty for us is I am 15 minutes from work, only 25-30 minutes from downtown as we are right along the highway. Only downside is the mosquitoes!


----------



## CanadianCapitalist

Potato said:


> For those outside the bubble cities: values may fall in sympathy (from already reasonable to cheap) which isn't really a big deal for many. The issue might be illiquidity...


I can see this happening in Ottawa over the past year following job cuts in the Govt followed up by tightened mortgage rules. A lot of properties stay in the market for a long time. It must cost $1,000 to $1,200 in costs just to carry a $300K home until it is sold, so sooner or later, home owners will be reducing prices just to sell their property.


----------



## blin10

that's the last thing on peoples mind when they come here... top priorities are getting a job, government stability, laws that work, free healthcare, low crime, their kids are safer...



sags said:


> *I think the number of people who want to live in the country is declining anyways.
> 
> Too much upkeep, too much driving, not enough activities for their kids.*
> 
> A friend of mine owned a beautiful country property.......ranch style bungalow, swimming pool, two story barn shed, and 5 landscaped acres.
> 
> I always told me how nice his property was.........and he always told me "thanks, it took myself, my wife and my three kids all weekend to get it looking this way".
> 
> When the kids (the grass cutters and trimmers) moved out.............so did he.


----------



## hystat

I remember the big crash in S. Ontario in the 1980's. I had just bought my first house. Million dollar homes became $500K homes in the span of a few months. Huge headlines. 
My $125K home in Barrie became a $120K home. Impractical housing took a big hit. "Roof over the family's head" housing that people really needed didn't really drop in value.

Swim-off-the-dock waterfront has never dropped a penny. 

Bubble just means one really needs to buy smart.


----------



## Chris L

Illiquidity is huge. In the 1990's houses in my mid-sized city houses sat for a decade because people could not afford to sell for a loss. However, you know some people had to sell. I looked at my own house and it was listed twice in the 90's and never sold until I bought it in 2003 for near the price it was sold at in the 1990's. So is that a price decline? Yeah, pretty much. I got a steal of a deal because I didn't carry it for 10 years and got it for the same price as the guy before me. Lots of places wont sell because people will weather the storm, but some will be forced to sell and for these, prices declines are a must to attract dwindling interest. I'm more than certain the future of RE isn't great for the next 10 years.


----------



## crazyjackcsa

sags said:


> I think the number of people who want to live in the country is declining anyways.
> 
> Too much upkeep, too much driving, not enough activities for their kids.
> 
> A friend of mine owned a beautiful country property.......ranch style bungalow, swimming pool, two story barn shed, and 5 landscaped acres.
> 
> I always told me how nice his property was.........and he always told me "thanks, it took myself, my wife and my three kids all weekend to get it looking this way".
> 
> When the kids (the grass cutters and trimmers) moved out.............so did he.


Sure, and I think the number of people looking to live in the country is growing.

_Insert anecdotal evidence here._ followed by (own personal viewpoint.)


----------



## kubatron

I'm so sick of this "bubble" discussion, that has been on the front burners for about 5 years, that I think its time to put a stop to it.

Sh!t or get off the pot. Eventually the bears will be right after a decade plus of rampaging bulls. So what. Things go in cycles. Just like then the bulls will come back and the bears wont.

But people always seem to forget that house is home and not an investment ONLY at least not primary residence. I don't care if my home is worth 30% less tomorrow. Hell, I wouldn't pay for it what its worth now, but truth is I LOVE it, its where I had my first son, where my dad fell in love with it after his whole life of struggling, where I've grown, where I've become a true home owner and good neighbour, where I've made connections etc etc., this is my HOME and no bubble will/can take that away.

So, enough already.


----------



## none

kubatron said:


> I don't care if my home is worth 30% less tomorrow. Hell, I wouldn't pay for it what its worth now, but truth is I LOVE it, ....


That's the point.


----------



## Greenback

I am sitting on a down payment waiting for this alleged bubble to burst.
I'm not holding my breath as I live in Winnipeg.
If a $300K home drops to $295K is it going to make that much of a difference in the long run?


----------



## Potato

hystat said:


> Swim-off-the-dock waterfront has never dropped a penny.


Quite the opposite: as a discretionary luxury, demand is variable for waterfront recreational properties; combined with limited supply that leads to fairly large swings in valuation as supply/demand can very easily swing drastically out of balance in either direction. Prices have roughly quadrupled for Ontario cottage country waterfront since the mid-90's lows, which were significantly below the 1989 peak. Data from back then is hard to come by, but average prices for Peterborough and the Kawarthas were down about 25-30% from the peak, and another report from 2006 says in the text (without any charts) that cottages on Lake Simcoe had yet to return to their 1989 valuations even at that point. A recent report from Re/Max says Midland/Penetang/Tiny/Tay waterfront sales have slowed significantly, with prices down 7% already. 

From what I can find, in the last bust waterfront properties were hit every bit as hard as Toronto condos, and given the valuations I expect it to be even worse this time around.


----------



## Chris L

Housing is a place to live and an investment. If you're renting and just about to dive in, catching a low with a bit of patience is going to do you big favours - especially if you lose your job or need to move to another city for work. **** of get off the pot, is a simplistic view of the real estate asset. It's nice to think in black and white, but a 15% drop in prices is not something most people are equipped to tolerate. Most people prefer to live in their house for only 5 short years - that's the average. You might want to have some insulation against a price drop, don't you think. Hey, if you want to buy right now, no one is stopping you, not in the least. However, some of us have options other than buying and would prefer to protect ourselves against a dramatic drop. Being in negative equity for a decade is a HUGE burden. I know of at least one person in Calgary who got screwed on a condo and she can't sell - stuck, can't move, can't have kids in the condo, can't sell. She HATES her condo, but can't move.


----------



## Eclectic12

kubatron said:


> I'm so sick of this "bubble" discussion, that has been on the front burners for about 5 years, that I think its time to put a stop to it ...
> 
> But people always seem to forget that house is home and not an investment ONLY at least not primary residence. I don't care if my home is worth 30% less tomorrow...
> 
> So, enough already.


Problem is - those who want to keep going at it, will. 

Never mind that those who only see shelter as just another expense are likely to come out of the woodwork.


Bottom line is that if you are tired of the discussion, you might have to skip this and other threads.


Cheers


----------



## blin10

Eclectic12 said:


> Problem is - those who want to keep going at it, will.
> 
> Never mind that those who only see shelter as just another expense are likely to come out of the woodwork.
> 
> 
> *Bottom line is that if you are tired of the discussion, you might have to skip this and other threads.*
> 
> 
> Cheers


then you should rename this thread to "Canadian Real Estate Bubble Thread ONLY for BEARS" ... when someone gives their opinion and you don't agree with it you shouldn't be pmsing...


----------



## Eclectic12

blin10 said:


> then you should rename this thread to "Canadian Real Estate Bubble Thread ONLY for BEARS" ... when someone gives their opinion and you don't agree with it you shouldn't be pmsing...


Too funny! 

*I actually agree* with kubatron, especially where so little info is being exchanged and the same ground is covered in several threads repeatedly.


IMO - It's quite the leap you are making where my opinion that someone *might* have to skip the thread is somehow a transformed into a demand that they leave and/or a critique of their opinion.


Or did I stumble into the "Canadian Real Estate Bubble Thread - Where Imagination Trumps the Text"?


Cheers


----------



## sags

Garth Turner posted some "real" homes with real purchase and sale prices.

This is the news that really needs to be in the media.

There is easy access to the past history of a home in the US, and it clearly showed how people bought homes, remortgaged over and over again, and then the home value plummeted, and they walked away.

We should have that kind of information here...........but the real estate cartel don't want people to have that information.

http://www.greaterfool.ca/2013/06/14/suck-it-up/


----------



## emperor

Like almost everything else houses are a manipulated market. Increase interest rates to 5-8% and get rid of the CMHC so banks have to shoulder the responsibility and then see the true price of houses. I'd say 50% - 60% less than current value.


----------



## kcowan

sags said:


> We should have that kind of information here...........but the real estate cartel don't want people to have that information.[/url]


Canadian House Price Data
Does this not work for you? I get their monthly updates.


----------



## emperor

Is there a way to go back farther in their graphs? It just shows when houses where low in 1999 and went up. Be nice to see the trend with previous busts. Maybe from the 40's till now


----------



## kcowan

The US has good databases. Terranet has been around but I think you need a subscription to get historical data. Here is some work I did back in 2004.

http://members.shaw.ca/beachis/USHousingBubble.htm


----------



## Hawkdog

+1

I love my place to. Don't have the history that you have but I have 20 acres and a great mountain view - can't see another house.



kubatron said:


> I'm so sick of this "bubble" discussion, that has been on the front burners for about 5 years, that I think its time to put a stop to it.
> 
> Sh!t or get off the pot. Eventually the bears will be right after a decade plus of rampaging bulls. So what. Things go in cycles. Just like then the bulls will come back and the bears wont.
> 
> But people always seem to forget that house is home and not an investment ONLY at least not primary residence. I don't care if my home is worth 30% less tomorrow. Hell, I wouldn't pay for it what its worth now, but truth is I LOVE it, its where I had my first son, where my dad fell in love with it after his whole life of struggling, where I've grown, where I've become a true home owner and good neighbour, where I've made connections etc etc., this is my HOME and no bubble will/can take that away.
> 
> So, enough already.


----------



## Eder

sags said:


> Garth Turner posted some "real" homes with real purchase and sale prices.


I have knowledge of South Okanagan real estate...Garth's examples are very selective...strange no homes that were bought for $130k in 1996 and sold for $390k in 2013 were used. I guess it would not be sensational enough to be news these days.


----------



## Hawkdog

Ya, basically as soon as the Coquihalla highway was built house prices exploded in the interior, it had nothing to do with interest rates. It cut the time to drive to Vancouver down to 3 hours.
In 1996 you could buy a lot on Nicola Lake for 19,000, now they go for 300,000.
Most of the conversation here appears to be based on the large centers in Canada, similar to Garth's examples.

When I first moved to Smithers it was near impossible to find a place to rent. Used to wait for the newspaper to come out, it comes out on Wednesdays, and you would call a place and get put on list of ten or so names. It hasn't changed much other than rent prices have gone up.




Eder said:


> I have knowledge of South Okanagan real estate...Garth's examples are very selective...strange no homes that were bought for $130k in 1996 and sold for $390k in 2013 were used. I guess it would not be sensational enough to be news these days.


----------



## sags

Eder said:


> I have knowledge of South Okanagan real estate...Garth's examples are very selective...strange no homes that were bought for $130k in 1996 and sold for $390k in 2013 were used. I guess it would not be sensational enough to be news these days.


I agree.

I don't think Garth or other housing "bears" are saying all home owners are in jeopardy due to the equity they have built up in their homes. Anyone who bought many years ago will lose nothing but "paper dollars".

The concern is for recent purchasers, who took advantage of low down payments to enter the market, and historical low interest rates to qualify for a mortgage. People interested in buying a home in today's market should also be made aware they may not be buying at an optimal time.

The explosion in CMHC insurance coverage highlights the problem.

Many recent home buyers, who bought with 0 or 5% down, would immediately be "underwater" in their homes if prices fell at all, given the costs of selling (real estate fees, legal fees, moving costs).

If home prices fell only 10% on a 400,000 condo...........it could be a serious problem wanting to renew their mortgage. It is unclear how the banks would respond to such a situation.

In the example you provide, a person buying a home in 1996 for 130K would be fine.........unless they are one of the many people, who according to the credit agencies, has refinanced or acquired HELOCs to withdraw equity from their homes.

I know people who built brand new homes for 40,000, and owed 250,000 (100% of the home's worth) when they sold 30 years later.

They lived the good life for all those years, but spent all the equity in their home.

The truth is..........banks were willing to lend 95% of the equity.......with no hassles.


----------



## rd_aaron

kcowan said:


> The US has good databases. Terranet has been around but I think you need a subscription to get historical data. Here is some work I did back in 2004.
> 
> http://members.shaw.ca/beachis/USHousingBubble.htm


Canada is showing many of the same signs that your data showed in 2004. Low interest rates, skyrocketing debt, lower savings rate. The gov't has controlled the bubble a little bit with recent mortgage rule changes (25 years, no cash-back, etc.) but a lot of the fundamentals are the same.


----------



## james4beach

rd_aaron said:


> The gov't has controlled the bubble a little bit with recent mortgage rule changes (25 years, no cash-back, etc.)


But the government had also previously greatly loosened the mortgage rules. Just because they're back tracking on previously extreme loosening, doesn't mean they are even "net" tightening.

In 2006 they had introduced 40 year amortizations!


----------



## marina628

james4beach said:


> But the government had also previously greatly loosened the mortgage rules. Just because they're back tracking on previously extreme loosening, doesn't mean they are even "net" tightening.
> 
> In 2006 they had introduced 40 year amortizations!


Many people who got 40 year mortgages only did so to qualify on paper not because they need 40 years to pay a home off.When I bought my 5th rental in 2009 I had to take a 35 year mortgage out but I am on par to have this house paid off in year 7.I have friends who bought a house with 40 year mortgage and as soon as they closed they doubled the payment which took them down to 24 year amortization and after a year were down to 18 years.Ever 25 year mortgages how many never pay a extra payment or extra $50 -$100 a month?
I am not personally worried about the current home owners but the tenants who are living in these homes who will have to keep up with the rental increases.I believe that will be something to worry about moving forward ,for myself it is ok to get $1100 a month plus utilities for a $170,000 house but when that house is now worth $300,000 obviously I am not going to rent it for that price.This is a real example of one of my rentals I bought in 2009 BTW and I see similar homes going for $1600+ now.


----------



## Berubeland

Traditionally income and price of the home were linked. The rent was always a little bit higher than you would pay for the home as the owner, to provide a few bucks for maintenance and the convenience of not having to own. Young couples getting established, new immigrants and people who just didn't have any foresight rented. If you had a career where you would move, you wouldn't buy. 

Back then, it was mostly tradespeople who bought homes as a retirement plan. They puttered around in their old age.


----------



## Eclectic12

james4beach said:


> But the government had also previously greatly loosened the mortgage rules. Just because they're back tracking on previously extreme loosening, doesn't mean they are even "net" tightening.
> 
> In 2006 they had introduced 40 year amortizations!


Was a 40 year amortization "brand new" in 2006? 

I seem to recall being offered a 35 year amortization in 1999, if I wanted to stretch the mortgage out.


Cheers


----------



## sags

Eclectic12 said:


> Was a 40 year amortization "brand new" in 2006?
> 
> I seem to recall being offered a 35 year amortization in 1999, if I wanted to stretch the mortgage out.
> 
> 
> Cheers


They used to let people extend to another 25 years at every renewal..........effectively an endless mortgage.


----------



## MoneyGal

Well, you still had to qualify each time. I don't have an issue with this one thing in isolation - if you qualify for debt, who is to say how fast you need to pay it down?


----------



## sags

I agree with you............what difference does it make as long as people can afford it.

If we still had 3 year car loans.............the auto companies would go bankrupt.

Amortization schedules weren't driving the bubble. Ultra low interest rates were the culprit.


----------



## kcowan

Not news to folks here but a good story with some examples:

The banks do not tell the truth!


----------



## CanadianCapitalist

Krugman in his New York Times blog:



> So if the new, non-bank-centered view is right, Canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks. Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too.


----------



## fraser

I think the combination of highly leveraged mortgages, record amounts of consumer debt and record low interest rates are a very dangerous combination. 

I wish I had a dollar for every time over the past few years that a bank has offered us a home equity line of credit, a high overdraft offer, substantially increased our credit card limits along with sending us those counter cheques that could be used against our credit card advances.

We recently decided to rent instead of buy (we have not been renters for 30 plus year) for a number of reasons-including the price/risk. The market in our area was active-the number of listing were down, the number of buyers was fairly level year/year.

The condo that we just rented pay gives the owner $1250. net of condo fees. The units are selling for $525K. We did not think that those were good numbers so will rent for a while. The condo is 5 or 6 years old and some major work is being completed-the owners were subject to a special assessment. We are at a point in our lives where lifestyle is not as large an issue as it was when we had children. We are paying more attention to the numbers-and we are much more mobile. 

We also viewed a listing for a new high rise condo-8/12 months old. The owner dropped the price from 730 something to 665K. They bought in the pre construction period and once completed the market value of the units was less than the builders pre construction price.

Who knows where the market will go. One thing for certain, when interest rates go up prices are coming down.


----------



## newfoundlander

Are there any reliable data/statistics out there as to what share of the outstanding mortgage debt is floating vs fixed?

If there's a large share of borrowers who are locked in for 5 or 10 years, then it would also be interesting to be able drill down to see when the fixed rate terms expire.

If as a group they become sellers when faced with the prospect of renewing at 5.5% instead of 3.5%, could that be a possible trigger for a correction? If, by that time, a correction hasn't already been pushed through the market due to the effect of floating rates having already increased.


----------



## Eclectic12

newfoundlander said:


> Are there any reliable data/statistics out there as to what share of the outstanding mortgage debt is floating vs fixed?


Another question would be how many of those with a floating rate have privilege & a reasonable plan to lock-in for a much longer term at a rate their cash flow will sustain. 

It's one thing to see how many are using a floating rate now but whatever the number is - with a rise in rates, the number of fixed terms could grow.




newfoundlander said:


> If there's a large share of borrowers who are locked in for 5 or 10 years, then it would also be interesting to be able drill down to see when the fixed rate terms expire.
> 
> If as a group they become sellers when faced with the prospect of renewing at 5.5% instead of 3.5%, could that be a possible trigger for a correction? If, by that time, a correction hasn't already been pushed through the market due to the effect of floating rates having already increased.


I would think depends on how many, when, how much of a buffer those converting to fixed term provide and what's happening with their income/the economy.


Cheers


----------



## Hawkdog

http://www.vancouversun.com/busines...812626124":"og.recommends"}&action_ref_map=[]

Vancouver housing prices looks to going up, the correction may be over.


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## andrewf

^ lol


----------



## james4beach

Interest rates (based on 5 year and 10 year bond yields) have been rising dramatically in June so far.

In the USA, this has lead to a significant increase in the 30 year mortgage rate: from 3.40% in May to currently 4.36% ... an incredible move in just two months

The Canadian bond market has made a very similar move to the US market so I imagine our mortgage rates will be shooting higher too. If this kind of interest rate increase keeps going, it could be what finally cracks the Canadian mortgage ... err housing... bubble.


----------



## james4beach

Looking at news headlines, I see that the big banks have hiked their mortgage rates, some of it taking effect tomorrow (Monday June 24).

This is obviously a direct response to higher interest rates in the bond market. Remember, fixed-rate mortgages are entirely dependent on the bond market and the bond market has been falling very hard in the last few weeks. Bond price declines --> higher bond interest rates --> higher mortgage rates --> less home-buying.

Bond price declines are happening internationally so it's not a Canada-specific phenomenon. But the fallout could be severe here since our real estate market is so overheated. It all depends on how much higher interest rates rise. At some point it will kill Canadian housing, in my opinion.


----------



## Hawkdog

andrewf said:


> ^ lol


Housing prices are rising in the prince rupert area as well
Talked to guy who just bought a rental house in Terrace, he just got an offer for the top level suite - 2400/per month. He still has to rent out the bottom level.
With all the work that is going on for the LNG plants the place is really going to heat up.


----------



## Hawkdog

ya the rates are shooting up in Canada, BNS just raised their mortgage rates 0.1%
http://www.stockwatch.com/News/Item.aspx?bid=Z-C:BNS-2081750&symbol=BNS&region=C



james4beach said:


> Looking at news headlines, I see that the big banks have hiked their mortgage rates, some of it taking effect tomorrow (Monday June 24).
> 
> This is obviously a direct response to higher interest rates in the bond market. Remember, fixed-rate mortgages are entirely dependent on the bond market and the bond market has been falling very hard in the last few weeks. Bond price declines --> higher bond interest rates --> higher mortgage rates --> less home-buying.
> 
> Bond price declines are happening internationally so it's not a Canada-specific phenomenon. But the fallout could be severe here since our real estate market is so overheated. It all depends on how much higher interest rates rise. At some point it will kill Canadian housing, in my opinion.


----------



## andrewf

Hawkdog: a couple of datapoint don't change the fact that Canada has a cartoonishly overvalued housing market. It's a bug in search of a windshield.


----------



## w0nger

i think it's disservice to think of the real estate economy on a national scale. It's very local economy dependant.


----------



## andrewf

Sure. Especially when using tertiary markets like Prince Rupert. If you exclude Vancouver, Victoria, Toronto, Ottawa, Montreal and Quebec City, Canada's RE market is reasonably healthy. Trouble is, those cities ARE the Canadian RE market, in large measure.


----------



## Chris L

I think we're stuck in the denial stage? Still early for this bubble.


----------



## Hawkdog

andrewf said:


> Sure. Especially when using tertiary markets like Prince Rupert. If you exclude Vancouver, Victoria, Toronto, Ottawa, Montreal and Quebec City, Canada's RE market is reasonably healthy. Trouble is, those cities ARE the Canadian RE market, in large measure.


Andrew, you can't even compare Vancouver to Toronto, Ottawa, Montreal or Quebec.
WOnger is bang on.


----------



## Hawkdog

Chris L said:


> I think we're stuck in the denial stage? Still early for this bubble.


doomsayers have been talking about this bubble for 7 years plus.


----------



## none

w0nger said:


> i think it's disservice to think of the real estate economy on a national scale. It's very local economy dependant.


I this not entirely true - Garth Turber bangs the drum about how RE is local, local, local! Unfortunately he's wrong. Although there is obviously a local effect (e.g. Vancouver went much higher than anywhere else) obviously since practically everywhere in Canada has gone up ridiculous amounts it is obvious that there is a national effect here on RE prices. Indeed, if you did a correlation between markets, it wouldn't be 1:1 but it would be highly significant.


----------



## none

Hawkdog said:


> doomsayers have been talking about this bubble for 7 years plus.


Indeed, Canadian RE has been over valued for about this time - much like the NASDAQ, it's hard to know when a bubble will burst.


----------



## Hawkdog

none said:


> Indeed, Canadian RE has been over valued for about this time - much like the NASDAQ, it's hard to know when a bubble will burst.


Its already corrected to some extent, I think it will be more of a levelling out than a full US type crash.


----------



## Hawkdog

http://www.theglobeandmail.com/repo...ver-home-sales-turn-a-corner/article12340273/


----------



## andrewf

Based on what? How many housing markets can you point to, historically, that just 'leveled out'?

Corrections typically take several years. Calling this one over less than a year after the peak (roughly speaking, last summer) seems premature.


----------



## Hawkdog

andrewf said:


> Based on what? How many housing markets can you point to, historically, that just 'leveled out'?
> 
> Corrections typically take several years. Calling this one over less than a year after the peak (roughly speaking, last summer) seems premature.


Sorry, I am just referring to Vancouver. Soft landing. 
Basing on the fact that May sales are up. It will likely fluctuate but I would be surprised if there is a drastic correction.


----------



## andrewf

Even still, assuming valuations go sideways in Vancouver, housing there is not an attractive investment with rental yields so low.


----------



## NotMe

I firmly believe that "one month does not a trend make."

Not being a bubbler or a raving houseamaniac or whatever the two terms du jour are, I just think that most people aren't selling their houses or not buying them. I live in Toronto and have for years said that it seems that houses with reasonable asking prices (by reasonable I mean comparable to other recent sales and not grossly overpriced) seem to be selling fairly quickly in most quality neighborhoods. Like many, I think condos are the most susceptible to a correction but don't believe it will happen all at once, nor do I think we'll be able to pinpoint when it 'popped' within 3 months of it happening. I think it'll be visible in retrospect. I get that it's a fun sport to say 'today's the day!' but really people see one house that failed to sell (or 3 houses in great neighborhoods that sold in 3 days) and make sweeping statements about "The Market." I mean there will always be people looking for a victorian mansion in Rosedale for $500K, but that ain't never but never gonna happen - anymore than trees will grow to the sky and toronto real estate will continue to grow by 10% a year in perpetuity.


----------



## Hawkdog

andrewf said:


> Even still, assuming valuations go sideways in Vancouver, housing there is not an attractive investment with rental yields so low.


for sure.


----------



## sags

If home prices start a long slide, rather than a dramatic fall off in prices...........what will be the response from lenders?

What do they do with a homeowner underwater in their mortgage and getting further behind as prices slowly decline? 

I would think the government could get ahead of this now........and enact leglislation that prohibits the lenders from demanding the difference.

We don't want to force people who can pay the monthly payments to be forced to sell. 

It happened in the US.........and the government reacted after the fact.

Best our government acts now................just in case.


----------



## andrewf

No can predict the future. It's possible that Vancouver will continue to defy logic and gravity and persist with bubble-level valuations. On balance, I don't think this is likely, but it is possible.


----------



## Chris L

Hawkdog said:


> doomsayers have been talking about this bubble for 7 years plus.


Some have, others have slowly been added to the chorus. Just means that people have been slowly moving from buy to sell. Fact is that there are more reasons for real estate to collapse than to continue to go up or flatline. Hedge your bet and go ahead and gobble up RE if you want to bet the other way. Yes eventually the "doomsayers" will be right, that's not exactly and argument against real estate not collapsing. Look at the fundamentals. 

I'm flabbergasted watching US RE shows, the value to be had there for the dollar is simply jaw dropping when compared to Canada. You run out of reasons for justifying it.


----------



## andrewf

Especially given that Americans have higher $ incomes!


----------



## Hawkdog

andrewf said:


> No can predict the future. It's possible that Vancouver will continue to defy logic and gravity and persist with bubble-level valuations. On balance, I don't think this is likely, but it is possible.


absolutely, no one can predict the future. 

I just think that its hard to compare Vancouver to the larger Eastern centers due to the influence from the Hong Kong Area, the climate and the city itself. 

But that's just IMO. I am in no way saying that housing in Vancouver is a good investment.


----------



## none

The problem with this is that 1) Hong Kong money (HAM) has been shown to be a myth and not a significant variable in the price of RE; 2) the climate in Vancouver is crap. If a crash can occur in San Diego (which does actually have a great climate) it sure as hell can happen in Rain-couver.

Then again, houses for 500K in Edmonton = even worse!Blech!


----------



## Hawkdog

Chris L said:


> Some have, others have slowly been added to the chorus. Just means that people have been slowly moving from buy to sell. Fact is that there are more reasons for real estate to collapse than to continue to go up or flatline. Hedge your bet and go ahead and gobble up RE if you want to bet the other way. Yes eventually the "doomsayers" will be right, that's not exactly and argument against real estate not collapsing. Look at the fundamentals.
> 
> I'm flabbergasted watching US RE shows, the value to be had there for the dollar is simply jaw dropping when compared to Canada. You run out of reasons for justifying it.


I'm not going to gobble up any real estate. People are slowly moving form buy to sell - exactly my point - IMO we are seeing a soft landing unlike the crash in USA. 

I watch a few of those US shows as well, and ya wow there are cheap houses. They have be to selling for less than cost.


----------



## Hawkdog

none said:


> The problem with this is that 1) Hong Kong money (HAM) has been shown to be a myth and not a significant variable in the price of RE; 2) the climate in Vancouver is crap. If a crash can occur in San Diego (which does actually have a great climate) it sure as hell can happen in Rain-couver.
> 
> Then again, houses for 500K in Edmonton = even worse!Blech!


1. BS. 
2. Really? its been ranked in the top 5 cities in the world to live in on numerous occasions. move to winnipeg if you think the climate is crap.


----------



## Hawkdog

none said:


> I this not entirely true - Garth Turber bangs the drum about how RE is local, local, local! Unfortunately he's wrong. Although there is obviously a local effect (e.g. Vancouver went much higher than anywhere else) obviously since practically everywhere in Canada has gone up ridiculous amounts it is obvious that there is a national effect here on RE prices. Indeed, if you did a correlation between markets, it wouldn't be 1:1 but it would be highly significant.


you should take Garth's job if you are such an expert.


----------



## sags

In our area.............homes like "post war bungalows and 1 1/2 storey homes" haven't moved all that much in the past few years, and recently have settled back down in the 160K range. We have a lot of those kinds of homes in neighborhoods all over the city. I suspect most young couples aren't interested in "starter homes" these days, when the bank says......"Congratulations, you qualify to buy something a lot nicer" 

It's the new homes that are ridiculous in price.

350,000........450,000..........and there are all kinds of them for sale. I used to ask the realtors.........what is the difference between a home priced at 350K and 450K and their only answer was the builder makes more profit.

This isn't Vancouver. Foreigners aren't lining up for open houses. There are no bidding wars.

We have the highest unemployment rate in the country.........a notch below 10% officially. Wages are kept down because there are hundreds of applicants for jobs that pay minimum wages.

And yet...........the builders keep right on building expensive homes, and they sit waiting for a buyer to come along.

People who bought one of those homes in the past 5-6 years is going to get a shock.......and maybe some of them have enough money they don't care, but most of the people I know who bought one.......barely qualified and are struggling making the payments and taxes........while paying for the new appliances and furniture, cars, daycare, and food, and everyone else with their hand out.

The biggest risk in housing is the general economy though.

Home construction and related industries employs a lot of people.


----------



## andrewf

Evidence for Hot Asian Money is pretty anecdotal. Not much empirical evidence to support its existence.


----------



## Hawkdog

andrewf said:


> Evidence for Hot Asian Money is pretty anecdotal. Not much empirical evidence to support its existence.


Fair enough.

I am just going on the fact that Vancouver is the "Gateway" to Asia.


----------



## Chris L

HAM is a joke.


----------



## Hawkdog

So I have been discussing the house market and the fact that housing it at an all time high with people outside of this forum.

I talked to a girl during a week long auditing course I took last week, she was looking at real estate in Prince George.
She is looking at selling her house (since her boyfriend left) and downsizing to a townhouse or something in the 200,000 range.
I suggested renting, for a couple reasons. In case she meets another guy who has a house, the price of real estate in Canada and the chance it will correct.
No go.
She wanted to put any money she made from the house into her new place, which would bring her monthly payment below what she would have to pay in rent.
She was worried she would spend the money on a new car and stuff.

I just found it interesting and thought I would try and share a little of what I have picked on this forum with others.


----------



## Hawkdog

Chris L said:


> HAM is a joke.


It might be a joke, but when you have a relative that tells you they just sold their house to an asian man for more than your asking without the guy even looking inside,
it makes you go hmmm.


----------



## andrewf

Many people are also very concerned about social signaling in whether they own or rent. There is a stigma against renting, even when it is the financially responsible thing to do.


----------



## Hawkdog

http://www.vanmag.com/Real_Estate/The_China_Factor


----------



## Hawkdog

andrewf said:


> Many people are also very concerned about social signaling in whether they own or rent. There is a stigma against renting, even when it is the financially responsible thing to do.


ya, the more people I talk to the more I see that. People not on this forum of course!!


----------



## Hawkdog

none said:


> The problem with this is that 1) Hong Kong money (HAM) has been shown to be a myth and not a significant variable in the price of RE; 2) the climate in Vancouver is crap. If a crash can occur in San Diego (which does actually have a great climate) it sure as hell can happen in Rain-couver.
> 
> Then again, houses for 500K in Edmonton = even worse!Blech!


Curious as to why, if HAM has no effect and the climate is crap, the housing market in Vancouver is the most expensive in the Country?


----------



## nathan79

Hawkdog said:


> its been ranked in the top 5 cities in the world to live in on numerous occasions


Based on what? There are hundreds of cities around the world with a more desirable climate.

Speaking as someone who actually lives here, the climate is nowhere near what its cracked up to be. Try going weeks on end without even seeing the sun for a single minute, and see what that does to your mental well-being. It happens here all the time from October to March.

The people that use the climate to justify living here probably either never lived here, or lived here their entire lives and wouldn't know any better.


----------



## andrewf

I think the point is that if a good climate insulated cities from real estate corrections, San Jose (having a better climate than Vancouver) would not have experienced a correction.


----------



## Hawkdog

nathan79 said:


> Based on what? There are hundreds of cities around the world with a more desirable climate.
> 
> Speaking as someone who actually lives here, the climate is nowhere near what its cracked up to be. Try going weeks on end without even seeing the sun for a single minute, and see what that does to your mental well-being. It happens here all the time from October to March.
> 
> The people that use the climate to justify living here probably either never lived here, or lived here their entire lives and wouldn't know any better.


I guess it all depends on how much you like shovelling snow and killing mosquitos.

http://www.pointgreynow.com/BestPlaceInCanada.php


----------



## Hawkdog

andrewf said:


> I think the point is that if a good climate insulated cities from real estate corrections, San Jose (having a better climate than Vancouver) would not have experienced a correction.


your comparing an American city to a Canadian city. Weather is just one factor
My question is why does Vancouver have the highest price real estate?


----------



## Hawkdog

I guess this article would be more appropriate for this discussion.

http://metronews.ca/news/vancouver/...anadian-city-worse-than-mississauga-winnipeg/


----------



## Chris L

RE is highly charged and EMOTIONAL. You get to LIVE there and SHOW it off. At no other time in history has RE been in such great favour because everyone thinks it so. As prices retreat sentiment about it will also retreat - and drastically. It just serves back into itself in a loop. This has been going on for 20 years without an repose, no wonder it's so highly valued. 

Vancouver is so highly priced because *people continue to support the valuation.* End of story. Pure emotion.


----------



## Hawkdog

Chris L said:


> RE is highly charged and EMOTIONAL. You get to LIVE there and SHOW it off. At no other time in history has RE been in such great favour because everyone thinks it so. As prices retreat sentiment about it will also retreat - and drastically. It just serves back into itself in a loop. This has been going on for 20 years without an repose, no wonder it's so highly valued.
> 
> Vancouver is so highly priced because *people continue to support the valuation.* End of story. Pure emotion.


So your saying that Vancouver has the highest price RE due to emotion? interesting theory.

And why do think emotions play such an important factor in Vancouver versus other Canadian cities?


----------



## none

I think emotional may be the wrong word but I get where Chris is coming from. Really in many places in Canada there is little financial justification to buy a house. The only way you can justify it is by a massive 'home owner premium', however, I think it is more of a small 'home owner premium' mixed with unrealized speculation.

I think what will cause a crash (if it happens) is people starting to lose money on RE - which can simply be a result of brokerage fees and a flat market.

Anyway, doesn't matter to me. I love our house (and we rent). My wife and I were talking about which school we want our son to go to and we were looking at catchment areas. We realized that we can always just move to the area with the school we want. It's great to have that kind of freedom (plus we save about $15K a year by renting over buying the house we live in at today's prices (we are paying a rent level justified by when our land lady bought the house 10 years ago - win for us!)).


----------



## Hawkdog

I don't think Chris is far off with emotional, especially if you wrap desire into it. People like to live by water, have views and amenities. I just think there is a bit more to the supply and demand side.

Its similar in Smithers, I could drive 60 km east or west and buy a 2 storey detached house on a 1/2 acre for under 160,000. But it would likely cost you double in Smithers. 

Sounds like you have great situation going, but its all relative. If you lived in Smithers you wouldn't need to worry about catchments, so you wouldn't have to move for your son to attend different schools. And its not like Vancouver where there would be a choice of rentals in your area of choosing, there are very few places to rent here.


----------



## none

Hawkdog said:


> I don't think Chris is far off with emotional, especially if you wrap desire into it. People like to live by water, have views and amenities. I just think there is a bit more to the supply and demand side.
> 
> Its similar in Smithers, I could drive 60 km east or west and buy a 2 storey detached house on a 1/2 acre for under 160,000. But it would likely cost you double in Smithers.
> 
> Sounds like you have great situation going, but its all relative. If you lived in Smithers you wouldn't need to worry about catchments, so you wouldn't have to move for your son to attend different schools. And its not like Vancouver where there would be a choice of rentals in your area of choosing, there are very few places to rent here.


Yeah, it's easy to think home owners are suckers when you are in a rental situation like us. Our rent hasn't been raised yet and I doubt it will in the foreseeable future. I do minor upgrades & renovations on the house because of this which keeps the landlady happy and makes it feel like the place is ours. I just wish we could put in some more double paned windows - a lot of the current ones are west coast single pane crapolas.


----------



## Chris L

Hawkdog said:


> So your saying that Vancouver has the highest price RE due to emotion? interesting theory.
> 
> And why do think emotions play such an important factor in Vancouver versus other Canadian cities?


Does it help if it's called culture?

The culture dies when people stop supporting it. This can be due to many reasons, some by force, or law or bad luck or whatever. Most people walk through life using emotions to drive decisions. In fact, most decisions period are driven by emotion. RE has been engrained into people by the people around us supporting us in our decision and then the fundamentals do too. Subtract either the people and the culture or emotion or the external physical factors (cheap debt, ever increasing property values) and the culture will die. 

Many people wrongfully conclude that US RE died because of the financial crisis and lack of cheap debt, but that continued. It collapsed because people stopped buying RE. Chicken and egg. 

We're at a cusp here right now and we can watch things happen first hand. There are simply NO reasons for people to stop buying RE and yet they are, slowly but surely, no catalyst, just people slowly changing their minds. Someone is going to try to peg it on one factor, but it unless it's a black swan event, it's not going to be right. 

It's all in the mind of the majority.


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## none

Chris L said:


> Does it help if it's called culture?
> 
> The culture dies when people stop supporting it. This can be due to many reasons, some by force, or law or bad luck or whatever. Most people walk through life using emotions to drive decisions. In fact, most decisions period are driven by emotion. RE has been engrained into people by the people around us supporting us in our decision and then the fundamentals do too. Subtract either the people and the culture or emotion or the external physical factors (cheap debt, ever increasing property values) and the culture will die.
> 
> Many people wrongfully conclude that US RE died because of the financial crisis and lack of cheap debt, but that continued. It collapsed because people stopped buying RE. Chicken and egg.
> 
> We're at a cusp here right now and we can watch things happen first hand. There are simply NO reasons for people to stop buying RE and yet they are, slowly but surely, no catalyst, just people slowly changing their minds. Someone is going to try to peg it on one factor, but it unless it's a black swan event, it's not going to be right.
> 
> It's all in the mind of the majority.


I don't really agree that there is no reason for the decline. Owning is generally at the edge of affordability and without the for-sure profit through speculation there is much less incentive to buy. This is not including the people over the last 10 years who did extremely well in RE and effectively extracted a couple generations of profits from the RE market. Sorry those who are <25!


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## Hawkdog

Chris L said:


> Does it help if it's called culture?
> 
> The culture dies when people stop supporting it. This can be due to many reasons, some by force, or law or bad luck or whatever. Most people walk through life using emotions to drive decisions. In fact, most decisions period are driven by emotion. RE has been engrained into people by the people around us supporting us in our decision and then the fundamentals do too. Subtract either the people and the culture or emotion or the external physical factors (cheap debt, ever increasing property values) and the culture will die.
> 
> Many people wrongfully conclude that US RE died because of the financial crisis and lack of cheap debt, but that continued. It collapsed because people stopped buying RE. Chicken and egg.
> 
> We're at a cusp here right now and we can watch things happen first hand. There are simply NO reasons for people to stop buying RE and yet they are, slowly but surely, no catalyst, just people slowly changing their minds. Someone is going to try to peg it on one factor, but it unless it's a black swan event, it's not going to be right.
> 
> It's all in the mind of the majority.


There has to to be a root cause, People don't just stop buying houses for no reason. 
There are reasons for people to stop buying RE and there are reasons people buy RE.

Example: Saskatoon, people started to move back and buy houses because of jobs in the resource sector consequently the housing market has been on fire for the last few years. 
root cause - jobs.

And I disagree with your thoughts on the US crash - the root cause was greed.


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## HaroldCrump

Hawkdog said:


> There has to to be a root cause, People don't just stop buying houses for no reason. Thats absurd.
> There are reasons for people to stop buying RE


And affordability is not reason enough?
There comes a point where even the most emotional, the most irrational folks, will pause and think because the trade offs are just too great - suppression of other needs and wants, no savings for kids' education, no retirement fund, etc.
Credit can get only so cheap, monthly payments can be only so low before it gets to a point where the last fool throws in the towel and says, _screw this, I'm getting out of this zoo_.



> And I disagree with your thoughts on the US crash - the root cause was greed.


But that has been the root cause of _everything_ from the day Adam bit into the apple.
And if it is enough to write off the US R/E crash as "greed", has that changed?
They are now less greedy than they were in 2007?
Are Canadian consumers above that greed?


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## andrewf

Hawk: the market never completely dries up. Even in the depths of a housing crash there are transactions taking place. What matters is the balance of supply and demand and the factors that affect each. Once house prices start declining though, many people who were considering buying take a step back and wait. It's the opposite of the bidding mania of "get in now or be priced out forever".


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## Hawkdog

affordability is reason enough, and that would be the root cause - houses are no longer affordable.



HaroldCrump said:


> And affordability is not reason enough?
> There comes a point where even the most emotional, the most irrational folks, will pause and think because the trade offs are just too great - suppression of other needs and wants, no savings for kids' education, no retirement fund, etc.
> Credit can get only so cheap, monthly payments can be only so low before it gets to a point where the last fool throws in the towel and says, _screw this, I'm getting out of this zoo_.
> 
> But that has been the root cause of _everything_ from the day Adam bit into the apple.
> And if it is enough to write off the US R/E crash as "greed", has that changed?
> They are now less greedy than they were in 2007?
> Are Canadian consumers above that greed?


again, I am simply pointing out that there was a reason, greed led to a stop in sub prime mortgages which led to a bank foreclosures. Credit dried up.


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## Hawkdog

andrewf said:


> Hawk: the market never completely dries up. Even in the depths of a housing crash there are transactions taking place. What matters is the balance of supply and demand and the factors that affect each. Once house prices start declining though, many people who were considering buying take a step back and wait. It's the opposite of the bidding mania of "get in now or be priced out forever".


Ding ding. Supply and demand - factors that affect buying and selling RE. 
There is always a root cause for house prices to start declining. Whether it is affordability or a glut in supply. There is a reason.
That is all I was trying say.


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## Hawkdog

Here is an interesting article which outlines the timeline during US housing crash. One interesting point was that it was first time in history that prices crashed on national level.

http://www.stockpickssystem.com/housing-market-crash-2007/


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## Chris L

The cows all graze in one direction, a tree falls suddenly scaring the heard, the heard shifts direction and continues grazing. The heard moved because of the tree, but they all grazed in a different direction because of their emotions. The bubble will pop because people feed like cows - based on their emotions. Explain it however you want and link it to whatever primary reason you desire, but the seeds of the bubble are sown by the beast who feeds on it. 

There are a thousand reasons helping to prop up RE and a thousand reasons for it to drop, but people have created all of them with their emotions.


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## Hawkdog

Example of rent prices in Smithers:

"FOR RENT: 1 bedroom basement suite near the hospital. $800/month including utilities. No pets, no smoking. Available July 15th. 250 [email protected]"


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## Hawkdog

Chris L said:


> The cows all graze in one direction, a tree falls suddenly scaring the heard, the heard shifts direction and continues grazing. The heard moved because of the tree, but they all grazed in a different direction because of their emotions. The bubble will pop because people feed like cows - based on their emotions. Explain it however you want and link it to whatever primary reason you desire, but the seeds of the bubble are sown by the beast who feeds on it.
> 
> There are a thousand reasons helping to prop up RE and a thousand reasons for it to drop, but people have created all of them with their emotions.


I believe you could have summed up your theory with "Herd Mentality"

Interesting but simplistic


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## Chris L

It's not simple, it's really hard for people to understand.

People use reasons to justify or explain their emotions. They act on their emotions. 

Look up INTJ personality. If the world were run by INTJ it would be run to perfection. 

Most people are not thinkers but feelers and use their intellect to justify their behaviour - usually after the fact. I bought a big house in Toronto because I wanted to make money buying and selling real estate. Real reason, I saw it on a tv show and all my friends are talking about it and I wanted to be a part of what everyone else was doing.

Herd mentality is only one component of emotions in decisions. 

It's also a fact that few people can predict their own future decisions. Decisions just seem to happen - sometimes quite dramatic decisions. I had a rental for 10 years, I always knew I would sell it, just never knew when. Like a light switch, it was up for sale one day. 

One day I'm going to buy another property, like a light bulb it will happen one day. We simply can not even predict what WE might do, let alone what other people might do, but we do know that they will operate out of the rules of biology and physics. 

I think more than I feel, but emotions still play a part of the "randomness" I experience in making decisions. Some people use emotions only, most use a mix of the two and a lot are confused into believing they are thinking when really they are feeling.

The world is far less rational than we think.


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## MRT

Chris L, you are also touching upon "confirmation bias" whereby people seek out information that supports their position (which can occur consciously or unconsciously). Many people will not take the time to sort through reams of positive and negative evidence in order to arrive at a logical decision, but will rather discard that which does not suit their goal, and focus on that which does. 

Considerations of bubbles, job security, and having adequate savings weigh far less than considerations of mortgage rates being cheap, friends are all buying/upsizing and they are ok, and historical appreciation, when someone has made the preliminary decision that "I want to buy".

This happens in stock-picking all the time. It is very, very easy to find SOME evidence that supports a chosen position...


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## blin10

the best post here...



MRT said:


> Chris L, you are also touching upon "confirmation bias" whereby people seek out information that supports their position (which can occur consciously or unconsciously). Many people will not take the time to sort through reams of positive and negative evidence in order to arrive at a logical decision, but will rather discard that which does not suit their goal, and focus on that which does.
> 
> Considerations of bubbles, job security, and having adequate savings weigh far less than considerations of mortgage rates being cheap, friends are all buying/upsizing and they are ok, and historical appreciation, when someone has made the preliminary decision that "I want to buy".
> 
> This happens in stock-picking all the time. It is very, very easy to find SOME evidence that supports a chosen position...


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## none

blin10 said:


> the best post here...


Most ironic post here


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## Chris L

Somewhat yes, emotions unify everything people do. Is there a term that you can lump herd mentality, confirmation bias, etc. all together? Emotion, pure and simple. Now question why you do the things you do, or easier, why other people do what they do. If all people acted rationally, there would be one, perhaps two different models of vehicle - the people would simply demand that they be the most efficient and cheapest, it would be the best build auto and would have easy parts to remove and replace, diy, would be rust proof, would last at least 300,000 km, etc, etc. But no, we have thousands of different models to suite everyone's "taste" - emotions. However, the world being emotional makes it possible to "game it", to move out of the herd and take advantage of it. Thinking before the heard reacts is where the advantage comes from. Most of this is pure luck, a lot of it is playing the game many times hoping for the right outcome, a lot of it is grit (in trying your luck), being in the right place where your set of skills match a niche. We discount emotion far too often. When the heard moves in a different direction, housing will too.

Someone say that the US RE collapsed because credit dried up - seeing as how it is so drastically undervalued - why has it not rebounded? 

People are emotionally scared. They saw what happened and now it has a stigma. Young couples wont buy, and it's totally irrational. They rent when it's cheaper to buy and in Canada, they buy when it's cheaper to rent. What's the reason for that?


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## blin10

US RE collapsed because they were giving away mortgages left and right without much proof with AA+ ratings when in reality it wasn't the case... banks were lending out crazy ratios for each dollar they had... credit dried up after everything collapsed already, you need to know what you talking about before arguing anything... 



Chris L said:


> Someone say that the US RE collapsed because credit dried up - seeing as how it is so drastically undervalued - why has it not rebounded?
> 
> People are emotionally scared. They saw what happened and now it has a stigma. Young couples wont buy, and it's totally irrational. They rent when it's cheaper to buy and in Canada, they buy when it's cheaper to rent. What's the reason for that?


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## none

Chris L said:


> People are emotionally scared. They saw what happened and now it has a stigma. Young couples wont buy, and it's totally irrational. They rent when it's cheaper to buy and in Canada, they buy when it's cheaper to rent. What's the reason for that?


Due to speculation. Buying a house on a monthly cost basis and reasonable return indicated that buying in major Canadian centers after around 2007 was a mistake. However, prices still went up because of (although mostly unintentional) speculation.


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## Chris L

blin10 said:


> US RE collapsed because they were giving away mortgages left and right without much proof with AA+ ratings when in reality it wasn't the case... banks were lending out crazy ratios for each dollar they had... credit dried up after everything collapsed already, you need to know what you talking about before arguing anything...


It's not the job of the banks to protect people from their emotions.

The US collapsed because banks allowed people to buy RE based on emotion, rather than logic. Don't confuse the drug dealer with the druggy.


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## Chris L

What other data do you need? Until this obsession stops, RE won't drop.

http://www.cbc.ca/news/business/story/2013/06/20/business-zoocasa-housing.html

"The poll found that 84 per cent of respondents across the country think about real estate on a regular basis, and 85 per cent have gone as far as shopping online for a new home in the past year."

"Nationally, more than a third — 34 per cent — described either themselves or a loved one as obsessed with real estate. In the Greater Toronto Area, which has the second-highest average home price in the country after Vancouver, the percentage of people who identify themselves as being obsessed jumps to 47 per cent, the highest in the country."


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## none

Chris L said:


> It's not the job of the banks to protect people from their emotions.
> 
> The US collapsed because banks allowed people to buy RE based on emotion, rather than logic. Don't confuse the drug dealer with the druggy.


When default impacts tax-payers it is.


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## Eclectic12

Chris L said:


> It's not the job of the banks to protect people from their emotions.
> 
> The US collapsed because banks allowed people to buy RE based on emotion, rather than logic. Don't confuse the drug dealer with the druggy.


*shrug* ... it is the bank's job to make sure there is a reasonable chance of being paid back. 

Problem was the bankers valued their personal bonuses and/or ignored all warnings that their own audit section.


Cheers


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## Berubeland

Plenty of collusion...

http://www.reuters.com/article/2013/02/05/us-mcgrawhill-sandp-civilcharges-idUSBRE9130U120130205


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## Chris L

Is greed an emotion?

The job of the bank is to serve the people making the decisions (right through - not even the share holders or the bank, but rather the people claiming bonuses, salaries, etc.). I sure hope you don't rely on them to help people out with their personal decisions.


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## emperor

I work with an Irish temp worker, he thinks it's funny how our houses are 2-3 times more expensive than in Ireland and they are only built from timber. I guess in Ireland most the houses are double walled brick or stone.

I'm in the same boat as other Canadians, I want to buy a house but maybe it's time to forget that idea and try to invest my money so the interest I make is enough to pay for my rent.


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## blin10

Keep in mind Ireland is bankrupt... Take a look at their bank of Ireland what happened there... You can't compare Ireland RE to Canadian Re



emperor said:


> I work with an Irish temp worker, he thinks it's funny how our houses are 2-3 times more expensive than in Ireland and they are only built from timber. I guess in Ireland most the houses are double walled brick or stone.
> 
> I'm in the same boat as other Canadians, I want to buy a house but maybe it's time to forget that idea and try to invest my money so the interest I make is enough to pay for my rent.


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## Hawkdog

blin10 said:


> US RE collapsed because they were giving away mortgages left and right without much proof with AA+ ratings when in reality it wasn't the case... banks were lending out crazy ratios for each dollar they had... credit dried up after everything collapsed already, you need to know what you talking about before arguing anything...


Chris is referring to a post I made.
And i was referring this article
http://www.stockpickssystem.com/housing-market-crash-2007/

so if you are right and this article wrong that's Ok, but its not Chris's statement, he was quoting me. 

" Timeline of Events for 2007

February: Freddie Mac announced that they were no longer buying the most risky subprime.
April: Subprime lender New Century Financial Corporation files for bankruptcy.
June: Bear Stearns announced a loan of 3.2 billion dollars to help bailout one of its funds that invested in collateralized debt obligations (CDOs).
July: The stock market hit a new all-high over 14,000. On July 31, Bear Stearns liquidates two of its mortgage-back security hedge funds
August: A worldwide credit crunch had begun and there were no subprime loans available. Subprime lender American Home Mortgage files for bankruptcy. This marked the start of the housing market crash
September: The Libor rate rises to its highest level since December of 1998, at 6.8%.
December: The stock market finishes the year at 13,264.


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## Hawkdog

I will have to look back to see what my personality is, its an IN something.
Its been shown that businesses that have just one personality type are not that successful, you need several types to make it work.

Out of curiosity, if you have a small town in which a mill or mine closes down, is it an emotional response that people sell their house and move to find work? 
Do you consider the baby boomer effect emotional?


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## Eclectic12

Chris L said:


> ... The job of the bank is to serve the people making the decisions (right through - not even the share holders or the bank, but rather the people claiming bonuses, salaries, etc.). I sure hope you don't rely on them to help people out with their personal decisions.


Interesting ... most people would have said the job of the bank was to build their business & grow. In a down cycle, it's to survive, usually by laying off those claiming bonuses, salaries etc.

Whether it's the client lying about the value of the house or the bank employee lying that the mortgage meets their employer's lending criteria - it's still fraud. At some point - it's going to exceed the profits/assets.




Chris L said:


> ... I sure hope you don't rely on them to help people out with their personal decisions.


I don't but some people assume the bank rep will give them unbiased info.

In any case - for the US the fraud was rampant, given that for years the audit arm of some of the banks made it clear that the % of bad mortgages, which did not follow the bank's lending criteria were becoming more common.


Cheers


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## Eclectic12

Hawkdog said:


> Chris is referring to a post I made.
> 
> And i was referring this article
> http://www.stockpickssystem.com/housing-market-crash-2007/
> 
> so if you are right and this article wrong that's Ok, but its not Chris's statement, he was quoting me ...


Fair enough.

I'll read the article in more detail when I get time but the part about ...


> ... The housing market experienced modest but steady growth from the period of 1995 to 1999.


suggests that the article is misguided, incomplete and/or off the mark. 

My US co-workers in 2001 in Maryland were talking about moving for a *fourth* time to lock in the run up of their house price of anywhere from $200K to $450K. They said they didn't like the work involved as well as moving further away but did not want to lose the opportunity. So every couple of years, they moved - not one or two of the team but six of ten! 

That doesn't square with "modest but steady growth" over four years.


Cheers


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## Chris L

Hawkdog said:


> I will have to look back to see what my personality is, its an IN something.
> Its been shown that businesses that have just one personality type are not that successful, you need several types to make it work.
> 
> Out of curiosity, if you have a small town in which a mill or mine closes down, is it an emotional response that people sell their house and move to find work?
> Do you consider the baby boomer effect emotional?


If there were no jobs left in the town, then the decision would be devoid of emotion, it would be driven by survival. We rarely face life or death choices and certainly buying versus renting is highly emotional. Baby boomers could have easily had a culture of renting. Many countries do have renter cultures and some of it is driven by economics stiffing the ability to make a decision on emotion. The unrestrained buying in the US and Canada is facilitated by credit - it facilitates people to act on their emotions.

We aren't computers or robots, if we were, many of us would have sold and rented, many more would be cashing out of Vancouver and moving to somewhere in the U.S. to enjoy a labour free life. People don't, because they have emotions invested in the decisions.

If more people refused to buy RE, prices would simply drop. If everyone refused to buy, prices would plummet. Many houses go for well over their replacement values in Canada and in the US they go for far less than replacement. This is not explainable without emotions.

Explain bigger more expensive houses, Mcmansions, granite countertops, stainless steal, trends in neutral colours, vaulted ceilings, reno, reno, reno. These are not financial decisions.


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## none

Chris L said:


> Explain bigger more expensive houses, Mcmansions, granite countertops, stainless steal, trends in neutral colours, vaulted ceilings, reno, reno, reno. These are not financial decisions.


Chris, you are really going gangbusters on the emotional thing - and you are overstating it. Prices have a subjective component and are not simply a multiplier of cost of building things and things are worth what people will pay for it. Speculation has value. It makes complete objective financial sense (devoid of emotion) to purchase what many would consider to be an overpriced house if you have a reasonable certainty that the house will continue to increase in value.


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## fraser

We sold our house last fall. We just rented a condo. We were thinking of buying but want to 'try' it out first since we are used to a home. 

I also felt that the numbers were not right. The condo we are renting sells for $525K. If I take into account rent minus condo fees and taxes paid by the owner, the return is 2.3 percent.

The other kicker is that in this 7 year old condo, all of the water pipes have/or are being replaced-including the in floor heating. I was told that for two buildings alone (four floors) the cost is $3.5M-and insurance is picking up a very small amount of this. The lions share is owner assessment. I figure that the assessment alone will take up 7-10 years of return before taxes. 

It has really made us think twice about buying in this market.


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## kcowan

Eclectic12 said:


> Problem was the bankers valued their personal bonuses and/or ignored all warnings that their own audit section.


It seems that they were all motivated to sell off the mortgages as MBS and make another profit from that, while eliminating the risk of holding the mortgage. A deadly combination for anyone operating near the edge of their ethics.

Here is a site for anyone considering Toronto for purchase.

Investigate new and used properties in Toronto


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## Eclectic12

kcowan said:


> It seems that they were all motivated to sell off the mortgages as MBS and make another profit from that, while eliminating the risk of holding the mortgage. A deadly combination for anyone operating near the edge of their ethics ...


PBS or some other news show said it was far worse. The mortgage arm of the bank figured they were dropping the risk by selling the mortgages but when the drop started, they discovered the lending arm had lent the buyer the money to buy the mortgage packages. 


Cheers


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## sags

Too funny.

These are the "smartest guys" in the world?.........LOL


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## Chris L

sags said:


> Too funny.
> 
> These are the "smartest guys" in the world?.........LOL


Lots of people made a crap load of money in a short period of time. How are we defining smart? Each person plays a cog in a wheel independent of the other cogs. Each person tries to make a buck along the system, the system is supposed to be protected by laws and government because by their nature, people will go all-in otherwise. Not sure why people expect anything different from people. This is why conspiracy theories are foolish to believe. You'd have to control each cog in the system...


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## kcowan

Eclectic12 said:


> The mortgage arm of the bank figured they were dropping the risk by selling the mortgages but when the drop started, they discovered the lending arm had lent the buyer the money to buy the mortgage packages.
> 
> 
> Cheers


What lending are you referring to? The mortgages were an asset on their books that was sold off. So there was no liability left at the bank. Are you talking about buying MBS in an investment account on margin?


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## Eclectic12

kcowan said:


> What lending are you referring to? The mortgages were an asset on their books that was sold off. So there was no liability left at the bank. Are you talking about buying MBS in an investment account on margin?


From what I recall and what I can see about CIBC, a roughly similar situation would be if First Line Mortgages wrote the mortgage, packaged it & sold it to numbered company 123A4. The purchased MBS was paid for using a loan arranged for with CIBC bank.

When the house of cards falls - CIBC bank discovers that numbered company 123A4 has other assets worth 15% of the total plus the MBS and that's it.

So technically - the mortgage area has gotten rid of the MBS but the bank is still at risk. If recall correctly, some of the aggressive US banks used the MBS as collateral for the loan, further reducing any useful assets to go after.

Sort of a "left arm doesn't know what the right arm is doing" which was further complicated by those in power ignoring the warning flags.

Cheers


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## Eclectic12

Chris L said:


> Baby boomers could have easily had a culture of renting. Many countries do have renter cultures and some of it is driven by economics stiffing the ability to make a decision on emotion. The unrestrained buying in the US and Canada is facilitated by credit - it facilitates people to act on their emotions.


It depends ... the mortgage on my first house was under what renting a similar sized house cost to rent so I'm not sure what credit had to do with it.


As for other countries, it's hard not to rent when the rent can't be raised as long as someone is the original renter or was born in the rental unit.


Then too there's the rampant financial illiteracy playing a role as well.




Chris L said:


> We aren't computers or robots, if we were, many of us would have sold and rented, many more would be cashing out of Vancouver and moving to somewhere in the U.S. to enjoy a labour free life. People don't, because they have emotions invested in the decisions.


Or they've met US citizens living in a trailer park after selling their home to cut their hospital bill to a more manageable $275K and are working it off slowly.




Chris L said:


> Explain bigger more expensive houses, Mcmansions, granite countertops, stainless steal, trends in neutral colours, vaulted ceilings, reno, reno, reno. These are not financial decisions.


Keeping up with the Jones & financial ineptitude plays into some of it. For others, after fifteen years of dealing with close quarter neighbours & moving, they buy the house. Once in it, they want to change it to their liking.


Cheers


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