# Cdn Housing In Line For A Slump



## kubatron (Jan 17, 2011)

http://bit.ly/fHqrec

Not a bad article in my opinion. 855+ comments on the globe website. Makes some valid points. Can't argue with it to be honest, I can see where author is coming from, _especially_ in relation to the income-to-price #s, the fact that we have yet to experience a downturn, and the inflated / artificial prices due to a (seemingly never ending) asian demand (especially in BC)

keep in mind this is for Canada as a whole, may not impact all areas

thoughts?


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## slacker (Mar 8, 2010)

I've read too many articles on the housing market in Canada.

On the bear side, the standard arguments are base on metrics like income/price ratio, debt/GDP ratio, etc. The argument goes that the numbers are out of whack, and it's bound to return to average sometime. It's just not clear to me when it will return to the average, 1 year? 3 year? 5 years?

On the bull side, the standard arguments is to set up a strawman (IMO) that we won't have a "US style" meltdown, because we don't have the same irresponsible lending practices as they had. Nevermind that we can still have a non-US-style correction.

PS: I'm a bear on this mostly for selfish reasons. I'm houseless. :-(


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## GoldStone (Mar 6, 2011)

There is a thread in the General section about this article.

http://canadianmoneyforum.com/showthread.php?t=6898


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## Bupp (Nov 13, 2009)

The author is the chair of ben graham value investing at university of western ontario.

He is well published with research on canadian equity markets showing how low p/e ratios and low p/b ratios lead to outperformance in the long run.

While the same concept can be applied to housing with regards to price to rent ratios as is applied to evaluating equities, the author is smart enough to know not to give a time horizon to his prediction.

I give a lot more weight to this author's view on canadian housing than someone say like Garth Turner.


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## Berubeland (Sep 6, 2009)

Another sign he mentioned is the rent/price ratio is out of whack. I certainly see this in my business with lots of people buying condos that they rent out for a lot less than they pay. 

A pivotal moment for me was watching Brad Lamb's crazy show where he said that this is fine and a great idea for investors. It's not sustainable over time. Can you imagine having 20 units that cost you $3-400 a piece? Yet some investors are doing this. How this is a good idea is beyond me. 

Then there's the steady exit of long time landlords. The money they're being offered is just too attractive. It's like if someone offered you $10,000 for a $400 car. So they sell. Even in the commercial marketplace, there's a ton of people who want to buy but they won't buy if they can't make money... it's nonsense. 

The question is not if but rather when, but to quote some famous guy "irrational markets can stay irrational for longer than you can wait them out" approximately. 

It's articles like this that are a harbinger of the downfall. 

You should buy when newspapers are telling everyone the sky is falling and the real estate market will never recover. The states is almost there now.


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## jamesbe (May 8, 2010)

The rent argument is interesting. I bought a rental property that nets an extra $100 a month over my costs. Not much but it is something. A year later the same property is going for $50-$60k more making it no longer profitable to rent as rents have not increased at all. 

Yet people are buying for investment, this baffles me. I will not touch a property that doesn't at least break even, and hopefully is self sustainable with 1 month vacancy.


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## Jungle (Feb 17, 2010)

jamesbe said:


> The rent argument is interesting. I bought a rental property that nets an extra $100 a month over my costs. Not much but it is something. A year later the same property is going for $50-$60k more making it no longer profitable to rent as rents have not increased at all.
> 
> Yet people are buying for investment, this baffles me. I will not touch a property that doesn't at least break even, and hopefully is self sustainable with 1 month vacancy.


People are buying with low interest rate mortgages and long amortizations, creating more cash flow when costs are subtracted from rents.


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## jamesbe (May 8, 2010)

Yes, but I'm talking 25% down, 35 year at fixed low rate. The numbers do not work. You have to be putting down much more, which is fine I suppose. But to me the entire point of investing in real estate is the ability to use some leverage. 

Numbers are like 200k purchase with a rental income of $1000 a month. Eeeks, no thanks


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## sprocket1200 (Aug 21, 2009)

jamesbe said:


> Yes, but I'm talking 25% down, 35 year at fixed low rate. The numbers do not work. You have to be putting down much more, which is fine I suppose. But to me the entire point of investing in real estate is the ability to use some leverage.
> 
> Numbers are like 200k purchase with a rental income of $1000 a month. Eeeks, no thanks


I agree, for that 25% down ($50,000) they are not even getting your $1,200 annual return! I love it!!!


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## Square Root (Jan 30, 2010)

The comments here are quite a bit more bearish than the ones in the same thread in the general section? I agree we are in for a correction at some point.


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## dogcom (May 23, 2009)

The rent argument is good when you are investing or buying in areas that many people outside that region really don't want to live.

In Vancouver and I would suspect some areas of Toronto you may never find homes that you can buy that the rent covers. Sure in Condos you might find it because they build so many of them and I sure hope I never live in one.

But in the end a correction has to come at some point and that will be the time to sell that condump or townhouse and move up to buy what you really want to own. Canadians have a lot of debt so I am sure something will give at some point or maybe the Chinese will back off a bit and Vancouver becomes available. If you do see it happen in Vancouver and you can afford to buy in Vancouver then I would do so because I don't think you will ever see a better return in the stock market.


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## Easy Does It (Sep 24, 2010)

Personally I bought a rental property in Toronto way back in 2003. Within 6 months I was able to raise rents and gross $4500/Mth and Net $1500/Mth. I sell mortgages for a living and so seeing things on a daily basis can affect your judgment. Back in 2009 when CMHC decided to cut the 40Y AM and 100% financing I pulled the plug. I listed the rental a few weeks later and had 3 offers the same day with one being over asking with no financing or home inspection. To me this was crazy and risky behavior. The sad part is as much as I love real estate and being a landlord I haven’t been able to find any rentals that carry themselves in years but I do believe that over time this will change, but who knows when.


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