By Guest Blogger Ryan Lewenza
With stocks hitting new all-time highs almost every day, global bond yields at or near zero, and Canadian home prices at nose-bleed levels, it seems like everything these days is in a bubble. This is particularly true for the Toronto housing market with average home prices up 22% Y/Y.
In our opinion, there really is no longer a debate of whether Toronto, Vancouver and overall Canadian home prices are in a bubble. As we examine in this post, the Canadian housing market is in one big fat bubble, and the real question is when does the bubble burst, and how deep will the correction be?
First let’s look at the anecdotal evidence of a bubble. In my readings and conversations with real estate agents and experts, it’s become abundantly clear of the speculative froth in the Canadian housing market, particularly in Toronto right now.
The obvious data point to highlight this is the staggering 22% Y/Y increase in Toronto home prices. Over the long run, home prices typically appreciate in line with income growth and inflation trends. So a 22% Y/Y gain is incredible and completely divorced from the underlying economic realities.
Yes, the very low inventories in Toronto are greatly contributing to this, but I think Toronto is also seeing a surge from foreign purchases lately, as a result of the 15% foreign resident tax in Vancouver. It’s no surprise that Vancouver home prices are down significantly following this new tax (according to the CREA, average Vancouver home prices are down 19% Y/Y to $878,242), and that Toronto is surging to new levels over the last 12 months.
What scares the heck of me, beyond the 22% Y/Y appreciation, is the nature of sales these days. In speaking with agents I see a few clear and worrisome trends.
First, “bully offers” have become the norm these days when they used to be the exception. Bully offers are aggressively high offers that bidders submit before the official offer date. For example, a seller and their agent will market the home as accepting offers on a set date (usually Tuesday), but bidders will come in with preemptive offers shortly after the listing goes to market, canceling out the stated Tuesday offer night. Basically if you’re trying to purchase a home in Toronto you can’t react quickly enough since the bully offers come in so fast, leaving many interested parties no time to react.
This topic was addressed in a recent blog post from TorontoRealtyBlog.com, a great website for chronicling the insane Toronto housing market. In the post the author states, “So picture this: he’s driving downtown to meet her client for 3pm, and when the light turns red and he comes to a stop, he checks his messages. And there at the top of the pile is an absolute dream-crusher: “66 Portland SOLD FIRM, no more showings.”
“The goddam property sold while I was on my way there in my car!” he told me once he returned back to the office. Crazy!
The second sign of excess is the spread between offers, particularly the winning bid and other offers. Before the winning bid may have been $20,000, $30,000 or $50,000 above the next highest bid. Now the winning bid is often six figures above the next highest bid. Basically, current buyers have to be incredibly aggressive with their bids if they want any chance of purchasing the home.
Doesn’t this sound familiar? Didn’t we see this excess near the top of the US housing bubble or Japan during the 1980s?
I’ve been thinking a lot about the craziness that I’m seeing and it made me wonder how the run up in the Toronto housing market compares to previous housing bubbles. So I decided to compare the data of these housing bubbles and the results were shocking.
Using the Toronto Teranet-National Bank Home Price Index, I looked at the appreciation of this index over the last 17 years and compared the results to Japan’s home price appreciation in the 1980s and the US in the 2000s. Since 1999, the Teranet-National Bank Toronto Home Price Index has risen an incredible 200%. In contrast Japan’s home price index rose 193% in the 17 years prior to its peak, and the US S&P/Case-Shiller National Home Price Index rose 152%. As illustrated below, the run up in Japan and US home prices have been almost exactly the same as what Toronto has experienced. When I completed the chart I basically sat and stared in awe of the similarity between these markets.
So the conclusions from this chart are: 1) Toronto’s home price appreciation has been on par with other notable housing bubbles; 2) will Toronto’s housing market follow Japan’s and the US and peak soon as the chart suggests; and 3) if it does peak and rollover, will it track more like Japan (which today is still half of what it was worth at its peak in 1991) or will it follow more like the US, which declined 30% during the Financial Crisis, but has since fully recovered?
Personally I don’t see a 30% or deeper correction similar to the US and Japan. It’s probably somewhere in between, more likely in the 10-20% range. But the historical data and anecdotal evidence supports our view that the Toronto housing market (and Canada for that matter) is completely out of control, and if history is prologue, suggests prices are near a peak.
I have to run now. I’m interviewing some real estate agents to give me a quote on what my home is worth. Who knows, maybe Garth has rubbed off on me and I can convince my wife to sell our home and lock in a massive profit. These type of gains don’t come along too often in life!
Past Housing Bubbles
173 comments ↓
Toronto Mayor John Tory ‘very concerned’ as house prices continue soaring
http://thechronicleherald.ca/business/1446816-toronto-mayor-john-tory-very-concerned-as-house-prices-continue-soaring
Great post Ryan and good luck convincing your wife!
“I have to run now. I’m interviewing some real estate agents to give me a quote on what my home is worth. Who knows, maybe Garth has rubbed off on me and I can convince my wife to sell our home and lock in a massive profit.” – Ryan
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Consider, Garth has been preaching this message for years.
10% correction? As in a $2.2 mil moldy bungalow in East Van , will drop to a paltry $2 mil? Hmmm.
“it seems like everything these days is in a bubble.”
Except everyone’s salary.
https://www.bnn.ca/toronto-s-housing-market-could-run-out-of-control-warnings-mount-amid-27-7-price-surge-1.686538
Wowowowow vice Turner acknowledges foreign buyers! A breakthrough. Hopefully it won’t be linked back to Garth and upset the clientele. But back to seriousness – insightful post!
Ryan, you are late to the party, Garth (you work with him,) said it was a bubble 9 years ago. Good effort though!
SnapChat has a value of $34 billion? A company with $50 million annual revenue?
That’s totally insane.
SnapChat is valued more than HP! HP is such a vast, large company with thousands of products and revenue streams from PCs, printers, medical imaging, hardware, software support/services etc. etc It has tens of thousands of patents, international company, the largest manufacturer of printers in the world.
Yet, a SnapChat is now more valuable than HP!!!?? What does SnapChat do? It lets you share photos on your phone. Sheeeeesh.
This economy/stock market no longer makes any sense to a rational person.
I have sold a large chunk of my stocks as of last Friday and am hoping/HOPING that the whole bubble burst 50 to 75% and companies like SnapChat go bankrupt.
Meanwhile, a crappy, tear down house on a 1/4 acre lot in Toronto or Vancouver is listed in multi-millions, yet in Nova Scotia, you can still buy a nice large house on 50 or 75 acres for less than $200,000.
What? Someone on this blog final admitting that Foreighers have had a hand in these insane prices? Hallelujah
Again, I understand the need to be politically correct, but let’s be clear here:
A decline of 10-20 % will revert house prices to levels from 2016 in GTA. If that is the case, then all the talks about a housing bubble prior to that year 2016 would prove to be wrong.
Down the toilet goes the credibility of this blog.
The facts:
1. The bubble was noticable in 2008 (nine eyars ago). It poped in 2009 but due to Flaherty’s poilcies 0/40 it got re-inflated, this time overblown on enormous scale.
2. If we look at any meaningfull stats:
– house price appreciation for SFH in GTA s not 200 %, it is 400-500 % for the last 15-17 years, a house in Toronto pucrased for 265 k in 1999 sold for 1.6 mil in 2017.
Mississauga jumped from 200 k to 1.2 mil for SFH./ 6 times!
– significant detachment of house prices from incomes for all intends and purposes, I abolutely don’t buy it that 10-15 % increase in income justifies 400-500 % increas in house prices.
There is no way even without meaningfull normalization of interest rates (and I don’t think that it is possible, just look at Poloz’s lame excuses not to raise the rates when employment numbers are good and economy is ‘somehow ok’) to justify SFHs costing 14-15 times income before taxes!
– None of the cases that you mentioned (Japan, US) had the equivalent of the CMHC insuring mortgages and encouraging lenders to underwrite syper-risky subprime mortgages, it it also absolutely clear that there is signifcant mortgage fraud in Canada and very loos lendind standards despite what you hear in the Mass Media or lenders selft-advertisements.
There was also signifcant foreign flippers activies and (suprise, suprise) there were even no records of these so they can be taxed!
-Mindblowing incompetence in the regulating agencies, BOC and crown corporaations (CMHC), no meningfull risk model.
Nobody can convince me that a bungallow bought for 400 k at Leslie and Shepaprd is now ‘worth’ 2.8 mil and will correct to 2.5 mil which is ‘OK’
In Ireland the prices corrected by 50-70 % and our bubble is arguable much worse. Any correction south of 50 – 70 %, 75 % + in GTA is meaningless in real terms (purchasing power, not nominal price), our economy simply can not sustain the bubble in eny form or shape any more.
So when coming with suggested ’10-20 %’ decline ‘from the top consider the above, including the real crash in Ireland.
Hell, real estate in GTA could even go further up from here another 10-15, event %, it is that insane.
… overall Canadian home prices are in a bubble.
____________________________
Yes, but I wouldn’t fret too, too much about that alone!
Let’s face it, there lurks a much, much more dire bubble beside the one in home prices: … market!
Consider – from The Wall Street Journal, snip and source-link:
Snip:
“The stock market’s valuation is now in the 96th percentile of all observations in the past 135 years based on a cyclically adjusted measure used by Yale professor Robert Shiller….
..it is no surprise that most of the S and P 500’s 17.1% annualized price gain since the bottom in 2009 has come as a result of valuation rather than real earnings growth or inflation. Justin Sibears of money manager Newfound Research calculated that a larger portion of the current bull market’s returns have come from valuation gains than any since the 1920s bubble. Perhaps not coincidentally, the Shiller price-to-earnings ratio is at the same level as observed in July 1929.”
Link:
Economy Up, Stocks Down? Don’t Be Surprised
https://www.wsj.com/articles/economy-up-stocks-down-dont-be-surprised-1487684070
Granted, seemingly lofty stock prices are not necessarily an indicator of loftiness, if that is, they accurately reflect the underlying economic strength.
And so, the question begs to be posed: … Do they?
Anyway, … are we facing a double whammy at this juncture – markets and housing?
F.S. – Comox, BC.
#142 Sitting on the toilet thinking on 03.04.17 at 1:02 pm
#117 114 on 03.04.17 at 8:03 am
A few corrections ;
A) Toronto is not godless
B) plenty of cash in Toronto -don’t judge a book by its cover
__________________________________
Yes I’m sure they pray everyday when they stand in line waiting to be a debt slave for the rest of their lives.
Garth may be calling for a slow melt I’m saying there is going to be a catastrophic housing crash that is going to wipe out the middle class.
For every action there is an opposite and equal reaction
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Absolutey. Every call for small menaingless (in the grand scheeme of things) corrections ignores the reality, the obvious and the fact that economy has not the energy needed to sustain any of this any more, any form of overpricing and subsidies for the housing sector.
If we insist on keeping on this track I easily see after the blow a country with no economy whatsoever, even worse than some percieved ”3rd world countries”.
This is not by long shot at all, just look at the cell phone and internet and cable services quality, prices in Canada.
Absolutely outrageous!
Yes it will be a serever crash that will wipe out the remains of any middle class.
Ryan, you state, “…and overall Canadian home prices are in a bubble. As we examine in this post, the Canadian housing market is in one big fat bubble”
With the blog beating us with “Real Estate is Regional” can you comment on your broad stroke? Specifically, thinking about Calgary which has not been subject to ridiculous price appreciation. And from an even more micro level, detached housing builds have been slow for a couple of years now, thereby reducing inventory.
All I know is that I really wish that I had bought a condo or something in Toronto 10 years ago, as everything has doubled. At the time, the prices seemed crazy for what you got. Now being double, it’s rather disheartening. I remember thinking “not sure if I can afford this”, and now, just knowing that nothing is affordable.
Maybe everyone else is making 300k+/year, or something…
“The listing supply crunch we are experiencing in the GTA has undoubtedly led to the double-digit home prices we are now experiencing on a sustained basis,” said TREB Director of Market Analysis, Jason Mercer, in a statement. “Until we see a marked increase in the number of homes available for sale, expect very strong annual rates of price growth to continue.”
As I said, run for the hills.
And No, Canada is not the hills, it is the 17th economy in the world, even with the enormous credit bubble (without it probbaly the 30th), despite all the lands and resources.
Consider this: In the country with least density of population on earth with plenty of resources, to buy a sub-standard house (cornflake wooden house, glass condo) costs the highest multiples of anual incomes (befoore taxes!) in the world.
If this is not idiocy I don’t know franly what is.
A, I forgot, living in basements, (again the only country in the world!).
Let’s be honest.
Ryan won’t convince his wife. They’re not selling their home.
Toronto homeowners aren’t selling in the face of 20% yoy gains.
Don’t kid yourselves.
Florida is nice at the moment. Enjoying it here. See ya
Well, a 20% correction is really nothing. Not unless it stays down for 25 years, at these levels such a correction is a big nothing.
It will not change the insanity, unaffordability or debt one bit.
Great. Make Canada great again.
The only problem with the chart above is it assumes T=0 (peak housing) for Canada is today. That chart may continue to rise and slide left for another 5 years or 5 weeks. Nobody knows
Oh, and I forgot, by any stats the majority of the subprime high-ratio mortgages are in GT and Vancouver.
Any continuation of this is criminal and I hope Wild Bill M. has the decency to consider the consequences. He has the power to get rid of the clown Poloz and stop the insanity with CMHC. If not… then expect court rulling ‘guilty of mismanagement’ few years down the road.
Yes, it will come down to this and yes, it will be ugly.
The Teranet National Bank Toronto Home Index would suggest a 6.7% rate of growth compounded over 17 years.
This does not seem high compared to 17 year stock market annual returns Dow Jones, S&P 500 etc. at 6% to 7% includes dividends and longer term Canada, provincial, U.S. Treasury bond yields at 5.75% to 6.75%.
It looks like a 2000 to 2017 time period the chart above.
Bubblicious.
I’m thinking a 20% depreciation is a conservative estimate.
30-40 % might be a bit more believable.
Foreign ownership issues aside…….
Spineless politicians in the back pocket of banks and Real Estate cartels……..not a good combo.
Hopefully prices will drop and will stay there for decades.
Personally I don’t see a 30% or deeper correction similar to the US and Japan. It’s probably somewhere in between, more likely in the 10-20% range. But the historical data and anecdotal evidence supports our view that the Toronto housing market (and Canada for that matter) is completely out of control, and if history is prologue, suggests prices are near a peak.
how about door number 3: Toronto house price index follows the curve which is symmetric about the dotted line! frankly the Japan house price index is Japanese which I don’t understand – other than to count to 20. The US Home Price Index was moderated by concerted government action: of note the US Fed dropped interest rates from 5% to 0%. This action is simply not available to the Canadian government. My theory is that US action served to prop up the Canadian market by inducing a similar drop in Canadian interest rates. The fact that most mortgages in the US are 30-year fixed term was a huge moderating factor. There is no such thing in Canada.
Your own words: “completely out of control”. Your information is better than mine. You just don’t want to sound like an alarmist but if the Toronto house price index was symmetric about the dotted line then that would be alarming.
#9 Sorry about the spelling. I couldn’t believe what I read and got the shakes.
Great post Ryan! I came across this on my Twitter feed and I think it explains the current situation well: In “Canada the middle class are relying more on real estate agents for retirement advice than licensed financial consultants.”
Torontorealtyblog.com is lots of fun to read, particularly the comments.
If you want to get to know the people on the other side of this debate, head on over.
I love hearing about these bully offers and bidding wars. Up here in Kanata, I walk my dog past empty houses for sale for months and the price drop sign goes up long before the sold sign does.
I can’t see how the 905 isn’t in for a surprise.
nice to see the acknowledgement of foreign money. there is a lot of it here in the gta. as long as that money keeps coming in, there will be a ripple effect i.e. those that sell at these high prices will bid up condos and will fund their children or grandchildren’s downpayment, and with the banks lending crazy amounts, this will keep prices high. if you don’t have an inheritance coming from a gta house, unless u make lots of money, you are sol. unfortunatley, it’s all this country is creative enough to do. poloz killled the loonie to increase exports, he accomplished that, we are exporting housing/land. it will continue. regular workers will not come here as it is too expensive and the economy will become more and more concentrated on real estate. beware though if the gta ‘charm’ wears off and the foreign buyers become mesmerized by some other new shiny opportunity.
Ryan;
Yes, by all means get your ass over to the real estate office RIGHT AWAY, breaking the sound barrier if necessary and cash in that winning lottery ticket. Yes, put down that laptop or your cup of Earl Grey Tea and get going right now!!!!
#14 Duo on 03.04.17 at 2:18 pm
You and a lot of other people too.
It’s all the same crap today as well, except the debt levels are higher and now no one expects to actually pay off these mortgages.
Mortgages are seen as something temporary. Something you use to make money then get out.
Who can blame everyone? This is how you make money here. I did the right thing, invested, rented from mid 2015 until today and I’m up about 5% on 100k (after being down for almost the entire time). Who cares.
This is how being prudent is rewarded. Add to that my “landlord” wants to raise my rent again.
I have since also started to look at buying. I don’t think this is the top anymore, and renting is garbage. Oh well.
MF
“In my readings and conversations with real estate agents and experts, …”
Tut, tut Ryan. “Real estate agents” and “experts” sharing the same sentence? Really? Oxymoron anyone?
Now you’ve done it. You’ve served to inflate the egos of the former, and pi**sed off your friends in the latter.
Yup. Toronto is in a RE bubble no question. Nowhere to go but down as rates go up as well. There are supply/demand imbalances, but as rates rise, prices will surely fall and new buyers are likely to lose… a lot.
Its not my interest today, however. Today’s interest for me is Russian real estate owned, as we are about to find out, by Russia’s prime minister. People may recall the assassination of Boris Nemtsov:
https://en.wikipedia.org/wiki/Boris_Nemtsov
Or, more famously known as Putin’s opponent running for president with elections coming months away, gunned down in front of the Kremlin (with camera’s turned off for some reason). Nemtsov and another guy by the name of Alexei Navalny who has made headlines first by announcing he will run for president and then by a court charge many think was trumped up to keep him out of the picture:
https://en.wikipedia.org/wiki/Alexei_Navalny
Nemtsov and Navalny were both handing out leaflets in front of the Kremlin the night Nemtsov was assassinated…. but I digress. Navalny just released a video with English subtitles exposing what Putin’s prime minister (or puppet president, Putin’s 14 year chief of staff that alternates between prez and prime minister so Putin can keep power without bothering to change the law that keeps Putin from being president for longer than 8 years) Dymitri Medvedev owns for real estate alledged, by way of bribes (how else) on a meagre Russian salary:
https://en.wikipedia.org/wiki/Prime_Minister_of_Russia
And, Alexei Navalny’s video can be found here:
https://dimon.navalny.com/#intro
Its a well done video, documenting who owns these extravagant pieces of Russian real estate with drones taking cams shots. I gotta say, Navalny has guts to do this considering Nemtsov was gunned down not long ago, but he did it! He did it and the video is worth a watch. It gives us an idea as to just how corrupt Putin’s government is. Putin himself is alleged to be worth $ 40 billion from the FBI but the CIA has him worth $ 80 to $ 85 billion, all coming from pieces of the privatization of Soviet commodity corps (energy, mining) in the Yeltsin and Putin days setting up today’s Russian oligarchs.
https://en.wikipedia.org/wiki/Russian_oligarch
If CIA numbers are correct ($85 billion U.S.), this makes Putin the most wealthy man in the world, the leader of the most successful Kleptocracy in the world:
https://en.wikipedia.org/wiki/Kleptocracy
Or, in short, the world’s most successful criminal of this century. Makes what Nalvalny did with his video all the more brazen from what I see.
I found peak home in the middle of nowhere listed about a week ago. Listed about 500,000 dollars above the present day market prices. Thinking this house will be worth about $250,000 5 years from now.
https://www.realtor.ca/Residential/Single-Family/17837432/18947-MCCOWAN-Road-East-Gwillimbury-Ontario-L0G1M0-Rural-East-Gwillimbury
3 houses sitting empty on my street ever since they were sold 6 months now. Coincidence? Nobody shovelling driveways, no recycling bins out and no contractors. Each one went for at least 100,000 over asking.
That’s it? Lol
Drop in the bucket. Toronto is no longer affordable for the average bloke even with a 20-30% ‘corrction’. Be grateful we r not in Hong Kong territory than you’d really be having fun with charts
Sell your home and get the hell out of Canada! That would be my advice. This place will be Venezuela soon. If you’re young look south or somewhere else. Life is not fun being a complete debt slave.
Housing market will burst like all bubbles do: Pape
https://www.thestar.com/business/wealth/2017/03/04/housing-market-will-burst-like-all-bubbles-do-pape.html
Only 20%…so back to 2016 we go! Should have bought back in 2008, 2009, 2010, 2011, 2012, 2013…well you get the idea. What a failure to capitalize. None of these prognosticators have the balls to stick to their guns. Wrong all along. This is getting tedious.
Ryan, what are your thoughts on the Edmonton housing market? Is it balanced, or do you feel it is overvalued?
Thanks
You read Martin Armstrong at all?
The fix for RE isn’t interest rates. Real estate capital gain needs to be treated just like any other capital gain. It’s that tax shelter that is the problem.
Thank you Euro Observer for your posts.
They are truly well written about canada and
I agree with you.I enjoy reading them, 3 more years and I will say
goodbye …
So in Detroit you can get this for 735k… its a little more than ridiculous…
http://detroit.curbed.com/2017/3/3/14805372/indian-village-mansion-for-sale
Shut down allowing purchase of homes with money that was not earned in Canada and limited the purchase of real estate to a home and a cottage and we will see how fast this country will return to a pleasant place to work and live. It will give the land back to the people who support the local economies. It will give the lives of workers back to families instead of turning them into debt slaves. It will allow people to enjoy the amenities in their cities, rather than spend all of their income on shelter and heat. It will provide a stable environment to allow families to grow and prosper. It’s time to stop propping the real estate sector which should be returned to the nations people and measures should be taken to prevent it from exploit in the future. I really hope CRA takes advantage of this once in a lifetime chance to examine income to real estate asset purchase. I also hope CRA takes a look at the census data and all the empty homes in the best neighbourhoods where Canadians are now lucky enough to maybe rent basement suites from out of country landlords. This bubble really does need assistance in popping because of the lack of government regulation of free flowing capital that was not earned within the country by the people of the country.
Short note here ::
Love the ” pink snow reporting”. Good addition. My view indicates, units in my hood selling for $135,000 discount ( or about 25% plus) . Some friends blew their units out before and after. Some as is clean, some completely renovated, the before 15% foreigner tax window in time, changed . Still more price drops to come with Veridian gren 2 and 10 other new buildings coming up!
Brother sold in south richmond, new owner losing $10,000 per month , every month so,far! (JapanStyle losses coming…?)
Great blog write up today.
Good luck convincing the wife, buddy! The profit you can bury in either the computers holding the bits, feel rich, and brag about it or in a 12 bus atomic shelter Garth so graciously linked a few months ago for the squirrel recipe collectors, and feel prepped and brag about it. That is if you can actually get your hands on so many IOUs convertible in tuna cans, without triggering some red flags on another set of computers… Truth is, when you look at the figures, the insanity has gone so far, it probably does not matter if you have bits, paper or yellow rocks when the crunch hits. Garth’s bubble talk started in 2008, the fact that prices in TO are up 22% up in 2017 is something for which words have yet to be invented (for example: McFeasting in Valhalla)
Part of the Toronto rent bubble is the rent bubble.
Bidding wars for rent.
It makes sense, of course, it’s unrealistic expectation that real estate price and rent price is not going to move together in a market economy.
I cant wait to see the blame game when this Ponzi goes down.
Trudeau blaming Harper’s policies.
Politicians blaming bank lending rates
Banks blaming mortgage brokers and real estate agents
Everyone blaming realtors.
No one blaming greed and stupidity
What ….a…..mess
Nice work Ryan. I think it’s a little incomplete. Take a look at the direction of interest rates in Japan and the US as the bubble burst. If I’m not mistaken interest rates were in decline. We have the reverse happening now so the correction could become much more steep. In the US following the Gfc rates collapse which helped keep cost more manageable for those on the edge. How will a rising interest rate environment affect homeowners in Toronto that are maxed out in financing at the bottom of the rate curve?
My brothers neighbor (a security guard) owns 4 homes. He piggybacked his original home and leveraged the rising equity to buy 2,3,4. He probably is cash flow negative and has 20-30% equity in each home. A correction or a stagnant housing market will bankrupt him. The question is how many more people are like him in the GTA? We just don’t have these answers so we can’t know deep a correction will be. Or what shape it will take.
Japan has a declining population and very strict immigration policies.
This has impact on real estate supply/demand and price.
Fukushima did not help, either.
Mind you, with over 7+ billion people that’s probably what the future should aim for.
The entire economic model that’s based on growth is very questionable, no longer makes sense.
There is absolutely no need for further population growth – even if that’s what “the market” demands, supposedly.
Toronto Mayor John Tory on a tour in India and Sri Lanka to bring more talent and wealth to the city of Turdonto…..
Victoria is a quiet little place, sits away from the housing storm in Vancouver and Toronto, but housing is crazy. Rentals are now .6 of 1%. Just try to find a place to rent. I don’t have official numbers of houses sold, just observations of my neighbourhood. It’s nice middle class but not one of those desirable neighbourhoods like Oak Bay or James Bay or Uplands. Yet, a For Sale sign goes up and the next time I go by, there’s a sold sign. There was a bungalow in a not very good spot, too close to a main road, sat empty for a year after being renovated, got taken off the market, just recently put back on the market. It was sold in a week. Building of new houses and condos is going on in every neighbourhood and, once built, the Sold Out sign goes up very quickly. Just as in TO, the money made on selling a house, is spreading out. People who need to buy are buying further out in spite of the commute. Who are all these people? Are they mostly main land refugees? A friend in Vancouver just sold her bungalow in a top neighbourhood, it has a great view, for over 5 mil. 5 mil! I expect it will be torn down and a mega house built. Yup, should have moved to Vancouver years ago, bought a couple of dumps, no need to go high class. It’s just the dirt that is valuable.
Ryan, very informative post. Thank you.
Reminds me so much of Galbraith’s excellent book:
https://www.amazon.ca/Short-History-Financial-Euphoria/dp/0140238565
I don’t know if you were joking but I’m seriously contemplating getting out of this market, and my wife already agrees! This is thanks in large part to Garth’s very entertaining posts on the subject which I share with her every now & then (thanks, Garth!).
We’re in the KW area just west of TO and I’m seeing massive amounts of housing stupidity out here as well. We just don’t know if we should pull the trigger now & rent locally for awhile or wait until next year when we plan to pull up stakes and head back home out east.
Any advice? Jump ship now or hang tight one more year & pray the local bubble remains inflated until then? Blog dog opinions welcome. Thx
Since 1999, the Teranet-National Bank Toronto Home Price Index has risen an incredible 200%.-Ryan
The price of a Toronto home has risen considerably more than 200% in the last 20 years.
Ryan you are not taking into account that there are many more condos today than there were 20 years ago and this has kept the average price gain artificially low.
Approx 8 weeks to go before my Toronto house hits the market.
(As he says while rubbing hands together)
Nice Chart.
Except you have 2 lines from National housing markets comparing them to one city, Toronto.
How about comparing national averages? It won’t produce the same effect will it?
Thanks for the chart Ryan. Crystal clear view of the facts.
And many more countries could be added to the chart showing the same thing happened there too recently, before their crash, or more aptly said for a few of them, their crash and burn.
Right now, Canada is only at the “Fubar” state.
More will be revealed. One thing is for sure, whatever happens, I always profit.
Lastly, calling Garth wrong is a falsehood. What he teaches is sure to give people lifelong financial security dealing with every area of their financial lives. With free tummy rubs.
#1
Freedom First
Master off Freedomonics.
ps Loft, hang in there, this to shall pass. You will be mobile again.
Now that we can all agree the foreigners are messing up the RE market via money laundering, what are the odds that the RCMP/Govt will even do anything?
Oh thats right !! This is Canada. Nobody goes to jail or is barely even investigated for money laundering. You need to be stealing 20 million dollars from old ladies before they even look at you.
It will look like Japan. The US threw massive stimulus into the economy and dropped interest rates which helped home prices recover. We will see how their prices hold with higher rates.
Canada already has rock bottom rates and we are close to maxing stimulus. Add in higher taxation coming, higher mortgage rates (not lower) and all mortgages in Canada are rate reset (not locked for 30 years like in the US). There is no where to go but down for a very, very long time.
#29 MF on 03.04.17 at 3:14 pm
right they are going to suck you in no matter what, especially if you can’t leave here i.e. you work here. if you will not willingly follow the herd and “invest” in housing, they will somehow take the money out of your pocket. forget saving – they want you to leave without a dime left in your pocket.
#25 Chris on 03.04.17 at 2:59 pm
Torontorealtyblog.com is lots of fun to read, particularly the comments.
If you want to get to know the people on the other side of this debate, head on over.
/////////////////////////
Please Chris don’t send people from here over to there.
The comments there are still, for the most part, civil.
Worlds colliding Jerry, worlds colliding.
What I find baffling is that mortgage delinquency is so very low in Canada (0.28%*). Can someone explain that to me? (I expected at least 5% of the mortgages to be in arrears.)
*As of Oct. 2016, of the 4,712,806 outstanding mortgages in Canada, only 13,180 are in arrears. For more details from the Canadian Bankers Association, click the link below:
http://www.cba.ca/Assets/CBA/Files/Article%20Category/PDF/stat_mortgage_db050_en.pdf
#29 MF on 03.04.17 at 3:14 pm
I have since also started to look at buying. I don’t think this is the top anymore, and renting is garbage. Oh well.
MF
//////////////////////////////
MF, my Etobicoke house will be hitting the market very soon. Only 1 block from Bloor and it has a luxurious basement suite ready to rent out.
Interested??
Inventory is at a record low in hot 905 Burlington….I sold an infill lot in Dec cuz I was worried about the Morneau stress test. Might have got 25-50k more if I had listed in Feb…..the builder is in a hot damn hurry to get his house to market. Hope he doesn’t get caught, nice guy. Never would have thought I would get 600k.
Still have people calling about it from the comfree ad that didn’t even hit Treb.
Onf52
Excellent analysis, Ryan.
You’d better take the windfall while you can. I’m sure your wife will agree when she sees how much it is.
Limited Sage, you need to read Ryan’s article twice.
How will this bubble deflating affect REIT’s? Should I lighten up?
Ryan,
Great post and chart. I have seen this type of chart before and I agree with you completely.
The problem is that both the US and Japan suffered severe economic consequences when their real estate markets entered corrections from these levels. Japan’s Nikkei entered a 20+ year bear market and the S&P500 suffered a 50% drop for only a 3rd time in 100 years.
I don’t see how the TSX and the $CAD comes out of this unscathed given the elevated level of consumer debt and the fact that this debt is largely held by the Canadian banks (which make up 40% of the TSX). One would logically conclude that a severe real estate induced recession is inevitable at some point in the future. Wouldn’t you recommend to avoid the Canadian banks, equity markets and $CAD altogether?
Thanks,
Shawn
This is what happens when Poloz is refusing to hike interest rates when America is hiking in anticipation for Trump’s Inflationary measures as President.
Poloz will actually want to cut interest rates from the current 0.50% to 0.00% or negative to prop up the Bubble.
When the Loonie goes below 65 cents, Poloz will claim that “Inflation in Canada is low to our measure”, while we pay over $8 for a 1lb clam basket of strawberries and $4 for a tin of sardines.
Poloz tells me that we need a 55 cent Loonie to boost exports, but this time I want to tell Poloz that he is a moron.
I’m not Poloz.
#15 Euro Observer: My thought exactly. I’ve been watching outside Canada for a while and simply don’t get it. I understand a nice place in Vancouver costing a million but outside in places like Surrey, Langley, Abbotsford and so on, the prices make zero sense. Just like GTA and surrounding areas.
Canada has a ton of space, you would think houses are made with gold. Just the opposite. Press Board and cheap materials and often shoddy construction just to get it on the market for a cool 700+K or old 1980 and 1990 builds going for a 500-800K??? Really, who is buying these- is it really locals?
and #50 prairie person- find out who is buying all those places in Victoria. Personally my view now is YES FOREIGN MONEY has a big impact and BC politicians (Christy Clark- and most politicians) have sold out our country or at least certain cities like Vancouver to the Chinese. Probably Victory as well and many other cities are being pushed up by foreign money.
Either foreigners just gifted boomers once in a lifetime lottery gains by buying their house they bought years and years ago (again, simply as a place to raise a family and live- not as some astute investor)
or an unbelievable transfer of wealth from the young to the old has just taken place as it has been greater fools buying at any price and pushing prices to these levels based on FOMO, cheap money, bank of mom, CMHC allowing banks a free ride backed by tax payers and poor poor government policies allowing speculation and greed to screw the younger generation and turn housing (a basic right in normal countries) into a casino mentality.
To the point that you are screwed if you rent and screwed if you buy in most cities now…. of course, the younger generation and Canadians have a choice- don’t buy insanely priced assets.
Regardless. My way to fix this. Tax the hell out of empty houses- increase the foreign tax, increase taxes on secondary residences (which would put a ton of condos and apartments on the market or force them to be rented out)- Get rid of CMHC and let banks take some risk if they want to lend 600-800k to the average family (with average incomes of about 80K).
You would think more people would be upset about this but they are too busy checking their monthly equity- who cares about Debt and being enslaved to the banks.
Prices only ever go up and up and up and up, then stall (politicians come up with another way to goose the market) then up and up and up because it’s Canada. Economics don’t apply.
On a side note- we are soon ending a major fear based 17-18 year cycle and are moving into greed based 17-18 year cycle so it’s normal that things are going insane and wonky right now…might get real interesting soon- the last greed cycle peak was end of 2000- Dot com bubble- how did that end?
6 figures past the next guy pretty much sums it up. There’s a lot of air between those two offers.
So let me see if I have this right. When the USA housing bubble went ‘pop’ house prices declined 30% & have since recovered. When Japan’s housing bubble went ‘pop’ Ryan’s post indicates it dropped between 40% to 50% & Japanese housing prices are roughly the same today as they ended when the bubble popped.
Given the above, why exactly is there the belief that Canada’s housing bubble won’t have the same serious decline as the USA/Japan? Given the very high debt ratio to household income, the current state of our economy etc. why would Canada not decline by 30% or more? Is this just wishful thinking or are there actual solid reasons to believe Canada won’t end up a smoking pile of housing rubble?
The whole thing is simply stupid. Politicians, bankers, realtors, and everyone else involved should be embarrassed. I don’t even know where to start since there are so many things wrong with all of it. It is not healthy and the reasons are completely indicative of the times….short term vision and thinking all for power, ego, and illusion.
For any government at any level to think this is good for an economy is simply displaying their incompetence. Sure it helps budgets and the economy short term but people need affordable,places to live if an economy is to expand and be strong.
Thanks for the honest, thoughtout reporting, RL. I think we will go down similar to the U.S. as we are bonded by trade. And what VREU said that when the bubble is high then expect a steep decline or similar.
So true #42 Last of the boomers…”stop propping the real estate sector which should be returned to the nations people and measures should be taken to prevent from exploiting in the future…” but as for the CRA, they are controlled by our leaders and it looks like the laws are only for Canadians. Also, no point voting for either Liberals or Conservatives as they both believe in free international trade not like Trump with fair trade not free trade plus made in the U.S. Now, that would be nice to have someone really stand up for us Canadians!!!
#51 just a dude…depends when you bought the house, how much you have left to pay on it, your job securities, closeness to jobs/schools. Make columns, write it down, and don’t make hasty decisions.
I am not a fan of communist countries (they are so controlling) #31 Crazyfox and Putin fits right into the mold, his way. Wonder if Snowden wants out of there and back on U.S. soil? And I guess our country has become controlling too.
I miss the Dixie Chicks, bring them back and let the people decide not the fake news, lol.
Ryan FYI some of us ‘wives’ are trying to convince their husband to sell. But who’s kidding who right? He won’t. Typical huh?
#69 CL Right on! Your preaching to the choir:-). Simply insane what has been allowed to happen.
03.03.17
#42 Smoking Man
“Really sorry about your brother man”
So, you were bullshitting about your terminal cancer.
Thats pretty low man. Especially to those who have lost family or friends from cancer.
You are a real piece of S_ _T
#55 Cheap Houses on 03.04.17 at 5:23 pm
Now that we can all agree the foreigners are messing up the RE market via money laundering, what are the odds that the RCMP/Govt will even do anything?
Oh thats right !! This is Canada. Nobody goes to jail or is barely even investigated for money laundering. You need to be stealing 20 million dollars from old ladies before they even look at you.
…….
Try tax evasion in canada… you will get the chair. THAT they care dearly about. Foreigners buying up all the houses? Good for the canadian economy.
I don’t think the loonie is going to go down, down, down. I think there’s a good chance it goes up.
Wilbur Ross said yesterday that the Trump admin is seeking more parity between the peso and USD, so that Mexicans can be paid in money that is worth something. That is one of the goals they want to achieve when they renegotiate NAFTA. It follows, then that he would want parity between the USD and CAD as well.
If anyone’s been listening to Trump, the one thing he hates more than anything are currency games, especially devaluations that make the cost of US goods prohibitive in other countries. He wants a new US manufacturing base and for US manufacturers to be able to sell their wares in other countries, as other countries sell in theirs. Right now, the USA has huge trade deficits, and he wants those eliminated, and to move from free trade, to fair trade.
Shawn “I don’t see how the TSX and the $CAD comes out of this unscathed given the elevated level of consumer debt and the fact that this debt is largely held by the Canadian banks (which make up 40% of the TSX). Wouldn’t you recommend to avoid the Canadian banks, equity markets and $CAD altogether?”
No I would not recommend avoiding CAD banks and the dollar on a housing correction. First, most mortgages are backed by CMHC so the government takes the losses first. They are trying to implement a new loss sharing arrangement with the banks but nothing is final yet. Second, roughly 30% of CAD banks revenue and exposure comes from the US, so they are less linked to the CAD economy then some believe. Third, they are very diversified across different business lines (e.g insurance, capital markets, wealth mgmt). Fourth, given they have an oligopoly they can basically print money. US hedge fund managers have been trying to short the CAD banks based on this simple premise and they have had their hat handed to them. As far as the CAD$, oil prices and interest rates are much more important drivers. So despite my concern over the housing market, I do not see that as a reason to sell CAD banks, our dollar, and overall stock market. – Ryan L
Decent article although the authors pussyfooting around the size of an eventual price correction in Toronto lacks nerve. Saying an expected correction of 10-20% after a 22%yoy appreciation is effectively saying one year ago to this day Toronto housing was fairly valued, or even undervalued.
I see this alot in price predictions for a housing crash but what fails to be grasped each time is that additional years of uprising tend to make the correction worse. I believe it was a Jeremy Grantham note I read a while back that showed historical support that bubble corrections typically encapsulate the entire upside move plus interest. Food for thought.
Million-Dollar Home Contagion Spreads to Toronto Suburbs
https://www.bloomberg.com/news/articles/2017-03-03/million-dollar-home-contagion-spreads-to-toronto-suburbs
“Nothing is more bubbly right now than the Toronto housing market,” David Rosenberg, chief economist at Gluskin Sheff & Associates Inc., said in a note to clients. Rosenberg was known for calling the U.S. housing bubble before it popped, kicking off the 2008 financial crisis…
“The amount of leverage is so huge and so unprecedented that it would not likely take much in the way of an increase in mortgage rates to cause the price momentum in real estate, especially in Toronto, to go into reverse,” he said.
#47 I’m stupid
I know a lot of people like that who own multiple houses and work cash jobs but they all are good at fraud and forgery, if prices crash, they will cash out their credit cards , file bankruptcy and flee the country for few years.
#66:
Canada does NOT have tons of space, as this article amply points out:
http://www.eurocanadian.ca/2017/01/carrying-capacity-of-canada.html
This has been known since always, but greedy politicians with an agenda are creating an insane RE market and an impoverished nation.
“Now the winning bid is often six figures above the next highest bid. ”
This is truly staggering and definitely indicates buyers have lost their minds. Do people not realize how hard it is to come up with $100,000 after tax and living expenses? Most people can’t do it in 10 years, and that’s going to get worse as taxes go up and wages stagnate.
I have been ripped off before, the driveway sealing scam was one I fell for before I knew enough about it, but that was relatively modest money. (Lessons learned from that one were sealing your driveway is useless save the money for more serious repairs down the road and always get a firm price for the job, not some square foot thing.)
Autos are another good case in point. The market has been over supplied with too many cars for so long that it is conventional wisdom that a new car loses 30% of it’s value the moment you drive it off the lot. Why is that? Especially since it has a 5 year transferable warranty. But even in this case most people who drive a new car off the lot are losing less than $10,000 when they drive across the sidewalk, depending on what they bought.
But to lose $100,000 because you bid that much higher than the next most stupid offer? That’s got to hurt. A lot. The only reason someone would do this is if they thought it was a “sure thing” prices would continue to rise and that $100,000 they just wasted would soon be $200, $300, or $400,000. And that is the very definition of a bubble. “Sure thing.”
I also had bad experiences with what I would call the “option market scam”. I was just dallying, buying a few thousand Nortel puts here and there all the way down. After premiums and the huge fees options had at that time I made a few hundred bucks, and I was short (i.e. long puts) almost all the way down! Somehow the stock price would always miraculously rise into settle such that at best you got your premium and fees back.
I also tried hedging a long position using puts. Same result. All that happened is the premium and fees on the puts ate up the first 10% of the upside. On the downside I am sure all I would have got back is the premium and maybe some of the fees so I now figure why not just keep the money in the bank (or invested in other things)? You can’t beat the house. The “Masters of the Universe” actually are good enough at setting the premium that in the long run only they win. Same as how in the long run you can’t win at gambling. The house fixes the payout such that over a large enough number of hands only they win. Sure, there is always a heavily advertised commercial featuring someone who won lotto 6/49, but doesn’t it strike you as odd that the lotto itself keeps rolling in more doe? They are literally making millions. How? Well, for every jackpot winner, there are 100’s of thousands of losers. In the long run, for every dollar you put in a VLT, you get 70 cents back. Put that 70 cents back in, and well you 49 cents back. And so on until you don’t have any money left. If this were not true,nobody would have to work. We’d all just be sitting around the VLT’s with our “Gambling for Dummies” book.
Pink Snow falling in Burnaby.
This is another good example of why I have said some people that bought in 2015 are still on notice.
These guys are looking at taking a hit after massively over paying for this 1970 build by in December 2015.
They paid 1.71m for it and it has had 3 price adjustments since they started trying to sell it in October.
You see a lot of stats released in the media ,but it is already done and gone.
We can’t control what has already happened,I am just trying to show some of the people on here what is coming down the pipeline.
Also it’s probably worth repeating the stat that I showed the other day for my Motivated Sellers Index.
Number of price reductions in Greater Vancouver.
Feb 15-28th.
431
Number of sellers that had purchased these properties in the last 3 years.
134
Or roughly 30%…
M42BC
5398 Springdale Court, Burnaby
Nov 10:$1,849,900
Mar 4: $1,699,900
Change: – 150000.00 -8%
https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzVlNCTg==
P.S .Thanks for all the messages of support for both my Pink Snow posts and my health.
I hope to go back to work in the next month or so but until then I will try to show you guys what’s going on in the softer side of the market.
If everyone is sounding the alarm bells that we are in a bubble and prices have jumped 20% in a year, and you say that you don’t expect more than 15% correction then something doesn’t make sense. That will put us at where we were last year.
#59 Mortgage Delinquency on 03.04.17 at 5:55 pm
The answer is in the data you provided … at your link.
Take a harder look. Plain as daylight.
Toronto’s a different beast, Doug. You don’t know half of it. And the half you do know, you don’t understand.
Kyle “With the blog beating us with “Real Estate is Regional” can you comment on your broad stroke?”
Yes I totally agree. I see overall Canadian home prices down 10-20%, with some regions down more. – Ryan L
enablers
http://www.cbc.ca/fifth/episodes/2016-2017/kpmg-and-tax-havens-for-the-rich-the-untouchables
======
trump paid > 40m. russian pays 100m.
a mansion that was empty for two years…with little reno
Read more here: http://www.mcclatchydc.com/news/nation-world/national/article135243694.html#storylink=cpy
It’s all still insane to say the least
Working in insurance I see the listing all the time, ask/sold is now typically 20% higher, and asking prices are not in undervalued, they are in line of what the property is worth.
A friend was interested in a property in Clarkson, a tad over a million, came out today, never got a chance to see it as agent said they have multiple bully offers in place and aren’t accepting any at the moment. While the asking price was already a stretch.
Crazy world we live in, my junior assistants wonder how will they ever be able to afford a decent lifestyle with the ever increasing rents, the thought of owning is so far fetched, doesn’t even get mentioned, sad times
@#82 Will the Pink Snow reports turn to “Red Rain” reports once April hits?
Just curious :)
Re: #75 Evangeline on 03.04.17 at 7:29 pm
The Canadian dollar will plunge over the next two years. I’m formulating that the Canadian dollar will put in a bottom at the 53 (fifty three) cent level U.S. about two years from now.
By the way Doug, I have heard there are cougars in Toronto there could also be pumas to
“Personally I don’t see a 30% or deeper correction similar to the US and Japan. It’s probably somewhere in between, more likely in the 10-20% range.”
Sounds like somebody bought in 20% ago and is losing sleep at night…….LOL !!
Chaddywack on 03.04.17 at 9:03 pm
@#82 Will the Pink Snow reports turn to “Red Rain” reports once April hits?
Just curious :)
/////////////////////////
Hey Chaddywack,when the spring comes and if Vancouver is still correcting I will probably switch to Pink Pollen and in the summer Pink Lemonade.
That’s as far as I’ve got…
M42BC
With all the talk of the pending adjustments, I have paused before putting cash into anything in my newly formed TFSA.
I get being diversified but if we feel etfs/stocks are overvalued overall, doesn’t it make sense to go lighter on them and get something else … or is that the opposite of a balanced portfolio??
So confused
#74 “Try tax evasion in Canada… you will get the chair. THAT they care dearly about. ”
There are a lot of people renting basement suites that have never even been questioned.
I have a neighbour that rents out a total of 20 student rooms in three different properties for $400 a month/room and has done so for 10 years. Do the math on that one.
There is a huge incentive to not declare or under report rental income. There needs to be a separate disclosure made by a taxpayer on the income tax form that specifically asks for a declaration of all rental income.
That would avoid the, ‘But I really didn’t know that…”
We are running out of listings. When do we run out of greater fools. Every one of these insane sales takes one more out of the dwindling pool.
As for foreign buyers, who do you think will be first out the door when the turnaround starts? Especially if the loonie looks like its going down too.
Regarding GTA rent increases recently reported in the media: I used to rent a 1 bedroom in the Bay Street corridor years ago and I went online out of curiosity to see what they go for now. The same. Anybody have some insight about these reports? Seems like a lot of scaremongering. Get in now or neveeeeeeerrr!!! Disclosure, I now live in Bedford Park.
Well, one thing we can count on is that everyone will come to their senses quickly and sort this mess out in a rational, thought out manner. Like we humanoids always do…
All jokes aside, wife and I are in El Paso TX for vacation and this town is bumping. Hard to find a parking spot when we were looking for supper! Parking lots packed with nice new cars, seems like confident consumers.
JJ “Ryan, what are your thoughts on the Edmonton housing market? Is it balanced, or do you feel it is overvalued?”
No idea frankly. Garth would have a better handle on this. But I would suspect is more balanced given weakness in oil and AB. – Ryan L
OttawaMike “Nice Chart. Except you have 2 lines from National housing markets comparing them to one city, Toronto. How about comparing national averages? It won’t produce the same effect will it?”
Yes I did mix up national home prices for Japan/US versus just local Toronto, but I did this to hit home the point that Toronto in particular is out of control right now and has been for some time. As Garth has written about and was just brought up in the comments section, Canada’s housing market is very regional and the focus is more often on the big cities. So Canada overall is not as bad, but Toronto and Vancouver are clearly out of control. – Ryan L
Take a gander in Craig’s list. Vancouver does not appear to have a rental shortage anymore, and many of the rentals I know were for sale last winter. My speculation is that folks are waiting for the market to recover. I further speculate that the reason new listings are low is if it is an average, or sub average listing it simply will not sell at the prices folks want for them. This is the sticky part of real estate in the downward trend. So long as folks can get enough rent to cover the mortgage they’ll wait. Where it becomes trick is when the rents stop covering the payment. As rates and vacancies rise, I would expect folks to start to sell. But, this could take years.
#73 mike harrison on 03.04.17 at 7:20 pm
03.03.17
#42 Smoking Man
“Really sorry about your brother man”
So, you were bullshitting about your terminal cancer.
Thats pretty low man. Especially to those who have lost family or friends from cancer.
You are a real piece of S_ _T
……
Must of felt great to got that off your chest.
Talk to me grasshopper, what’s really bugging you?
Are you saying that the data only includes the primary lenders (and none of the secondary lenders in Canada)? Is that the answer? Or are you saying that the data is flawed or biased in some way?
My parents were able to buy a house in the 1960’s and 70’s on a single income.
In 1990 I purchased a 6 year old bungalow for 100k on a combined family income of around 50K.
10 years later I sold this home for 135k. The house appreciated at about 2% per year.
#49 Dan on 03.04.17 at 4:54 pm
Toronto Mayor John Tory on a tour in India and Sri Lanka to bring more talent and wealth to the city of Turdonto…..
—————
Of course Sri Lanka.
Hotbed of innovation and wealth.
Do, who would have known?
“I think Toronto is also seeing a surge from foreign purchases lately, as a result of the 15% foreign resident tax in Vancouver.”
Back in November I asked if the jump in GTA prices was related to the redirection of foreign capital as a result of the new tax in Vancouver. Garth said it was just a coincidence. I wonder if he still feels the same way.
You bet. — Garth
I have to agree with other posters who, over the past few months, have pointed out that if prices contract 10-20% in Toronto and Vancouver, we only get back to where we were a year or two ago. And since this blog started in 2008, you have to wonder what the warnings were about.
Surely if that is all that will happen, then many here would have been better off throwing in their chips with the only fully government-backed and supported investment tool that is near guaranteed … the Canadian primary residence.
Yes this blog is about balance and extreme risk avoidance, but for much of its life it has mainly been about the idea that Canadian real estate in most major markets were overpriced and would be ‘reverting to mean’ some day. Reverting to mean at this point is a heck of a lot more than 10-20%.
94 AB Boxster on 03.04.17 at 11:27 pm
My parents were able to buy a house in the 1960’s and 70’s on a single income.
In 1990 I purchased a 6 year old bungalow for 100k on a combined family income of around 50K. (2 x income)
In 2000, 10 years later, I sold this home for 135k. The house appreciated at about 2.5% per year. (2 x income)
15 years later the same house sold for around 350K, even with 15 years of depreciation. (yes houses do depreciate)
Now the fact that average family incomes over this period have remained the same or fallen, but the price of the house,in a sleepy Albrta town, has has risen by over 6% per year, despite there being several recessions during this time ( one massive one since 2008) is a national and societal disaster.
One commenter recently mentioned that if home prices were to revert to the mean, then families would be able to afford homes at 4X average family income. BS
Over the years, until about 2000, homes were affordable at 2-3 times family income. This is the mean that house prices need to revert to.
There is no reasonable reason for house prices to be so high in this country.
That housing prices are this high, whether due to immigration policy, or foreign investment rules, or lending policies, or government policies to encourage stupidity, irrattional behavior of the financially illiterate, or whatever, is a national disaster.
Shame on Canada and Canadians for screwing themselves on housing, on ever having enough to retire and for putting an entire country at risk of financial collapse.
Good post but am I seeing two national large RE markets being compared to the 2nd bubbliest market in this country?
Hardly seems like a fair comparison.
The bubble will last as long as the Trudeau-Polozites rig the emergency rates in their favour. It’s gotta be a political thing right? No government in their right minds would sit back and watch the carnage unfold?
I remember being a young agent in the 79-80 bubble. I had buyers fist fighting on the hood of my Mercedes…ugly. This happened more than once….inside the home, on the front lawn….and I learned to park around the corner. I have to say…it was thrilling….until it burst on day and the recession of 81 through 87 kicked into high gear. Job losses were staggering and swift. Civil servants were being attacked in EI and Welfare offices. Phd’s in entemology were fighting for waiters jobs.
Hmmmmmm, seems to me a Liberal government was pulling the strings back then too…..many of the same culprits who drive the back room mambo today….not good.
#97 – I agree… scaremongering. There is somerhing like 8000+ rentals available today in Toronto on Kijiji. Landlords asking a lot because they paid a lot.
A number quoted in CBC said $2.77 a square foot… I pay $2.27 in Yorkville which is arguably a very expensive part of the city. I wrote the reporter about her numbers and never heard back…
Thought GT was taking the weekend off but cannot resist with a comeback sometimes. Just like some bloggers that say they quit but come back too. Is this a form of addiction? Should we seek counselling?
To the leaders of a country: When not knowing is acceptable because that happens when a human but when facts, figures, charts, internet, phones, etc. in front of you and not do anything to acknowledge/ correct the situation for the people in that nation, that is just plain wrong, betrayal.
When messing people with debt means that they cannot buy from a store even groceries. Oh, I forgot, robots are replacing us and they don’t need food. I guess us humans have to make a country that respects us humans.
To lighten the mood arising from the GCREC*, I offer a brief clip of Haggard performing an impression of a son of Brooklyn, Nova Scotia, Hank Snow.
https://m.youtube.com/watch?v=t4V3S7kGNjY
*Great Canadian Real Estate Crash
The prices of houses after this months peak in GTA will go down about 75 % and whole Canadian economy will be in huge recession due to criminal activity of politicians, real estate cartel and the banks who inflated the bubble intentionally knowing that people actually live from home equity lines of credit and are greedy by nature. This whole charade of real estate market is speculative business. And yes we have foreign buyers inflating prices especially from Hong Kong whose plan is to take over Canada. Sad.
I do find it interesting that everyone seems to water down their prediction of a housing correction. Is this a Canadian thing? We are clearly in a bubble but prices “more likely correct 10-20%”. Like to a level 6 months ago? You rarely hear someone come out and say: ” Listen, bully offers, multiple offers, aggressive bidding wars – anytime this happens, history has shown prices will be as spectacular on the way down. This market will drop 30-40% and possibly more”. A Canadian thing maybe? We’re so polite. Sorry :)
For all of you hoping for a crash or calling the government stupid, etc. know this: The government policy makers know exactly what they’re doing and they’ve done it for the good of the country during the final death throws of the world financial system. It may not seem like it now but history will render them justice. RE is the ONLY thing holding the Canadian economy afloat. When the party ends, welcome to Zimbabwe. I think that they will be able to hold off the RE collapse until the world-wide economic collapse occurs (that isn’t too far off now).
the numbers support the possibility of a 50-60% correction within the GTA, either by way of crash or long term correction,likely sooner rather than later.
Interest rates are heading up and will continue to do so.
its simple math if you have a 5 year mortgage when it comes due 5 yrs on you are likely going to be looking at 8-9% first money, we will see 4.5 to 5 this year alone.
the 10yr US bond rate hit 2.50 Friday, first mtg money is already averaging 4% plus state side before next weeks fed .25 increase. regardless of what the BOC does rates are climbing, and there are plenty of possible events on the horizon that could shock.
as for GTA real estate prices: at the extreme top of the greatest PONZI GAME ever, last in worst burnt on the ride down
#95 Ret
I have a simpler suggestion:
The Federal and/or the Provincials can provide a tax credit to anyone who pays rent (in fairness, renters should be given a break if principal residence capital gains are tax free). Renters are to provide the address/rent amounts in their tax returns (with full receipts) to claim the credits. All data now available to the tax authorities to cross check.
If there is a will, the leakage can be stopped.
#68 Linda on 03.04.17 at 6:56 pm
So let me see if I have this right. When the USA housing bubble went ‘pop’ house prices declined 30% & have since recovered. When Japan’s housing bubble went ‘pop’ Ryan’s post indicates it dropped between 40% to 50% & Japanese housing prices are roughly the same today as they ended when the bubble popped.
—————————-
Linda, engage all 2 neurons in your brain and digest this:
1. US housing bubble was much less inflated than the Canadian one. House prices there never increased 400-500 % as we see in GTA/Vancouver today, even
friggin Mississauga (6 times increase!)
2. House prices in Japan today are 1/3 to 1/2 of what they were 26 (!) years ago at the peak of the bubble in nominal terms, despite the JPY inflation!
see the chart on:
http://www.thebubblebubble.com/japan-bubble/
I hope even a brainfrozen, fluoridated brain can understand it.
#68 Linda on 03.04.17 at 6:56 pm
And BTW Japan has 90 times more density ot the population than Canada and is the world # 3 economy.
https://en.wikipedia.org/wiki/Japan
Population
• 2017 census
126,860,000[13] (10th)
• Density
340.8/km2 (882.7/sq mi) (36th)
Area
• Total
377,972.28[11] km2 (145,935.91 sq mi)[12] (62nd)
Canada:
https://en.wikipedia.org/wiki/Canada
Area
• Total area
9,984,670 km2 (3,855,100 sq mi) (2nd)
Population
• 2016 census
35,151,728[5] (38th)
• Density
3.92/km2 (10.2/sq mi) (228th)
Linda “Given the above, why exactly is there the belief that Canada’s housing bubble won’t have the same serious decline as the USA/Japan? Given the very high debt ratio to household income, the current state of our economy etc. why would Canada not decline by 30% or more? ”
Sure it could, but I don’t see it as highly probable. First looking at the US experience, national home prices fell roughly 30% (some areas like Nevada fell over 50%!), but this was during the worst economic collapse in nearly 100 years. Credit froze up, banks failed, and the US almost fell into a depression. Why would we just assume Canada would fall as much as the US when our economy is no where near a depression like the US was on the precipice of. For the national Canadian housing market to crash in excess of 30% (which again is possible, but not probable), our economy would have to go through its deepest contraction in decades, in my opinion. Also there are huge differences in Canada’s housing market compared to US and Japan. For example, in US most loans are non recourse unlike in here in Canada where the borrower can still be on the hook for any losses once the bank repossess the property. In Japan there are large demographic differences compared to our economy which impacts growth, interest rates, and housing markets. So just using the simple premise that they fell 30-50% and therefore ours will is not correct in my opinion. – Ryan L
JWD “I do find it interesting that everyone seems to water down their prediction of a housing correction. Is this a Canadian thing? We are clearly in a bubble but prices “more likely correct 10-20%”. Like to a level 6 months ago?”
Sure I could make some doomsday prediction that Canadian housing market could decline 50%, which would probably make many readers of this blog happy since this is what they believe, but I’ve never made calls and published research to create a headline like this. I try to analyze the data, look at historical examples and come up with a probable forecast. I think it most probable that average Canadian home prices fall between 10-20% (likely closer to 20%) rather than 30-50% as some on this blog believe (and which is not really supported by data/analysis). – Ryan L
Zlatan Soccer “The prices of houses after this months peak in GTA will go down about 75 % and whole Canadian economy will be in huge recession due to criminal activity of politicians, real estate cartel and the banks who inflated the bubble intentionally.”
This is a great example of what I just mentioned in my previous comment. What analysis/rationale does “Zlatan Soccer” have to support his claim that Toronto home prices will decline 75%? First this is just a ridiculous and emotional response. Second, there is little to no historical experience where an international city like Toronto has fallen 75%. Third based on CREA data this would imply a decline from an average Toronto price of $770,745 to $192,686. Does anyone really believe that the average home price in Toronto will decline from $770k to $192k? – Ryan L
Sometimes internet clickbait actually has some relevance. Like this:
https://ca.yahoo.com/finance/news/10-000-tiny-home-built-slideshow-wp-205901959.html
Basically, an IKEA style home build, costs only 10 grand and looks pretty nice. For sure this sort of thing will be on the minds of some Canadians.
When you think of housing options like this, plus co-ops, plus co-housing which is growing in popularity in major Canadian cities, plus more multi-generational immigrant and native born families under one roof, plus more seniors selling homes and living with relatives for comfort and to avoid high care-home costs, you can see some natural market forces that will take air out of this bubble just as much as foreign money can inflate it.
It’s not about changing 50% of our housing preferences, but maybe 5-10%.
Enough to be a huge tipping point when it comes to demand for SFH. And a total killer for condos with their fees.
We asked for capitalism.
We got it.
Housing prices are one of the effects of a capitalist economy. Ups and downs.
You have to take the good with the bad.
Other than a tweak here and there, no government intervention please.
Let the chips fall where they may.
That is what we signed up for.
Take it or leave it.
Stop the hypocrisy.
Alternatives? Not really. See below:
http://www.discoverthenetworks.org/viewSubCategory.asp?id=581
https://whistlinginthewind.org/2013/04/20/why-did-communism-fail-3-incentives/
Why I fear a crash in housing.Those in charge of the masses have to do something that is very rare and not often achieved which is to take corrective actions against this bubble without actually experiencing the crash .No government in modern history as ever done such a thing neither the USA ,Japan Ireland etc. if selfie dude and cohorts can prevent a crash or even a soft landing it will be historical and forever taught in economics schools. .Ryan exit now .
As a few posters pointed out, income to price ratio may be more meaningful than just price alone.
There are way too many incentives to prop inflation even higher. Trillion dollar houses and salaries in 100s of millions! Bank of Canada claims 2% inflation for Canada. Well, in GTA it’s far more than the 2% average just due to housing. Wage inflation follows.
But in reality so many paths are possible that the only way to deal with this is prudence. Which is the essence of Garth’s teachings (among his other miracles are turning an option into a stock, riding Harley in snow and feeding smoking man with a single coffee).
Anecdotal evidence is that even many 1%ers can’t save anything after paying house. Not sustainable and SAD!
A Smoking Man Fan success story..
https://www.youtube.com/shared?ci=W6UZmf2mclc
Dr Smoking Man
Light years ahead of the Curve.
This “bubble”, or non bubble, depending on how you see things, can play out in a number of ways, which will be individual to each neighbourhood in Toronto.
Outside of the 416, yeah the situation is stupid. No one should be getting into bidding wars for houses in Whitby. There is tons and tons of land out there, they can build subdivisions for 100 years and not run out of room.
Toronto is different.
For example, it is still possible to purchase a detached house in some Toronto neighbourhoods for a very reasonable price and likely you won’t get into a bidding war. No one wants to live in these places. So we are dealing with a “cool” factor in Toronto where people are drooling to get into neighbourhoods for reasons that appear to be more “social” and “lifestyle” than because they actually want to purchase a house.
You can tell the “uncool” neighbourhoods because the listings don’t expire. They stay up for weeks after the open houses, which would mean that the house did not sell at the open house, on “offer night”. This continues to happen right now.
So again, as I’ve said for years, go buy a house in an “uncool” neighbourhood. Sure you have some gangs around, there are no neighbourhood block parties, your children have to go to an elementary school that doesn’t score high on the grid (the “good elementary school” is actually one of the most stupid reasons for people to get into bidding wars for houses – this does not matter at all, people, no one cares what elementary school you go to – I went to a crappy one out in Oshawa of all places, in a gang-ridden neighbourhood where the playground was a place for drug deals and fist fights-and I ended up doing very well in my life – this does not matter).
So….for Toronto anyway, there are still lots of affordable houses. You can still buy a two bedroom condo for under $100,000.00. You can still buy a detached house without participating in a bidding war. But you have to tolerate living in a neighbourhood that isn’t “cool”.
Oh and as I said two weeks ago (and as everyone is now saying) the stock markets are over valued and there is basically nothing that looks like a deal. Bonds are where it’s at right now. Bond funds, bond funds and nothing but bond funds. You’ll understand why later…..
It’s all about sentiment and demographics.
Once the albatross that is Toronto’s housing market starts to spiral downwards, foreign investors will evaporate and local buyers will pause.
The media will start to report stories about underwater mortgages and ruined lives, about banks having always under-reported mortgage delinquincies, and about how there is just no further interest relief possible at today’s low rates.
The city of Toronto will cut services and float ideas like property tax hikes and additional fees for everything from public transit to toll roads to library cards, in order to make up for the revenue now NOT coming from property transfers, further discouraging people from living there.
Canada’s proportionally largest boomer population in the world will finally be mainstream news and real estate agents will discover that old boomers do what old people have always done. Die or go into care homes. And their properties will flood the market.
The slide will be long and hard. A 20% drop? LOL, possibly in the first 3- 5 years. After that, the Marianas trench is the limit.
After the introductory paragraph where you repeat several times it’s a bubble because prices increased 22% in one year (is that the textbook definition?), you then proceed to justify price increases as being due to foreign buyers.
Presumably the argument here is that foreign buyers are detached from local reality and are paying more than local incomes can afford. Although, regardless of whether you put the percentage of foreign buyers at 5% – as the stats would indicate – or you believe it’s 10 or 20 percent -based on hearsay – it’s still clear that the vast majority of buyers are very local and they manage to pay the prices very well thank you. The size of down payments they put up-front was never greater.
Your only problem is that allocating a greater share of their wealth to their homes, they have less money to spend on wiser investments, such as shares in snap chat and dollarama and pay you a fee in the process. Tough!
@#110 Stock Picker
“….the recession of 81 through 87 kicked into high gear. Job losses were staggering and swift. Civil servants were being attacked in EI and Welfare offices….”
********************************************
Yes I recall those heady days of high unemployment.
when the govt understaffed the UI offices( as they were called back then).
There would be 30 people sitting with their claims ….2 UI staff at the counter and 20 UI staff standing back at the coffee machine laughing and talking .
The waits were HOURS long.
Until I went in one day and there were no line ups, 10 staff at the counter graciously and quickly dealing with claims……?
What happened?
Seems an unemployed and frustrated “customer” snapped and grabbed a fire axe off the wall, jumped over the counter and began chopping up the monitors, the desks and the counters all while screaming obscenities at the staff.
No one hurt but 10’s of thousands of dollars in damage….
When the news reported it…..ZERO sympathy for the govt slugs working behind the counter, complete empathy for the claimant.
A change was initiated and things improved for a while.
True story
#68 Linda on 03.04.17 at 6:56 pm
I’m trying to figure this stuff out, too.
I think there are three key indicators to monitor in the Canadian housing market:
— debt service ratios,
— the % of households with excessive mortgage-debt-to-median-household-income multiples, and
— mortgage delinquencies.
The Canadian debt service ratio is holding at 14% (1990: 12%) but only because the interest portion of the ratio has fallen to 5% (from 10% in 1990). See “Chart 4 – Debt service ratio” in the link below from Statistics Canada:
http://www.statcan.gc.ca/pub/13-605-x/2015006/article/14219-eng.htm
“[As of Dec. 2015] … Bank of Canada Governor Stephen Poloz stated that most of the debt exposure is concentrated among 720,000 households, or 8% of mortgage-holders, who currently hold more than 350% of debt when compared to their annual gross income. These are the households that would struggle to make debt payments either in the face of a significant economic downturn or when interest rates rise . . . [W]hile the number of households that seem to walk the insolvency line is under 10%, it’s still twice as many when compared to 2008, at the start of the global economic crisis.” Source: Romana King, “The Canadian housing market puts us all at risk,” MoneySense, June 6, 2016.
For more discussion of Canadian homeowner, investor, and taxpayer risks, click the link below:
http://www.moneysense.ca/spend/real-estate/mortgages/the-canadian-housing-market-puts-us-all-at-risk/
According to Manulife Bank [as of May 24, 2016], the average mortgage debt held by Toronto homeowners is $194,000, 78% of these homeowners have mortgage debt less than $250,000, and 97% have less than $500,000. Source: Romana King, “Being hooked on debt has long-term consequences,” MoneySense, May 24, 2016.
For more discussion of mortgage debt in other cities and provinces, click the link below:
http://www.moneysense.ca/columns/hooked-on-debt-has-long-term-consequences/
n 1990).
According to the Canadian Bankers Association, as of Oct. 2016, mortgage delinquencies are less than 1%. Click link below for details.
http://www.cba.ca/Assets/CBA/Files/Article%20Category/PDF/stat_mortgage_db050_en.pdf
#119 Euro Observer on 03.05.17 at 5:33 am
Wow! Calm down, man. No need for all that hostility. We’re all trying to figure this stuff out. Even Garth.
We can all agree that the current crop of buyers in the GTA are vying for the title of greatest fool. The question in my mind (and Linda’s, I believe) is, How will this frothy, bubbly, foamy, fizzy, effervescent, gassy housing market play itself out?
Comparing national growth averages to a single city growth average is IMHO flawed.
As we have seen in Canada, single cities can become very disconnected from the national average: some areas will experience high growth and some low, or even negative, growth. This implies that the highest single cities will, for certain, be higher than the average.
How higher?
To get an understanding of how big a difference we need to look at what happened to the single cities in those bubbles. A quick google search or two suggests that the 17 year prior growth rate for large cities in bubbles has been higher than 450%. In fact London for example has experienced a sustained 9% growth rate for the 17 years after 1998: if we use London as a minimum proxy for Tokyo as it didn’t crash ( http://www.telegraph.co.uk/finance/property/house-prices/10684147/Could-London-suffer-a-Tokyo-style-house-price-crash.html), this implies that the national to city average could be off by at least a factor of 2x.
So saying “the run up in Japan and US home prices have been almost exactly the same as what Toronto has experienced” may be an accurate statement but is completely not a useful understanding of what can happen to a single city in the bubble. So claiming that the current Toronto growth is an exact indicator of the tipping point of a bubble is flawed. Sure it makes for a nice looking chart, but that is just cosmetics on a flawed analysis.
Important question — what is a chance to have another 20-30 % price increase next year (in GTA) any educated guess ?????
Spot on article Ryan. We got off the RE crazy train a few months ago after a year of being outbid on every property we put offers on…even when we went well over asking. Not hoping for a crash and burn but a return to more realistic prices. Many million dollar houses sitting empty around our area with For Lease signs…A few weeks ago John Tory said the market was healthy..now all of a sudden he is concerned?
Real Estate organizations spewing forth “data” with 0 oversight. Realtors spouting off with self serving truisms to a gullible, eager, uncritical, segment of society who believes their assertions to be gospel.
We have provinces (Ont /BC) Led by incompetent or unscrupulous governments who are reading the tea leaves leading up to elections. Both are unpopular. They will tinker but not substantively alter the current RE trajectory as the revenue is too much to ignore.
Upsetting the political party funding boat is not in the cards either.
Counteracting the Feds attempts to cool is the latest pathetic cynical Clark initiative by sucking the kiddies in.
We have the Fed Libs who DO NOT want a meltdown on their watch as they will wear it (regardless of who is responsible). Consequently we watch the pedantic Incremental tinkering with Billy Bob hoping this becomes a slooow melt not a tsunami. Meanwhile numbered companies with hidden owners gobble anything not nailed down.
Coupled with a Central Banker that hides in his burrow and scurries back at the first sign of sunlight
The self serving display of naked greed evident in our politicians is heart warming.
Thankfully we have Saint Gregor here in Vandelusional to fling steaming piles of ca ca periodically in their general direction when he needs to deflect from how he runs his socialist utopia.
We are in an advanced state of FUBAR
#116 Pete from St. Cesaire
yes, only thing keeping canada aflot. we had the chance after the gfc when commodities were high price and canada was doing well. money made from this should have been taken to diversify the economy toward a sustainable future for canada. there was no need to offer zero down/forty year mortgages at that time, especially after seeing what nearly collapsed the global economy. this was imo a huge mismanagement of the country by the harper government. then when oil crashes, he doubles down on the housing to cover up his previous mismanagement of the economy and to get re-elected. which brings us to where we are now which is a scary place for most canadians, but not for the architect of this crisis.
Check out the Toronto rental prices
http://www.kijiji.ca/b-apartments-condos/city-of-toronto/c37l1700273
#119 Euro Observer
2. House prices in Japan today are 1/3 to 1/2 of what they were 26 (!) years ago at the peak of the bubble in nominal terms, despite the JPY inflation!
see the chart on:
http://www.thebubblebubble.com/japan-bubble/
I hope even a brainfrozen, fluoridated brain can understand it.
—
On with you on fluoridated brain.
On the other hand, have you checked the population growth and immigration charts of Japan?
#118 Lobster Man on 03.05.17 at 2:59 am
“a tax credit to anyone who pays rent…in fairness, renters should be given a break if principal residence capital gains are tax free”.
———————————————-
Your hammer-n-sickle armband is a tad tight.
400 sqf house printed in 24 hrs, for just over $10K
http://www.zerohedge.com/news/2017-03-04/house-was-3d-printed-under-24-hours-cost-just-10000
Government will do whatever to sustain this bubble. At the same time they will create ways to tax the poo out of it.
https://www.youtube.com/watch?v=MzlK0OGpIRs
Only magic will save them.
But where would you live…
Looks like this insanity has hit Kelowna and area. Must be the weather.
https://www.kelownanow.com/watercooler/news/news/Kelowna/17/03/04/Super_hot_Kelowna_market_frustrates_buyers/
Forget the U.S. TV shows – Canadian foreclosure homes are often no bargain.
http://www.theglobeandmail.com/report-on-business/forget-the-us-tv-shows-canadian-foreclosure-homes-are-often-no-bargain/article30158305/
Thanks for the article.
Not sure how you can compare the price increases to Japan and the USA, but then call for a 20% correction. That would only get the price back down to 2016 levels.
I know spreading doom and gloom is not your job, but there is considerable downside to home prices beyond a minor correction. This will have profound impacts in the broader economy which will take years to recover from, hence your reference to japan and the USA.
Japan has still not fully recovered after 25 years plus. This is the worst case scenario for Canada and should be considered in a range of possible outcomes.
#129 berniebee on 03.05.17 at 10:24 am
It’s all about sentiment and demographics.
Once the albatross that is Toronto’s housing market starts to spiral downwards, foreign investors will evaporate and local buyers will pause.
The media will start to report stories about underwater mortgages and ruined lives, about banks having always under-reported mortgage delinquincies, and about how there is just no further interest relief possible at today’s low rates.
The city of Toronto will cut services and float ideas like property tax hikes and additional fees for everything from public transit to toll roads to library cards, in order to make up for the revenue now NOT coming from property transfers, further discouraging people from living there.
Canada’s proportionally largest boomer population in the world will finally be mainstream news and real estate agents will discover that old boomers do what old people have always done. Die or go into care homes. And their properties will flood the market.
The slide will be long and hard. A 20% drop? LOL, possibly in the first 3- 5 years. After that, the Marianas trench is the limit.
*******************************************
I agree…Once sentiment changes its a whole different story. Rising rates bringing more pressure on finances. The mere mention of a bubble is forcing people to take a closer look buying more real estate. It is a cascading affect on the way up and on the way down. A housing market falling under its own weight. And we are different then the rest of the world, our housing market (bubble) is bigger and badder then the others. We’re number 1. Data is gathered after the fact…observation can help determine what is coming down the road. If housing is emotional – emotion is a measure of demand.
#120 Ryan Lewenza on 03.05.17 at 7:20 am
Well, you asked for it.
1. See my posts above – # 10,12, 15
Linda “Given the above, why exactly is there the belief that Canada’s housing bubble won’t have the same serious decline as the USA/Japan? Given the very high debt ratio to household income, the current state of our economy etc. why would Canada not decline by 30% or more? ”
Sure it could, but I don’t see it as highly probable. First looking at the US experience, national home prices fell roughly 30% (some areas like Nevada fell over 50%!), but this was during the worst economic collapse in nearly 100 years. Credit froze up, banks failed, and the US almost fell into a depression. Why would we just assume Canada would fall as much as the US when our economy is no where near a depression like the US was on the precipice of. For the national Canadian housing market to crash in excess of 30% (which again is possible, but not probable), our economy would have to go through its deepest contraction in decades, in my opinion. Also there are huge differences in Canada’s housing market compared to US and Japan. For example, in US most loans are non recourse unlike in here in Canada where the borrower can still be on the hook for any losses once the bank repossess the property. In Japan there are large demographic differences compared to our economy which impacts growth, interest rates, and housing markets. So just using the simple premise that they fell 30-50% and therefore ours will is not correct in my opinion. – Ryan L
———————————————————
2. It is not a question of probability. The crash is an absolute certainty (see Michael Burry in the Big Short)
At the peak of the US ‘bubble’’ a friend of mine bought a house with 5 bedrooms and a pool within the city borders of Miami, great location. 500 k USD. After the crash it declined to 300 k USD. To buy it he sold his house on Bathurst, North York for 500 k CAD. That house is now worth 2.2 mil.
It is not possible to buy comparable house for less than 1 mil even in friggin New Market,
This is what I am talking about, show me an area in US where house prices increase 6 times as they did in Mississauga in the last 15 years. Another friend of mine sold his house there for 1.2 mil, bought it for 200 k in 2002.
3. The fact that the mortgages are not recourse here will have even greater impact on spending as you cannot just walk away from a house and keep spending like people did in US, on the contrary, you will be ruined and literally hungry on the street.
4. Japan demographics? You must be kidding, the country has 90 times higher density of population than Canada. What is the dynamic in Canada to justify current house prices, are you implying that billionaires are moving here in droves? Immigrants to Canada are low paid renters who will never have a chance to purchase a home here, the last ‘wealthy’ wave of immigrants was from Hong Kong in the 1990-es. As I said even coupe of doctors cannot purchase a SFH in Toronto these days.
Japan had 2.5 decades of zero and negative interest rates and their prices in nominal terms are less than half of what they were 26 years ago in 1991
5. See my example with Ireland, I am very familiar with it as I spoke with many Irishmen in 2008-2009 and I was actually there for some time in 2010. Trust me, we are in far worse shape that Ireland was in at the time, they never had the equivalent of CMHC, this is what you are missing in your analysis.
There is no way we can keep beating this dead horse (the Great Canadian housing bubble) any more.
6. Credit also froze up in Canada and Canadian banks received bailout, including from US in excess of 125 billion dollars. This exceeded their market cap at the time. Flaherty quietly bought their garbage mortgages and then we starting bragging about how prudent our lenders are which is the really annoying aspect of the Canadian housing bubble and which truly contributed to the situation that we are finding ourselves in today.
It is very easy to see what market prices for real Estate in Canada are by abolishing CHMC and by transferring the mortgages ‘’insured’’ by it back to the lenders.
When fact speak, even the gods are silent.
You cannot fix a problem without acknowledging it first,
If your view is not really the politically correct garbage (with you internally recognizing the gravity of the situation but are not able to speak in public, due to political correctness) that’s fine.
But if you and majority of economists (apparently the Toronto mayor does not know the reason for the exploding prices in GTA…) truly believe in that nonsense, then we are in for a bigger shock when the time comes, as then I would not exclude SFH in Toronto, even Mississauga going even above 2 mil before the currency get totally destroyed and the biggest credit bubble in the history of housing implodes.
I highly doubt the later as now even bank CEOs and chief economists are sounding the alarm, in a way that indicates truly major trouble.
So while appreciating the appeal for the general public to be calm while the fire consumes the building, I am already running for the exit. Elvis has left the building.
Listening to the orchestra while Titanic sinks. Good luck.
Maybe it is time to stop being politically correct in order to preserve respect and some credibility. We have been hearing for 10-15-20 % decline from the top for years and in that time the prices increased by over 30-40 % and can easily go another 20 % up from here in GTA if the problem with CHMC and BOOC is not fixed.
What will you say if/when SFH hits 2 mil in Toronto, 1.5 mil in GTA? The same meme?
I am sorry but it is time to show some guts. The time for being politically correct has far passed.
#81Nonplused If you want to make $$$ on OPTIONS your should sell premiums thats how most professionals make $$$$. Ive done this for the lust 12 years and still in the game .
I like your point re. $100,000 over asking . But like an any business they are willingly take a risk and since they dont even rent does homes they can put them on the market at any time even for a small loss . But locals will be taking a big hit and keep hopping for the price to go up and most of them cant even sell on time because they have 1 year renting contract .
average Toronto price of $770,745 to $192,686. Does anyone really believe that the average home price in Toronto will decline from $770k to $192k? – Ryan L
—————————————
Absolutely. In real values, not talking about nominal values in the northern pessso currency emitted by Poloz.
But in real terms, purchasing power, absolutely. Even 200 k is too much for most of the glass condos in Toronto.
——————————
Second, there is little to no historical experience where an international city like Toronto has fallen 75%.
——————————-
http://www.doctorhousingbubble.com/japanese-real-estate-bubble-bear-market-in-real-estate-is-making-its-way-to-the-united-states/
Is Tokyo less ”international” city than Toronto?
#140 Barb on 03.05.17 at 11:44 am
#118 Lobster Man on 03.05.17 at 2:59 am
“a tax credit to anyone who pays rent…in fairness, renters should be given a break if principal residence capital gains are tax free”.
———————————————-
Your hammer-n-sickle armband is a tad tight.
—
I think the intent of the exemption is an acknowledgement that it would be in fact a tax on inflation. All % based taxes are a tax on inflation which is built into the system and controlled by the banks and their faithful servants- governments
it’s not a bubble, its a rush to hard assets, monkey see monkey do
The Irish property bubble. Bursted in 2007. They did not have the equivalent of CHMC:
House prices in Dublin were at one point down 56% from peak and apartment prices down over 62%.
http://www.cso.ie/en/media/csoie/releasespublications/documents/prices/2013/rppi_jan2013.pdf
Back to you.
#151 me again on 03.05.17 at 1:37 pm
it’s not a bubble, its a rush to hard assets, monkey see monkey do
——————————-
It will be a rush to hard assets if you pay it outright/with money saved.
If you borrowed majotiry of it with mortgage then it is a gamble, not rush to hard assets.
Accorging to stats (google it) majority of the mortgages in GTA in teh last years are trullly subprime high ratio mortgages ”ínsured” by CMHC.
Personally I don’t see a 30% or deeper correction similar to the US and Japan. It’s probably somewhere in between, more likely in the 10-20% range. But the historical data and anecdotal evidence supports our view that the Toronto housing market (and Canada for that matter) is completely out of control,
“completely out of control” market yields a 10% correction? LOL
kind of a wimpy non-event prediction for all the speculation that has gone on here
re: Personally I don’t see a 30% or deeper correction similar to the US and Japan. It’s probably somewhere in between, more likely in the 10-20% range.
as little as a 10% correction then why then would you be ready to sell the asset (i.e. your house) now?
Re: #99 Ryan Lewenza on 03.04.17 at 10:20 pm
In Edmonton there’s heavy selling pressure on condos, apartments and townhouses as the vacancy rates continues to soar. The North East seems to be the worst sector especially near schools. Expect home prices to follow condos, apartments and townhouses downward. Oil longs are looking to get crushed near term so expect more downward pressure on home prices in Edmonton.
To Euro Observer,
you come across as being so angry.
I think you should have listened to your MIL when she told you not to sell your GTA home.
It’s sad that you are wishing for a crash so badly so you can tell your MIL “see I was right”.
#140
#151
Or alternatively, go back to pre-January 1972, and allow ALL capital gains be retained as completely tax-free, and therefore provide a true level-playing field all investment types.
Why penalise a renter who chooses to invest his/her pool of savings (and can therefore do without that ridiculous amount of annual $5,500 TFSA limit)?
And, don’t get me wrong Barb, I believe in taking risks and be duly and fairly rewarded.
Would love to know the mortgage exposure, by the big 5 in the GTA . particularly whom is holding the largest amount
anybody have any data?
bank stock side of the portfolio has done well,but figure some re balancing is appropriate.
So here is why Toronto’s real estate market, particularly the market for detached and semi detached houses, is not going down price-wise anytime soon:
https://www.thestar.com/news/gta/2017/03/04/tory-promises-to-protect-health-safety-of-students-beside-highrise-project.html
This curious little story, is the story of a 35 storey condo tower, being built on a very small lot, next door to an elementary school, by a well known developer.
This is the story of public relations nightmares. Large, successful residential condo construction corporations, avoid this sort of situation like you would avoid visiting a river you had been told contained the Ebola virus.
So why would there be a sustained effort, all the way to the OMB (where most of our urban planning decision making now takes place) to build this thing next to an elementary school?
Because there is no more land.
Nothing. Not a wind blown, scrappy piece of scrub land. Not a garbage filled empty lot. There simply is nowhere left to build housing, for the thousands and thousands of people who are migrating into Toronto each year and looking for somewhere to live.
We have gotten to the point, where builders are purchasing “air rights”. This means, they are not actually buying land anymore. They are literally buying the “air” above an already developed piece of land, and building on top of what is already there.
So despite reports of a “bubble” in Toronto, I do not believe that real estate prices, for detached and semi detached houses in the 416 are coming down any time soon (or ever). There are simply far too many people looking for a place to live and a house is the holy grail of real estate.
#157 Penny Henny on 03.05.17 at 3:08 pm
To Euro Observer,
you come across as being so angry.
I think you should have listened to your MIL when she told you not to sell your GTA home.
It’s sad that you are wishing for a crash so badly so you can tell your MIL “see I was right”.
*******************
Doesn’t seem angry to me. Just level headed and factual. Too bad some can’t comprehend what he is saying. Attack the argument not the person.
It ain’t coming .
No more land In Toronto , cue the silly condo boom
As long as major commerce remains , there will be no crash
How could so many people have been so wrong ? It happens …:)
what? no blog today??
everyone watching Telemiracle??
#162 DON on 03.05.17 at 5:17 pm
#157 Penny Henny on 03.05.17 at 3:08 pm
To Euro Observer,
you come across as being so angry.
I think you should have listened to your MIL when she told you not to sell your GTA home.
It’s sad that you are wishing for a crash so badly so you can tell your MIL “see I was right”.
*******************
Doesn’t seem angry to me. Just level headed and factual. Too bad some can’t comprehend what he is saying. Attack the argument not the person.
////////////////////
So Don. are you saying prices in GTA gonna drop 50% plus?
Thanks RL for this blog.
I have to disagree on the “US loans are non recourse unlike here in Canada where the borrower can still be on the hook for any losses.” Not about the non recourse but still responsible for any losses. When many realtors say that prices will keep going up to buyers; when the real estate board give false information; when the government goes along with this game I think a lot of people will be beyond upset, call bankruptcy, go on welfare.
So true #147 Euro Observer…”When fact speak, even the gods are silent. You cannot fix a problem without acknowledging it first.” It seems to me that the leaders are silent because they are in on it, big money in housing, forget the people who they were responsible for. A different mindset and not good for the community, the province, the country, not good for the economy.
If Euro Observer ran for politics I would definitely vote for him as he speaks the truth and it is time for someone to speak for the people of our nation, Canada.
Thanks #132 for your analysis, much appreciated! I knew Canadians have a history of not defaulting on mortgage debt. As you say, difficult to figure out just what the outcome might be as data can be incomplete.
Ryan, thanks for expanding on the reasons why a price decline in Canada may be less drastic. Or if there are drastic reductions, they are likely to be limited to specific geographical locations just like when the US housing market crashed.
Euro Observer….
I agree with your views. Thanks for your contributions, hopefully someone will heed the warnings and act to protect themselves from the great RE unwind.
TCC
http://www.metronews.ca/news/toronto/2017/03/06/20-year-wait-housing-toronto-generation-squeeze.html
If you have opportunity to be part of foreigner community in Toronto, you might know how crazy they are doing to hurt local resident life.
Many foreign Real Estate Agent and Mortgage Agent are trying their best to convince immigrant and visitor to offer higher and higher price (e.g. 30% higher than asking price) to buy a house, and they strong suggest their customer to buy bigger house or my multiple house for investment. The true reason is they have commission from such deal. They also make many unbelievable stories to make their customer believe that GTA house price will keep rising and never drop down.
So what is wrong? These buyer would not pay house in cash, they borrow mortgage from our banks, even they have not regular income, their mortgage agent has the way to cheat bank for having mortgage.
On other side, more and more immigrant and foreign speculator begin to try to build their private fund, then to ask a foreign visitor or new immigrant to buy houses, since as a visitor or new immigrant, they only need to pay 35% as the down pay, then they can easily get mortgage from local bank. speculator’s goal to do such high risk things, it is just for making money though buy and sell.
Is this really bad to local residents? the answer is yes, speculators push housing price higher and higher, they force local resident to pay higher price when they have to buy a house, with having heavy debt. Once speculators sell these houses to local resident, they will bring the money away from Canada, house price will badly drop down, but only debt be left to local residents.
Ontario Finance Minister: Introduce Additional Real Estate Tax on Foreign Investors
https://www.change.org/p/ontario-finance-minister-introduce-additional-real-estate-tax-on-foreign-investors?recruiter=684438338&utm_source=share_petition&utm_medium=copylink
Ryan says “personally I don’t see a 30% correction…”
Well Ryan you may one day ask yourself “why the hell did I say that?”