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Baby, we got a bubble!?

Migos said:
Precisely. There are real estate agents that specialize in money laundering. There are mortgage brokers that specialize in creating fraudulent documents for mortgage applications. There are few checks and balances. It's the wild west.

Is it a surprise that people are willfully ignorant? 70% of Canadians own their homes. Many people have become very rich over the past decade because of this. How many people do you know that make $50k/year but made hundreds of thousands in profit on their homes? It's the only thing keeping Canada's hollowed-out economy going.
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Many think their homes are making money for them however they are blind to the fact that it is just a price unless you sell. Many of my neighbors over the past 2-3 years upgraded from reliable 5-10 year old Toyotas and Hondas to BMWs and Mercedes with some going as far as a landrover. Where are they getting this money even when they have not sold their homes? Did all of them suddenly get promoted at their jobs? I suspect that they are doing HELOCs or some other financial instrument which uses their homes as collateral in exchange for cash. Some even do a HELOC on their primary residence and use the borrowed money to start a business, buy stocks or as down payment to purchase another property as an investment. I have no clue just how many people are taking advantage of their homes equity this way but it is very scary. A HELOC is very, very easy to get.

Say that rates rise or you get fired from your 50K/year job and can't make your payments anymore. Not only do you lose your primary residence but also all the assets that are tied to it using HELOCs. So what happens in the event of a default is not only your home gets foreclosed but also your business is closed and liquidated, your stock portfolio is liquidated, your cars are liquidated and your other properties are foreclosed and liquidated. With one home goes potentially many other things tied to it.

People that don't own a home look at housing price increases and feel like they are missing out and feel pressured to buy now or never. Whats funny to me is that even if they were lucky enough to get into the market before it became red hot, they STILL feel like they are missing out and as a result they take out HELOCs to buy even more homes. MADNESS.
 
Well at the moment and foreseeable future a rate increase is political seppuku for whatever party is in charge. Foreign investment is apparently keeping the economy afloat, so doing away with that will also be some sort of political seppuku. The government has tools to stop this madness but there are just too many conflicting interests. You have your angry young adults VS their happy parents in their ivory towers.

So which will come first? The number of angry young adults outgrowing the number of happy parents and voting in a government in their interests or a huge recession? Trudeau's already spending like crazy and my generation doesn't seem that bright so I'm gonna count on the latter to make the housing market sane again.

What can we do?

If you are not spending your money on consumables you are either investing it or letting it sit in a bank. If you are investing it, it is generally either RE, a business or stocks & their derivatives. For most of us it will be RE & Stocks+Derivatives because we are preoccupied with our jobs. RE is already overvalued. TSX is a joke. Investing foreign means more tax.

If you keep it in your bank account in the event a recession hits and the bank goes under, the bank can now take your money thanks to the government's bail-in regime!

"Introducing a Bank Recapitalization "Bail-in" Regime

To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating."

(http://www.zerohedge.com/news/2016-03-22/its-official-canadian-bank-depositors-are-now-risk-bail-ins)

You can keep your cash under your mattress or in a safe but if the police see it they will seize it. There's not much the average Joe can do if he stays in the red hot cities. Some friends have moved to Seattle, one even to San Fran (they have rent control). It seems to be that we are exchanging our young ready-to-work talent for rich foreigners who no longer need to work. I am personally eyeing Austin.
 
^ all of Seattle, San Francisco, and Austin will be moving to Canada in short-order when Trump wins the Presidency ;)

The logic problem with waiting for a market crash to liberate assets by increasing affordability is that by definition most people will not be able to borrow during and after the crash. So unless millennials can suddenly buy $600,000 houses with cash in hand, they will not benefit for many many years from any hypothetical market crash.

In my opinion the only real solution to this global problem is for central banks to stop thinking their job is to save the people (a role governments have abdicated to them) and to do the right thing instead of the popular thing. That thing namely is to normalize interest rates even if it side-swipes the economy.

The reason you can't solve the problem without an interest rate re-set is that at low interest rates all assets are priced at perfection. Young people need at least neutral conditions but what is best is a high interest rate environment. The reason a high interest rate environment is best for young people is that grinding out an existence in a high interest rate environment means that as they progress through the life-cycle there is upside potential to their financial position. In a low interest rate environment as you progress through the life-cycle there is only downside potential to your financial position. The analogy would be like the difference between rolling a boulder up a mountain and rolling a boulder down.
 
I find it funny that people are still on the "we're overbuilding" train. According to CMHC, over 32,000 condo apartments completed in 2015, while prices and rents went up. 21,500 completions scheduled this year per Altus Data Solutions.

Market seems to be doing well, my presentation from the Land & Development Conference: https://t.co/aPCHfFXIfs
 
Scotiabank curbs mortgages in Vancouver, Toronto as prices soar: ‘We’re a little concerned’
http://business.financialpost.com/p...oronto-as-prices-soar-were-a-little-concerned

Hot housing markets in Vancouver and Toronto prompted Bank of Nova Scotia to ease off on mortgage lending in those cities, Chief Executive Officer Brian Porter said.

“We’re a little concerned about housing prices in the greater Vancouver area and Toronto,” Porter, 58, said Tuesday in an interview on Bloomberg TV Canada. “We just took our foot off the gas the last couple quarters in terms of mortgage growth for the reasons I cited, in terms of Vancouver and Toronto.”
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May 2016 sales figures from TREB are in.

http://www.trebhome.com/market_news/market_watch/2016/mw1605.pdf

Key points:
  • Record month for number of sales, representing a 10.6% increase from last year.
  • New listings down by 6.4%.
  • Average selling price across the board for home types was up by 15.7%.
Some stats:

Detached Houses
City of Toronto: average $1,285,693 / median $980,000
Toronto West: average $974,420 / median $830,000
Toronto Central: average $2,013,470 / median $1,720,000
Toronto East: average $846,343 / median $763,000

Semi-Detached Houses
City of Toronto: average $834,883 / median $772,500
Toronto West: average $707,688 / median $655,000
Toronto Central: average $1,034,602 / median $928,000
Toronto East: average $784,173 / median $757,500

Condominium Townhouses
City of Toronto: average $536,392 / median $480,000
Toronto West: average $450,412 / median $414,500
Toronto Central: average $672,135 / median $592,000
Toronto East: average $445,167 / median $441,500

Condominium Apartment
City of Toronto: average $442,520 / median $388,000
Toronto West: average $362,771 / median $330,000
Toronto Central: average $494,100 / median $422,113
Toronto East: average $305,571 / median $283,250
 
Does anyone have an opinion on the outskirts of Toronto?

I know logic lately has been that if Toronto keeps going up, the surrounding areas will also go up, so pretending there is NO bubble. (which I think makes no logical sense)

Will someone pay a million dollars for a small place in lets say, hamilton, or st catherines, or kitchener, or barrie, etc.

Or will the commute of 3 hours a day, plus different added taxes (smaller density areas), along with the already very present risks of borrowing huge sums of money for 3-4 decades eventually cause a burst of the outside areas?

I find it hard to believe that someone who can't live in Toronto will decide to settle to "save money" and spend 7 figures on a place to have to commute to the city.

But I guess it's all relative. Any thoughts?
 
homelessgeneration said:
Or will the commute of 3 hours a day, plus different added taxes (smaller density areas), along with the already very present risks of borrowing huge sums of money for 3-4 decades eventually cause a burst of the outside areas?
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I think the commute is already driving the condo development hard. You can get a decent older 4 bedroom house in Barrie for the same price as a downtown 1 bedroom condo, and people are consistently choosing the downtown condo; and we can build a lot more tiny 1 bedroom condos. That puts a pretty hard cap on the price escalation.

That said, a massive expansion of GO train service might make those houses a lot more appealing over the similarly priced short-commute condo.
 
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rbt said:
I think the commute is already driving the condo development hard. You can get a decent older 4 bedroom house in Barrie for the same price as a downtown 1 bedroom condo, and people are consistently choosing the downtown condo; and we can build a lot more tiny 1 bedroom condos. That puts a pretty hard cap on the price escalation.

That said, a massive expansion of GO train service might make those houses a lot more appealing over the similarly priced short-commute condo.
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This. I was telling my mother the other day. Transit in this city is so terrible that it is actually boosting the market, especially the condo market. I live and work inside the downtown core and yet the commute is often times hellish. So what I think people are doing now...dumping the car and that large car payment and putting the extra savings into a condo. Walk, bike, take the train/streetcar to work. It's a pretty good idea. I moved downtown about 10 years ago from the burbs and never once thought about getting a car. Saved me a bunch of money too.

As transit improves, I see areas outside Toronto near transit going up. I also think we'll see people leaving downtown. If I could get downtown in a 20-25 minute train ride from a place like Etobicoke or Mississauga, I'd gladly move there. Hell, I'd move to Hamilton if I could get to and from downtown in a 35 minute train ride. My numbers may be unreasonable but you get the picture.
 
I doubt you'll ever see a significant number of people commuting from Cambridge to Downtown Toronto. It's more like a domino effect... people working downtown being pushed out to Etobicoke, which will push people working in Etobicoke out to Mississauga, which will push people working in Mississauga out to Milton and Burlington, which will push people working in Milton and Burlington out to Cambridge. Presumably jobs could get pushed out too? Places to Grow is calling for employment in the outer Golden Horseshoe to increase fairly significantly too, not just population. Still there's a limit to how strong that chain of effects will be by the time you reach the outer Golden Horseshoe.
 
People still want to raise their families in communities with 2-car garage/4-bedroom homes.

I realize its anecdotal, but I have a friend that works near Pearson, his wife works in Vaughan, and they just purchased a home in Tottenham. They have a 1-year old kid as well.

The push for living downtown is mostly by singles or married couples without children.
 
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