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Baby, we got a bubble!?

There is plenty of data.

We know how much people living in the GTA make. We know how much real estate costs. We know how much rent costs.

Basically any property bought today and rented out will be significantly cash flow negative. One way of valuing assets, particularly real estate, is by discounting cash flows. The current price of real estate in relation to rent is not sustainable.

There are clear limits on income requirements to buy properties in Canada. Given incomes in Toronto, only a small sliver of folks can afford ANY housing in Toronto and the suburbs, let alone something suitable for their family. Rent prices are increasingly becoming out of reach as well. If end users can't afford to buy, it limits price increases. If end users can't afford to rent, it limits price increases.

I believe there are several issues that have caused housing to spiral out of control:
-Excessive immigration into Toronto
-Lack of supply due to legislation, slow approval processes, NIMBYism, etc.
-Tax burden shifting to new home owners via development fees rather than property taxes
-Fraudulent mortgage applications
-Folks who earn income outside of Canada but buy real estate here and have their family live here (skews income statistics)
-Speculative frenzy
-Real estate brokers controlling information flow and creating false demand
-Real estate as a money laundering tool
-Real estate as a store of value for foreigners
-Record low interest rates
-Generational wealth transfer
 
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krispyk84 said:
You're right. We don't know, and I would love to have some demographic data on the foreign buyers. I would love to know how many are purchasing homes through family members, etc. too. But we may not know until it's too late.

As far as the downpayment comment you just made, I read a lot of articles, hear/read from realtors, and read in that book I mentioned about the source of the 20% downpayment for many of these mortgages. And unfortunately, it's more debt. It'd be great if every one of these down payments were hard earned savings, but parents are taking out home equity lines of credit, extending their existing mortgages. Once again, we really don't know how many are doing this, but HELOC's are a on an upsurge, whether it's for more real estate, or personal spending money. For these home owners to continue to increase their leverage introduces new risk. And why not right? Credit is cheap, the offers the banks are emailing out sound great, and their homes are worth a ton! As a result, personal debt levels in Canada are through the roof and provides a new avenue of exposure to the banks that could burn them if there ever is a real estate crisis. I would love to have some raw numbers on all of this.

I'm in my early 30's and my wife and I's income is into 6 figures. Our combined total savings is close to or just over $200k and our credit ratings are superb. My agent has told me that he could 'easily' get us a mortgage worth $1 million. My jaw hit the floor when I heard this. I'd never take out a mortgage that large in my current situation. It's far too high to be serviceable by my income to leave any money left over to live a decently entertaining life. But I wonder how many people in my position would take it or already have?
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Thanks for your posts, very interesting.

Just a passing observation about this comment: "It's far too high to be serviceable by my income to leave any money left over to live a decently entertaining life. "

I think that, if we are comparing the current situation to that of our parents or grandparents in the 50s/60s/70s, we miss something crucial and that is that "entertaining" was completely different back then. One didn't pay a few hundred every month for Internet and cable. There was one landline and one TV (or maybe two) and no computers or computer games or apps. You watched what the networks offered and had no iTunes or HBO. Going to the movies didn't involve $20 at the concession stand for two people. Concert tickets for rock stars weren't in the hundreds of dollars. There were vinyl LPs that one approached differently and treasured as opposed to downloading or livestreaming music sub services. FM radio was GOOD, with DJs who knew their stuff and playlists not factory-produced. Hockey equipment for the kids didn't cost thousands. And so on.

All these things have far far far outstripped inflation.

A "decently entertaining life" back then was decently affordable.

Furthermore, our parents "made sacrifices" and economies because many had grown up during the Depression or were immigrants from poorer countries.

So, not only are today's first time home buyers faced with staggering asking prices and bidding wars, they are also generally used to an expensive lifestyle, at least in comparison to our parents back when a 20-30% down payment was sufficient.
 
Ex-Montreal Girl said:
I think that, if we are comparing the current situation to that of our parents or grandparents in the 50s/60s/70s, we miss something crucial and that is that "entertaining" was completely different back then. One didn't pay a few hundred every month for Internet and cable. There was one landline and one TV (or maybe two) and no computers or computer games or apps. You watched what the networks offered and had no iTunes or HBO. Going to the movies didn't involve $20 at the concession stand for two people. Concert tickets for rock stars weren't in the hundreds of dollars. There were vinyl LPs that one approached differently and treasured as opposed to downloading or livestreaming music sub services. FM radio was GOOD, with DJs who knew their stuff and playlists not factory-produced. Hockey equipment for the kids didn't cost thousands. And so on..
Click to expand...
Well said. I was born in 1971, and we didn't have cable tv whatsoever until the mid 1980s, making due with the rabbit ears. I still resent that the TV business model of free OTA content but watch our ads became paid content and still watch our ads. That resentment led me to streaming and cutting the cable.
 
Ex-Montreal Girl said:
Our children are on their own. Seriously, a starter home is NOT a three-storey semi in Riverdale, kids.

Helping to put them through university was enough.
Click to expand...

What's a starter home in the GTA nowadays? 700 square foot condo for $600k? Detached in the burbs for a million?
 
How about a townhouse in the 905?

I'm not saying that that is a dream home but that's why they call dream homes "dream homes." They are something to aspire to, to work towards.

When I look at the all the postwar bungalows in East York -- and they're what? 2 bedrooms? 900 sf? -- I know that baby boomers three-to-four kids per family grew up in those places. Now they're considered tear-downs. When did we decide that every kid had to have his or her own room, his or her own electronics, etc?

My parents started in a flat above a restaurant central Montreal. Then they moved to a lower duplex in the north end, where they rented a lower flat. Then, when i was about 10, they bought their dream home. It was a two story detached, in a nice 50s built area of Montreal, four bedrooms and finished basement. We were eight people in there, including my grandmother.

I'm a boomer and our generation (as a whole) was indulged and was raised with all kinds of expectations. Now reality has set back in.

If we mortgage our retirement so our kids can buy their dream home right off the bat, will they mortgage their home in the future to look after us? I'd like to think so but i wouldn't count on it.
 
narduch said:
Townhouses aren't cheap in the 905 either.

I already see them going for $800,000+ in Woodbridge.
Click to expand...

Exactly. Try to find some freeholds for less than $700k here: http://www.mongohouse.com/soldrecords

You probably need about double the median family income in Toronto ($68k) to afford a $700k house. At record-low interest rates. And most of those houses will need serious work.
 
SkyGod said:
Ya, a cool 3 hour commute per day...nice.
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All depends on how you build your career. There's a lot more to Canada than the GTA. In 2004 I moved to Fredericton, NB for a new job, and bought a four bedroom house downtown for $192K, and sold it when I moved back to Toronto in 2008 for $210K. Sure, you've got to find work, but we're not all destined to be cubical dwellers staring at LCDs all day. Friends of mine in Fredericton were forestry workers, university profs, teachers, etc., yes a lot of government jobs that come with a small provincial capital.

Friend of mine works ops at a factory NW of KW. Another friend is a ferrier, the guy who puts horseshoes on horses at the farms and riding places you see in the country. They both thinks I'm nuts to live downtown TO when you can buy houses like this...

https://www.realtor.ca/Residential/Single-Family/17838133/46-CENTRE-Street-Woolwich-Ontario-N3B2V4
https://www.realtor.ca/Residential/Single-Family/17805237/29-PACIFIC-AVE-Milverton-Ontario-N0M1M0

If I was a young man today starting my career, there's zero chance I'd be sticking around the GTA, especially if my career path was not in I.T. law or finance.
 
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Admiral Beez said:
All depends on how you build your career. There's a lot more to Canada than the GTA. In 2004 I moved to Fredericton, NB for a new job, and bought a four bedroom house downtown for $192K, and sold it when I moved back to Toronto in 2008 for $210K. Sure, you've got to find work, but we're not all destined to be cubical dwellers staring at LCDs all day. Friends of mine in Fredericton were forestry workers, university profs, teachers, etc., yes a lot of government jobs that come with a small provincial capital.

Friend of mine works ops at a factory NW of KW. Thinks I'm nuts to live downtown TO when you can buy houses like this...

https://www.realtor.ca/Residential/Single-Family/17838133/46-CENTRE-Street-Woolwich-Ontario-N3B2V4
https://www.realtor.ca/Residential/Single-Family/17805237/29-PACIFIC-AVE-Milverton-Ontario-N0M1M0
Click to expand...

It's great in theory but the reality is that there are far more careers opportunities in major urban centres and that trend is only accelerating.
 
Ex-Montreal Girl said:
Like I said, not ideal but you have to start somewhere. And there is always the option of a 700 sf condo in town, as you pointed out.
Click to expand...

And then you've got the family making $70k in Toronto. Where do they live? That's the median family income. That means half the families are making LESS than that. So if the two working professionals making big bucks are forced to move into a fixer-upper in Whitby...what does that mean for the rest of society?
 
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