Baby, we got a bubble!?

[Undead]

I completely don't understand the argument from folks claiming there will be a downtown, specifically in the Toronto market. Let's look at the facts:

- housing is limited by land, in particular detached / semi detached, etc
- housing of all types (high rise, low rise, "missing middle", etc) is limited by poor zoning which drives up the price of land, and in turn the end price of units
- interest rates are at record lows with no line of sight as to when that might change (and i don't just mean 100 basis points)
- toronto remains the largest city in canada with the largest number of headquarters and satellite offices for fortune 500 companies
- canada in general remains a top destination for those fleeing regimes or looking for new opportunities, many of those folks looking to settle in the GTA

We've been talking about a downtown in the market for the past 10 years and folks have been consistently wrong. In fact, the powers that be are doing everything in their power to ensure the engine keeps chugging away.

I think most people agree it's unsustainable, but no one knows how the story ends.

 

[afransen]

At some point, house prices can't outperform incomes to pay for them. Where that ceiling lies is anyone's guess, but property values can't rise to 100x incomes. In the long run, this means that there is a cap of home price appreciation of the rate of income growth. In the mean time, you see people making adjustments to improve affordability by reducing how much space they live in, but there are limits of how far you can go down that path until you are living in a dog kennel in a shared apartment like you see for the destitute in Chinese cities.

 

[slickpete83]

even CMHC (Canada Mortgage and Housing Corporation )sucks at predicting home prices lol

 

[p_xavier]

At some point, house prices can't outperform incomes to pay for them. Where that ceiling lies is anyone's guess, but property values can't rise to 100x incomes. In the long run, this means that there is a cap of home price appreciation of the rate of income growth. In the mean time, you see people making adjustments to improve affordability by reducing how much space they live in, but there are limits of how far you can go down that path until you are living in a dog kennel in a shared apartment like you see for the destitute in Chinese cities.

I would say inheritence and rich immigrants (who are currently valued) play a big part on who can afford. Myself, I will probably get around 10M$ since most of my closest relatives don't have kids. It's a ridiculous amount of money for something just blood-related. Before buying my new house, I always lived in small spaces which I optimized. I had a 176sf appartment in Ottawa, 335sf in Montréal and a 554sf two-storey loft that I owned. It's the frog boiling phenomenon, when you never had better, a tiny bigger size makes a big deal.

 

[Undead]

Japanification is another possibility with prices stagnating after stabilizing at a high level.

 

[afransen]

I would say inheritence and rich immigrants (who are currently valued) play a big part on who can afford. Myself, I will probably get around 10M$ since most of my closest relatives don't have kids. It's a ridiculous amount of money for something just blood-related. Before buying my new house, I always lived in small spaces which I optimized. I had a 176sf appartment in Ottawa, 335sf in Montréal and a 554sf two-storey loft that I owned. It's the frog boiling phenomenon, when you never had better, a tiny bigger size makes a big deal.

Well, your $10M should give you an income in the range of $400k (4% endowment value). I don't expect everyone to be millionaires, or no one will be pouring double doubles.

Btw, it is kind of sobering. I will probably inherit a few million myself. My sister's two children could easily get in today's dollars $5-10M each when we pass away. I'm not sure that's a good thing, frankly.

 

[TheKingEast]

even CMHC (Canada Mortgage and Housing Corporation )sucks at predicting home prices lol

I remember them saying they would fall 20% or something like that. They've gone up 20%+

 

[Undead]

I remember them saying they would fall 20% or something like that. They've gone up 20%+

Yeah, they sh*t the bed hilariously bad:

CMHC boss Evan Siddall acknowledges ‘errors’ on last year’s prediction of housing collapse

No one foresaw the extent of the discriminatory impact COVID-19 would have on lower-paid workers, many of whom are renters, he said

www.theglobeandmail.com

They've got a new warning:

Home prices vulnerable to correction in multiple Canadian cities as values skyrocket, CMHC warns

In its latest housing market assessment, Canada Mortgage and Housing Corp says Hamilton, Toronto, Ottawa, Moncton and Halifax are highly vulnerable to instability

www.theglobeandmail.com

 

[Undead]

At some point, house prices can't outperform incomes to pay for them. Where that ceiling lies is anyone's guess, but property values can't rise to 100x incomes. In the long run, this means that there is a cap of home price appreciation of the rate of income growth. In the mean time, you see people making adjustments to improve affordability by reducing how much space they live in, but there are limits of how far you can go down that path until you are living in a dog kennel in a shared apartment like you see for the destitute in Chinese cities.

Then the feds just bring in more foreign investors to flip properties to each other. It'll be like London, New York and other major cities: most of the locals are priced out, but prices don't fall because said cities are too open to big money and its attendant demand for money laundering.

 

[TheKingEast]

Yeah, they sh*t the bed hilariously bad:

CMHC boss Evan Siddall acknowledges ‘errors’ on last year’s prediction of housing collapse

No one foresaw the extent of the discriminatory impact COVID-19 would have on lower-paid workers, many of whom are renters, he said

www.theglobeandmail.com

They've got a new warning:

Home prices vulnerable to correction in multiple Canadian cities as values skyrocket, CMHC warns

In its latest housing market assessment, Canada Mortgage and Housing Corp says Hamilton, Toronto, Ottawa, Moncton and Halifax are highly vulnerable to instability

www.theglobeandmail.com

the problem is people listen to this and hold off buying.

 

[Undead]

the problem is people listen to this and hold off buying.

Maybe, but the market was frothing at the mouth last summer and I don't even want to imagine what this year will be like.

 

[TheKingEast]

Maybe, but the market was frothing at the mouth last summer and I don't even want to imagine what this year will be like.

If we're locked down again with nothing to do, prices will go through the roof.

 

[Undead]

If we're locked down again with nothing to do, prices will go through the roof.

Yeah, they will. But they would have risen in any case because of near zero interest rates and endless fiscal+monetrary stimulus.

 

[Northern Light]

Let me begin by saying the housing situation is complex, multi-faceted.

This is not a single issue.

Clearly there is a lot of 'investing' going on, both with the legitimate money, and 'dirty money'.

Clearly the housing market is hyper-stimulated by record low interest rates, and by comparatively low (in percentage terms) down payment requirements.

But also, we have population growth in excess of new unit completions.

For all of Canada, population growth for the 12 months ending July 1st 2020 (the lowest in many years)..........was 411,854. Typically, that number has been over 500,000 in recent years.

https://www150.statcan.gc.ca/n1/daily-quotidien/200929/dq200929b-eng.htm

Now lets take a look at housing unit completions across Canada.

This is Q3 2019 - Q2 2020. So a direct match:

~186,000 units.

https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3410013501&pickMembers%5B0%5D=1.1&pickMembers%5B1%5D=4.1&cubeTimeFrame.startMonth=07&cubeTimeFrame.startYear=2019&cubeTimeFrame.endMonth=04&cubeTimeFrame.endYear=2020&referencePeriods=20190701%2C20200401

Not terrible at 2.2 people in growth, per housing unit.

But with an average household size in Canada of 2.5, not enough to bring balance to the market.

Consider that population growth was 531,000 the year before, with ~195,000 completions which would equal 2.7 people per unit (indicating market contraction relative to demand growth).

So we really have a series of issues to address:

a) Supply - by way of reducing 'investment' in or commoditization of housing.
b) Supply - by constructing more units.
c) Demand - by way of reducing commoditization of housing.
d) Demand - by way of reducing immigration (I'm fine with immigration its just a mathematical option).
e) Demand - by way of restricting eligible buyers (higher down payments)

Finally, and these are my two favourites:

We can act to increase incomes at the middle and lower end of the income spectrum
We can act to reduce the cost of housing ( development charges, zoning process etc.)

 

[Undead]

Northern, I think population growth might not be playing as major a part as it seems. We've had consistently strong population growth since WW2 (and before of course), but never this kind of dramatic price growth. To be sure, population growth is contributing to rising prices. But I would argue that loose fiscal and monetary policy over the last 10 years has been a much bigger culprit.