Canada's 'housing bubble' deemed close to bursting

[travis3000]

Originally Posted by WarrenC12

HELOCs will get boned for sure. I don't know how many people out there have that kind of debt load, or what assets they can sell to help clear it. They are the most hooped.

For mortgages, most people are on fixed rates. Some people are on fixed payment variable rates, and some are on adjustable variable.

People on adjustable variable will see immediate bill increases, and will have to cut back other spending, or worse.

People on fixed payment variable will have a time bomb when renewal hits. People on fixed will also see a huge spike at renewal time.

We're only ~6 months into these interest rate increases. Mortgage contracts are usually 3-5 years long. We'll be in a snowball effect of increased pain for mortgage holders for years to come.

My guess is that by 2023/2024 rates will start dropping again.

[Nashe]

Originally Posted by travis3000

My guess is that by 2023/2024 rates will start dropping again.

I'm hoping early 23, but we'll see. It shouldn't have much effect on my my short-term (10 yr) HELOC financing of my pool/reno, but the 14 years left on my variable-open mortgage are a bit more concerning, for the short term.

[memememe76]

Originally Posted by thebasketballgeek

Right but when did it become the standard for homeowners to completely skip the starter home phase of their life? Why do you need 3-4 bedrooms instantly when kids can share a bedroom for the first 12 or so years of their life? The only reason that one would ever need so much space for their first house is if they live in a multi-generational household like most South Asians. In fact the pooling of money and support system of multi-generational households should start getting promoted in Canada instead of our typical western bias of “individuality” but that’s a whole other can of worms.

I am not sure why you think first time homebuyers are skipping the "starter home phase". Most people these days start with a condo or townhouse.

[Truenorth00]

Originally Posted by WarrenC12

Those people are in trouble for sure, but they have renewal periods the furthest out. If I was ~3 years from renewal I actually wouldn't be too concerned yet.

To a point.

Many of these people are now finding rates have driven up interest outside their fixed payment, so their payments are going up. Also, investors now make up 1 in 4 buyers. I suspect a lot of them were using variable rates to stay cashflow neutral or positive. They now face higher payments and declining prices.

The real fun starts when banks decide to start reviewing some of these renewal applications more harshly and consider asking some of these speculators to show up with a cheque at renewal time if they are underwater.

On a fun/tragic sidenote, you should look at how much AirBnB inventory has exploded. Especially outside the downtown cores of major cities. And none of these people have a clue what happens to tourism in a recession and how long it takes for tourism to recover. At least some of that inventory will help take the pressure off our housing crisis when they capitulate.

[WarrenC12]

Originally Posted by Truenorth00

The real fun starts when banks decide to start reviewing some of these renewal applications more harshly and consider asking some of these speculators to show up with a cheque at renewal time if they are underwater.

On a fun/tragic sidenote, you should look at how much AirBnB inventory has exploded. Especially outside the downtown cores of major cities. And none of these people have a clue what happens to tourism in a recession and how long it takes for tourism to recover. At least some of that inventory will help take the pressure off our housing crisis when they capitulate.

Well, banks want people to pay, but not to default. We'll see how that goes.

As for AirBNB, I would agree with you, but trying to book a vacation right now is crazy. Everything is booked and rates are through the roof. A recession will hit this of course, but it will take time to unwind.

[Truenorth00]

Originally Posted by WarrenC12

Well, banks want people to pay, but not to default. We'll see how that goes.

I don't think banks will demand additional collateral from people who are living in their homes. Far less of a risk of default there. The considerations are different for those who own multiple investment properties.

Originally Posted by WarrenC12

As for AirBNB, I would agree with you, but trying to book a vacation right now is crazy. Everything is booked and rates are through the roof. A recession will hit this of course, but it will take time to unwind.

With the number of listings going up, occupancy is actually dropping. Meanwhile, the chaos with airlines and the hit on disposable incomes from rate hikes is going to limit their revenue. Just as their costs are going up. I expect some interesting stories in the Fall.

[whatnext]

Originally Posted by Truenorth00

To a point.

Many of these people are now finding rates have driven up interest outside their fixed payment, so their payments are going up. Also, investors now make up 1 in 4 buyers. I suspect a lot of them were using variable rates to stay cashflow neutral or positive. They now face higher payments and declining prices.

The real fun starts when banks decide to start reviewing some of these renewal applications more harshly and consider asking some of these speculators to show up with a cheque at renewal time if they are underwater.

On a fun/tragic sidenote, you should look at how much AirBnB inventory has exploded. Especially outside the downtown cores of major cities. And none of these people have a clue what happens to tourism in a recession and how long it takes for tourism to recover. At least some of that inventory will help take the pressure off our housing crisis when they capitulate.

The city needs to ban AirBnB et al as some European cities have. It’s a cancer that eats away at affordability.

[Truenorth00]

Originally Posted by whatnext

The city needs to ban AirBnB et al as some European cities have. It’s a cancer that eats away at affordability.

There's no point putting in bans if they don't actually enforce them. See Toronto.

[lio45]

Originally Posted by travis3000

My car loan is locked in at 2.8% and my mortgage is locked in for another 4 years at 1.79%. So this doesn't affect me thankfully.

Regardless, it's still worrisome for others who have variable mortgages, line of credits, or looking to take on new debt in the next little while.

I'd say of the two of us, you're by far the most impacted, given that you earn a living from being a realtor.

[WarrenC12]

Originally Posted by lio45

I'd say of the two of us, you're by far the most impacted, given that you earn a living from being a realtor.

But my realtor says it's always a good time to buy, or sell!

[memememe76]

Vancouver specifically has the Empty Homes Tax, and BC in general has the Speculation Tax to deal with airbnbs. A lot of stratas impose short-term rental restrictions. Living in the Lower Mainland, I don't check out airbnb listings in Vancouver. Are they numerous?

[swimmer_spe]

Originally Posted by WarrenC12

No, but this stuff always lags. We haven't seen the full impact of the last rate hike. They did this after seeing US inflation numbers hit new highs (9.1%). We shall see what Canadian CPI is next week.

Everybody is getting coal for Christmas, I can tell you that.

I have never understood why getting coal for Christmas was bad. 100 years ago, coal was used to heat the home, so it actually is a very caring gift.

Originally Posted by WarrenC12

Yeah but they continue to drop their forecasts every time. A recession in inevitable at this point.

I am still expecting a depression. The problem is, no one wants to use that D world.

Originally Posted by travis3000

My car loan is locked in at 2.8% and my mortgage is locked in for another 4 years at 1.79%. So this doesn't affect me thankfully.

Regardless, it's still worrisome for others who have variable mortgages, line of credits, or looking to take on new debt in the next little while.

The problem is what happens when you renew and it is still around 5%. How does that affect your ability to pay for it still? What about paying it off as quick? Like you, I am good for a few more years. The question is whether interest rates will come down enough that it does not significantly affect us.

Originally Posted by whatnext

The city needs to ban AirBnB et al as some European cities have. It’s a cancer that eats away at affordability.

Something like this should be a Canada wide thing, not just a local thing.

Originally Posted by memememe76

Vancouver specifically has the Empty Homes Tax, and BC in general has the Speculation Tax to deal with airbnbs. A lot of stratas impose short-term rental restrictions. Living in the Lower Mainland, I don't check out airbnb listings in Vancouver. Are they numerous?

Did that really make Vancouver more affordable?

[WarrenC12]

Originally Posted by memememe76

Vancouver specifically has the Empty Homes Tax, and BC in general has the Speculation Tax to deal with airbnbs. A lot of stratas impose short-term rental restrictions. Living in the Lower Mainland, I don't check out airbnb listings in Vancouver. Are they numerous?

Yeah there are some. Stratas crack down a lot more than the City does.

Our strata allows them, but the unit must pay the strata an annual fee. And of course abide by the City rules, which most do, but not all.

[casper]

Originally Posted by memememe76

Vancouver specifically has the Empty Homes Tax, and BC in general has the Speculation Tax to deal with airbnbs. A lot of stratas impose short-term rental restrictions. Living in the Lower Mainland, I don't check out airbnb listings in Vancouver. Are they numerous?

The condo complex I am in has not directly banned airbnb, they have banned rentals of under 30 days. I think it is the same most of them. There is also $100 service fee charged by the condo association to cover the cost of putting up blankets in the elevator and everything else associated with a move in/out. The side effect is to make airbnb un-viable.

In Vancouver and Victoria I think the biggest problem has been the lack of hotel rooms. Some hotels were converted to short-term shelter space. Those building were trashed in the process and require extensive remediation before they can be hotel rooms again.

Vancouver is also a very expensive city for hotel rooms especially during the cruise ship season.

[kwoldtimer]

Originally Posted by Vorkuta

I'm hoping early 23, but we'll see. It shouldn't have much effect on my my short-term (10 yr) HELOC financing of my pool/reno, but the 14 years left on my variable-open mortgage are a bit more concerning, for the short term.

Early '23 they may not even have stopped climbing yet...

[travis3000]

Originally Posted by lio45

I'd say of the two of us, you're by far the most impacted, given that you earn a living from being a realtor.

I have enough money in the bank where I could not sell a single home for a year and be fine. Im not like most Realtors who spend their paycheques away and live on the edge haha. Im a saver, always putting away for rough times. I saw the writing on the wall last year. 2021 and early 2022 were a fantastic time in my industry. So I stashed away lots of cash preparing for a downturn. Im glad I did.

[travis3000]

Originally Posted by swimmer_spe

I have never understood why getting coal for Christmas was bad. 100 years ago, coal was used to heat the home, so it actually is a very caring gift.


The problem is what happens when you renew and it is still around 5%. How does that affect your ability to pay for it still? What about paying it off as quick? Like you, I am good for a few more years. The question is whether interest rates will come down enough that it does not significantly affect us.

No doubt about it, going from 1.8% to 5% would be a hard pill to swallow haha. If that were the case I'd probably go variable which would be around 3.5%. I could handle that. But we are talking 2026, who knows what the world will be like at that time. We can all guess, but its tough enough to predict a year in advance forget about 4 years.

[Truenorth00]

Originally Posted by travis3000

I have enough money in the bank where I could not sell a single home for a year and be fine. Im not like most Realtors who spend their paycheques away and live on the edge haha. Im a saver, always putting away for rough times. I saw the writing on the wall last year. 2021 and early 2022 were a fantastic time in my industry. So I stashed away lots of cash preparing for a downturn. Im glad I did.

Solid. And if you can still make a reasonable living, you will have lots of good investment opportunities for those savings.

[swimmer_spe]

Originally Posted by casper

The condo complex I am in has not directly banned airbnb, they have banned rentals of under 30 days. I think it is the same most of them. There is also $100 service fee charged by the condo association to cover the cost of putting up blankets in the elevator and everything else associated with a move in/out. The side effect is to make airbnb un-viable.

In Vancouver and Victoria I think the biggest problem has been the lack of hotel rooms. Some hotels were converted to short-term shelter space. Those building were trashed in the process and require extensive remediation before they can be hotel rooms again.

Vancouver is also a very expensive city for hotel rooms especially during the cruise ship season.

Which speaks louder to the lack of homes as the real issue.

Originally Posted by travis3000

No doubt about it, going from 1.8% to 5% would be a hard pill to swallow haha. If that were the case I'd probably go variable which would be around 3.5%. I could handle that. But we are talking 2026, who knows what the world will be like at that time. We can all guess, but its tough enough to predict a year in advance forget about 4 years.

That is of course if the variable is that low, or if it is on its way down.

[Truenorth00]

Originally Posted by travis3000

My guess is that by 2023/2024 rates will start dropping again.

Will inflation be fixed in a year and a half?