Canada's 'housing bubble' deemed close to bursting

[dleung]

1330 wealthy households from China continue to buy their way into BC every year through Quebec. Safe to say almost all of them bought a SFH in the city of Vancouver, which has 47,000 detached houses, 3% a year going to the newly arrived Chinese. 30% in 10 years. That's more than a drop in the bucket.

[logan5]

The housing crisis extends far beyond the CoV. It's Metro wide. Rich Chinese are certainly not bidding up prices in Surrey, where prices are now out of reach.

[eternallyme]

Originally Posted by logan5

The housing crisis extends far beyond the CoV. It's Metro wide. Rich Chinese are certainly not bidding up prices in Surrey, where prices are now out of reach.

How far out of Vancouver do you have to go to be able to buy a single-family home at the Canadian (non-GTA/GVR) average of $380,000? I know the average for all of Canada is about $540,000 but that is so heavily skewed by Toronto and Vancouver.

[lio45]

Originally Posted by logan5

Rich Chinese are certainly not bidding up prices in Surrey, where prices are now out of reach.

I'm going to try to be polite here... you haven't really thought much about this, haven't you?

[logan5]

Originally Posted by eternallyme

How far out of Vancouver do you have to go to be able to buy a single-family home at the Canadian (non-GTA/GVR) average of $380,000? I know the average for all of Canada is about $540,000 but that is so heavily skewed by Toronto and Vancouver.

According to CREA , that would be Chilliwack, 87 km's away from the city centre. Even Chilliwack is seeing huge jumps, while the rest of the country sees normal or even negative growth.

The average price of homes sold in May 2016 was a record $414,653, up 29.1 per cent from last May. The less volatile year-to-date average price was $387,693, up 20.3 per cent from the first five months of last year.

http://creastats.crea.ca/chil/

[geotag277]

Originally Posted by lio45

A free and clear well-located primary residence upon retirement is pretty hard to beat at first sight due to various advantages, esp. the tax exemption on the capital gains made from a primary residence.

And many places have homestead tax freezes, so by that point in your life it costs you pretty much nothing to live. Whatever you have, you can spend.
Imagine a retired renter in comparison. And rents may well rise faster than their income, or even their ability to pay.

Unless you make really bad decisions, I think owning your own place is a no brainer -- it's real estate investing with a guaranteed good tenant and 0.00% vacancy rates and no management costs.

Real estate investing is IMO a pretty balanced field of investement (they all are, in fact -- that's market forces at work) which means it's better than average when you're in a position to do stuff on the cheap and/or yourself and/or have good management and construction contacts and experience and/or have better-than-average foresight for buying in neighborhoods that are just about to undergo a major gentrification and markets that are likely to be rising over the next few years.

And when you're your own tenant, it makes it also very significantly better than average.

Just like any business whenever you can be your own, pretty major, customer.

Putting 1000 dollars into the S&P every month over 30 years, assuming you save just 1000 dollars by renting versus buying, would net you between 1.5 to 3 million after 30 years. That's affords you a whole lot of personal freedom to live where you want in retirement.

If it saves you 2000 a month, that's 3 - 6 million.

Just for reference.

[lio45]

Originally Posted by geotag277

Putting 1000 dollars into the S&P every month over 30 years, assuming you save just 1000 dollars by renting versus buying, would net you between 1.5 to 3 million after 30 years. That's affords you a whole lot of personal freedom to live where you want in retirement.

If it saves you 2000 a month, that's 3 - 6 million.

Just for reference.

Yeah but I think your math's off.

Our mortgage on the duplex here (Quebec City area) is ~$600 per month (for the entire building) while our upstairs tenant pay a rent of $1,000 per month.

Now yes maybe it's a better-than-average deal (like everything I buy, generally) but still, I don't know anyone who doesn't at least save money on monthly payments by owning (versus renting).

To have renting be cheaper than a 2.5% interest mortgage is a feat already in itself, but to save a grand per month by renting?!?!? You have to be in a market where property prices are insanely out-of-whack with rent levels for that to possibly happen.

In such a strange market, all bets are off, I suppose. Insanity can't be reliably forecasted over the long term...

In Van -- for someone who absolutely must stay in Van for whatever reason -- I've always thought renting made some sense, yes (given the absolutely crazy rents/property values ratio) if the alternative is to get into the market at this point.

But it makes a lot less sense to rent in Van than to relocate (with an equivalent job) then proceed to buy something there.

[geotag277]

You can easily rent in Calgary for 1000 a month. To buy the typical home here averaging 500,000 with a 20% down payment over 30 years you are paying 1500+ a month. Factor in home maintenance, property tax, and all the other jazz, and no, I don't think my numbers are far off at all.

[ssiguy]

Originally Posted by logan5

The housing crisis extends far beyond the CoV. It's Metro wide. Rich Chinese are certainly not bidding up prices in Surrey, where prices are now out of reach.

There has been a huge presence of Chinese in WR/SS which is why prices have skyrocketed. This has pushed middle income people into lower income Langley and Surrey.

[ssiguy]

There was a time after WWII when large-scale public housing developments happened in Canadian cities, and they weren't just for poor people. Actually a lot of those developments were decent-quality housing that is still desirable today. That option for one reason or another just isn't on the table though.

When it comes to Vancouver housing there is vigorous debate but it is confined to an extremely narrow range of possibilities.[/QUOTE]

I disagree.

The governments would have to build monstrous number of social housing even to make the smallest of dent.

The problem has less to do with supply and more to do with demand. The city and realtors of coarse push the "everyone wants to live here" and "the city is growing so fast" to make excuses but neither of those pitches are true.

The demand here is dissimilar to anywhere else in Canada. In the rest of the country renters are either low income, students, or people ready to buy and haven't found a place yet. In Vancouver it certainly includes low income, students, and seniors like everywhere else but the difference here is that you have the massive number of middle income people who are also renters because even on decent incomes, housing has become completely impossible.

In Vancouver you have middle and upper middle income people also in the rental market while in the rest of the country those same people would be in the real estate market. In Vancouver there are hundreds of thousands of people who are renters who would not be renters in any other Canadian city.

[lio45]

Originally Posted by geotag277

You can easily rent in Calgary for 1000 a month. To buy the typical home here averaging 500,000 with a 20% down payment over 30 years you are paying 1500+ a month. Factor in home maintenance, property tax, and all the other jazz, and no, I don't think my numbers are far off at all.

Then Calgary is significantly closer to the Vancouver end of the cap rate spectrum than all the markets around here.

For $500,000, you should normally have something that's leagues above what you can hope to rent for your $1,000/month.

If these two are actually balanced, then the market we're talking about has abysmal (and abnormal) cap rates. (Obviously, the lower those are, the more the math favors renting in that market and putting your money into other forms of investment.)

[geotag277]

Originally Posted by lio45

Then Calgary is significantly closer to the Vancouver end of the cap rate spectrum than all the markets around here.

For $500,000, you should normally have something that's leagues above what you can hope to rent for your $1,000/month.

If these two are actually balanced, then the market we're talking about has abysmal (and abnormal) cap rates. (Obviously, the lower those are, the more the math favors renting in that market and putting your money into other forms of investment.)

Of course, it's all about location, but 500k is an average house and $1000 budget for rent gives you some flexibility for location as well.

Primary residence real estate is generally overstated as an investment vehicle. I doubt it's much different in Quebec even with lower property prices as the rent controls seem world class.

[dleung]

Originally Posted by ssiguy

...In Vancouver you have middle and upper middle income people also in the rental market while in the rest of the country those same people would be in the real estate market. In Vancouver there are hundreds of thousands of people who are renters who would not be renters in any other Canadian city.

^^I was expecting another tale of another family member who has "cashed out" lol, but this one actually resonates with my own experiences. Was visiting our firm's Vancouver offices last week and heard from one of my coworkers that he, his wife who also works, and their baby are still renting a one-bedroom condo 40 minutes from downtown by skytrain because its "too expensive to buy". He is in a more senior position than I am too.

[logan5]

Originally Posted by ssiguy

There has been a huge presence of Chinese in WR/SS which is why prices have skyrocketed. This has pushed middle income people into lower income Langley and Surrey.

The Fraser Valley is a huge area that includes all of Surrey and Langley, and the furthest outskirts of Greater Vancouver. It is too large an area for tiny White Rock and South Surrey to skew the numbers upwards. There are very few few (if any) rich Chinese moving to the Fraser Valley.

The MLS® HPI benchmark price of a Fraser Valley single family detached home in May was $834,200, an increase of
38.3 per cent compared to May 2015 when it was $603,100.

http://www.fvreb.bc.ca/statistics/Package%20201605.pdf

[geotag277]

Originally Posted by dleung

^^I was expecting another tale of another family member who has "cashed out" lol, but this one actually resonates with my own experiences. Was visiting our firm's Vancouver offices last week and heard from one of my coworkers that he, his wife who also works, and their baby are still renting a one-bedroom condo 40 minutes from downtown by skytrain because its "too expensive to buy". He is in a more senior position than I am too.

Is that legal? Seems that should violate some fundamental tenant occupancy rules.

Why even buy? Instead of renting that one bedroom rent something slightly bigger with an extra bedroom for not much more money.

[whatnext]

Originally Posted by geotag277

Is that legal? Seems that should violate some fundamental tenant occupancy rules.

Why even buy? Instead of renting that one bedroom rent something slightly bigger with an extra bedroom for not much more money.

What? Are you serious? You obviously don't know the Vancouver market if you think that is a strange or unusual situation.

[kwoldtimer]

Originally Posted by whatnext

What? Are you serious? You obviously don't know the Vancouver market if you think that is a strange or unusual situation.

I doubt it's unusual in any large urban area. Certainly not a legal issue.

[Wentworth]

Originally Posted by lio45

Then Calgary is significantly closer to the Vancouver end of the cap rate spectrum than all the markets around here.

For $500,000, you should normally have something that's leagues above what you can hope to rent for your $1,000/month.

If these two are actually balanced, then the market we're talking about has abysmal (and abnormal) cap rates. (Obviously, the lower those are, the more the math favors renting in that market and putting your money into other forms of investment.)

The median rental rate for a typical $500K detached home in Calgary would be more like $2000. See Rentfaster.ca.

[milomilo]

Originally Posted by geotag277

You can easily rent in Calgary for 1000 a month. To buy the typical home here averaging 500,000 with a 20% down payment over 30 years you are paying 1500+ a month. Factor in home maintenance, property tax, and all the other jazz, and no, I don't think my numbers are far off at all.

Are you comparing like for like? I wasn't aware you could rent an average home comparable to something you'd spend $500,000 on, for $1000 a month. Definitely not in my experience.

[geotag277]

Originally Posted by whatnext

What? Are you serious? You obviously don't know the Vancouver market if you think that is a strange or unusual situation.

Your vain attempts to trap me in some sort of gotcha game are quite amusing.

Regardless, I found this:

http://www2.stats.govt.nz/domino/externa...cc256dd5006e47d3?OpenDocument#Discussion

Direct link to Canada gov website:

http://www.statcan.gc.ca/eng/concepts/definitions/dwelling06