Canada's 'housing bubble' deemed close to bursting

[CityTech]

I fail to understand how people can think prices growing faster than the rate of inflation can be a good thing.

[VANRIDERFAN]

Originally Posted by whatnext

Navin Seepaul is a 29-year-old single dad who makes $30,000 a year as a barber. He owns a $1-million house in Brampton, a sprawling suburb northwest of Toronto. Each month, the payments on his roughly $700,000 mortgage are $4,300. On top of that, he has $24,000 in credit card debt.
“The more you work, the more you spend,” says Mr. Seepaul. “‘What is $1,500? What is $2,000? Let me just run this credit card here.’ A lot of people do it.”


https://www.theglobeandmail.com/business...an-dream-became-a-debt-filled-nightmare/

I get antsy if I carry any balance on my credit card. But 24k? And a $4300.00 mortgage payment on top of that?

How many people are living the high flying lifestyle on home equity, line of credit, and credit cards.

Maybe their plan is to declare bankruptcy and start all over. That's how "The Donald" did it, right?

[Docere]

Yes David Johnston is a Liberal shill:

https://twitter.com/CBCKatie/status/1173670456882339846

[rousseau]

How does that math work?

[whatnext]

Originally Posted by VANRIDERFAN

I get antsy if I carry any balance on my credit card. But 24k? And a $4300.00 mortgage payment on top of that?

How many people are living the high flying lifestyle on home equity, line of credit, and credit cards.

Maybe their plan is to declare bankruptcy and start all over. That's how "The Donald" did it, right?

As I asked "who would lend someone making $30k enough for a $700k mortgage?! It's too bad the author didn't disclose whether it was a private lender or a bank.

[milomilo]

Article says he has like 6 roommates. God knows how he got the mortgage in the first place.

[misher]

Originally Posted by CityTech

I fail to understand how people can think prices growing faster than the rate of inflation can be a good thing.

It’s not. But our government doesn’t care. It raises taxes and fees a lot faster than inflation. For rental owners they can’t pass on these costs due to rent control. But benefits from these extra costs go to buy votes from renters. Eventually everyone will stop being a rental owner. We currently have government by the majority who of course are pushing the minority to pay more and more. Something is going to give someday. Full time employment is way down and government employment is up as is our debt. We’re going down a similar path as Greece where people are obsessed with big government and welfare.

Also I do want to point out that when you buy a modern new home it’s not fair to compare it to one of 40 years ago. Backflows, insulation, fire sprinklers, double or triple panel windows, thicker concrete, landscaping, etc. it simply costs a lot more to build and even 40 years ago building a home with modern requirements would be a lot more expensive.

[CityTech]

^ What would you propose as a concrete set of actions that could be taken by government in general (lets ignore levels of government for the sake of this exercise) to fix the real estate market?

[misher]

Originally Posted by CityTech

^ What would you propose as a concrete set of actions that could be taken by government in general (lets ignore levels of government for the sake of this exercise) to fix the real estate market?

Unfortunately I can only provide a Vancouver focused perspective as I'm not that familiar with the entire Canadian market.

1. Eliminate development fees on new condos which are listed for sale below xxx. XXX would depend on the city, for Vancouver I would say 450k one bed, 550k two bed. Of course some units in the building would cost more than these, we can charge development fees on these units.

2. Eliminate rental restrictions, no strata can ban rentals.

3. Eliminate rental permits, requiring people to get a permit to rent is an effort in futility and most people don't.

4. Require AirBnB to display the address of listings so we can catch illegal AirBnB's easier.

5. Speed up permitting process, all development permits must be decided within 6 months.

6. Reduce requirements, allow for enclosed balconies, reduce the requirements for smoke detectors in elevator shafts to every 3 floors, reduce landscaping requirement and no greenery is needed on buildings, allow for higher FSR's and higher density zoning.

7. Allow for wooden buildings up to 40 storeys.

8. Eliminate the foreign buyer tax on properties that are rented out for the first 3 years.

9. Reverse rental restrictions to allow for an inflationary increase+2% and give a bit more power to landlords.

10. Allow for larger houses and smaller lots across the city along with fourplexs.

11. Encourage development of mixed commercial/residential buildings. Makes sense to have offices and condos in the same building to reduce traffic congestion.

12. Encourage schools to create housing on campus (to free up places in the city).

13. Reduce community feedback and consultation required to get projects approved.

14. Create/develop standard development templates that can be modified by developers, that way approvals will go faster as many designs will just be modified.

15. Allow for industrial housing (warehouse/industrial below, housing ontop).

16. Allow for more overstreet housing in limited areas (two lots to either side of the street connected overhead forming a short tunnel).

17. Create tax credits/incentives for rental development.

I'm sure there's others but these 16 would already drastically reduce rents and honestly lower rent is much more important to affordability than lower prices. Another bonus is we'd reverse BC's unemployment spike as we hire on those laid off in construction and forestry (as we'd need a ton of wood to build). We have an addiction to measures that are focused on killing supply in return for short term benefits. Instead I propose we stimulate supply so that vacancy rates rise to "normal" levels instead of artificially making things better short term while ignoring the vacancy rate.

[kwoldtimer]

Originally Posted by milomilo

Article says he has like 6 roommates. God knows how he got the mortgage in the first place.

That's a healthy chunk of tax-free income ....

[wave46]

Originally Posted by VANRIDERFAN

I get antsy if I carry any balance on my credit card. But 24k? And a $4300.00 mortgage payment on top of that?

How many people are living the high flying lifestyle on home equity, line of credit, and credit cards.

More importantly, who is reckless enough to make loans like that?

$24k in unsecured debt on $30k income. wat?

A huge mortgage on $30k income. wat?

The problem with these anecdotes is that I feel like I'm missing part of the picture. Either he's deliberately understating his income for whatever the reason (tax avoidance?) or he's got some questionable underwriting for his debts.

Anecdotes like this also make evidence-based analysis difficult. Is this person representative, or an outlier? Without more data, I can't tell.

I'd imagine a CMHC-insured mortgage with a large national bank would have nowhere near this sort of leverage.

[wave46]

Originally Posted by CityTech

I fail to understand how people can think prices growing faster than the rate of inflation can be a good thing.

You own the home or purchased it at a much lower value and are finishing making the payments.

If you bought pre-2005 (which probably would be the majority of homes in Canada) there's a lot of interest in keeping the music going with respect to housing prices.

From an macroeconomic analysis point-of-view, housing is not much of a value-add investment relative to other businesses. It does do a lot to make many people feel rich, however, which drives consumer consumption.

[lio45]

Originally Posted by CityTech

I fail to understand how people can think prices growing faster than the rate of inflation can be a good thing.

You fail to understand how people in general tend to like to see the assets they own gain value beyond merely inflation? Or that many people own the real estate in which they live? It's got to be one of these two.

[lio45]

Originally Posted by wave46

You own the home or purchased it at a much lower value and are finishing making the payments.

If you bought pre-2005 (which probably would be the majority of homes in Canada) there's a lot of interest in keeping the music going with respect to housing prices.

From an macroeconomic analysis point-of-view, housing is not much of a value-add investment relative to other businesses. It does do a lot to make many people feel rich, however, which drives consumer consumption.

I'd say pre-2008 (pre-GFC) is more accurate than pre-2005. I bought most of my portfolio between 2005 and 2008, at interest rates around ~7%. It's when the rates crashed that everything doubled in value overnight. (At least in my area of Canada.) From memory, that happened in 2008 or 2009. Not before.

[wave46]

Originally Posted by lio45

I'd say pre-2008 (pre-GFC) is more accurate than pre-2005. I bought most of my portfolio between 2005 and 2008, at interest rates around ~7%. It's when the rates crashed that everything doubled in value overnight. (At least in my area of Canada.) From memory, that happened in 2008 or 2009. Not before.

Fair enough, I was just making a quick guesstimate.

It reinforces my (and your) point though - if you bought in 2007 (for I don't know, say $300k) and are 12 years into a 25 year mortgage on your house that is now 'worth' $600k, yeah, you'd want to keep the music going.

Housing (non-rental) occupies this weird twilight zone between utility and investment.

Outside of a bubble, you'll be lucky if your 'investment' comes out ahead of inflation after principal, mortgage interest, property taxes, maintenance, improvements, etc. etc.

But people can't seem to shut up about it.

[someone123]

Originally Posted by wave46

Outside of a bubble, you'll be lucky if your 'investment' comes out ahead of inflation after principal, mortgage interest, property taxes, maintenance, improvements, etc. etc.

But people can't seem to shut up about it.

I can't remember who it was but I recently listened to some sort of BC provincial affordable housing spokesperson explain how they wanted to simultaneously give everybody a place to live and protect people's equity (which here can mean making sure that a shack stays at $1.1M).

This is I guess understandable coming from a government that doesn't want to upset people. But even affordable housing advocates, maybe unwittingly, feed this narrative by talking about "affordable housing" like it's some special thing that is different from normal housing. They should just be trying to fix the housing market, not build a special pool of cheap housing while preserving the bubble for the market-rate stock.

Nobody talks about a goal of, say, bringing 2 bedroom apartments in Vancouver down to $800 a month or $250,000, or something similar. Or making sure that 50,000 units of housing get built per year until prices drop.

[milomilo]

Originally Posted by lio45

You fail to understand how people in general tend to like to see the assets they own gain value beyond merely inflation? Or that many people own the real estate in which they live? It's got to be one of these two.

For the most important purpose of buying a home, which is having an affordable place to live, then increases to the real cost of owning a house are clearly detrimental. Yes, there are people who can make money off of this, but to most of the population this is irrelevant, the paper gains they see can rarely be realized. I'm sure the poster did not fail to understand all this, but most of the (homeowning) population does, they've put all their money into an inefficient investment vehicle, so cheer on the appreciation of their one asset. Despite the fact they'd be better off if houses were cheaper and they'd put that money in an ETF instead.

[milomilo]

Originally Posted by someone123

I can't remember who it was but I recently listened to some sort of BC provincial affordable housing spokesperson explain how they wanted to simultaneously give everybody a place to live and protect people's equity (which here can mean making sure that a shack stays at $1.1M).

This is I guess understandable coming from a government that doesn't want to upset people. But even affordable housing advocates, maybe unwittingly, feed this narrative by talking about "affordable housing" like it's some special thing that is different from normal housing. They should just be trying to fix the housing market, not build a special pool of cheap housing while preserving the bubble for the market-rate stock.

Nobody talks about a goal of, say, bringing 2 bedroom apartments in Vancouver down to $800 a month or $250,000, or something similar. Or making sure that 50,000 units of housing get built per year until prices drop.

Agreed, you are 100% correct.

There can be no such thing as 'affordable housing' in an expensive market. If people aren't paying the market rate then someone else is paying for that somehow, probably through a highly inefficient subsidy. It's completely unsustainable, as you can never build enough 'affordable' housing, and even if you did in fact succeed you would have done so by building enough supply that the market rate would crater.

[Nite]

Originally Posted by wave46

More importantly, who is reckless enough to make loans like that?

$24k in unsecured debt on $30k income. wat?

A huge mortgage on $30k income. wat?

The problem with these anecdotes is that I feel like I'm missing part of the picture. Either he's deliberately understating his income for whatever the reason (tax avoidance?) or he's got some questionable underwriting for his debts.

Anecdotes like this also make evidence-based analysis difficult. Is this person representative, or an outlier? Without more data, I can't tell.

I'd imagine a CMHC-insured mortgage with a large national bank would have nowhere near this sort of leverage.

People usually don't have the same job their entire life, who knows how much he made when he got the mortgage.

[Nathan]

Originally Posted by Nite

People usually don't have the same job their entire life, who knows how much he made when he got the mortgage.

That would have to be a pretty massive fall from grace though. Assuming he had no debt when applying for a mortgage, he'd have needed a gross income of around $180k to qualify.