Canada's 'housing bubble' deemed close to bursting

[wave46]

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.

Hence the "I think I'm missing part of the picture" comment.

Is this guy representative (I'm guessing not) or is he the most extreme example to get clicks?

[wave46]

Originally Posted by milomilo

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.

Financial literacy is not a strong point for most people.

I wish people would understand that their home isn't 'worth' anything if they have to live in it.

[whatnext]

A very good analysis on where Canada has gone wrong on housing in the Globe & Mail:

I predict that Canada’s housing market will crash next year, or in 2021 at the latest.

A bold claim, you might think. But if we look at housing booms in the past, each lasted around 10 years and we’re reaching that boom end point in the next year or so. Canada largely survived the 2008-09 housing crash unscathed, which seemed – and still seems – like a good thing until you realize it just means this country has had another 10 years to embed housing assets at the heart of its economy.

And this is a major problem. It means people are more in debt than before, with the Canadian household debt-to-income ratio topping 170 per cent in 2018 – and this ratio is more than 200 per cent in Toronto and more than 240 per cent in Vancouver, according to Canada Mortgage and Housing Corp. A slight upswing in interest rates will put a lot of people under financial water, while new policy initiatives to cool overheated real estate markets are threatening the dream of ever-rising house prices.

Why might this matter?

We have to think about what most people rely on nowadays to support themselves and secure their futures. And the answer is assets – housing assets in particular. It’s no longer our salaries or incomes, nor even our pensions. Rather, Canada has become an asset-based economy in which it’s now a viable choice to buy a house far above your income threshold and sit tight – renting out rooms to pay the mortgage you can’t afford on your own income alone – waiting for its value to appreciate.

But there are perils to relying on this sort of economy for our future. An asset-based economy is underpinned by continuous asset price inflation alongside the suppression of income inflation, meaning a rising debt-to-income ratio is built in....

https://www.theglobeandmail.com/business...perilous-road-to-an-asset-based-economy/

[wave46]

Originally Posted by whatnext

A very good analysis on where Canada has gone wrong on housing in the Globe & Mail:

I predict that Canada’s housing market will crash next year, or in 2021 at the latest.



https://www.theglobeandmail.com/business...perilous-road-to-an-asset-based-economy/

A question though: Why will this happen? Yes, the fundamentals don't look good, but people rarely walk away from their homes if they can make the payments - the damage to one's finances when doing that is huge.

Now, if there's a bad recession (which was the cause of the bubble popping last time), yes, I could definitely see it happening if people are losing their jobs left, right and centre.

Are we primed for a bad recession? I hope not.

[SpongeG]

Scheer just made a campaign promise to allow for longer mortgages. Most people are happy he is letting the banks earn more profits and letting them stay in debt longer on the comments I've read.

[kwoldtimer]

Originally Posted by SpongeG

Scheer just made a campaign promise to allow for longer mortgages. Most people are happy he is letting the banks earn more profits and letting them stay in debt longer on the comments I've read.

I admit that I'm not sure what the problem is with 30 year mortgages, as long as one goes in with eyes open.

[lio45]

Even 40 or 50 years, if both parties are willing, why not?

[whatnext]

Originally Posted by lio45

Even 40 or 50 years, if both parties are willing, why not?

Because it just inflates property values. 30 years is bad enough, at 40 nobody is realistically going to pay that off in their working lifetime. As mentioned in the article I posted, it just fuels the need to have real estate prices appreciate to sustain a lifetsyle one can't really afford. And given current trends, wages will stay stagnant.

[wave46]

Originally Posted by lio45

Even 40 or 50 years, if both parties are willing, why not?

I'm not sure 'willing' is necessarily 'good' at a societal level.

A lot of people are 'willing' to take loans for Payday places. I don't necessarily see that as a 'good thing' financially though, as the immediate concern of having money is fixed, but the long-term problem is paying that back with the fees these Payday places provide.

I admit it sounds paternalistic, but limitations on how much debt some people can get into is a good thing at a societal level.

[lio45]

Originally Posted by whatnext

Because it just inflates property values.

Not if paired with more strict lending standards to ensure people aren't being strangled by monthly payments.

[Nathan]

Originally Posted by lio45

Not if paired with more strict lending standards to ensure people aren't being strangled by monthly payments.

That's not usually how it goes though. Most of the time, as it is with Scheer's current proposal, longer amortization periods are paired with laxer qualification standards.

[ssiguy]

Originally Posted by kwoldtimer

I admit that I'm not sure what the problem is with 30 year mortgages, as long as one goes in with eyes open.

There are a whole plethora of problems but the 2 main ones are longer mortgages result in more indebtedness and for a longer period of time and longer mortgages ALWAYS result in higher prices. Longer mortgages are a Godsend to people with lots of home equity and, of course, our loving banks but for first time homeowners, they are a disaster.

If Sheer really wants to make first home ownership affordable {and by these actions it's quite clear he doesn't}, he would bring in 15 year mortages for first time home buyers with a maximum of $400k and not the absurd $1 million we have now. This would cause prices to plunge on both resale homes and force builders to build more affordable housing.

[milomilo]

Originally Posted by SpongeG

Scheer just made a campaign promise to allow for longer mortgages. Most people are happy he is letting the banks earn more profits and letting them stay in debt longer on the comments I've read.

Originally Posted by kwoldtimer

I admit that I'm not sure what the problem is with 30 year mortgages, as long as one goes in with eyes open.

Are 30 year (or more) mortgages not available already? Is Scheer actually saying he wants CMHC insured mortgages to have 30 year amortizations? If so, it's the latest plank of economic ineptitude from Tory HQ. Best thing he could do, IMO, is scrap CMHC insurance altogether, it's a racket.

[rbt]

Originally Posted by milomilo

Are 30 year (or more) mortgages not available already? Is Scheer actually saying he wants CMHC insured mortgages to have 30 year amortizations? If so, it's the latest plank of economic ineptitude from Tory HQ. Best thing he could do, IMO, is scrap CMHC insurance altogether, it's a racket.

Yeah, Sheer means CMHC insured 30 year mortgages, presumably with the current 5% minimum downpayment.

If you don't like CMHC, buy your next home with Genworth or Canada Guaranty insurance instead.

[misher]

Originally Posted by lio45

Even 40 or 50 years, if both parties are willing, why not?

Because we have this mindset where we need to “baby” people in Canada. But seriously we allow people to have multiple credit cards or to gamble their whole savings, I don’t think mortgages are the biggest problem.

Whatnext and a few others want prices to fall so they can buy someone else’s home off them cheap. This ignores the fact that our government and economy has a strong reliance on real estate taxes and thus we’d have to cut a bunch of social programs if prices fell and unemployment would rapidly rise. They don’t care that others would suffer they just want a cheap home for themselves and foreign buyers.

If you look at stats Canadians are weird, of the G8 Nations we have one of the highest homeownership rates. Saying home prices should fall is like saying we should reduce stock prices or reduce the size of our bank accounts. Canadians have money in our real estate either directly or indirectly through pensions/stocks. The thing is, renters don’t necessarily suffer if homes are expensive, rent is cheap compared to home prices. Renters can spend money on other places and as most nations
show genera happiness is independent of homeownership rates. It’s owners who suffer if prices reduce because they actually lose money. Renters scream that homeowners should suffer, well let’s reduce the size of their bank accounts too then? And if your going to argue that a home isn’t an investment because you don’t have to sell it then doesn’t that argument hold true for stocks too? You don’t need to sell your stocks so let’s crash the stock market. Saying home prices can crash is a stupid and self centered argument.

[CityTech]

Home prices definitely shouldn't crash. However I do think that the goal should be for home prices to increase at the same rate as inflation, around 2% a year. This ensures that nobody loses value on their home but also ensures that nobody gains it either. This will effectively make a home a place to live rather than an investment vehicle. We can invest in other things.

The problem with housing price increases beyond inflation is eventually you end up with a scenario where the only people who can afford properties are those who already own them... which is discriminatory against younger generations and new immigrants

[milomilo]

Originally Posted by CityTech

Home prices definitely shouldn't crash. However I do think that the goal should be for home prices to increase at the same rate as inflation, around 2% a year. This ensures that nobody loses value on their home but also ensures that nobody gains it either. This will effectively make a home a place to live rather than an investment vehicle. We can invest in other things.

The problem with housing price increases beyond inflation is eventually you end up with a scenario where the only people who can afford properties are those who already own them... which is discriminatory against younger generations and new immigrants

How do the years of above inflation increases get corrected though? It isn't productive to have a large proportion of the country's earnings going into a non productive asset, better that house prices are low and that money is deployed in the working economy.

[misher]

Originally Posted by CityTech

Home prices definitely shouldn't crash. However I do think that the goal should be for home prices to increase at the same rate as inflation, around 2% a year. This ensures that nobody loses value on their home but also ensures that nobody gains it either. This will effectively make a home a place to live rather than an investment vehicle. We can invest in other things.

The problem with housing price increases beyond inflation is eventually you end up with a scenario where the only people who can afford properties are those who already own them... which is discriminatory against younger generations and new immigrants

I agree. But the thing is home prices may very well be growing at inflation if you factor in all the other factors.

BC has seen rapid price increases, but for ~8 years the market was down so a lot of the increase is actually a rebound.

But besides that, we have new development fees which ontop of inflation means prices rise faster than inflation. We also have construction wages which have risen much faster than inflation. We also have homes themselves, they now have more in them like insulation, fiber optic, triple paned windows, fire safety systems, thicker concrete, landscaping, etc.

In the end for all we know were paying the same price as previously accounting for inflation, were just paying more because we now pay for things like development fees and additional stuff in our home. I like to look at what Vancouver pays for its own social housing because this provides a better measure of what homes cost to build. And your looking at more $200,000 despite the land being free, no development fees being paid, and the market not playing a role. Usually between $300-400k a unit for non modular housing. If it costs this much just to build non profit housing how can we expect new one bedrooms in for profit buildings to be under 500k?

[SpongeG]

Calgary housing market among the most affordable in Canada, report says

'If you are the median income earner, there are options for you'
CBC News · Posted: Sep 26, 2019

A new national housing report shows that average income earners are more likely to be able to afford a home in Calgary than in most other Canadian urban centres.

The report by at Zoocasa, a Toronto-based real estate brokerage firm, looked at whether people earning the median income in 15 markets would qualify for a mortgage for an average-priced home.

In eight of those cities, including Calgary, it was considered to be affordable. But in the other markets, a median income earner wouldn't qualify for a large enough mortgage to cover the cost of the home.

The report found that a household earning Calgary's median income of $99,583 would be able to save up the required $21,025 down payment within one year in order to get a mortgage for an average home in Calgary costing $420,500.

The report assumed a three per cent interest rate with a 25-year mortgage.

The least affordable market was Greater Vancouver, where an average home costs $993,300. A median income household earning $72,662 would qualify for a mortgage of just $241,994, leaving a shortfall of $751,306.



...

https://www.cbc.ca/news/canada/calgary/a...4q7TReYRVx3NI8e1jwf4fDjfhnoB9W7n7LjYR_wo

[ssiguy]

Misher.........I am truly horrified that you would even put stocks and housing in the same sentence. In case you didn't realize it, housing, unlike stocks, is a neccessity of life.

By having skyhigh real estate prices like in Vancouver, the rental market becomes even more dire. This is because the warped housing market caused by flipping, speculation, and money laundering has caused the situation where thousands who could buy in the rest of the country are forced to continue to rent. This makes rentals nearly impossible to find and puts pressure on the market causing rental rates to rise far faster than the rate of inflation and wage growth.

Just as an added tidbit to exemplify how completely out of wack the real estate market is..........it now takes the average Vancouverite at the average family income of $70k a year a staggering 52 years to save up enough money in order to just get the downpayment on a standard single family home. This also results in grotesque and dangerous levels of personal indebtedness. The average Canadian is in debt 175% of income but in ultra expensive Vancouver that number is a numbing 240%.