Canada's 'housing bubble' deemed close to bursting

[casper]

Originally Posted by someone123

I wonder how much the immigration system brings in the kind of skills Canada really needs. If you look at the points system, it still rewards a university education heavily but we have a shortage of trades. I am not sure to what degree there is a stream for the in-demand trades.

If you just completed a PhD in underwater basket weaving at a Canadian institution and can do okay on a French exam then congrats, you likely qualify to move to Vancouver to ameliorate the shortage of skilled workers here. Time to start hunting for an apartment, or a condo if you have rich parents.

I think part of the solution is multiple stream. Some run by the feds some run by the province.

I am all for letting the PhD in, if they an employer willing to hire them. Let the universities figure out if the "underwater basket weaving expert" is doing world-class work and fits in with faculty. If a university or private company wants to hire someone at close to $100k per year why should the government stand in the way if there is no security concern.

The provinces where they can't find people to work the Tim Horton counter or build condo towers let them in.

[casper]

Originally Posted by thewave46

We're adding ~400,000 people per year as natural change is about a wash right now.

The pressures we face as-is with respect to housing, combined with the fact we're still pretty close to peak housing demand due to other structural elements in the economy, and the fact that immigration isn't a necessarily a plug-and-play solution many make it to be lead me to think we should address other issues first.

My solution:

1. Bring government closer to fiscal balance in the light of our current and future demographic demands. Easier to take a bigger chunk of the paycheque when things are good instead of during the bad times, or when financial markets are downgrading government debt.

2. Aim for central bank policy to bring inflation rates under 2%. We got the tailwinds of low inflation for decades, but preventing entrenched inflation like the 1970s will be important for stability. Higher interest rates will slow home price growth.

3. Slowing the red-hot economy will allow some slack in labour markets and curb the positive feedback loop of housing price appreciation.

4. Pro-growth development in our largest cities. There's so much SFH-zoned land that has the capability to be more before land value escalates into 'We can only make money with a 40-storey tower' at Highway 7 and the 400 in Vaughan.

We should look at growing ourselves out of the problem.

If we hold government spending constant. That is easier to do. Inflation and economic growth will drive increased revenue without raising any tax rate.

We don't want to slow the red-hot economy. We want it to grow. Immigration will help us do that. Growth is good.

[Nashe]

Re: Moncton in that chart. I think they messed it up. That "157,717" number is the 2021 stat can population, not dwellings. Dwellings should be in the 70-71k range, I think.

Statistics Canada

I updated the data, and sorted by % occupied. If accurate, might reflect why these market are on fire...

City      Dwellings   Occupied   % Occ        Pop  Pop/Dwelling
Hamilton    320,081    307,382  96.03%    785,184          2.45
Moncton      70,460     67,179  95.34%    157,717          2.24
Kitchener   229,809    219,060  95.32%    575,847          2.51
Winnipeg    347,144    330,326  95.16%    834,678          2.40
Montreal  1,929,263  1,835,698  95.15%  4,291,732          2.22
Halifax     211,789    201,128  94.97%    465,703          2.20
Ottawa      638,013    604,721  94.78%  1,488,307          2.33
Calgary     594,513    563,440  94.77%  1,481,806          2.49
Victoria    186,674    176,676  94.64%    397,237          2.13
Toronto   2,394,205  2,262,473  94.50%  6,202,225          2.59
Vancouver 1,104,532  1,043,319  94.46%  2,642,825          2.39
London      235,522    222,239  94.36%    543,551          2.31
Quebec      411,415    387,954  94.30%    839,311          2.04
Sudbury      78,225     73,387  93.82%    170,605          2.18
Edmonton    589,554    548,624  93.06%  1,418,118          2.41
Saskatoon   134,720    125,100  92.86%    317,480          2.36
Regina      108,120    100,211  92.68%    249,217          2.31
St. John's   97,429     89,999  92.37%    212,579          2.18

[thewave46]

Originally Posted by casper

We should look at growing ourselves out of the problem.

If we hold government spending constant. That is easier to do. Inflation and economic growth will drive increased revenue without raising any tax rate.

We don't want to slow the red-hot economy. We want it to grow. Immigration will help us do that. Growth is good.

Growth is good, if the country can support that growth. Which means that housing supply needs time to adjust.

Doubling (or tripling) immigration this year would simply cause increased demand pressure with no extra housing supply coming on board. Housing prices would continue to spiral upwards and the gains of economic growth with be burned up by that inflation.

[goodgrowth]

Originally Posted by casper

We don't want to slow the red-hot economy. We want it to grow. Immigration will help us do that. Growth is good.

The problem is that our cities haven't really shown themselves to be good at scaling to meet growth.

In fact a lot of municipal councils are elected precisely to limit growth.

[yaletown_fella]

Growth of a fake bubble economy is never a good thing unless you own a lot of assets. Wages and interest rates have already fallen multiple laps behind inflation. Real interest rates will likely always be negative in my lifetime, due to the level of government debt and unpopularity of paying it off among all political parties.

Instead of the government levelling with the people and doing whats necessary to pay off the debt by raising taxes and cutting services , people will effectively be taxed indirectly through inflation eating away at the purchasing power of their wages. In an age of artificial intelligence absorbing work, it dosent make sense to sink billions into education that will become outdated by the time the student graduates. Call me old fashioned but that money would be better spent on paying off sovereign debt, cash subsidies to make housing more affordable, or actually insuring that OAS and GIS [or other provincial equivalents] wont get slaughtered by inflation.

I predict we are soon going to see an unprecedented amount of layoffs and/or workload cut in the private sector; particularly in tech /e-commerce , marketing and low to mid tier consulting/book-keeping/accounting. The combination of the bubble deflating, demographic collapse, and automation will be very harsh. You can already get a sense whats to come by looking at the YTD performance of the Cathie Wood ARKK Innovation fund.

[lio45]

Originally Posted by niwell

The problem with a lot of the ways out is that the people who have a vested interest in things continuing along this path control a LOT of assets. Unfortunately, the longer we we continue the harder the way out is going to be.

Exactly. If you look at where the votes are, especially when weighted by voting reliability, right now it's clearly still more politically advantageous to protect the housing market than to promise to crash it.

Maybe, eventually, someday, most owners of Canadian property will be wealthy foreigners and only THEN will it start to be electorally a good strategy to promise to make Canadian property owners poorer if you get elected, i.e. most Canadian voters would enthusiastically vote for that.

But we're not there yet. Not anywhere near that, in fact.

[lio45]

Originally Posted by Wigs

Who are future homes going to be sold to, if the pool of buyers keeps dwindling as prices keep soaring?

BCMLs.

If there's no crash certainly there got to be a point where things level off, no?

That's guaranteed.

[someone123]

Originally Posted by lio45

Exactly. If you look at where the votes are, especially when weighted by voting reliability, right now it's clearly still more politically advantageous to protect the housing market than to promise to crash it.

Looking at my own situation, I own property but it's modest (physically if not in terms of current sale price). I have a lot of friends who can't buy and all and it's impossible for me to upgrade. If we look at the distribution it's not just property owners vs. renters. There's a chunk of owners for whom the current situation doesn't work well either, or who are ambivalent about it. In some markets like Vancouver and Toronto the median age of real estate disgruntlement is already approaching the overall median age (40 or so). That probably needs to rise to something like 45-50 to become a dominant voting bloc. I'll be surprised if the politics don't shift before 2030.

[Wigs]

Originally Posted by lio45

BCMLs.

I don't understand this term. Please explain

[lio45]

Originally Posted by Wigs

I don't understand this term. Please explain

Billionaire Chinese Money Launderer. It's a SSP classic.

[lio45]

Originally Posted by someone123

In some markets like Vancouver and Toronto the median age of real estate disgruntlement is already approaching the overall median age (40 or so). That probably needs to rise to something like 45-50 to become a dominant voting bloc. I'll be surprised if the politics don't shift before 2030.

Pretty sure we agree that politics will only shift when the real estate disgruntlement cohort, weighted for voting assiduity, will outweigh the older "we own real estate and we like getting wealthier" demographic, also weighted for voting assiduity.

I don't see it on the horizon yet, considering how much more reliable older people are as voters. I'd be surprised to see that shift happen before 2030.

I definitely need to keep an eye on it, because I'll likely want to exit Canadian real estate at the right moment. As an aside, discussion of this specific question totally justifies spending time on SSP for me.

[Wigs]

Originally Posted by lio45

Billionaire Chinese Money Launderer. It's a SSP classic.

So these will be the future arseholes left "holding the bag" buying sub 1000 sq ft bungalows built ~1945-1960 for $900k-1M in Niagara?

note: in the least desirable municipality of Niagara, Welland, the average sale price in February 2022 was $725,000. Days on market: 14

Avg sale price overall in Niagara was $861,454, up 27.5% from last year

[harls]

Originally Posted by Wigs

So these will be the future arseholes left "holding the bag" buying sub 1000 sq ft bungalows built ~1945-1960 for $900k-1M in Niagara?

note: in the least desirable municipality of Niagara, Welland, the average sale price in February 2022 was $725,000. Days on market: 14

Avg sale price overall in Niagara was $861,454, up 27.5% from last year

Damn, I worked with a guy who commuted from Welland to DT Toronto in 2001. I hope he kept his place.

[Wigs]

Originally Posted by harls

Damn, I worked with a guy who commuted from Welland to DT Toronto in 2001. I hope he kept his place.

harls, Niagara real estate is nuts
My parents bought their retirement house in Sept 2019.
It's now worth $300,000-$320,000 more than they paid

[harls]

Originally Posted by wigs

harls, niagara real estate is nuts
my parents bought their retirement house in sept 2019.
It's now worth $300,000-$320,000 more than they paid

jfc!

[casper]

Originally Posted by yaletown_fella

Growth of a fake bubble economy is never a good thing unless you own a lot of assets. Wages and interest rates have already fallen multiple laps behind inflation. Real interest rates will likely always be negative in my lifetime, due to the level of government debt and unpopularity of paying it off among all political parties.

Instead of the government levelling with the people and doing whats necessary to pay off the debt by raising taxes and cutting services , people will effectively be taxed indirectly through inflation eating away at the purchasing power of their wages. In an age of artificial intelligence absorbing work, it dosent make sense to sink billions into education that will become outdated by the time the student graduates. Call me old fashioned but that money would be better spent on paying off sovereign debt, cash subsidies to make housing more affordable, or actually insuring that OAS and GIS [or other provincial equivalents] wont get slaughtered by inflation.

I predict we are soon going to see an unprecedented amount of layoffs and/or workload cut in the private sector; particularly in tech /e-commerce , marketing and low to mid tier consulting/book-keeping/accounting. The combination of the bubble deflating, demographic collapse, and automation will be very harsh. You can already get a sense whats to come by looking at the YTD performance of the Cathie Wood ARKK Innovation fund.

The predictions of major cuts in the private sector are like the predictions of major crash of the housing market. It is not happening in any significant way.

Companies have been adjusting and absorbing new technology on an ongoing basis for the past decade or two. What your predicting has already happened and we still are running low on people across multiple industries.

[lio45]

Originally Posted by Wigs

harls, Niagara real estate is nuts
My parents bought their retirement house in Sept 2019.
It's now worth $300,000-$320,000 more than they paid

Freshest data is that Sherbrooke was up 33% on average, year over year. And that's on top of already crazy gains (last year's values were already crazy).

That's not even atypical. Most markets (at least in Eastern Canada) have been behaving like this over the last few years. It's not just Niagara real estate that's nuts.

Pre-2008 was a good time to buy, but it now turns out that pre-Covid was also not bad.

If I told you how much I gained (on paper) from the approximate rise in value of my RE holdings over the last couple of years you likely wouldn't believe it, since I'm just a guy on the internet.

[thewave46]

Originally Posted by lio45

Freshest data is that Sherbrooke was up 33% on average, year over year. And that's on top of already crazy gains (last year's values were already crazy).

That's not even atypical. Most markets (at least in Eastern Canada) have been behaving like this over the last few years. It's not just Niagara real estate that's nuts.

Pre-2008 was a good time to buy, but it now turns out that pre-Covid was also not bad.

If I told you how much I gained (on paper) from the approximate rise in value of my RE holdings over the last couple of years you likely wouldn't believe it, since I'm just a guy on the internet.

Your favourite math question, but in real estate form:

How long until Sherbrooke real-estate overtakes New York real-estate prices at current growth rates?

[suburbanite]

For what it's worth, I've talked with several large Toronto developers/homebuilders for acquisition financing in the past month and they are all internally preparing for at the very least, a significant tapering off of prices. Those who have product at a more mature stage are cutting prices to try and get them under contract before interest rates rise. Homebuilders typically target a 12-16% margin under a basic residual land value model, and one I talked to last week is trying to blow out one of their active projects at an 8% margin. Those who won't be delivering product for >1 year are significantly increasing their deposit requirements to try and safeguard any sales they do close on.

I have a feeling we will see a little pullback as everyone waits for the dust to settle on rising interest rates. The question will be whether it is sustained. Asset prices tend to stabilize a little bit during the transitionary period, but if a year from now we're just sitting at stable 3.5% instead of 2.7%, I can see people re-entering the market en masse again.