Canada's 'housing bubble' deemed close to bursting

[hipster duck]

Originally Posted by someone123

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.

Yeah, I own a small freehold home but I'm stuck. If you want to move to a home that's even 500ft2 larger in the same neighbourhood, you're talking about a more than $500,000 jump in prices. The already exorbitant $1,000/square foot home price rule in Toronto and Vancouver used to apply to everything - the cost of land and the structure. Now it's just the structure!

I think the number of people who have the freedom to upgrade homes is really limited nowadays. Even if you're an existing homeowner, it's like you're buying your first home again.

[lio45]

Originally Posted by thewave46

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?

Good one

NYC went up 15-20% year-over-year, so it's not sitting still. It would likely take a little while, given the massive difference in starting points.

[suburbanite]

Originally Posted by hipster duck

I think the number of people who have the freedom to upgrade homes is really limited nowadays. Even if you're an existing homeowner, it's like you're buying your first home again.

It seems the "Toronto special" these days is to cash out and realize your gain by moving to Niagara, Lake Simcoe, The Maritimes even. Until you're willing to move out of the GTA, your home equity gains are purely paper wealth.

What will be interesting is whether all of these 2nd generation+ Canadians cashing out of the home market and settling into their long-term final home changes the voting demographic talked about on the previous page. Does the GTA expat now living in Welland until the end of their days have as much of a vested interest in voting for protectionist real estate policies?

[lio45]

Originally Posted by suburbanite

Until you're willing to move out of the GTA, your home equity gains are purely paper wealth.

Not only are they only paper gains, the effect of everything gaining so much value is that everyone is frozen into their current property (like someone123 and hipster_duck) because everything else has also tremendously gone up proportionally so the financial gap you need to cross to access nicer property in the same market is even greater than ever (and incomes have totally NOT followed).

I think the only smart way to use these paper gains for any useful purpose is to refinance whatever you have and invest the liquidity in things that handily beat current interest rates.

Actually, a second smart way is to cash out and irreversibly move to another (much cheaper) market. But that one requires abandoning your current home city, unlike my other suggestion.

[thewave46]

Originally Posted by suburbanite

It seems the "Toronto special" these days is to cash out and realize your gain by moving to Niagara, Lake Simcoe, The Maritimes even. Until you're willing to move out of the GTA, your home equity gains are purely paper wealth.

What will be interesting is whether all of these 2nd generation+ Canadians cashing out of the home market and settling into their long-term final home changes the voting demographic talked about on the previous page. Does the GTA expat now living in Welland until the end of their days have as much of a vested interest in voting for protectionist real estate policies?

Yes. Why?

Who wants to be poorer, even if just on paper? Alternately, given that home equity loans are a thing, a decrease in the value of the home might end the spending spree.

While someone who lives in their final home theoretically shouldn't care, as the value of the home aside from shelter is irrelevant, there is a psychological effect. It is similar to people who panic and sell stock in their retirement portfolio because it is dropping, despite not needing the cash until decades into the future. Hence why retirement planners tell people to follow a plan and ignore the noise of day-to-day movement of the stock market.

[lio45]

Originally Posted by thewave46

Who wants to be poorer, even if just on paper?

Also, it's not just "on paper": it's real gains, you can cash out any time you want.

Sure, it doesn't do you any good until you actually sell or refinance, but it's still very real wealth (at least until the bubble pops) and it's yours.

I am convinced voters in general won't be voting for politicians who promise to make them poorer if elected.

[q12]

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

That's nothing. Here in Halifax a couple houses on my street sold for over $1,000,000 in the past month. These same houses sold for around $550,000 only 2 years ago... No renovations either.

[thewave46]

Originally Posted by lio45

Also, it's not just "on paper": it's real gains, you can cash out any time you want.

Sure, it doesn't do you any good until you actually sell or refinance, but it's still very real wealth (at least until the bubble pops) and it's yours.

I am convinced voters in general won't be voting for politicians who promise to make them poorer if elected.

Isn't that the definition though?

Paper gains are gains that are unrealized. I hold stock that has paper gains since my purchase. Until it is realized (i.e. I sell that stock for cash) the value of said stock is irrelevant.

In the case I mentioned, the price gains likely will never be realized by the group mentioned. Who is going to sell their home until they have to past a certain point in their lives? They need shelter; moving to Elliot Lake, ON is likely not a feasible option.

However, the psychological effect of paper value is huge. I would estimate that people will not happily see their paper value decline, even if they will never realize the gain.

[someone123]

Originally Posted by thewave46

Paper gains are gains that are unrealized. I hold stock that has paper gains since my purchase. Until it is realized (i.e. I sell that stock for cash) the value of said stock is irrelevant.

One point is that you're "naturally short on housing". You need a place to live. If you live in an expensive city, renting is unattractive, and you have a lot of social and professional connections there, it's not easy to cash out if you own a single property. You can downsize or move to a less commuter-friendly area when you retire as many Boomers have but the younger people who bought starter condos don't really have this option. Around here the payout for going from a semi-decent condo to a crappy condo is pretty minimal, while the gap moving one step up to a large-ish condo or small house is huge. A HELOC doesn't work well unless you're planning to downsize or die soon.

From my perspective the most attractive option seems to be to minimize my Vancouver real estate requirements and focus on other things unless something changes with the market or my finances (i.e. I have millions of dollars so spending an extra $500,000 isn't a big deal). This means, for example, trying to arrange my life around traveling more.

[WhipperSnapper]

Originally Posted by 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.

I know a few local mortgage brokers and they all have said they have never had to turn down as many mortgages for buyers of homes. I don't know how that will affect values in the future though.

I was offered $1.9 million for my CMHC one and a half storey house that was designed as an affordable home for returning WW2 war vets. Instead, I partnered with the developer who plans to build a larger home (not American/ Vancouver special large) and sell it for $4 million. I never expected things to get this far.

I envision Toronto to lean more and more conservative as the left leaning cash out although I'm not confident in the vision as the Liberals don't seem to be at all concerned about actual solutions over feel good lip service

[suburbanite]

Originally Posted by WhipperSnapper

I know a few local mortgage brokers and they all have said they have never had to turn down as many mortgages for buyers of homes. I don't know how that will affect values in the future though.

This is kind of the sad part as well. It's not the well capitalized foreign buyers who will feel the pain from rising interest rates, except for maybe blowing up the cap rates on their rental properties if asset prices do fall. It's going to be the young people who stretched to the limits of their financial abilities to move out of the city during Covid, or tried to find a house they could actually raise a family in. The people actually earning a local income trying to afford local housing are the ones in the worst position.

I've been sitting on the sidelines in my Toronto condo that I bought for a pretty reasonable $700 PSF ~4 years ago. I'm waiting for interest rates to rise to see what happens to prices and look for an opportunity to get a semi-detached somewhere around Trinity Bellwoods area. Something I would feel comfortable putting over 40% of my income into if it was going to be a viable long-term housing solution regardless of what changes in my personal life. I know if I do find a good deal, it's probably going to be from a person who overextended themselves trying to follow the dream of our parents' generation where owning a home was sacrosanct.

If we get up to 5% interest rates and we're still in this situation, I'm officially giving up and will likely just look to stay in New York. If I'm going to be a wage slave in an overpriced city, it might as well be the overpriced city.

[Wigs]

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.

Sherbrooke prices increased by this much?



edit: I didn't find data for Sherbrooke but compared Niagara to Ottawa and Quebec City CMA. I'm assuming Sherbrooke is not as valuable as Quebec City.



It appears the huge increase started occurring in Niagara around Jan 2016.
Benchmark price
Jan 2016: $254,700
Feb 2022: $798,100
Increase: 213% or roughly 35%/yr for 6 years.

Benchmark price if I recall correctly is a 3 bed, 2 bath home between 51-99 years.

[Wigs]

Originally Posted by q12

That's nothing. Here in Halifax a couple houses on my street sold for over $1,000,000 in the past month. These same houses sold for around $550,000 only 2 years ago... No renovations either.

That is wild.

No doubt in part because people like my cousin and his family of 4 keep moving from southern Ontario to Nova Scotia

How soon will Halifax residents go from "All of this growth is great!"
to "Omg it's getting so expensive we might have to move" ?

[urbandreamer]

The bubble has burst: Ephraim Goldberg's condo has finally gone into presales!

[Wigs]

Originally Posted by q12

That's nothing. Here in Halifax a couple houses on my street sold for over $1,000,000 in the past month. These same houses sold for around $550,000 only 2 years ago... No renovations either.

It appears your example is an outlier as there's still many "affordable" houses in the Halifax-Dartmouth Metro

[lio45]

Originally Posted by Wigs

edit: I didn't find data for Sherbrooke but compared Niagara to Ottawa and Quebec City CMA. I'm assuming Sherbrooke is not as valuable as Quebec City.

Actually for RE performance it's much closer to following Montreal, not Quebec City. My least well performing property of all has been my Old Lévis duplex. Rents in Sherbrooke have gone up a lot more than they have in Quebec City. It's closer to Montreal and it's the spill-over market for those priced out of Montreal. (Same reason why I'm pretty sure Hamilton outperformed Ottawa, despite being a smaller city.)

Montreal in that graph (I just plotted it) is pretty close to Ottawa's trajectory.

Commercial land in downtown Sherbrooke totally outperformed random SFHs, though. Some of my properties have outperformed the Niagara region average over the last 10 years. (Normal, since I'm not just blindly picking random/average investments; I'm biased towards wherever there is value in my opinion, and I'm less often wrong than someone who's picking at random.)

Anyway, in retrospect, I was a fool not to sell all of my real estate to put my entire net worth into bitcoin a few years ago. Plenty of people did better than me over that period.

[Wigs]

lio, I had no idea Sherbrooke was now the recipient of Montreal spillover.
I (wrongly) assumed Quebec City would be more valuable.
I admire Quebec cities and towns because they typically have higher density (and vibrancy) in the downtown/city centre and surrounding neighbourhoods than southern Ontario cities.

real estate is way smarter than Crypto. Despite it's current value, it's still viewed generally as "scam"

even if the real estate market collapsed entirely, you can still kick out one of your tenants and move in

[Wigs]

This c. 2018 beaut can be yours for the low asking price of $1,189,900
A spacious 37' foot wide lot

Contemporary two storey located in a popular newer subdivision in Welland adjacent to the canal right beside memorial park, this home boasts a modern stucco and stone façade, concrete driveway, patio and walkways on both sides with a fully fenced yard, PLUS convenient side entrance to a totally self-contained in-law suite! The lower level is complete with 2nd laundry, 2nd kitchen, full bath, bedroom and living room/eat-in area, perfect for extended family, teens or guests.

The main floor is open and airy with beautiful hardwood floors, 12 x 24 tiles, oak staircase with iron rails and a great open concept layout. The trendy white kitchen features quartz counters, backsplash, pantry and spacious island. Modern light fixtures, pot lights, and crown molding accents throughout, along with California shutters on the second and first floor. Upstairs you will find 3 extra large bedrooms each with their own walk-in closet, a large linen closet, 2nd floor laundry and 3 piece ensuite bath in the primary bedroom.

On demand hot water tank is a rental, flexible closing available. This is a wonderful family area walking distance to neighbourhood parks, pools, sports fields and picnic pavilions, making it an excellent investment as well

• Video Link

to paraphrase Molson:
Miltonization of southern Ontario will be the death of its soul.

[TownGuy]

^ Yep. I was checking out Cobourg and this newish build bungalow, siding a busy street, sold for $1,050,000 a couple weeks ago. 38' lot.

[Wigs]

Originally Posted by TownGuy

^ Yep. I was checking out Cobourg and this newish build bungalow, siding a busy street, sold for $1,050,000 a couple weeks ago. 38' lot.

The Miltonization of Ontario continues unabated
granted, Cobourg is much more charming than Welland.