Canada's 'housing bubble' deemed close to bursting

[1ajs]

howws all of this compare to the end of the 70's?

[Acajack]

Originally Posted by 1ajs

howws all of this compare to the end of the 70's?

Prices were reasonable but the interest rates were absolutely insane. Not far from 20% IIRC.

My parents bought a house for 72,000 dollars in those years. If you look up their monthly payments at 1980 interest rates, they were incredible for a house at that low a price.

[kwoldtimer]

Originally Posted by Acajack

Prices were reasonable but the interest rates were absolutely insane. Not far from 20% IIRC.

My parents bought a house for 72,000 dollars in those years. If you look up their monthly payments at 1980 interest rates, they were incredible for a house at that low a price.

Yes, rates came close to 20% in 1981. Many people had to walk away from their homes.

If rates go up about 1.5% over the next 18 months (I think it could well be more), mortgage interest rates would still be relatively low, if you look at the last four or five decades.

[thewave46]

Originally Posted by kwoldtimer

Yes, rates came close to 20% in 1981. Many people had to walk away from their homes.

If rates go up about 1.5% over the next 18 months (I think it could well be more), mortgage interest rates would still be relatively low, if you look at the last four or five decades.

It is the leverage that is worrisome.

Refinancing hundreds of thousands of dollars means that small interest rate movements have an undue impact.

Someone treading water at ~2% may be up a creek at ~3.5%.

[WarrenC12]

Prior to COVID the BoC had several increases in a row (mostly 2017-18 IIRC). I would argue they were increasing faster than the market could respond.

[SignalHillHiker]

Originally Posted by thewave46

It is the leverage that is worrisome.

Refinancing hundreds of thousands of dollars means that small interest rate movements have an undue impact.

Someone treading water at ~2% may be up a creek at ~3.5%.

I can’t imagine how terrifying that must be with a $1M mortgage.

I was surprised my small recent increase was enough to see. Went from 1.45% to 1.7% and the biweekly payment from $385 to $392. That’s not a problem of course but I was surprised such a small increase could make a noticeable increase on the payment. If you’d asked me to guess I would’ve said the new payment might come in a dollar higher than it was

[Truenorth00]

Originally Posted by thewave46

It is the leverage that is worrisome.

Refinancing hundreds of thousands of dollars means that small interest rate movements have an undue impact.

Someone treading water at ~2% may be up a creek at ~3.5%.

Yep. People have $500k mortgages these days. A 100 bps increase in rates adds $417/mo in interest costs. There are going to be people who see a whole lot of their free cash flow evaporate. And there's going to be a lot of people who might lose the house at 150-200 bps.

[lio45]

Originally Posted by Truenorth00

Yep. People have $500k mortgages these days.

$500k? Not in the GTA or BC.

Whoever buys that million-dollar Welland piece of shit from the previous page likely puts $50k down and gets a $950k CMHC mortgage.

[yaletown_fella]

I chuckle whenever an article refers to anyone in the BOC as a "hawk"

The increases by the BOC are still extremely dovish. I predict we will never see real positive rates in my lifetime. They will never level with the people and do what's nessessary to fight inflation and pop the housing bubble. Real inflation is much higher than what most sources cite , due to the CPI being deliberately designed to understate inflation and placate the stock market.

Unfortunately, he BOC clowns will use even the slightest rise in unemployment rates as an excuse to slash rates back to 0.25% or negative and do QE. I've seen this show before. If you look at the Oaken Financial website, for example, you will see they have forecasted their long term GICs for a rate cut and more can-kicking.

They have no intention of fighting inflation, because actually raising rates to stop/reverse inflation would pop the bubble. The recession is the cure. The biggest cause of Canadas housing woes is the central bank trying to stimulate the economy with low rates/QE. Central banks should never be in the business of stimulating an economy.

I think the CMHC should be dissolved. Insuring these horrible mortgages has exacerbated the problems caused by low interest rates, cheap money, and nimby-ism.

Anyone who's overleveraged themselves with a mortgage , and then sees their job dissapear due to a market crash/correction in misallocated capital or AI/automation absorbing work, is ultimately the weaver of their own misfortune. Society has no empathy for a renter who loses their job, they get kicked in the teeth.

[GenWhy?]

CMHC just needs to go back to some aspects of what it was doing back in the mid-20th Century. It's kinda doing it now but with less teeth

[Hali87]

Originally Posted by GenWhy?

CMHC just needs to go back to some aspects of what it was doing back in the mid-20th Century. It's kinda doing it now but with less teeth

They used to be much more involved in the financing of apartment buildings for small landownders (ie mostly individuals, not large development corps or REITs). These programs (including, critically, supports for building maintenance) petered out in the 80s, but a large proportion of Canada's apartment buildings from the 50s-70s can be traced to these programs.

[whatnext]

Originally Posted by Hali87

They used to be much more involved in the financing of apartment buildings for small landownders (ie mostly individuals, not large development corps or REITs). These programs (including, critically, supports for building maintenance) petered out in the 80s, but a large proportion of Canada's apartment buildings from the 50s-70s can be traced to these programs.

Which is exactly why they need to get back into those kind of programs in a big way now. Govt reaction to the housing crisis is a joke. The CMHC’s mandate needs to be changed to make sure people are housed not just to aid those looking to buy a home.

[SignalHillHiker]

We're trying to market it

[yaletown_fella]

Originally Posted by Acajack

Prices were reasonable but the interest rates were absolutely insane. Not far from 20% IIRC.

My parents bought a house for 72,000 dollars in those years. If you look up their monthly payments at 1980 interest rates, they were incredible for a house at that low a price.

It's only this low rate environment/"monetary roach motel" the central banks/govt have checked us into post 2008, that makes homeownership a necessary insurance policy/hedge against inflation/rising rents.

Getting a 20% annual return on a GIC sound great to me (likely around an 9-10% real positive interest rate when you accounted for the inflation at this time which the high rates were successful in curbing). The 8-9k after tax produced annually by a pot of 100k could pay almost all the rent of a modest bachelor apartment in North York back in the 90s, before cheap money inflated everything. Talk about a peace of mind you'd get from this, you'd have almost no fear of job loss. It was a great time to be a minimalist.

I cant imagine that back in the 90s Id be taking a hard look at buying a place in Cornwall or Sarnia, not that theres anything wrong with living in those places but the reality is my work is not remote and relocation is precarious and difficult.

I'm also very adverse to car ownership, even with the 70% sole proprietership writeoff. Id argue the benefits of a car only pay off once you are over the 70k income mark. It's such a huge cost that people overlook.

Being a renter in a high interest rate environment in a city well served by transit sounds like a huge win to me. Montreal is a city of renters and that hasnt detracted from its quality of life/urbanism. It's our screwed up monetary policy thats created this winner-take-all economy.

[rbt]

Originally Posted by lio45

$500k? Not in the GTA or BC.

Whoever buys that million-dollar Welland piece of shit from the previous page likely puts $50k down and gets a $950k CMHC mortgage.

Not quite.

$100k down-payment, and $220k/year household income would do it with no other debts (including car payments) but that seems unlikely. That income level would put them in the top ~3% for Welland.

Much better chance they'll take a $500k mortgage with $500k down ($50k pandemic savings cash + $450k equity in their Toronto condo).

Personally, I expect housing prices to generally go back to old trends after this temporary high-salary remote-work thing is fully phased out. Companies paying GTA salaries will eventually demand an in-office presence most of the week. Remote work will be available, but new hires aren't going to get GTA salaries.

[Acajack]

Originally Posted by rbt

Personally, I expect housing prices to generally go back to old trends after this temporary high-salary remote-work thing is fully phased out. Remote work will be available, but new hires aren't going to get GTA salaries.

This is a really good point. Just because employers will be saving on office space and other overhead as opposed to having on-site staff, doesn't mean any of those savings will be passed on to staff via higher salaries. Or even equivalent salaries.

If anything, employers always try to pay their staff as little as possible, keeping in mind what the market will bear or impose on them.

[thewave46]

Originally Posted by yaletown_fella

It's only this low rate environment/"monetary roach motel" the central banks/govt have checked us into post 2008, that makes homeownership a necessary insurance policy/hedge against inflation/rising rents.

Getting a 20% annual return on a GIC sound great to me (likely around an 9-10% real positive interest rate when you accounted for the inflation at this time which the high rates were successful in curbing). The 8-9k after tax produced annually by a pot of 100k could pay almost all the rent of a modest bachelor apartment in North York back in the 90s, before cheap money inflated everything. Talk about a peace of mind you'd get from this, you'd have almost no fear of job loss. It was a great time to be a minimalist.

I cant imagine that back in the 90s Id be taking a hard look at buying a place in Cornwall or Sarnia, not that theres anything wrong with living in those places but the reality is my work is not remote and relocation is precarious and difficult.

I'm also very adverse to car ownership, even with the 70% sole proprietership writeoff. Id argue the benefits of a car only pay off once you are over the 70k income mark. It's such a huge cost that people overlook.

Being a renter in a high interest rate environment in a city well served by transit sounds like a huge win to me. Montreal is a city of renters and that hasnt detracted from its quality of life/urbanism. It's our screwed up monetary policy thats created this winner-take-all economy.

It is a good thing one wouldn't fear a job loss in a 20% environment, because 1983's unemployment rate was ~12%, a reflection of the after-effects of those murderous early 1980s interest rates - the effect of people defaulting and business collapsing.

The recession in the early 1990s (unemployment of >11%) was also a product of high interest rates (bank rates in 1990 = ~13%).

I'm not sure if you had the pleasure of living through that era, but that's the flip side of the coin. When one's strategy is just to coast on $100k of savings (must be nice to have that luxury!), it is not the story of the median Canadian.

Sure, interest rates should probably be higher and inflation is probably understated. I've no rose-coloured glasses about +10% over inflation interest rates, having seen the carnage.

[goodgrowth]

It's interesting that despite already being the most affordable of the large cities in Canada that Edmonton seems to be ahead on rethinking zoning as well.

Edmonton's omnibus zoning bylaw would change entire city and limit development rules

https://edmontonjournal.com/news/local-n...-entire-city-and-limit-development-rules

Neighbourhoods could be in for some significant, transformational and permanent changes as Edmonton moves forward on plans to rezone the entire city and limit regulations on development.

The omnibus zoning bylaw, if passed, would upzone most lots now restricted to single-family homes and duplexes to allow for infill development. It would boost density and housing types allowed, like small apartments, rowhouses, garden suites, and supportive housing up to 10 metres in height — including in mature neighbourhoods — as well as some small businesses. Outside Anthony Henday Drive, residential lots have slightly different rules.

It would use about half the zones and about a quarter of land-use types as the current bylaws, so sites can be used for multiple purposes. Zones are split into residential, mixed-use, commercial, industrial, open space and civic services, agricultural or rural, and specialized categories.

[Wigs]

Fort Erie - $1,275,000
Frontage: 40 ft
Land Depth: 74 ft

This stunning 3 bedroom Ridgeway townhome is waiting for you! Set in the highly sought after The Oaks at Six Mile Creek community, this Linden model bungalow offers 1552 sq feet of luxury living on the main level combined with another 812 sq ft of finished basement space.

The main level of the home offers gleaming engineered hardwood, soaring ceilings & luxurious quartz counters, a large front bedroom, 3 piece bathroom, gorgeous kitchen, a sun-soaked great room with gas fireplace, separate laundry room and a serene primary suite complete with walk-in closet and a large ensuite with glass shower & soaker tub.

The lower level has been finished to include a large 3rd bedroom with walk-in closet, a full 4 piece bathroom, a large rec room and a spacious storage area that can be finished into even more livable space. Start or end the day with your favourite hot or cold beverage on the beautiful covered porch with included privacy blinds.

Condo fee of $162.50 takes care of all water to the home, grass/flower bed maintenance & snow removal. Only a short walk to Lake Erie and all the amenities of Ridgeway. Life could not be easier - don't delay!

Don't get me wrong, it's nicer than some of the complete schlock I've posted, but in a normal housing market this would be overpriced by say $500-600k.

https://www.realtor.ca/real-estate/24261349/9-sassafras-row-fort-erie

[MolsonExport]

I-n-s-a-n-i-t-y