Canada's 'housing bubble' deemed close to bursting

[thewave46]

Originally Posted by esquire

I take your point. You always have the option of waiting out the market. But that is not always going to be ideal.

I remember meeting a young newlywed couple from south Florida in 2009. They had bought a condo a couple of years earlier, just before the American housing crash and they were underwater. It was fine in the sense that they weren't looking to sell immediately and they could handle it, but it did restrict their ability to move, whether into a SFH once they had more than one child and needed some more space, or to move to another city to pursue work as Americans often tend to do.

I guess if you're 40+ and have a stable job and already in the "forever home" with room enough for the entire family, being underwater is not necessarily a huge deal. But it could be a real problem for younger people or anyone who can't/won't stay put for the long term.

Oh yes, absolutely. Someone who bought in the past couple of years is probably stuck, especially if they don’t have much equity. It isn’t great for mobility, that’s for certain.

What I am trying to say is that a US-style crash is less likely, where demand went to near nil and large numbers of defaults/bank collapses happen because large numbers of people can’t make the payments, because they were relying on equity gains exclusively.

What I am curious about is who owns at the expensive end. A million dollar home requires significant cash up front, so is this older people who are rolling equity into a new place? It would seem to be unlikely to be a younger couple, as they are priced out.

[someone123]

There are a bunch of differences between the US and Canada on both sides of the ledger as far as making the situation better or worse. I can think of a few:

- US tends to have fixed rate mortgages while Canada has shorter adjustment periods so will be more exposed to rising rates
- US has more "no recourse" loans and friendlier bankruptcy laws in many states so it's easier for people to walk away
- Canada likely has higher prices and debt levels (mortgage, HELOC, credit cards, etc.) now than the US ever did

[whatnext]

Originally Posted by thewave46

Oh yes, absolutely. Someone who bought in the past couple of years is probably stuck, especially if they don’t have much equity. It isn’t great for mobility, that’s for certain.

What I am trying to say is that a US-style crash is less likely, where demand went to near nil and large numbers of defaults/bank collapses happen because large numbers of people can’t make the payments, because they were relying on equity gains exclusively.

What I am curious about is who owns at the expensive end. A million dollar home requires significant cash up front, so is this older people who are rolling equity into a new place? It would seem to be unlikely to be a younger couple, as they are priced out.

Maybe they've been getting "Brampton loans".

...We’ve all heard the stories about mortgage brokers that fabricate documents to help secure a mortgage. Last year former hedge-fund manager Marc Cohodes told us that Canada was filled with rogue mortgage brokers, especially in the Toronto suburb of Brampton. Now mortgage broker Scott is echoing those claims.

“This one disgusts me,” he explains. “but it does happen a lot in Brampton, a shady mortgage broker may completely falsify all employment documentation, and facilitate the transaction with a known person, whether through the broker channel or through a bank not on the broker channel.” He further explains “A person can request company ABC – to create pay stubs, an employment letter – and confirm via telephone that this person is gainfully employed, when they are not.”...

https://betterdwelling.com/1-in-5-canadian-homeowners-commits-mortgage-fraud-says-top-broker/

[WarrenC12]

Originally Posted by someone123

There are a bunch of differences between the US and Canada on both sides of the ledger as far as making the situation better or worse. I can think of a few:

- US tends to have fixed rate mortgages while Canada has shorter adjustment periods so will be more exposed to rising rates
- US has more "no recourse" loans and friendlier bankruptcy laws in many states so it's easier for people to walk away
- Canada likely has higher prices and debt levels (mortgage, HELOC, credit cards, etc.) now than the US ever did

You can also write off mortgage interest in the US. So a rise in rates is offset by a decrease in income taxes.

[LightingGuy]

US property taxes for the most part also tend to be significantly higher than anywhere in Canada - this impact overall affordability of a house and gets factored in to the amount of mortgage you qualify for.

States with higher property taxes tend to have lower property values. Compare Texas to California for example - California's property tax rates and laws are much more similar to Ontario. Texas/Nevada pay significantly more in property tax.

[memememe76]

Aren't property taxes in California frozen after the home owner reaches a certain age, ie. 65? That will lower the average. But my California cousins of my age pay wayyyy more in property taxes than I do for my BC property. Unless property taxes in Ontario are insane too.

[GreaterMontréal]

In Laval in 2022, the property taxes are about $2,800 for a single family Home.
Taxable value $387,387​

[someone123]

Originally Posted by memememe76

Aren't property taxes in California frozen after the home owner reaches a certain age, ie. 65? That will lower the average. But my California cousins of my age pay wayyyy more in property taxes than I do for my BC property. Unless property taxes in Ontario are insane too.

They have prop 13 which caps the tax rate at 1% and caps increases at 2% per year unless the title changes. Under this scheme the burden is shifted onto people who bought more recently and away from people who bought earlier. I'd assume you'll find some people who pay a lot more than BC in California while others pay peanuts.

If you're over 55 in BC you can defer your property taxes at a 0.45% interest rate so they're de facto much more affordable for most older people and there's a disincentive to sell. It's pretty wild that the province is handing out 0.45% loans to millionaires while inflation is 7-8%+.

[lio45]

Originally Posted by LightingGuy

US property taxes for the most part also tend to be significantly higher than anywhere in Canada - this impact overall affordability of a house and gets factored in to the amount of mortgage you qualify for.

States with higher property taxes tend to have lower property values. Compare Texas to California for example - California's property tax rates and laws are much more similar to Ontario. Texas/Nevada pay significantly more in property tax.

Actually, the correlation is with income taxes. States governments need some sort of revenue, one way or another.

Coastal states happen to (usually) tax incomes. Hence, lower property taxes.

But you can find examples that prove me right: SE NH has skyhigh Boston-area values, but no income taxes nor sales taxes, therefore must have a high property tax rate, which it does.

[lio45]

Originally Posted by someone123

They have prop 13 which caps the tax rate at 1% and caps increases at 2% per year unless the title changes. Under this scheme the burden is shifted onto people who bought more recently and away from people who bought earlier. I'd assume you'll find some people who pay a lot more than BC in California while others pay peanuts.

If you're over 55 in BC you can defer your property taxes at a 0.45% interest rate so they're de facto much more affordable for most older people and there's a disincentive to sell. It's pretty wild that the province is handing out 0.45% loans to millionaires while inflation is 7-8%+.

Those schemes are ridiculous. Like we need to further transfer wealth from taxpaying younger Millennials and Gen Z to already-millionaire Boomers.

[lio45]

BTW, I’ve been paying 12% interest on my deferred property taxes for 15 years and counting. That’s how it works in Quebec.

BC could take a page from this playbook: 12% interest, but no need to pay a penny until you sell or die. It’s a good deal for the older multimillionaire homeowner who doesn’t want to move. Don’t like it, cash out and downsize/move away.

[SignalHillHiker]

Absolute perfection. I love every inch of my house, but this one is finer while still being exactly my tastes.

https://www.realtor.ca/real-estate/24576913/13-york-street-st-johns

I’d have to paint everything, replace every ceiling fixture, but that view. Jeez.

[casper]

Originally Posted by lio45

BTW, I’ve been paying 12% interest on my deferred property taxes for 15 years and counting. That’s how it works in Quebec.

BC could take a page from this playbook: 12% interest, but no need to pay a penny until you sell or die. It’s a good deal for the older multimillionaire homeowner who doesn’t want to move. Don’t like it, cash out and downsize/move away.

Similar in BC but with the lower rate. You have to pay when you sell.

BC also has the home owners grant. So if you live in your property the property tax is discounted. If one of the owners is over 65 there is an additional discount on top of that.

[casper]

Originally Posted by someone123

There are a bunch of differences between the US and Canada on both sides of the ledger as far as making the situation better or worse. I can think of a few:

- US tends to have fixed rate mortgages while Canada has shorter adjustment periods so will be more exposed to rising rates
- US has more "no recourse" loans and friendlier bankruptcy laws in many states so it's easier for people to walk away
- Canada likely has higher prices and debt levels (mortgage, HELOC, credit cards, etc.) now than the US ever did

Again more reason for the Bank of Canada to exercise extreme caution with any increase in interest rates.

[Architype]

Originally Posted by SignalHillHiker

Absolute perfection. I love every inch of my house, but this one is finer while still being exactly my tastes.

https://www.realtor.ca/real-estate/24576913/13-york-street-st-johns

I’d have to paint everything, replace every ceiling fixture, but that view. Jeez.

From that link, the one next door with the roof decks looks more impressive, there are lots of multi leveled decks built these days.

https://cdn.realtor.ca/listing/TS637915039823070000/reb117/highres/4/1246484_28.jpg

[WarrenC12]

Originally Posted by someone123

They have prop 13 which caps the tax rate at 1% and caps increases at 2% per year unless the title changes. Under this scheme the burden is shifted onto people who bought more recently and away from people who bought earlier. I'd assume you'll find some people who pay a lot more than BC in California while others pay peanuts.

Sounds a lot like BC rent controls!

Originally Posted by someone123

If you're over 55 in BC you can defer your property taxes at a 0.45% interest rate so they're de facto much more affordable for most older people and there's a disincentive to sell. It's pretty wild that the province is handing out 0.45% loans to millionaires while inflation is 7-8%+.

Yeah this should be means tested. Along with the additional home owner grant for 65+

[rbt]

Originally Posted by memememe76

Aren't property taxes in California frozen after the home owner reaches a certain age, ie. 65? That will lower the average. But my California cousins of my age pay wayyyy more in property taxes than I do for my BC property. Unless property taxes in Ontario are insane too.

No, but they do tend to lock-in at a low amount.

California does not automatically re-assess property values over time as Canadian provinces do. The valuation for property taxes is the last purchase price (or assessment during major reconstruction) which does not get inflation adjusted. So if you buy and hold for 30 years, your California property taxes are based on the value from your purchase 30 years ago. There is a tendency in California to create a corporation which buys the property, then sell or will the corporation instead of the property, thus maintaining the older valuation for property tax purposes for the new occupant.

New buyers, by comparison, tend to have very high property taxes as they represent a large %age of the total registered property values.

[LightingGuy]

Originally Posted by lio45

Actually, the correlation is with income taxes. States governments need some sort of revenue, one way or another.

Coastal states happen to (usually) tax incomes. Hence, lower property taxes.

But you can find examples that prove me right: SE NH has skyhigh Boston-area values, but no income taxes nor sales taxes, therefore must have a high property tax rate, which it does.

I don't follow.. Property taxes go to the City/County and income tax goes to the State/Fed. Unless there's some kind of redistribution behind the scenes?

[whatnext]

Interesting stats on how the price premium commanded by downtown residences has dropped over the last couple of years and how it predates the pandemic:

New research shows house prices in Canada's suburbs grew faster than in downtown areas during the pandemic as remote work spurred a preference for bigger homes.

The Bank of Canada said in a study Monday that the closure of many downtown services coupled with a desire for more living space increased demand for homes in suburban areas.

This shift weakened the so-called proximity premium typically associated with homes in more urban areas, which tend to be more expensive due to scarcer land, shorter commutes and better access to services, the central bank said.

The research shows that while house prices increased strongly in most neighbourhoods during the pandemic, the growth was strongest in the suburbs.

As a result, the real estate price gap between Canada's suburbs and downtown areas -- already narrowing steadily pre-pandemic -- shrank considerably, the bank said.

In 2016, for example, suburban homes in Canada typically sold for 33 per cent less than those in the downtown core, according to the bank's study.

By 2019, they were selling for 26 per cent less as the gap narrowed.

If the same trend continued, by 2021 houses in the suburbs were expected to sell for about 21 per cent less than in downtown areas.

But instead, houses in the suburbs sold for about 10 per cent less than in downtown areas -- a significant reduction in the price gap between the suburbs and downtown areas, the bank said...

https://www.bnnbloomberg.ca/canada-s-hou...ap-with-downtown-shrinks-study-1.1781393

[thewave46]

Originally Posted by LightingGuy

I don't follow.. Property taxes go to the City/County and income tax goes to the State/Fed. Unless there's some kind of redistribution behind the scenes?

My understanding is that education is largely funded by property tax revenue in many states. There is a big thing about being in the right school district. Property taxes reflect this.

State governments also do not carry the healthcare burden in the US. That is funded privately, or through Federal Medicare/Medicaid programs.

Once one takes away those areas, that’s literally more than half the budget there.