Canada's 'housing bubble' deemed close to bursting

[Truenorth00]

Originally Posted by casper

Perhaps. If that were the case why are the Canadian banks finding a lot of success in selling Canadian mortgages on the world market.

Because Canadian mortgages are securitized and backed by a Crown corporation.

CMHC’s Guarantee of Canada Mortgage Bonds constitutes a direct unconditional obligation of CMHC, as agent of Her Majesty in right of Canada, and as such carries the full faith and credit of Canada and constitutes a direct unconditional obligation of Canada. Amounts payable under the CMHC Guarantee of the principal of and interest on Canada Mortgage Bonds constitute a charge on and are payable out of the Consolidated Revenue Fund of Canada.

https://www.cmhc-schl.gc.ca/en/professio...tions-guarantee-of-canada-mortgage-bonds

I, for one, think the government should not be backing the entire mortgage market and that banks should be forced to securitize their own mortgages or use a private agency. I bet the risk tolerance on some of shenanigans we have seen would be very different.

[suburbanite]

Would also help force the banks to diversify their lending activities a bit more. For having lived in a world of near zero interest rates for 10 years, it's embarrassing how hard it is to get a small business loan in this country. With the banks having their fill of near failsafe mortgages, why risk lending money on an unsecured basis?

[Acajack]

Originally Posted by casper

Perhaps. If that were the case why are the Canadian banks finding a lot of success in selling Canadian mortgages on the world market.

I don't mean to be an ass but how much of a feather in one's cap and measure of success is it that people will be happy to take money that you want to freely lend them?

[suburbanite]

Originally Posted by Acajack

I don't mean to be an ass but how much of a feather in one's cap and measure of success is it that people will be happy to take money that you want to freely lend them?

It's not lending to a foreign party, it's selling Canadian loans to investors across the world, essentially asking someone else to take on the risk of Canadian borrowers being able to make their payments. I don't think it's a definitive barometer on the stability of the system, but it is telling that independent and unbiased players across the world still see those investments as desirable.

[goodgrowth]

It's like someone did a bunch of crack and read about transit-oriented development.


• Video Link

[swimmer_spe]

Originally Posted by goodgrowth

It's like someone did a bunch of crack and read about transit-oriented development.


• Video Link

Or, they watched all the dystopian films out there and decided to make it come to life.

[casper]

Originally Posted by goodgrowth

It's like someone did a bunch of crack and read about transit-oriented development.

I looked them up. They have a website and claim:

Coming from the future, before it was even launched, this is how NEOM came about, and this is how its founder,
His Royal Highness, Crown Prince Mohammed bin Salman, envisioned it, as he laid its foundations to be the future, an agent of progress and change. It was therefore expected that "future" be intertwined with NEOM's basic identity, its name, its values and its vision, and this is how NEOM is… from the future and to the future.

The Crown Prince and Chairman of the NEOM Board of Directors, His Royal Highness Prince Mohammed bin Salman, discussed and deliberated with members of the project's Founding Board - in addition to experts and specialists in the field - about an appropriate name for such a project with a global outlook. ...

Source: https://www.neom.com/en-us/about

We are talking about the gulf region where they burn oil to generate electricity and instead of building in the empty desert they build artificial islands that look like flowers.

Pragmatism is not a prerequisite to project funding in that part of the world.

NEOM is expected to have capacity for 450,000 people by 2026 and 1.5-2 million people by 2030, eventually housing nine million by 2045, the crown prince said. The interim goal would make the city bigger than Abu Dhabi, he said

Source: https://www.reuters.com/world/middle-eas...m-will-likely-be-listed-2024-2022-07-25/

Basically it looks real and appears to be from someone with sufficient resources to actually turn it into reality.

What remains as an open questions, is what types of drugs need to be consumed to come up with such an concept.

[Al Ski]

Originally Posted by suburbanite

It's not lending to a foreign party, it's selling Canadian loans to investors across the world, essentially asking someone else to take on the risk of Canadian borrowers being able to make their payments. I don't think it's a definitive barometer on the stability of the system, but it is telling that independent and unbiased players across the world still see those investments as desirable.

Err... what?

[Al Ski]

Originally Posted by Innsertnamehere

I doubt it’ll drop below pre-pandemic. Wages are up significantly since then as is inflation, even with higher interest rates people can afford more.

I wouldn’t be surprised if it drops to around where it was in early 2020 though.

Wages increases are below inflation therefore wages are decreasing. People can afford less.

This is not difficult to understand.

[casper]

Originally Posted by Al Ski

Err... what?

The Canadian banks are taking their mortgages and selling them to other banks outside of Canada.

If your a bank you can buy a share of the basket of mortgages that the bank in another country holds.

This is a common thing for banks to do. They want to diversify their lending. American and European banks will buy into these Canadian mortgagees. The Canadian banks will buy into mortgagees that banks in Europe and the US are selling.

The fact foreign banks are interested in buying into Canadian mortgages means they see them as safe investments. They are not doing it for high interest rates. Most mortgages at this point in Canada are going to be locked in at fairly low rates well below inflation.

As the person who has taken out the mortgage this is all invisible to you.

[Truenorth00]

Originally Posted by casper

The Canadian banks are taking their mortgages and selling them to other banks outside of Canada.

Not quite. CMHC securitizes mortgages for the banks and then sells government backed Mortgage Backed Securities.

Originally Posted by casper

If your a bank you can buy a share of the basket of mortgages that the bank in another country holds.

This is a common thing for banks to do. They want to diversify their lending. American and European banks will buy into these Canadian mortgagees. The Canadian banks will buy into mortgagees that banks in Europe and the US are selling.

The fact foreign banks are interested in buying into Canadian mortgages means they see them as safe investments. They are not doing it for high interest rates. Most mortgages at this point in Canada are going to be locked in at fairly low rates well below inflation.

As the person who has taken out the mortgage this is all invisible to you.

We don't know what the market for Canadian mortgage bonds are outside quantitative easing with the Bank of Canada not buying these bonds. Just look at what happened in the US when the Fed stopped buying mortgage bonds. At one point last month, there were no buyers for American MBS. This is what the real market for mortgages is.

If Canadian banks had to securitize and sell mortgage bonds without the central bank buying them and on the global market without government backing, I suspect their risk appetite would be very different. This is the real risk and premium of a Canadian mortgage. Of course, that would mean much higher rates, which is why the government does not allow it. But there's plenty wrong with the government effectively taking on the risk and subsidizing the mortgages of everybody from first time homebuyers to speculators flipping homes.

[lio45]

Originally Posted by Al Ski

Wages increases are below inflation therefore wages are decreasing. People can afford less.

This is not difficult to understand.

Your conclusion isn’t bulletproof. Regardless of wages, it could be that people can afford more. (Say, if banks introduced 200-year amortization loans, or down payment requirement were waived, etc.)

Plus, we haven’t even considered the elephant in the room — foreign buyers who bring their money here and who aren’t impacted by local wages when buying properties.

[Nouvellecosse]

Originally Posted by lio45

Your conclusion isn’t bulletproof. Regardless of wages, it could be that people can afford more. (Say, if banks introduced 200-year amortization loans, or down payment requirement were waived, etc.)

Plus, we haven’t even considered the elephant in the room — foreign buyers who bring their money here and who aren’t impacted by local wages when buying properties.

The other issue when discussing the cost of specific things such as real estate is that inflation is often based on a representative average such as the CPI, and increases to that average don't necessarily mean that every constituent component experiences the same price increase. So even if the official inflation rate is say 5% and the average salary increase is only 3%, that 5% average could include some things that increased by 8% and other things only increased by 2%. So while people may not be able to afford as much when spreading their spending evenly across the representative bucket of goods, that may not be the case if they spend less on things experiencing the greatest increases and more on things that increased less.

[lio45]

Originally Posted by Nouvellecosse

The other issue when discussing the cost of specific things such as real estate is that inflation is often based on a representative average such as the CPI, and increases to that average don't necessarily mean that every constituent component experiences the same price increase. So even if the official inflation rate is say 5% and the average salary increase is only 3%, that 5% average could include some things that increased by 8% and other things only increased by 2%. So while people may not be able to afford as much when spreading their spending evenly across the representative bucket of goods, that may not be the case if they spend less on things experiencing the greatest increases and more on things that increased less.

Let’s also not forget that real estate doesn’t behave like typical purchases.

If avocados double in price overnight, Canadians will on average be eating less avocado toasts as a result, guaranteed.

If real estate doubles in price, you can’t tell what consumption will look like (unlike with avocados) until you’ve looked at other factors. It may increase greatly (if interest rates fall to near zero, down payment requirements are lowered to near zero, and banks start lending to anyone with a pulse), or fall off a cliff, or anywhere in between.

[samne]

Originally Posted by lio45

Plus, we haven’t even considered the elephant in the room — foreign buyers who bring their money here and who aren’t impacted by local wages when buying properties.

Good point. Canada accepting over 400k immigrants for 2022, the most ever. A very high number. With larger targets 2023, 2024.

[thebasketballgeek]

Originally Posted by lio45

Plus, we haven’t even considered the elephant in the room — foreign buyers who bring their money here and who aren’t impacted by local wages when buying properties.

Aren’t they banning the sale of houses to non resident foreign buyers in 2023 anyway?

Anyways this has been discussed as nausem but foreign buyers only represent a small proportion of properties in Canada. In Ontario it’s 2.2% and BC it’s 3.1%. It’s just a tool for politicians to use to gain some anti-immigrant voters when in effect it will provide very minimal results. Another thing to consider is that most countries are poorer then Canada and provide lower wages then Canada so I don’t buy the impacted by wages argument either.

Instead, how many people born and bred in Canada own multiple properties? Lio don’t you own more then 1 property as well? Did you know that 31% of all housing stock in Ontario is held by owners with multiple properties? Let’s do some quick math here and subtract 2.2% from 31% and voila 28.8% of properties in Ontario are owned by CANADIANS with multiple properties.

The point of this is to revel in the hypocrisy of Canadians when it comes to purchasing of multiple properties. Everyone in Canada wants to do it and most people with means to do so will at any cost, but no absolutely not the foreign buyers the sheer horror…

Let’s stick with the basics and add more supply considering we have the lowest housing stock per capita in the G7, make building easier by relaxing zoning, implement a LVT, and most importantly MORE PUBLIC HOUSING. The Canadian Gov needs to start building public housing like they were doing in the 1970s X10 at this rate.

These measures will remove all speculation in the market, but are unnecessary because it looks like the interest rate hikes is doing all the work for the time being. Anything done to increase supply at this junction will just make existing house prices collapse even further. That might be considered be a good thing for some people tho.

[swimmer_spe]

Originally Posted by thebasketballgeek

Aren’t they banning the sale of houses to non resident foreign buyers in 2023 anyway?

Anyways this has been discussed as nausem but foreign buyers only represent a small proportion of properties in Canada. In Ontario it’s 2.2% and BC it’s 3.1%. It’s just a tool for politicians to use to gain some anti-immigrant voters when in effect it will provide very minimal results. Another thing to consider is that most countries are poorer then Canada and provide lower wages then Canada so I don’t buy the impacted by wages argument either.

Instead, how many people born and bred in Canada own multiple properties? Lio don’t you own more then 1 property as well? Did you know that 31% of all housing stock in Nova Scotia is held by owners with multiple properties? Let’s do some quick math here and subtract 2.2% from 31% and voila 28.8% of properties in Ontario are owned by CANADIANS with multiple properties.

The point of this is to revel in the hypocrisy of Canadians when it comes to purchasing of multiple properties. Everyone in Canada wants to do it and most people with means to do so will at any cost, but no absolutely not the foreign buyers the sheer horror…

Let’s stick with the basics and add more supply considering we have the lowest housing stock per capita in the G7, make building easier by relaxing zoning, implement a LVT, and most importantly MORE PUBLIC HOUSING. The Canadian Gov needs to start building public housing like they were doing in the 1970s X10 at this rate.

These measures will remove all speculation in the market, but are unnecessary because it looks like the interest rate hikes is doing all the work for the time being. Anything done to increase supply at this junction will just make existing house prices collapse even further. That might be considered be a good thing for some people tho.

Instead of giving a percentage, why not give a number? So, what would 2.2% look like as far as number of units?

[whatnext]

Originally Posted by thebasketballgeek

Aren’t they banning the sale of houses to non resident foreign buyers in 2023 anyway?

Anyways this has been discussed as nausem but foreign buyers only represent a small proportion of properties in Canada. In Ontario it’s 2.2% and BC it’s 3.1%. It’s just a tool for politicians to use to gain some anti-immigrant voters when in effect it will provide very minimal results. Another thing to consider is that most countries are poorer then Canada and provide lower wages then Canada so I don’t buy the impacted by wages argument either.

Instead, how many people born and bred in Canada own multiple properties? Lio don’t you own more then 1 property as well? Did you know that 31% of all housing stock in Nova Scotia is held by owners with multiple properties? Let’s do some quick math here and subtract 2.2% from 31% and voila 28.8% of properties in Ontario are owned by CANADIANS with multiple properties.

The point of this is to revel in the hypocrisy of Canadians when it comes to purchasing of multiple properties. Everyone in Canada wants to do it and most people with means to do so will at any cost, but no absolutely not the foreign buyers the sheer horror….

Like so many others who attempt to minimize the problem you underestimate the effect of foreign capital, confusing it with foreign buyers.

[thebasketballgeek]

Very interesting after 4 hours of no response to my comment two of the people most opposed to the notion that foreign home buyers are actually not the main problem in our housing crisis provide me with an excellent 1 sentence response to dispel my claim. I thought in this forum we have healthy discussion instead of receiving irritable rhetoric...

Fair enough, let me respond appropriately.

Originally Posted by swimmer_spe

Instead of giving a percentage, why not give a number? So, what would 2.2% look like as far as number of units?

Ok, 2.2% of all units in Ontario and 3.1% of all units in BC account for 130,443 out of 5,929,250 total dwelling units and 68562 out of 2,211,694 units respectively. These are not inconsequential numbers and hopefully will help reduce house prices even further having those units freed up next year.

However, Ontario only has 417 units per 1,000 residents and BC has 442 units per 1,000 residents. The G7 average which includes the US, UK, Japan, Germany, Italy, France, and of course us is 480 units per 1,000 residents. Just to get to that average Ontario and BC would have to construct (without any population growth considered) 898,242 and 188,727 units respectively. Building these units would provide Ontario with a 15% increase in housing stock and BC with a 8.5% increase in housing stock. Now that you've seen the numbers yourself feel free to draw a conclusion on what would be more effective to combat our housing affordability crisis by all means. It's not really comparable because we as a country have been underbuilding housing for DECADES, and have only seen increased numbers of foreign buyers relatively recently. Tackling foreign homebuyers is equivalent to putting lipstick on a pig.

Originally Posted by whatnext

Like so many others who attempt to minimize the problem you underestimate the effect of foreign capital, confusing it with foreign buyers.

Oh man this is going to blow your mind. Here's how the government of Canada views foreign investment increasing in 2021 by nearly 8%.

The stock of Canadian direct investment abroad rose by 4.5% to reach $1,555.6 billion at the end of 2021, on the strength of cross-border mergers and acquisitions activity. Meanwhile, the stock of foreign direct investment in Canada increased by 7.8% to reach $1,082.5 billion, more than offsetting the 4.3% decline observed in 2020. As a result, Canada's net direct investment position with the rest of the world narrowed by $10.7 billion to $473.1 billion in 2021.

In 2021, the stock of foreign direct investment in Canada climbed $77.9 billion to $1,082.5 billion, rebounding strongly after a $45.0 billion decline in 2020.

So first things first, Canadians are investing about $500 billion more overseas then they are receiving back from foreign capital. I'm no expert in math but having a half a trillion dollar deficit doesn't seem like a great thing. So even if foreign capital has such a negative effect why is this the direct wording on their stance of this number increasing is "rebounding" and they talk about the 4.3% loss in 2020 foreign investment as a "decline." This insinuates that Canada's objective is to secure MORE foreign investment. That's up to you to disagree or agree with but I am certain all forms of government want an increase in foreign investment because it's a general positive for the economy and raises living standards. Instead of blaming outsiders we as citizens of Canada should look inward and realize that the Canadian government and the residents of Canada are responsible for 100% of this mess.

[lio45]

Originally Posted by thebasketballgeek

Aren’t they banning the sale of houses to non resident foreign buyers in 2023 anyway?

Anyways this has been discussed as nausem but foreign buyers only represent a small proportion of properties in Canada. In Ontario it’s 2.2% and BC it’s 3.1%. It’s just a tool for politicians to use to gain some anti-immigrant voters when in effect it will provide very minimal results.

That's just a mere fraction of the actual phenomenon. whatnext is correct on that one.

Another thing to consider is that most countries are poorer then Canada and provide lower wages then Canada so I don’t buy the impacted by wages argument either.

The foreigners bringing money to Canada in order to invest in real estate / launder it are not typical working class / wage earners in their countries of origin. That should be pretty obvious...

I have a bunch of real estate in the U.S. as well, so I'm a good example of this phenomenon: I bought it all with "imported" Canadian money, and local wages in the places where I have properties were mostly irrelevant to me at buying time. (They were only indirectly relevant through local rents, i.e. cap rates.)

Instead, how many people born and bred in Canada own multiple properties? Lio don’t you own more then 1 property as well?

Yes, as well as multiple properties in the USA, where my Florida corporation doesn't officially count as a foreign buyer (the management of my portfolio is all local as well), despite all the money coming from outside the state and the country.

My flow of Canadian money contributed to slightly uncoupling my particular Florida market from local incomes. (I'm far from alone, the result being that FL has one of the greatest discrepancies between local incomes and real estate prices, not as bad as Vancouver though.)

The point of this is to revel in the hypocrisy of Canadians when it comes to purchasing of multiple properties. Everyone in Canada wants to do it and most people with means to do so will at any cost, but no absolutely not the foreign buyers the sheer horror…

In my case there's no hypocrisy at all, I've been consistently on record saying I love foreign buyers and BCMLs.

I can point out they're "bad" in some ways and "good" in others; but since they're an inevitable part of life, might as well profit from them.

I treat climate change the exact same way, for the record. (My out-of-range black walnut / red oak plantations are doing really well and likely will continue to; etc.) If it's going to happen anyway, then the smart thing to do is to take it into account when making plans, whether you like it or not.