Canada's 'housing bubble' deemed close to bursting

[Acajack]

Originally Posted by SignalHillHiker

at the Pearson dig.

I really hate the current setup and I hope it does crash. I don’t mind being underwater or whatever else on my mortgage. It’s a miracle I’m a homeowner at all. We need more people who want it to be able to get it. So many changes need to be made. I think down payments should be disregarded and in their place rental payment history should be tied with income as the most important thing banks consider when you apply for a mortgage. If you’ve been paying $1,400/month for two years, you can afford a lesser mortgage. The end.

I read a couple concerning articles recently. One was, IIRC, an Ontario couple who only made $500K on their house instead of $750K like their neighbours who sold a month previous. A sob story.

Another was about how private investment firms are starting to jump into the SFD market in Canada, as they have in the states (where it has dramatically increased rents and prevented normal buyers from getting homes because the firms can pay in cash over asking.

A family member of mine had to sell their property (main residence) in the GTA this summer as they were moving to another part of the country. They had the worst timing as they listed just when the market started to decline.

Lots of stress in the early going as I think that for the first two weeks they literally had zero visits. Even an open house didn't draw anyone. I am not joking. For the GTA (outer suburbs) in the 2020s that's insane, and would have been unthinkable just six months before.

They did end up selling in just over a month. Well over what they originally paid several years ago though for less than they had hoped for. A bit over a million was what they expected, but they ended up coming under a million by quite a bit.

[yaletown_fella]

I am seriously hoping Harry Dent's prediction for the "everything bubble burst" ; deflation of 85% in the S&P and housing turns out to be true. That would mean I'd eventually be able to buy a what is currently a $709,000 loft in 155 Dalhousie, in cash.

https://www.torontolofts.ca/merchandise-lofts-lofts-for-sale/135-155-dalhousie-st-510

But unfortunately, my gut tells me Schiff's analysis is more accurate; that the only reason central banks are raising rates now is so they can lower them back to zero (and so government can pat themselves on the back and claim they are providing people "relief" ), once the S&P falls below around $3100(which should be between November 2022- February 2023) and go back to QE, thus reinflating the bubble.

[someone123]

Originally Posted by yaletown_fella

I am seriously hoping Harry Dent's prediction for the "everything bubble burst" ; deflation of 85% in the S&P and housing turns out to be true. That would mean I'd eventually be able to buy a what is currently a $709,000 loft in 155 Dalhousie, in cash.

The thing about these theories is that you will only get dramatically ahead if you're in some kind of special position with respect to the demographic that contributes to the bulk of the current pricing. Having a bit of cash in the bank ain't it. Otherwise you're just talking about some mix of inflation or the properties themselves becoming less desirable.

[lio45]

Exactly! The scenario where just anyone can buy a loft in 155 Dalhousie in cash cannot happen because it's self-defeating: if everyone can buy it, then someone is bound to outbid all the others, and that's the new price point.

Unless we have an extreme scenario like 1) the U.S. elects the next Putin, and 2) he chooses to launch a special operation to denazify Canada, and 3) Toronto looks like Mariupol, and 4) 155 Dalhousie is among the ones still standing, and 5) yaletown_fella is among the very few brave enough to move in there in the circumstances.

[swimmer_spe]

Originally Posted by thurmas

Prices still managed a 1% increase over July 2021 at $1.074 million in Toronto

So, the market has not cooled. Sure there may be less selling, but they are still selling at a higher price.

Originally Posted by SignalHillHiker

at the Pearson dig.

I really hate the current setup and I hope it does crash. I don’t mind being underwater or whatever else on my mortgage. It’s a miracle I’m a homeowner at all. We need more people who want it to be able to get it. So many changes need to be made. I think down payments should be disregarded and in their place rental payment history should be tied with income as the most important thing banks consider when you apply for a mortgage. If you’ve been paying $1,400/month for two years, you can afford a lesser mortgage. The end.

I read a couple concerning articles recently. One was, IIRC, an Ontario couple who only made $500K on their house instead of $750K like their neighbours who sold a month previous. A sob story.

Another was about how private investment firms are starting to jump into the SFD market in Canada, as they have in the states (where it has dramatically increased rents and prevented normal buyers from getting homes because the firms can pay in cash over asking.

From a citizen perspective, this sounds great. The problem is, banks are around to make money and sadly, they would make it so that they can make money, which means that it would be harder to get a mortgage like that.

Originally Posted by theman23

Probably nothing to worry about:
https://www.castanet.net/news/Kelowna/37...for-the-Kelowna-RCMP-to-recruit-officers

Originally Posted by Truenorth00

Our military has the same problem. Some personnel aren't posted to Ottawa. Risk of compromise, because of economic hardship, is too high.

https://ottawacitizen.com/news/national/...a-because-of-regions-high-cost-of-living

I have heard many stories in the military of "don't post me ____ or I will retire." They get posted and they retire. I wouldn't be surprised if the RCMP is the same.

[whatnext]

B-b-but SSPers told me we had a supply problem. And that it was the Covid-boom hinterlands that would suffer:

..Sales of new condominiums in the greater Toronto area declined by 19 per cent sequentially in the second quarter of this year, while the average price per square foot reached a record high of $1,453, according to the latest report from real estate consulting firm Urbanation Inc.

A total of 6,792 new condo units sold in Q2 of 2022, plummeting 24 per cent compared to a year prior. Sales did however remain above the 10 year average.

The drop in buying activity caused 11,703 new condo units to remain unsold, marking a 36 per cent increase from the 18-quarter low in the first quarter of 2022. Despite this uptick, the figure is still a six per cent decline annually...

https://www.bnnbloomberg.ca/toronto-new-condo-sales-decline-19-prices-rise-urbanation-1.1800447

[ssiguy]

Nearly every major market in the country will have given up all their last year gains within, at most, 2 months and many already have. I believe, in general, the Prairies, Quebec, and AC will just give up their gains of the last couple years while Ontario will give that up PLUS 10 to 15% while BC 15 to 25% all depending on location.

SFH are, in the vast majority of cases, the most expensive type of real estate and are always the ones that rise faster while TH/condos follow after that and ditto when prices are falling.

Right now we are witnessing fast rising rental rates but that will subside as the plunge continues and eventually hits the condo market. Then condo prices will plunge accordingly and many renters will finally be able to purchase even with higher interest rates. This is the reason why expensive real estate markets ALWAYS have correspondingly high rental rates................the high real estate prices force potential mid-income people to stay in the rental market pushing up demand and hence prices.

[casper]

Originally Posted by whatnext

B-b-but SSPers told me we had a supply problem. And that it was the Covid-boom hinterlands that would suffer:

..Sales of new condominiums in the greater Toronto area declined by 19 per cent sequentially in the second quarter of this year, while the average price per square foot reached a record high of $1,453, according to the latest report from real estate consulting firm Urbanation Inc.

A total of 6,792 new condo units sold in Q2 of 2022, plummeting 24 per cent compared to a year prior. Sales did however remain above the 10 year average.

The drop in buying activity caused 11,703 new condo units to remain unsold, marking a 36 per cent increase from the 18-quarter low in the first quarter of 2022. Despite this uptick, the figure is still a six per cent decline annually...

https://www.bnnbloomberg.ca/toronto-new-condo-sales-decline-19-prices-rise-urbanation-1.1800447

We have a supply problem. Now at the same time we also have mortgage affordability problem. We also have a worker shortage problem. All three need to be solved.

We need more housing. If the private sector is not going to build it, then government needs to extend financing etc. to co-ops and the like to build it.

Interest rate rises have made mortgages slightly less affordable. Not necessarily a bad thing. In that interest rates need to be above inflation.

Our worker shortage problem needs to be urgently addressed by expanding immigration. That will help bring down these high interest rates and provide for more economic growth at the same time. To do this we need to address the housing shortage problem.

[casper]

Originally Posted by ssiguy

Nearly every major market in the country will have given up all their last year gains within, at most, 2 months and many already have. I believe, in general, the Prairies, Quebec, and AC will just give up their gains of the last couple years while Ontario will give that up PLUS 10 to 15% while BC 15 to 25% all depending on location.

SFH are, in the vast majority of cases, the most expensive type of real estate and are always the ones that rise faster while TH/condos follow after that and ditto when prices are falling.

Right now we are witnessing fast rising rental rates but that will subside as the plunge continues and eventually hits the condo market. Then condo prices will plunge accordingly and many renters will finally be able to purchase even with higher interest rates. This is the reason why expensive real estate markets ALWAYS have correspondingly high rental rates................the high real estate prices force potential mid-income people to stay in the rental market pushing up demand and hence prices.

My experience accepting an offer on a SFH in Vancouver last week is consisted. We accepted at just below assessed value and the feedback from the realtor was things are going for assessed value. BC assessment are summer 2021. We would have had better prices had we sold in January/February/March

Still not convinced 15-20% decline from here. More likely is housing prices will be flat for 2-3 year while inflation is at 6-8%. That would amount to about the same at the end of the day.

[Truenorth00]

Originally Posted by casper

Still not convinced 15-20% decline from here.

How does your math look for another 75 basis point hike in the Fall?

And it's not just policy interest rates. Central banks stop buying housing bonds and mortgage rates go up. That's how quantitative tightening works.

[Innsertnamehere]

I'd be surprised to see it drop below pre-pandemic pricing, but reality is that even pre-pandemic pricing is substantially below pricing at that time, inflation-adjusted. The GTA detached market can drop another 25% still before hitting 2019 pricing. Inflation adjusted, it only has 15% before it hits 2019 pricing.

The bigger issue is that this tightening is dropping new construction starts in a time when they are desperately needed. Real affordability is only going to continue to decline. It's also of course ignoring the substantially higher borrowing costs we are seeing now vs. 2019, particularly if we see another oversized hike in September.

[casper]

Originally Posted by Truenorth00

How does your math look for another 75 basis point hike in the Fall?

And it's not just policy interest rates. Central banks stop buying housing bonds and mortgage rates go up. That's how quantitative tightening works.

Inflation is 6-9% just now. If prices drop 15%-20% we are talking about a drop of 21% to 29% in buying power on an asset where population growth is driving up demand and we struggling to address supply.

We are already seeing builders back away from adding new units. That alone will drive up demand and prices.

[whatnext]

Originally Posted by casper

We have a supply problem. Now at the same time we also have mortgage affordability problem. We also have a worker shortage problem. All three need to be solved.

We need more housing. If the private sector is not going to build it, then government needs to extend financing etc. to co-ops and the like to build it.

Interest rate rises have made mortgages slightly less affordable. Not necessarily a bad thing. In that interest rates need to be above inflation.

Our worker shortage problem needs to be urgently addressed by expanding immigration. That will help bring down these high interest rates and provide for more economic growth at the same time. To do this we need to address the housing shortage problem.

The tired, discredited, shopworn Liberal strategy. Drive down wages for Canadians by flooding the labour market. If we want true affordability we need wages to rise and housing prices to fall. Vancouver’ service industry labour shortages are as much a factor of housing affordability and an unwillingness to have a long commute to reach those jobs as any true lack of workers.

[Truenorth00]

Originally Posted by Innsertnamehere

I'd be surprised to see it drop below pre-pandemic pricing, ....

I'll be surprised if it doesn't after rate hikes. There's only so much in mortgage payments people can afford.

[Truenorth00]

Originally Posted by casper

Inflation is 6-9% just now. If prices drop 15%-20% we are talking about a drop of 21% to 29% in buying power on an asset where population growth is driving up demand and we struggling to address supply.

We are already seeing builders back away from adding new units. That alone will drive up demand and prices.

You're mixing up price and affordability here. Prices can go down while affordability stays bad, or even gets worse.

Demand can stay high. And prices can still go down. Prices are a function of monthly payments. And rates going up mean more of that monthly payment is going to interest than principal, reducing prices. Affordability is about how much of your net income goes into that monthly payment. It's entirely possible for people to actually spend more on housing, while high rates send actual prices lower.

[WarrenC12]

Originally Posted by swimmer_spe

So, the market has not cooled. Sure there may be less selling, but they are still selling at a higher price.

1% higher than a year ago when we are running 8% inflation is not "a higher price".

[WarrenC12]

Originally Posted by whatnext

The tired, discredited, shopworn Liberal strategy. Drive down wages for Canadians by flooding the labour market. If we want true affordability we need wages to rise and housing prices to fall. Vancouver’ service industry labour shortages are as much a factor of housing affordability and an unwillingness to have a long commute to reach those jobs as any true lack of workers.

In what world do you suddenly give people more money, and housing prices fall?

Oh, I know: one in which massive supply comes online at the same time.

[swimmer_spe]

Originally Posted by WarrenC12

1% higher than a year ago when we are running 8% inflation is not "a higher price".

Good point!
So, we are seeing a cooling effect of ~7%.

[lio45]

Originally Posted by Truenorth00

I'll be surprised if it doesn't after rate hikes. There's only so much in mortgage payments people can afford.

Affordability definitely won’t be increasing, and is almost certainly going to fall as one of the first consequences of prices dropping is that new builds are going to screech to a halt.

Sure, the price tag on units will be a lower number than what we’ve seen recently, no doubt (in most major markets). But as we all know, that’s not at all the same thing as affordability.

[Truenorth00]

This editorial in the Globe and Mail about New Zealand is eye opening. I knew it was bad. But wow.

New Zealand suffers from a national obsession with housing. Buying an investment property is the ultimate sign of success in the country. Where Canadian parents might bond over early-morning hockey practice, New Zealand parents talk about buying their kid’s first investment property. The only greater sign of parental achievement is a child showing promise on the cricket pitch. It’s now estimated that about 7,000 landlords control half the country’s properties. It’s hard to overstate how many of the country’s leaders have bought into the housing market, diverting capital from more productive uses.

Most New Zealanders will admit this is a problem, although recent polling has shown little appetite from homeowners to see any decrease in the value of their own homes. Attitudes have begun to change in recent months as the housing market grew grotesque. Homes were no longer listed with prices, to fuel already intense bidding wars. The cost of making a bid also increased, with young families asked to fork over thousands in legal and inspection fees each time they send in their best offer. It’s not unheard of for renters in their 30s to have spent more than $30,000 on bids without getting a place.

Worse than the economics is the clear social damage. Reports come in every week warning New Zealanders about the heavy price of expensive housing. Poverty rates are growing, while the country’s emaciated welfare net fails to keep pace. Gang violence is often on the front pages, a daily reminder of the country’s fraying social fabric.

The health impact of substandard and crowded housing is growing on the country’s Indigenous population. Rheumatic fever is a rare but life-threatening disease, eliminated in most developed countries. It is still sometimes detected in First Nations communities in Canada’s North. Cases of rheumatic fever are diagnosed every few days in New Zealand, nearly all in Indigenous children. Many of the cases happen in homes only a short drive from the Prime Minister’s residence. It’s one of the reasons New Zealand’s children’s commissioner reported in June that the country is now “one of the worst places in the developed world to be a child.”

https://www.theglobeandmail.com/opinion/article-new-zealand-housing-crisis/