Canada's 'housing bubble' deemed close to bursting

[Truenorth00]

Originally Posted by thebasketballgeek

It’ll be interesting though to see what house prices will look like even by the end of this year.

I expect 30-40% lower than Feb 2022 peak.

A lot of people still haven't caught on to the carnage that is bubbling below the surface (like alternative lenders going from 3.24% to 8.49% in a year). By the Summer, sellers will finally start clueing in. We'll start seeing capitulation and price cuts.

[yaletown_fella]

Originally Posted by whatnext

With the release of low unemployment figures today, it’s clear interest rates won’t be headed down anytime soon.

I hope you're right but I dont trust the BOC. All theyve done for the past 15 years is paper over short terms problems by stimulating nominal faux growth , and 'you cant teach an old dog new tricks'

[swimmer_spe]

Originally Posted by Truenorth00

There's 32 000 condos about to come online in Toronto this year. And there's rumours that the majority are owned by specuvestors under water. I think you're going to see Toronto condo prices drop substantially.

The problem is if you are underwater, you will want to get above water. Selling for cheap wouldn't be a solution.

Originally Posted by whatnext

With the release of low unemployment figures today, it’s clear interest rates won’t be headed down anytime soon.

I would ask what benefit does really low interest rates help?

[WarrenC12]

Originally Posted by swimmer_spe

The problem is if you are underwater, you will want to get above water. Selling for cheap wouldn't be a solution.



I would ask what benefit does really low interest rates help?

These people might not be approved for mortgages when their condos complete.

[niwell]

Probably a good year for people actually looking to purchase a place to live in. Not necessarily great for new construction, as we are already beginning to see. Interesting times ahead...

[Truenorth00]

Originally Posted by swimmer_spe

The problem is if you are underwater, you will want to get above water. Selling for cheap wouldn't be a solution.

Who says they have a choice?

If you're underwater, you have two choices:

1) sell for a loss.

2) bring a big cheque at time of closing because the bank most certainly is not giving you a mortgage for higher than appraised value.

If they refuse to close, the builder will sell the condo and sue them for the difference. There's a lot of people who thought this was easy money, who are about to get a very expensive lesson on finance, risk and macroeconomics.

[suburbanite]

Condo prices and sales volumes have been more resilient since the interest rate rises. Even if a large number of presale units are owned by speculators, I'm not sure many would be underwater at this point. Where speculators are going to get absolutely killed is in the farther-flung areas that were driven through the roof during Covid. Oshawa townhomes that presold for $1.2 million and are now worth somewhere closer to $850,000.

From what I understand talking to builders, the chances of actually collecting anything beyond the deposit from a buyer who can't close is pretty much zero.

[Truenorth00]

Originally Posted by suburbanite

From what I understand talking to builders, the chances of actually collecting anything beyond the deposit from a buyer who can't close is pretty much zero.

If they are broke, probably can't get much. On the other hand, if they have an existing home, not hard to put a lien on their house.

[suburbanite]

It's true that most GTA builders' experience with failed closings comes from the 90's when it was more just regular people trying to buy their family home and being unable to close. Not a ton of assets to go after in those times.

Will be interesting to see how the courts handle some of these cases if it does get to that point. My feeling is there would be some sort of government intervention to prevent the cascading effect of someone having to put their primary residence on the market to cover the shortfall that a builder incurred when they resold the unit.

I say let them feel the consequences, but we tend to protect buyers at all costs in this country, even if their activities are counter-productive.

[lio45]

Originally Posted by Truenorth00

If they refuse to close, the builder will sell the condo and sue them for the difference.

And if this happens on a more than just marginal scale, we shouldn’t be surprised to see new construction drop off a cliff.

[lio45]

Originally Posted by suburbanite

From what I understand talking to builders, the chances of actually collecting anything beyond the deposit from a buyer who can't close is pretty much zero.

Obviously, otherwise the buyer wouldn’t have been unable to close in the first place.

I mean, any buyer who has the equity to close in theory (i.e. any buyer who would satisfy a builder who puts a lien on their primary residence, in other words) is a buyer who should be able to close …

[suburbanite]

Originally Posted by lio45

Obviously, otherwise the buyer wouldn’t have been unable to close in the first place.

I mean, any buyer who has the equity to close in theory (i.e. any buyer who would satisfy a builder who puts a lien on their primary residence, in other words) is a buyer who should be able to close …

They're not very optimistic about collecting from speculators who have equity "in theory" either. The market would need to tank significantly to make the legal hassle of hundreds of claims worth the effort. The guys I work with the most ended up saying — it when the legal fees were approaching $20,000 on a $40,000 disagreement in closing adjustments and just let the buyer walk. Now that we are seeing shortfalls in the hundreds of thousands though, with potentially well capitalized purchasers, the equation could change.

Most people are going to take the chance in court vs taking a guaranteed loss and having to go through the hassle of liquidating assets. We can check back on this thread in a year but I will be very surprised if we see a material number of cases of people forced to sell their homes to cover closing shortfalls. I'd be happy to be wrong though.

[suburbanite]

Another point to consider is that all of the medium to large builders aren't really in a rush to liquidate their unsold inventory either. There's no guarantee that a unit that fails to close will immediately be put on the market at a price that induces a loss that needs to be made up through a claim against the original purchaser. In the GTA at least, these guys have all built up massive war chests through the boom of the last decade, and the prevailing mentality is: we collectively have more cash then there is developable land to buy, long-term market fundamentals are in our favour even with short-term uncertainty from interest rates, and so why would we be any rush to sell product now? There will be some stuff to come on the market a year or two from now that was built in 2022 and hasn't ever had an occupant.

[lio45]

Originally Posted by suburbanite

Another point to consider is that all of the medium to large builders aren't really in a rush to liquidate their unsold inventory either. There's no guarantee that a unit that fails to close will immediately be put on the market at a price that induces a loss that needs to be made up through a claim against the original purchaser. In the GTA at least, these guys have all built up massive war chests through the boom of the last decade, and the prevailing mentality is: we collectively have more cash then there is developable land to buy, long-term market fundamentals are in our favour even with short-term uncertainty from interest rates, and so why would we be any rush to sell product now? There will be some stuff to come on the market a year or two from now that was built in 2022 and hasn't ever had an occupant.

Exactly. Large developers will almost certainly all be in a position to sit on a glut of unsold condos for a while, and will definitely prefer to do that than to sell them at firesale prices.

New construction will likely grind to a halt, though. Which will help keep prices high…

The smart thing to do would be to turn your unsold condos into rentals for the time being, rents being at all-time highs and real estate affordability at an all-time low (interest rates have risen more than prices have fallen). Stop all future development projects and turn into a landlord temporarily. When we enter a recession and rates go back down, then the condos can be sold and construction can resume.

[suburbanite]

Originally Posted by lio45

The smart thing to do would be to turn your unsold condos into rentals for the time being, rents being at all-time highs and real estate affordability at an all-time low (interest rates have risen more than prices have fallen). Stop all future development projects and turn into a landlord temporarily. When we enter a recession and rates go back down, then the condos can be sold and construction can resume.

This isn't unusual practice at a smaller scale even during normal times, although it became harder to economically justify when sales prices were skyrocketing every quarter. There's a condo near UofT where the developer has retained ~150 units and basically been acting as student landlord since the 90's. I know one who had a luxury infill subdivision in Midtown Toronto who kept back six homes that have been rented out for years. It's a little riskier with low-rise since rental homes are notoriously used-and-abused, but they are still laughing now after selling those houses in 2006 for $900,000 and having the six they kep be worth $3.5 million each today.

Once developers get to a certain size they need to stabilize their revenue given how wildly cyclical cash flows are in the typical development business. Having a portfolio of income-producing properties covers the operational costs of holding and developing large amounts of land and employing staff during the downtime. They all have the skillset to do what you suggest at a small-scale, it's a question of if they have to appetite to shift their operational platform to do it as a primary business. My experience with the big players is that they are mostly family businesses, there is lots of ego involved, and they will probably stick to what they know best even if it means operating at smaller margins than they've gotten used to.

[whatnext]

Some good news for British Columbians:


B.C.’s crackdown on unexplained wealth is a necessary experiment to repel dirty money
Rita Trichur
PUBLISHED 13 HOURS AGO

British Columbia is giving itself a new tool to combat money laundering – one that will be closely scrutinized by other provinces also awash in dirty money.

Premier David Eby plans to introduce legislation in the spring to create “unexplained wealth orders.” Known as UWOs for short, they are legal instruments that make it easier for the province to seize residential properties or other valuables suspected of being purchased with the proceeds of crime.

In doing so, Mr. Eby is taking aim at organized criminals and corrupt foreign officials who exploit regulatory blind spots to wash their ill-gotten gains by purchasing real estate and other high-priced assets in B.C....

https://www.theglobeandmail.com/business/commentary/article-bc-crackdown-money-laundering/

[swimmer_spe]

Originally Posted by Truenorth00

Who says they have a choice?

If you're underwater, you have two choices:

1) sell for a loss.

2) bring a big cheque at time of closing because the bank most certainly is not giving you a mortgage for higher than appraised value.

If they refuse to close, the builder will sell the condo and sue them for the difference. There's a lot of people who thought this was easy money, who are about to get a very expensive lesson on finance, risk and macroeconomics.

I guess I mis understood how those units get sold.I assumed they had to go through some sort of vetting process to show they have the capital, or at least have access to the capital.

Originally Posted by suburbanite

Another point to consider is that all of the medium to large builders aren't really in a rush to liquidate their unsold inventory either. There's no guarantee that a unit that fails to close will immediately be put on the market at a price that induces a loss that needs to be made up through a claim against the original purchaser. In the GTA at least, these guys have all built up massive war chests through the boom of the last decade, and the prevailing mentality is: we collectively have more cash then there is developable land to buy, long-term market fundamentals are in our favour even with short-term uncertainty from interest rates, and so why would we be any rush to sell product now? There will be some stuff to come on the market a year or two from now that was built in 2022 and hasn't ever had an occupant.

So,for some of them, waiting a few years will really not hurt them. Does this mean we should expect a long time of high interest rates if we want that to change?


On a side note, how did the housing boom of the postwar era work? How did people get access to land to build on?

[SignalHillHiker]

I accidentally a rug. I've betrayed my rugless Newfoundland heritage.

Pics of living room also; it's not open concept enough to NEED to share both, but that wall between is chopped to matchsticks so might as well be lol

I have two more en route (they arrived in Dieppe, NB, January 1; expected delivery here January 16 lol). Living room and bedroom.

And, prices here seem to be rising again. Top one is WAY better than mine, every way. Bottom one is way worse than mine, and nearly $25K more than I paid in 2021 lol

[lio45]

Originally Posted by swimmer_spe

I guess I mis understood how those units get sold.I assumed they had to go through some sort of vetting process to show they have the capital, or at least have access to the capital.



So,for some of them, waiting a few years will really not hurt them. Does this mean we should expect a long time of high interest rates if we want that to change?


On a side note, how did the housing boom of the postwar era work? How did people get access to land to build on?

The “vetting process” is their downpayment. Which they’ll lose if they fail to close. It’s a powerful incentive. (You didn’t pay attention to the story of that idiot who’s going to lose some ~$300k…? It was posted here.)

In the 1950s? People bought the land and developed it.

The ratio [land values near urban centers / average net post-taxes post-student-loans-servicing incomes of young Canadians] is completely different nowadays from what it was in the 1950s.

Back then, it was easy to buy property, though they didn’t have iPhones nor avocado toasts, so we can’t really compare ourselves to them.

My grandpa arrived here in the 1950s and within a few years, he had managed to buy his own commercial property for his business (in Montreal) as well as a SFH for his family.

[lio45]

Data is out for 2022.

SFHs in all of Quebec up +14% on average in 2022;
Condos up +12% on average in 2022.
(Multiplexes up quite a bit more than that, I’m sure.)

https://www.journaldemontreal.com/2023/01/07/prix-des-maisons-ca-flambe-toujours-partout-au-quebec

Residential real estate in Sherbrooke went up by over +20% over the last year, but again my feeling is that multiplexes went up by more than just a mere ~20% in 2022.

Rents are higher than ever and still climbing, so, values are following.