Canada's 'housing bubble' deemed close to bursting

[rbt]

Originally Posted by esquire

^ That may be true, but I don't think the average condo owner renting out their property was necessarily expecting to clear hundreds or thousands of dollars in profit every month. That's not really the play.

Yep. Being negative month to month for the first few years as a new build condo landlord has been a common expectation since around 2011. Nearly every condo investment worksheet I've seen found all of the profit in selling the unit 2 to 3 years after registration.

[kwoldtimer]

Originally Posted by rbt

Yep. Being negative month to month for the first few years as a new build condo landlord has been a common expectation since around 2011. Nearly every condo investment worksheet I've seen found all of the profit in selling the unit 2 to 3 years after registration.

Probably considerably longer in the current market, no?

[SpongeG]

Originally Posted by whatnext

While it's great that your BF can make 300 sq ft work, we have to ask 'is this the future we want for Canada"? We're slipping back to developing world standards of living.

it's a tight squeeze at times. But the mortgage was much cheaper than rent. Had I known about these places existed I would have jumped on it. We are planning on getting something together but he wants to go to Langley, ick, and possibly keep his old place as a rental. It works well for working singles.

There is one couple in there with a child, I don't know how they do it, they may have one of the one-bedroom units but even those are under 500 sq ft.

I know in the building across there is a family of 5 living in a two-bedroom unit. Parents and three kids have a huge outdoor patio as it's on ground level and they are never outside and never ever use it. The patio looks bigger than the living dining and kitchen areas combined.

as for the size, a lot of people want to live alone and these units were affordable, I don't think there are any more small units like it coming to Surrey, most condos in Surrey advertise that they start at $400,000 now. A slight increase from a couple of years ago.

[theman23]

Originally Posted by SpongeG

it's a tight squeeze at times. But the mortgage was much cheaper than rent. Had I known about these places existed I would have jumped on it. We are planning on getting something together but he wants to go to Langley, ick, and possibly keep his old place as a rental. It works well for working singles.

There is one couple in there with a child, I don't know how they do it, they may have one of the one-bedroom units but even those are under 500 sq ft.

I know in the building across there is a family of 5 living in a two-bedroom unit. Parents and three kids have a huge outdoor patio as it's on ground level and they are never outside and never ever use it. The patio looks bigger than the living dining and kitchen areas combined.

as for the size, a lot of people want to live alone and these units were affordable, I don't think there are any more small units like it coming to Surrey, most condos in Surrey advertise that they start at $400,000 now. A slight increase from a couple of years ago.

Your BF lives in a 300 square foot condo...in Surrey? Holy 🞵🞵🞵🞵. For his sake I would hope he's on a lower floor.

[ssiguy]

We must not only look at the pressure these home prices are putting on our people and how it's hurting our businesses investment but also on our demographics. Canada already has the lowest fertility rate in both the English & French speaking worlds as a finding affordable housing becomes increasingly difficult it will further reduce this rate.

It is not coincidence that BC {according to fcpp.org/2022/09/19} has the lowest fertility rate at just 1.18 in the country. Victoria has the lowest of all metropolitan areas which isn't unexpected as it is "home of the newlywed and nearly dead" but Vancouver is #2 and it is definitely not a retirement mecca. It gets a huge number of international migrants every year but even these people are finding out quickly that a child is a commodity they cannot afford. Kelowna comes in at #3 and, contrary to what many think, Kelowna is not a huge retirement centre like Victoria. Most seniors tend to go to the Southern Okanagan where prices are cheaper and the winters milder and sunnier.

As prices continue to rise this BC reality will quickly spread to other parts of the country and hence increasing our national aging challenges.

[Nite]

The total monthly value of building permits in Canada dropped 18.8% to $9.6 billion in April, the lowest level since December 2020.
https://www150.statcan.gc.ca/n1/daily-quotidien/230606/dq230606a-eng.htm

Banning foreign investors in real estate just means much less housing gets build that would've normally been rented out without the ban.

[Nashe]

Yeesh. NB still basically flat while surrounded by -23 to -36%. Go go cheap land.

Keep sendin yer huddled masses!

[LightingGuy]

Originally Posted by Nite

The total monthly value of building permits in Canada dropped 18.8% to $9.6 billion in April, the lowest level since December 2020.
https://www150.statcan.gc.ca/n1/daily-quotidien/230606/dq230606a-eng.htm

Banning foreign investors in real estate just means much less housing gets build that would've normally been rented out without the ban.

This guarantees that we are entering a recession. Construction aand manufacturing are always the first to decline.

[WarrenC12]

I'm pretty sure this is related to the massive increase in financing costs.

As to whether we are entering a recession, it's still possible, but not necessarily related.

Big decision this week by the BoC for sure.

[whatnext]

Originally Posted by Nite

The total monthly value of building permits in Canada dropped 18.8% to $9.6 billion in April, the lowest level since December 2020.
https://www150.statcan.gc.ca/n1/daily-quotidien/230606/dq230606a-eng.htm

Banning foreign investors in real estate just means much less housing gets build that would've normally been rented out without the ban.

Those stats basically put a stake in the heart of the lie that we can rely on private, for-profit developers to deliver more supply. They'll only do it if there's a hefty profit involved.

The only place foreign investors should have in our housing market is to buy shares in publicly owned companies that build or run purpose-built rental buildings. Nothing more.

[suburbanite]

The number of starts/building permits is way down because basically every developer has hit the breaks since March 2022 when interest rates rose and the market for homebuyers essentially disappeared overnight. Investors were the first to stop showing up to sales offices at new developments as they tried to reassess their other (likely underwater) presale units purchased at peak prices, and as financing a speculative home purchase became unviable. To say that housing starts are down because simply because of a foreign investor ban is another derivative take from a thread already full of them.

Pretty much everyone is speculating on the current slowdown being a temporary blip that will eventually collapse under the undeniable forces of supply and demand (meaning ever increasing immigration numbers). None of these guys are strapped for cash, so why would they launch into the slowest market we've seen since the 90s?

If you want to keep building starts up during a slowdown of this magnitude, you need to create significant disincentives to holding and not building on certain lands. Something like massive tax hikes for land that is draft plan approved or site plan approved but not proceeding towards sales/construction. On the flip side, municipalities need to expedite planning procedures so that a piece of land isn't sitting in the development pipeline for 4 years before it gets to the point where the developer would get approvals and be on the hook for these increased costs. Either way, even if you managed to structure the incentives perfectly in such a way that all developers who were legally able to build would do so immediately, it's still not enough product. Our supply and demand spread is widening at such an incredible rate that any of these lagging solutions that take years to see the results of are not enough in isolation.

[theman23]

Originally Posted by suburbanite

The number of starts/building permits is way down because basically every developer has hit the breaks since March 2022 when interest rates rose and the market for homebuyers essentially disappeared overnight. Investors were the first to stop showing up to sales offices at new developments as they tried to reassess their other (likely underwater) presale units purchased at peak prices, and as financing a speculative home purchase became unviable. To say that housing starts are down because simply because of a foreign investor ban is another derivative take from a thread already full of them.

Pretty much everyone is speculating on the current slowdown being a temporary blip that will eventually collapse under the undeniable forces of supply and demand (meaning ever increasing immigration numbers). None of these guys are strapped for cash, so why would they launch into the slowest market we've seen since the 90s?

If you want to keep building starts up during a slowdown of this magnitude, you need to create significant disincentives to holding and not building on certain lands. Something like massive tax hikes for land that is draft plan approved or site plan approved but not proceeding towards sales/construction. On the flip side, municipalities need to expedite planning procedures so that a piece of land isn't sitting in the development pipeline for 4 years before it gets to the point where the developer would get approvals and be on the hook for these increased costs. Either way, even if you managed to structure the incentives perfectly in such a way that all developers who were legally able to build would do so immediately, it's still not enough product. Our supply and demand spread is widening at such an incredible rate that any of these lagging solutions that take years to see the results of are not enough in isolation.

Ignoring natural growth but accounting for deaths, out population is growing by over 2500 Canadians a day. Unlikely natural growth, most of those people need new housing immediately. There is no solution to housing in this country that doesn’t include a slow down in immigration numbers.

[suburbanite]

Originally Posted by whatnext

Those stats basically put a stake in the heart of the lie that we can rely on private, for-profit developers to deliver more supply. They'll only do it if there's a hefty profit involved.

The only place foreign investors should have in our housing market is to buy shares in publicly owned companies that build or run purpose-built rental buildings. Nothing more.

Developers will 100% build product at lower profit margins then they've been gifted over the last decade, if they don't see an easy, inevitable return to said profit margins on the horizon.

The vast majority of the guys today who are banking in some instances, 30% profit margins on land development (not actual home construction before someone makes that false equivalency again) were content operating at 10-12% margins 20 years ago. The difference was that home prices didn't increase at annualized rates of 5%+ back then, and so if you wanted to grow the business you actually had to churn out product and reinvest the money back into new land as soon as possible. Now you capture ridiculous upside just from market appreciation during the time your land moves through the development process.

In the U.S. outside of the severely distorted markets, things still operate like they did here before the craziness from ~2014 onwards. Demand does not ridiculously outpace the ability for supply to come to market, housing prices are extremely stable by Western standards, and developers are actually in the business of developing land and building homes in the quickest most efficient manner possible to keep turning over their capital.

[Nite]

Originally Posted by whatnext

Those stats basically put a stake in the heart of the lie that we can rely on private, for-profit developers to deliver more supply. They'll only do it if there's a hefty profit involved.

The only place foreign investors should have in our housing market is to buy shares in publicly owned companies that build or run purpose-built rental buildings. Nothing more.

How can a developer build a project without financing??

Investors finance the building of these projects. by banning foreign investors we have removed a source of finance that is unaffected by Canadian interest rates so ever less financing which equals less building.

the end user of the home is a much smaller source of financing than investors are so rent will continue to go up as there is fewer investors to finance rental units

[whatnext]

Originally Posted by Nite

Investors finance the building of these projects. by banning foreign investors we have removed a source of finance that is unaffected by Canadian interest rates so ever less financing which equals less building

As i said, they can invest in public companies that build and operate purpose-built rental buildings. Feel free to pass onto them the TSX listings of such companies. There is no reason they need to be allowed to buy individual units in condo buildings and drive up prices for buyers who work, live, and are taxed in Canada.

[Nite]

Originally Posted by theman23

Ignoring natural growth but accounting for deaths, out population is growing by over 2500 Canadians a day. Unlikely natural growth, most of those people need new housing immediately. There is no solution to housing in this country that doesn’t include a slow down in immigration numbers.

The solution to housing is very simple, make it easier and more profitable for investors and developers and more housing will get built. we have been doing the opposite for years and now fewer housing will be built going foward until we change our attitude to real estate investors both foreign and domestic.

[whatnext]

Originally Posted by Nite

making building house more profitable for investors and developers will mean more housing will get built as quickly as possible. A lot of actions over the last few years have been trying to make it harder for investors and hence we see less getting built.

Simply not true. I'm not sure why you're pushing this...

[suburbanite]

No it's true, everyone knows the healthiest real estate markets are the ones where the people who actually live there can only aspire to rent from someone who earned their money elsewhere in a much larger economy. All of that reasonably priced new housing supply in the sunbelt in the U.S.? Thank you China.

[Nite]

Originally Posted by suburbanite

No it's true, everyone knows the healthiest real estate markets are the ones where the people who actually live there can only aspire to rent from someone who earned their money elsewhere in a much larger economy. All of that reasonably priced new housing supply in the sunbelt in the U.S.? Thank you China.

So you think making financing harder for developers will produce more housing or would more sources of finance produce more housing, especially a source not tied to our interest rates??
In a higher interest rate environment where domestic sources of financing become fewer, foreign sources of financing become all the more important to keep the wheels of the development industry going.
In Canada we banned foreign property investments just when we needed it the most.

Also housing becomes affordable with age, no one builds new housing to be affordable, it just becomes so over time so the more we build now, the more affordable housing we will have 20 years from now.

[LightingGuy]

Originally Posted by WarrenC12

I'm pretty sure this is related to the massive increase in financing costs.

As to whether we are entering a recession, it's still possible, but not necessarily related.

Big decision this week by the BoC for sure.

This is how the cycle starts.

Rate increase effects stocks, real estate, construction and manufacturing first.

When the current collection of construction projects gets completed (for which permits were given in 2022 or earlier) we are going to see mass layoffs in construction. We're less than half a year away from this by my estimate.

Similarly, B2B manufacturers' clients typically buy products using debt, so when the cost of borrowing goes up, orders go down. Layoffs in manufacturing have already started in the electrical industry, not sure how it compares to other industries.

Home sales (units not dollars) are down by roughly 50% from 2021 levels, meaning that real estate agent commissions are down. Anecdotally I heard that a record number of realtors are leaving the profession.

The layoffs/lower employment in construction/manufacturing/real estate workers is the first domino to fall. They are going to spend less, which means the next domino to fall will be retail. Some of them are going to be unable to afford their mortgages, which means that defaults will go up.

I saw this coming a year ago and have been recession-proofing my business since last summer. A larger array of lower cost, higher value products, and less exposure to the industrial market.