Quote:
Originally Posted by lio45
That classic “bubble” graph doesn’t apply to everything. Housing would be one of the exceptions, like food and water. (See my classic example scenario of 1.5 million suckers parachuted in the middle of the Sahara without enough water supplies; you’ll never see the “capitulation” stage of the graph while people are still alive)
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Immigration is currently ultra-high and GTA detached home prices are down roughly 20% since August. Toronto Condos are down about 15%. Cottages up north are down 20-40% depending where you look.
New immigrants don't typically buy houses - they rent for a few years first. In this market they are unlikely to ever be able to afford to buy a house. For all the talk about "rich Chinese people" propping up the market, that is an incredibly small minority of immigrants. Most immigrants arriving here come with a few thousand dollars and take a 10 year hit on their career.
Mortgage rates have dropped quite a bit the last few months, but are unlikely to go below 4%, since both the BoC and Fed are unlikely to lower the overnight rate to less than 4% any time soon.
Even at a 4% mortgage rate, housing is severely unaffordable for the vast majority of Canadians. There will still be plenty of people renewing from 2.5% to 4%, which isn't as big of a jump as going to 6%, but is still a substantial increase in their payments.
Also, everyone is looking forward to interest rates being lowered, but history tells us that when central banks lower rates, it won't be for a good reason. Unless there is a strong spike in unemployment, or deflation, the BoC and Fed have no reason to lower rates. And because our interest rates are kept in line with the US, and the US economy is stronger than ours, the BoC may wait even longer to lower rates.
So simply put:
- High immigration pushes up rents, but doesn't have much impact on house purchase prices yet. It will in a few years when these new arrivals get more established, but this wave of immigrants is still to fresh to have caused any effect. New immigranta don't buy houses. They rent. The undersupply in construction will eventually come to bite us in a few years, but that time hasn't arrived yet.
- Interest rate cuts will only happen if the economy tanks, or there is deflation. That hasn't happened yet, so there is no reason to cut rates. And if they cut rates, it will likely be because unemployment is high, and the rest of people are worried about their jobs - not exactly a recipe for a housing boom, even if rates go to 3%. And unlike COVID where it was low wage earners who lost their jobs due to lockdowns, this recession will likely see higher earning white collar works get laid off (in other words people who have mortgages)
One of the biggest misconceptions about home prices is that price is based on total homes in existence vs total adults. That is wrong.
The actual driver of prices is total number of sellers vs total number of buyers at a given time. We are now already in a strong buyers market in the GTA, despite the "lack of houses vs immigrants" narrative.
The housing bubble in Toronto and Vancouver is far more severe than it ever got in the US in 2006. The US Fed cut rates in 2008, however home values kept going down for an additional 4 years before bottoming out in 2012, despite interest rates being low for 4 years already at that point. Don't be naive in thinking the same thing can't happen here. Immigrants arrn't going to save our home valuations. People need to actually be able to afford these prices, and indicator after indicator are telling us people can't.
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