New listings soar as sales plunge. Prices drop 6% in just one month.
The magnificent house-price bubble in Toronto, which has raised eyebrows even across the jaded asset-bubble world, is hissing hot air.
Residential property sales in Greater Toronto plunged 20% in May year-over-year to 10,196 homes, according to the Toronto Real Estate Board (TREB), with sales of condos dropping 6.4% and sales of detached homes plunging 26.3%.
At the same time, new listings – the new supply suddenly coming out of the woodwork – soared nearly 50% year-over-year. The report tried to put a positive spin on it: “Homeowners, after a protracted delay, are starting to react to the strong price growth we’ve experienced over the past year by listing their home for sale to take advantage of these equity gains.”
And it has already impacted prices. The “TREB MLS Average Price” for all types of homes, dropped 6.2% from April to C$863,910. It remains up 14.9% year-over-year, given the crazy surge in prices over the past months, including the 33% year-over-year gain in March, when prices had gone totally nuts!
What pulled the rug out from under Toronto’s magnificent housing bubble? Three factors:
One, Canada’s largest alternative mortgage lender, Home Capital Group, which caters to new immigrants and subprime borrowers spurned by the banks, has been melting down after a run on its deposits that crushed its funding sources. And now the industry is worried about contagion.
Two, the provincial government of Ontario announced a laundry list of measures, including a 15% tax on purchases by non-resident foreign investors, to tamp down on the house and condo price bubble that left many locals unable to buy even a modest home.
And three, a newly found sense that somewhere out there, hidden behind all the industry hype, lurks reality.
May was the first full month of housing data since those three factors took effect.
“In effect, the market has stalled and is rapidly reversing from a seller’s to a buyer’s market,” said one of two sets of boots on the ground in Toronto. Neither of them wants to be identified. “Sellers are in a panic to offload their properties, especially those who have speculated in flipping homes. And buyers are starting to open their eyes.”
Given the soaring listings in May, boots-on-the-ground said, it’s “now common to see several properties with For-Sale signs next to each other.” Boots-on-the-ground took some sample photos. This photo shows two for-sale signs in Cooperage Lane, Ajax (GTA):
This photo shows three for-sale signs on Glenanna Drive, in Pickering (GTA):
This corner sports four for-sale signs. The one on the right was knocked down by the wind:
The real estate industry is still trying to get buyers to bid above asking price, by making them believe in ongoing bidding price wars, but the phenomenon of multiple buyers desperately bidding fantasy numbers on a property has disappeared.
“In a recent sale, the listing agent instructed the buying agents to wait one week after the house was on the market before placing their bids,” boots-on-the-ground said. “The sold price was C$50,000 above listing. But there was only one bid. The family who bought the property paid above the asking price not realizing they were the only bidder, and not realizing that the party was over.”
Homes are starting to languish on the market – a rarity in past years. As recent as March, properties were selling before or just after they were listed on the Multiple Listing Service (MLS). The listing agents would utilize the phrase “Coming Soon” on the sign. The homes would be snapped up. But that changed in late April.
How long homes have been on the market can be viewed on the housing website Zoocasa by searching from “oldest to newest,” boots-on-the-ground pointed out. For homes listed “3 months ago,” the inventory starts adding up, and for homes listed “2 months ago,” the inventory gets rich and thick.
When the market was hot, there was no need to have open houses. However, now open houses are conducted not just on weekends, but even during the week, boots-on-the-ground said. “It seems that brokers have their work cut out as clients want their property sold immediately at top price, but it’s not working anymore.”
After not getting a single visitor to an open house over the weekend, Carissa Turnbull, a Royal LePage broker in Oakville (GTA), told Bloomberg: “We are seeing people who paid those crazy prices over the last few months walking away from their deposits. They don’t want to close anymore.”
Century 21 Millennium brokerage owner Joanne Evans, focused on Toronto suburbs such as Brampton, summed it up this way: “The frenzy is over – it’s over.”
So what’s next for the big Canadian banks? It gets endlessly repeated that a US-style housing bust that hit US banks can’t happen in Canada. But that may be wishful thinking. Read… Can US-style Housing Crisis, “Jingle Mail” Hit Canada’s Banks?
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I took a bike ride in Holland a Few years ago. It was amazing to see the multiple “for sale” signs in the windows of apartments/condos for sale. It looks like the pictures above.
Owe Canada!
But Vancouver is BACK: http://www.zerohedge.com/news/2017-06-03/biggest-real-estate-bubble-all-time-just-did-impossible
As I said last time: it ain’t over till the Chinese rolls over.
Vancouver is benefiting from a new huge taxpayer subsidy for housing.
Late last year, as the housing market was seizing up, the BC government made interest-free down payments available to first-time buyers … who wouldn’t jump on free money from the taxpayer?
This is helping condos which is mostly what first-time buyers can afford with little money of their own down. Condo sales are down 6% year-over-year but prices are up 18% yoy.
Sales of detached houses plunged 17% and the average price is up only 3% yoy.
So yes, free taxpayer money can move the market – though as the sales numbers show (down), maybe not for all that long.
Wolf, any idea what the new BC government might do to real estate prices there?
I have not kept up but it sounds like a new NDP/Greens government has potential for a sharp left-turn in BC. If they kill off business investment in favor of pro-environment policies, if they manage to drive off mining companies out of Vancouver, if-if-if …
And there can be further subsidies. Heck, perhaps they can throw in Australia’s negative gearing into the mix. Plus negative rates, plus all sorts of other tricks. In the end, housing can not be allowed to crash in Canada. Otherwise it’s truly over.
Rates: Exactly. We haven’t even seen the 50, 75, or 100 year mortgages yet. As much as it pains me to say it, as long there’s a will to prop up prices by making payments affordable for buyers, banks and governments will do so. There’s still plenty of room to run.
Prices will fall anyways. Just like they did 2006-2012 except this time it will be much deeper.
I think what you are seeing is the tax effect.
We saw this in Vancouver when they came with 15% tax on foreign buyers.
Within 2 to 3 months the frenzy will start again, look at Vancouver, prices are going up again.
This bubble will not pop in Toronto or Vancouver. If it ever does, it will be global. Real estate in big cities is not local anymore.
Wake me up when the credit bubble in China implodes, otherwise billions will keep pouring in RE.
Think as a millionaire, where are you going to invest your money right now? RE will give some protection from the crazy printing of Central bankers (they cant print houses) and some rental income compared to the negative interest rates. It is an obvious choice.
So, if you ask me , this bubble will not pop, not now, not in the very near future, not untill the destroyers of capital (aka Central bankers) stop printing, start unwinding trillions of purchases in bonds and other instruments, and let the private market start working again.
Dont hold your breath, I have lived in your future, we called it central planning. There is no coming back from it (short of a revolution) once you start on that way.
You might be right . But honestly when people start walking away from their deposit money which is no small amount even for a millionaire things are definitely getting a bit … tenuous to say the least up there
As for the previous comment trying to compare Vancouver to Toronto ? I mean seriously .. thats like comparing a Sicilian Blood Orange to a common grocery store variety who cares Granny Smith apple … Toronto’s a nice enough city and all … but it aint Vancouver . Not even close .
I’m from NY and traveled to Toronto once The space needle was fun but I found the city boring Never liked Montreal either but I loved Quebec City
I like Manhattan and Toronto and Montreal are right behind it for North American cities.
Sigh. The Space Needle is in your country. Boring is what you bring with you. I go to upstate NY to hike. Nothing but trees. Boring? No way. Toronto’s a city people live in, it’s not made for tourists. Come back and live like a local. How can you not like Montreal?? Museums, food, jazz, the Vieux Port? You sound jaded.
The problem is these aren’t millionares. These are very indebted borrowers that are underwater from day one.
Arkletes,
I think you are on to something. When the dust settle and the smoke clears were going to see all the skeletons in the closet that have been hidden for years.
Like in the USA when the strawberry picker bought a $750K house. While not that obvious I think we’re going to find way too many people who used their retirement money or 2nd mortgages to buy multiple properties.
Same in the U.S. My X sold her home (at a loss i might add) to just some regular dude who used a 2nd mortgage to buy an “investment” property,
“…(they cant print houses)…”
http://www.bbc.com/news/blogs-news-from-elsewhere-27156775
Sigh … why am I not surprised .
We bought a condo in Calgary (currency rented and holding its value- though not rising yet), bought another house at a greatly depreciated value in USD vs. Local currency in a developing market on a golf course, it’s rising in value as the local currency recovers and the USD falls. I’m in love with property, I get it.
Just as long as el Trumpo doesn’t go and start WWIII, easy street.
Arkletes,
see what I mean……look out below.
It certainly can’t be Calgary, Alberta Canada. Condo prices are in a free-fall and renters have vacated the entire city as their unemployment insurance ran out.
“RE will give some protection from the crazy printing of Central bankers (they cant print houses)”
I don’t get this part. If the economy comes to a halt, why wouldn’t the Fed do a QE where it buys up homes and just sits on them for a while until it starts a boom in home building, selling, and buying? Just as in stocks, once the news gets out that Fed will buy no matter what, people will homes and sell them back to Fed. The Fed can then raze them to the ground, cut down the supply, and get even more activity going. At some point, it can slowly back off the way it is “backing off” from the stock market today.
The Fed is forbidden to buy homes outright. But it can encourage Wall Street to buy homes with cheap money the Fed makes available. And guess what – that’s exactly what it did in 2011. It kicked off the giant buy-to-rent schemes, where PE firm Blackstone bought up 40,000 homes out of foreclosure, and many other firms bought up homes … in total well over 200,000 homes were bought out of foreclosures by these big firms in just a few markets, and it drove up home prices elegantly. So the Fed doesn’t need to buy homes.
BTW, some of these entities are now publicly traded REITs (Invitation Homes, etc.).
So the Fed did not buy individual homes outright, but it sure did buy some mortgage backed securities with gusto as a means of supporting housing prices. I’m sure the $1.25 trillion dollar MBS security target helped pump the brakes on the real estate collapse as well as helped re-inflate that bubble. http://www.nakedcapitalism.com/2011/03/this-is-how-qe-really-works.html
Sure, the Fed did a lot of things to inflate the housing bubble. Buying MBS was one of them (it pushed down mortgage rates). Getting Wall Street to buy over 200,000 homes was another. Drowning the economy in liquidity was another. It did all kinds of things specifically to inflate the housing bubble.
QE to infinity! Hidden backdoor bailouts and foreclosures bought by wall street as artificial price floor keeps kicking in to bailout wall street. Rigged melt up! it won’t pop. just get lousier for all the people living in this broken system. the only thing that will pop is the hidden inflationary tax – 1000% increases in price of housing with same shitty services, increased taxes, skyrocketing healthcare, higher education cost, disappearance of all domestic manufacturing, rotting cities and suburban decay. don’t worry – the subsidies of cheap goods made in china and another 10% melt up in the rigged stock market will make it alright.
Investors don’t like RE because as an investment it is not mobile and governments can simply tax it like the Greeks are finding out.
Your comments nailed it; the frenzy continues in Vancouver and all over BC to a lesser extent. Victoria is unaffordable. Kelowna and the rest of the Okanagan is more than pricey. Even in my little piece of ‘rural valley paradise’ sales are way up. And just who is buying? My neighbours across the river just sold their 24 acres, with home and barn, to folks from Victoria who have cashed out. Another property just sold nearby, to another Victoria refugee. I was on my tractor last week when a guy stopped me and asked if I knew of any other properties that may be coming up for sale in the next while?
As for the economy here on mid/northern Vancouver Island? Beyond property sales and services, I was talking to a truck driver who delivered some old growth wood cull to me that I cut up for firewood. (16 cords of log chunks for $350…that, my friends, is 4 years of home heating for $350 cdn). Anyway, he is currently working 14 hour days, without time off. I told him that I worried that the softwood Trump tariffs might cause our logging industry to grind to a halt and he just laughed. He said, “In the Sayward Forest District WFP has pre-sold 1.2 million cubic metres of wood…it has to be processed and shipped out by the end of December. I’m taking two weeks off this summer, but won’t get any days off after I return”. (He quit taking overtime pay due to the taxes on it…instead will trade for 1.5X in time off when winter slows things down.
I ordered 3 more loads. :-) It keeps. Old growth hemlock, fir, balsam, and yellow cedar. !!!
His company has a contracted demand for 1,000 loads of cull for a down-Island commercial woodlot operator. (Think 1,000 logging trucks of wood waste for firewood). That is just one local company.
Restaurants are busy and the roads are full every weekend with tourists and MC weekend warriors on their $30,000 Harleys and $40,000 three-wheeler Can-Ams.
I suspect Ontario is similar. Doom and Gloom prevails, meanwhile people are still working and outsiders continue to pressure prices.
I am a retired carpenter and I receive gentle hints all the time about taking on work for friends and aquaintances. (Don’t bite, though). It’s a 1-2 year wait for contractors.
regards
Are you kidding me? In Toronto ask the 20-40 years old people how bad the job market is. The other day Stat Canada had put out an article that all jobs will be part time jobs, and this is from the government itself. People have to live on part time jobs!!! People with college degree have to work a temporary 2 month job, then they get kicked out; wait another 4 month to get another 2 month job. Those who are good enough to have jobs, have to work 2-4 part time jobs. If the economy of Canada is so rosy explain all the part time jobs, and yet the high unemployment rates amongst the young.
Thank you R2D2.
Please allow me to provide actual data.
My son and 7 buddies are in mid 20s to 30 (males and females).
There is only 1 full time job in that group and he makes 45k a year.
The others are kept to part time positions (under 32 hours weekly). They work for financial institutions like RBC, BMO etc.
They continue to look for full time positions.
And the worst part, each has a degree (from York U, U of T and Waterloo) with 2 of them have 2 degrees.
They are terrific kids, but the economy is leaving them behind.
As painful as a housing crash will be, it is absolutely necessary to clean out the “excess”.
If those kids were bright they would not have taken worthless University courses!
Most University courses are a scam and worthless in the real world.
The smart kids go to college and get an education in a vocation where the real economy needs workers!
Have a lawyer friend who is mergers and acquisitions. Works on Bay street. He wanted to switch companies. Applied for a new job. 86 lawyers applied for the same position.
Immigration lawyers are cheering the flood of muslims and Africans illegally entering Canada from America.
Spock,
My 33 year old son has been working for the last 10 years as an industrial electrician. Right now he is working away from home after contracting locally for the last 2 years. With LOA (living out allowance), he is clearing (clearing) $2500/week. His current shift is 10 and 4. On his days off he had to work 3 of his 4 days, and Dad had to help on one of them. The work is hot, and exacting. If you make it dangerous they fire you, so there are no short cuts. It’s a good job, portable, and protected by certification.
I know there are many professions where people are under-employed, but someone in their twenties can certainly re-tool and re-train. I went back to University in my late 30s when my 2nd career tanked. My daughter trained to be a teacher after several stops and starts and works full time down Island .
People just have to pick a career that presently has openings and be willing to retool in downturns. I have had 3 different careers…construction, aviation, teaching, then back and forth over 40 years. Some years I worked at all three , and some months held 3 jobs with one being full-time. When I taught high school (last career) I used to suggest to students they obtain trade and/or industrial experience before going to university. Hell, I had parents come in and complain to the principal about it when their kids came home and discussed university and suggested putting it off. I stuck by my guns, though. I have yet to meet a parent who did not want their child to attend university. Why? Why not be paid to train in an apprenticeship first, and then attend university with well paid summer and weekend employment?
My son’s girlfriend just finished a nursing degree. She had a job before she finished. Nursing seems like a great career, and with a business background people can one day move into admin. There are lots of options out there.
There used to be a pulp mill in the nearby city where I live. Everyone used to work there. It has been shut down for over 15 years. All the mill workers moved on somewhere, but the town is now a city and is bustling busy. The two local mines shut down as well after the last downturn. Life goes on, and that is the loss of 3,000 + $100,000/year jobs in a city of 30,000 people.
I wish our young citizens well, obviously. They’ll figure it out.
regards
Paulo,
Where do you live? In Toronto, which is the economical hub of Canada if you make $2500/week, then you would be in the .01% top income bracket. So, be proud of your son; he is genius. All the people that I know in Toronto would party as if it’s 1999 if they make $2500/month from their 2-3 part time jobs.
Thanks for the update. The real economy in Canada is suffering because housing killed it. If you can make easy money in housing why would you bother with anything else. And it’s foreign money that drives it.
I maintain a faint hope that those responsible will see a day in court for their crimes, but I prefer natural justice for them.
Spock:
I here similar stories from people that I know in Toronto. On top of that almost everything is more expensive in Canada, on top of that if you breath, you have to give 15% to the government. Can you believe it? Pay 15% to the government for any purchase; that’s just highway rubbery. Pay 15% so that a bunch of people with connection can get public sector jobs and make an easy living.
Same age group. My sister has a government job, her husband is a marketing exec. Sold the weekend property in the mountains…now They’re upgrading to a ‘lakefront’ house in Calgary. Good times for some. —- especially if you got a full time government job. ;)
The job market for $2500/WK is totally possible with a 10 years experience. In am working and making about 2200/wk. Just so you know, not everyone is in a bad boat. Fresh graduate are getting paid 70k, and I am in Toronto.
Ok, let me stop this cheering train with some facts:
“As of September 2016, the average wage for Canadian employees was $952 a week – or just under $50,000 a year. This represents a 0.4% increase over the same period last year.”
So, Phot, you are saying fresh graduates make $70,000 a year; the average is $50K, and this means probably with an average experience of 15 years in the labor force. Can you provide us with reliable source that these fresh graduates are making $70,000 a year?
Greg: You are saying go to the likes of Ryerson , Seneca, Humber, George Brown instead of UofT, and you get jobs? Most of the education from these colleges are worthless. I know dozens of people who have computer degrees from these colleges, and they can’t get a job as cashier.
Why do you people feel that you have to by cheer leaders? Talk about facts, numbers, stats, not what you are dreaming of.
“I was talking to a truck driver who delivered some old growth wood cull to me that I cut up for firewood. (16 cords of log chunks for $350…that, my friends, is 4 years of home heating for $350 cdn).” – Paulo
While the practice has been growing ( http://www.forgreenheat.org/resources/press.pdf ) there may not be as much recognition as there might be about the possibilities for using firewood for home heating. Location is important, of course – here on our place we have lots of yellow locust – a high-btu-content hardwood. It used to be valuable as fenceposts, etc. for its rot-resistant qualities, but pressure-treated lumber has obviated it.
Local youths are glad to cut and stack it in our woodshed in return for permission to hunt. Money price: $0.
As an aside, there are substantial barter possibilities, most places.
Enough of the doom histrionics!
Toronto region home prices have dipped slightly from April to May — down $55,604 on average — but still 15 per cent higher than May 2016, as the supply of re-sale house and condo listings rose 43 per cent year over year.
The average home price last month was $863,910 — $111,810 more than last May when houses and condos averaged $752,100 — according to month-end statistics from the Toronto Real Estate Board (TREB) being released Monday.
That is a 29-per-cent gain on the board’s benchmark price index.
Toronto will need a recession to knock-down house prices!
The deeper the recession the deeper the price cuts!
Homes near the Core, near the subway lines, will see the least price declines. The farther from the core the greatest declines.
You must remember Canada has the least debt, by far,(38% federal debt to GDP) and the most natural resources riches with a small population of all the G7 countries!
If a fiscal mess occurs the Feds have the ability to pump loads of stimulus into the economy! While most of the G7 are, oe were, QEing Canada was growing without QE or major deficits!
Greg Canada may indeed have a low debt to GDP and great natural resources The only problem will be when TSHTF it also has a weak military and a VERY long border with us Americans who are in a far less enviable position so watch out Mr Loonie
You would be wrong thinking Canada had low goobermint debt. Unlike e.g. Germany that reports total government debt including Lander, Canada reports federal government debt, and there is a whole scary world of provincial debt. You can have a pick of many a province that look fiscally like Greece or Portugal. But why talk about it when nobody asks?
I like numbers and facts, rather than conjectures:
“Canadian households have never been in a deeper economic hole. Canadians owe $167.60 for every $100 of disposable income — a number that keeps rising relentlessly.
The number was $84 in 1990, and hit a 1:1 ratio at $100 in 1997. At the end of March, it was $165.20.”
“Total household debt last quarter, including both consumer credit and loans, now totals $1.9 trillion. However, most of that ($1.3 trillion) is mortgage-related debt. That could present a major headwind should the growth in home prices start to slow.”
“While most of the G7 are, or were, QEing Canada was growing without QE or major deficits!”
…………….
It looks like the Canadian Government is going to get a crash course in the art of QE… if we keep on getting reports like this one.
“You must remember Canada has the least debt, by far,(38% federal debt to GDP) and the most natural resources riches with a small population of all the G7 countries! If a fiscal mess occurs the Feds have the ability to pump loads of stimulus into the economy! While most of the G7 are, oe were, QEing Canada was growing without QE or major deficits!”
Canada has a household debt to GDP ratio over 100. That’s higher than the US.
I don’t know where this idea that central bankers can stave off major economic events comes from. They’ve never been able to before. What has QE done for the real economy in the US, Europe, and Japan? Apart from distorting asset values higher, not much– one could even make an argument that QE has been virtually entirely negative for the real economy.
Oh, and don’t kid yourself… Canada may not have been doing asset purchases or some of the other unconventional tools of QE, but rates went from almost 5% pre-crisis and have been below 1% for the duration… currently sitting at .5%. If an actual recession hits, I don’t care if they go to -1%, job losses will hit, foreclosures will go up, values will go down.
And I should add that the “Canada has the least debt, by far,(38% federal debt to GDP)” statement is TOTALLY cherry picked.
The only way you get to that number is by including pension assets and excluding pension liabilities. Yes, you read that correctly: you only get that number by IGNORING a huge portion of future pension liabilities.
When you include both, the number is closer to 90%.
Too funny! That’s the way debt to GDP is calculated!
Take it up with the World Bank and IMF!
QE has been good for the economies! However, if countries like France and America and Britain don’t make fiscal changes and keep adding debt to GDP, even while financing costs have been at record lows for 10 years, there will be huge economic problems.
Globalisation has been bad for Western economies, including Canada!
OK, let’s do apples to apples, Greg. There is Gross National Debt and there is Net National Debt. Let’s not compare Canada’s Net National Debt to other countries’ Gross national Debt!
So here it is:
Japan Gross National Debt = 250% of GDP
Italy Gross National Debt = 132% of GDP
US Gross National Debt = 104% of GDP
Canada Gross National Debt = 92% of GDP.
You get the whole list here:
https://tradingeconomics.com/country-list/government-debt-to-gdp
I do agree that future entitlements are a huge ticking time bomb! But that is not the issue today in Toronto’s housing!
Actually those numbers refer to government debt and not total debt in the country.
Australia comes in at around 41% of so and one could guess that the country is doing well.
One has to remember that the Australia net government debt was around zero when John Howard finished as PM. Now that number is approaching A$600 billion and growing.
This is all thanks to the previous Labor government which built in a huge amount of structural spending which will increase the debt forever.
When one looks just at household debt the numbers stack up differently. Australia comes in at number two with 123% to GDP, Canada at number 6 with 100%, the USA at number 10 with 79% and Japan way down the list at number 16 with 62%.
That Japanese number is interesting because it looks is the biggest drop in the past 40 years.
Smingles: His quote o 38% debt to GDP is simply cherry picking.
“Budget deficits and increasing debt are key fiscal issues as the federal and provincial governments prepare to release their budgets this year. Combined federal and provincial net debt has increased from $833 billion in 2007/08 to a projected $1.4 trillion in 2016/17. This combined debt equals 67.5% of the Canadian economy or $37,476 for every man, woman, and child living in Canada.”
The above doesn’t include the household debt which is $167.60 for every $100 of disposable income.
Check provincial debt. Before Greece hit the fan, a blue ribbon Canadian think tank (C.D . Howe ? ) identified Quebec and Greece as two of the most indebted issuers of bonds in the world.
Since then Quebec has improved and Ontario has got much worse. The Ontario Hydro debacle alone would sink many countries.
Alberta that used to be debt free has gone down hill. Newfoundland at least is cutting spending but is perennially challenged.
Feds don’t guarantee provincial debt? They don’t but try and get them to say that. Without an implicit guarantee there are provinces that would have to pay double or triple to sell bonds.
Unlike the euro zone Canada has monetary sovereignty!
With a stroke of pen the Feds can buy any debt or even commodities–virtually anything!
Of course QEing or full Helicopter QEing will crash the $$$ as many more $$$ are created. However, it is a good way to inflate and print away entitlements and pension obligations!
In this case houses and hard assets appreciate while the Loonie decreases!
Greg, you wrote, “Toronto will need a recession to knock-down house prices!”
In the US, it was the other way around: the housing bust was one of the major causes of the Great Recession.
Housing is very local and has a huge local impact. A mild recession in Toronto may not have much impact on housing, but a housing downturn will hit the Toronto economy and government tax receipts very hard.
Under Toronto’s current budget, property taxes provide 38% of the revenues and the land transfer tax 7%, for a total of 45% of the C$10.5 billion in tax receipts. Toronto’s government finances are desperately dependent on the housing boom:
http://wolfstreet.com/2017/02/20/why-toronto-and-other-cities-inflate-housing-bubbles-to-the-bitter-end/
So a housing downturn (which would include a construction downturn) would hit the local economy directly (always does). And then it hits government finances, and the government has to cut back on services, which provides a second hit to the economy.
That’s why housing downturns cause recessions.
Wolf a couple of first hand points. 2 neighbour’s detached homes are for sale in central Toronto, upper middle class neighbourhood, with homes all starting over 1 million.
Neither have to sell and think it’s near a top!
If they don’t get their price the homes come off the market. No fire-sale prices!
Also, over the past 3 years 9 out of 10 buyers in my neighbourhood are Chinese. Most live with their retired parents–more income and not reflected in affordability stats.
Many people rent rooms and basements in their homes and this is not reflected in any stats–more income.
That’s all the more reason not to create a housing bubble in the first place.
How would it affect your calculus if mortgage rates ‘regressed to the mean’ of the last fifty years? Average prime mortgage rate since 1970 is about 7 percent.
The RE prices are a reflection of artificially low rates.
http://business.financialpost.com/investing/outlook-2016/canadians-household-debt-highest-in-g7-with-crunch-on-brink-of-historic-levels-pbo-warns
The debt to GDP ratio is over 100 in Canada. In the past that has always meant curtains for any country, Canada will likely be no different.
I think for Canada and Australia, and probably New Zealand housing crash will be just the beginning when it happens. In all these countries FIRE has become a huge part of economy, employment, and GDP. If it happens, it will be so ugly for at least a decade to come, or perhaps permanently since the other big chunk of economy in all these 3 countries is natural resources; there are no new China’s in the making to demand huge amounts of natural resources. In my view, Canada and Australia will be screwed big time.
Why would that happen? With all the money printing, central banks have shown that paper obligations aren’t that meaningful and can be changed. For example, the government could simply put in a wealth tax to transfer spending power to the spenders to keep housing demand strong. Alternatively, you could simply cancel debts of those people with debt issues. They could then spend again, and perhaps even buy bigger properties. The only real constraints are in peoples’ imaginations.
agreed, If we suspend free market capitalism and adopt socialism for the stupid, poor and rich then this can go on for quite a time longer.
this hasn’t really created all that much demand since the USA adopted that policy as the retail spending can attest.
I make decent money but income to qualify for a home in my hood is $150K so there is no hope and no future in my America. I’m not trying to be Danny downer but it’s been my reality for a long time.
Maybe, but Canadians used to be tough. Especially new ones. We’ll just have to suck it up. Who said there were ever guarantees in life, just because people spend like there is?
My folks made it through the Great Depression without any social safety nets. I made it through 2 very deep recessions and had to work away from home in 3 month stretches. Our country is full of survivors. There is no option…you just go where the work is like people have always done, or you don’t and lose your stuff.
I once listened to a wise old log barge loader who was admonishing a newbie tugboat deckhand for his new house. The kids mortgage payment was about 1/2 his take-home pay. The barge loader (Art) said, “It’s not what you can afford when you’re working, it’s what you can afford when you’re not working that you should buy”. Good advice then, and even better, now.
regards
https://www.google.ca/search?q=images+Doukhobor+women+plowing&tbm=isch&tbo=u&source=univ&sa=X&ved=0ahUKEwiE2PampafUAhUKxmMKHRlUDvgQsAQIKg&biw=880&bih=386#imgrc=kF_p9S2CbII5qM:
What restrictions are there on foreigners buying property in Canada?
In the wonderful world of Oz, the nanny state, there are a huge number of restrictions on who can buy and what they can buy.
Very few foreigners can just plonk down a couple of million bucks and buy a house here.
One place that they can is Sanctuary Cove, in Queensland.
http://www.realestate.com.au/buy/property-villa-townhouse-unit+apartment-house-in-sanctuary+cove,+qld+4212/list-1?activeSort=price-asc&misc=ex-under-contract&includeSurrounding=false
Nice area with lots of nice houses. We used to visit friends there when we lived on the Gold Coast. Prices haven’t moved that much in the past 20 years.
However, IIRC the carrying costs are quite high.
Australia is worse than Canada:
“But Lowe said the ratio of household debt to income was at a record high – at 189.6% – and there were signs it was starting to affect spending.”
Wholly cow, at least Canada’s debt to income is 165.5%
My money is still on Bitcoin. It’s still going up, which mean a lot of those disgruntled ‘foreign’ buyers who were looking to Vancouver and Toronto are all coming to trophy cities like San Francisco. Just up the road from where I live in Laurel heights a 4 bed/3.5bath house sold for 1.6m in Sept. of 2014. Well it just sold for 3.5m a few days ago! What do you recon the property tax is on that?
Had a beautiful old 4 bedroom, 21/2 bath (3800 sq. ft) waterfront go for $320,000 2 years ago in my Florida burg. Thought that was ridiculous. Heck, property taxes alone would run close to $2k/year.
For that kind of dough I could get a 40 foot sloop and sail the world.
taxes: $43,750 a year plus HOA fees if any.
OR put another way, the taxes alone are 3X my monthly rent.
I used to sell real estate in California and I don’t understand what a “detached home” is. What was it detached from? A house is a house. Sometimes they are attached to another house, and sometimes they are moved to another lot, but I’ve never heard of anyone detaching them.
That’s a term for a single-family house that is “detached” from other houses. This means no exterior wall touches the exterior wall of another house. This is in contrast to a townhouse where at least one wall touches the wall of another townhouse, or a condo/apartment (inside a larger building). These are the three big categories of homes in Canadian statistics.
There’s one more: “semi-detached”. Not as many being built but it’s like a townhouse; only two units are attached by one wall between them.
I don’t mean to be rude or contentious and no insult implied nor intended but … having lived and owned real estate in seven states across the US ( including CA ) the term ‘ detached home ‘ has always been part of the real estate vocabulary I’ve been aware of … which leaves me a bit confused . As a realtor how you could not be familiar with the term ? Is it an age thing ( I’s a Boomer ) idiom thats faded into the linguistic fog .. or what ?
A discussion of house prices without the accompanying stats on local incomes is meaningless. What kind of income do people who buy average houses for 800K to 1.2+M have? Are they cashing in stock options, retirement, or other sources to fund the property. I can’t believe this is all trading up money. Even if they are speculating by living in a house for a year or two to resell, this affects the economy in other ways, no/less disposable income for other things.
In 2014, the median income was $75,270.
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm
A financial institution survey polling 2,098 homeowners between the ages of 20 to 69 with household incomes of $50,000 or higher:
* 51% of mortgage holders have “$5,000 or less” set aside to deal with a financial emergency
* Nearly three quarters of Canadian homeowners say they would have difficulty paying their mortgage if their payments were to increase by more than 10% – that’s less than a 1% increase in mortgage rates, and our term structure is less than the US: on average as little as 1 year up to 5 years, before the mortgage has to be renewed at the going rate.
http://www.cp24.com/news/most-homeowners-would-have-mortgage-trouble-if-payments-rose-by-more-than-10-poll-1.3424898
“I can’t believe this is all trading up money.”
How could it be anything else? Money is borrowed into existence and traded for houses. People end up with lots of money and borrow even more money into existence and bid property up even higher.
And folks with lots of borrowed money in their pockets can afford to both make inflated mortgage payments and buy lots of other stuff.
It is really just printing money with the resulting inflation targeted purely at housing. Personal income should be a factor only if the loans are related to personal income. But personal income is also influenced by flipping your house.
It can’t be borrowed money only. How does someone with a $75k average income buy property for 12X+ income? A 30%+ YOY increase in prices is hyper inflationary and would cause the banks to raise interest rates, making the loan even more unaffordable.
Are these people really being lent 10X or more of the price of a house?
If they are, they are on their way to an American style financial crisis, whether they know it or not. If the interest rates aren’t adjusting to the price levels the banks will go under just like they did in the US.
Suppose you just flipped your house and have $200k in profits. You can put 20% down if you want. The bank knows this. The bank knows you will suck up the mortgage for a couple of years, flip it and add another $200k to the pot.
If it all blows up, the banker walks away a millionaire and the flipper walks away with whatever she has left. Win-win.
Probably $200-250k. Zillow’s afforabilty calculator allows for a couple making a combined annual income of $200k and no other debt to “comfortably afford” a $1.05M home with DTI of 36%. Push DTI to 40% and they can do $1.17M.
Lots of ways to come up with a family income of at least $200k – one tech worker and one healthcare worker (ARNP, PA, CRNA, PharmD, etc) and you’re well over $200k.
If a cop and a nurse can afford to buy a 1.05M house, that’s the definition of hyper inflation in the housing market. Most couples like this in Florida, before the crisis, were buying under $500K, and they are still underwater.
But you are forgetting; Canada and Australia are different :).
It’s still a wait and see at best in the Toronto area, asking prices have not moved much, even for people who bought a home before selling their own home – they refuse to lower the price even though they are at risk of having 2 mortgage payments.
But access to cheap credit has started to diminish. Rates have risen by up to 25 per cent to between 7 per cent at the lowest end of the scale on a first mortgage and up to 19 percent for a second loan.
http://www.bnn.ca/canada-s-private-lenders-feast-on-home-capital-scraps-1.765911
Also appraisers are starting to take a second look at the property. Some believe prices have dropped anywhere from five per cent to 15 per cent over the last 30 days.
http://business.financialpost.com/personal-finance/mortgages-real-estate/real-estate-market-uncertainty-is-forcing-appraisers-to-take-a-second-look
The 16 measures except for the foreign tax and rent control, did not add anything new to the policies/by-laws/legislation that was already in place. It was more the Ontario government stated they will make sure they will enforce what is already the law e.g. making sure flippers and Airbnb rentals pay the correct taxes.
Toronto don’t need a recession to knock off housing prices.
A much stronger $CAD will do a better job.
Yong people income will rise and Canada will prosper, starting from
mid summer 2017.
Toronto “don’t” need a recession? WTF Yong people income will rise? Somting Wong here
Welcome to my world.
Imagine living in a city where most people are convinced every single family home should be at least million dollars. And it’s okay to use your home equity line of credit or take borrowed money from your retirement fund to give your family or strangers money for to buy a house (e.g. syndicated mortgages or unregulated private loans).
In exchange, the lender will receive a return on that loan of 7% or more, when the going rate is 2.89% at most major banks; just so that the borrower can buy a million dollar home when every bank has already told them ‘No’, because they have no savings or a down payment for the house.
And they do this, because home values have increased significantly year over year for the last 5 years. Homeowners and lenders believe, they can easily get their money back or pay off the home, because there will be a greater fool to pass the home to when they are ready to move up or cash out.
Until April of this year I could not convince most people I know that prices do not go up forever.
The banks love to give money so that you are indebted for them for the rest of your life. If they say no, then there is something wrong with your financial picture or the price of the home you want to buy. I wish people would take the hint instead of going around the system to get money at any cost.
The mortgage rates from the loan sharks, are going up now, and banks/lenders are finally appraising homes again, so we’ll see how this plays out over the next few months.
Where exhorbitanly priced housing is found, crime is found.
** One month is NOT a trend or a Busted Housing Bubble. If it continues for a few monthes then you’re talking. Everyone has been trying to predict th Bust but they have been consistentlyy a wrong on the timing. As they say, even a broken clock is right twice a day! So we’ll see if this is a blip due to recent legislation or not.
With prices and rents going lower in cities across the globe and diving demand, it’s clear this is more than a blip.
This is Toronto! Every predictor of a housing crash (pinpointing a specific date/year) has been WRONG for years now.
What do you mean by crash? In the traditional sense a crash means shrinking sales which means a shrinking pool buyers which is what we’re seeing thus this crash is ongoing. The only thing to bring buyers to the table is lower prices.
>> As they say, even a broken clock is right twice a day!
I think one can also say that a functioning clock is NEVER wrong.
Hello Dave,
It’s true, one month is not a trend, but all trends start with a first data point, in this case, that “one month”.
Things to ponder upon:
Info from the article indicates that TREB writes that the YOY increase is still 14.9%. If we had a 31% YOY increase just a few months ago, then mathematically there has been a huge drop in prices during the “one month” quoted herein.
Secondly, a 6.2% monthly decrease extrapolates conservatively to over 50% drop over the next year. Its just math baby!
And finally, the Canadians Income/Debt ratio of 1.67 is now SELF PROPAGATING. It’s just Newton’s 1st law. :)
Nothing can stop it except a future deleveraging, meaning more data points :). Newton’s second law :)
Great debate! Time is going to tell us where we end up.
Cheers!
Frederick, commodity calamity will be replaced by commodity
shortages.
It will take years to develop, but when it will happen, young Canadians people will do much better.
There is nothing wrong with that.
The new Canadian national Anthem….”Oh Canada, get ready to bail out your bankers, your poor people who never should have bought and your really really rich people that bet the farm on this insanity”
reminder: poor people don’t care if they go BK and rich people and bankers NEVER LOSE MONEY….or pay taxes but that’s a different topic.
I love Canada’s new national anthem :).
“Fear has very large eyes.” — Russian proverb
Love your site but Ajax Pickering and oakville are not toronto. They Are very very very far away cities that nobody from toronto would consider toronto.
The housing market in toronto is nuts but this post provides no evidence of the bubble bursting.
GTA
The Greater Toronto Area (GTA) includes the four regional municipalities: Durham, Halton, Peel, and York. Ajax and Pickering are in Durham.
Furthermore, Ajax and Pickering are about 20 miles from the very center of Toronto so they’re practically at the core of he Greater Horseshoe Area, for which the 15% transfer tax applies. This article contains a map of the Greater Horseshoe Area, FYI
http://wolfstreet.com/2017/04/20/toronto-house-price-bubble-foreign-buyers-tax-double-ending-by-brokers-paper-flipping-by-property-scalpers/
In Toronto if you look at Zoocasa.com or realtor.ca
Downtown Toronto:
* Summerhill Gardens house numbers 44, 46, 48, price range $2.4 – $3.2 million
* Balmoral Ave house numbers 61, 66, 119, 140 price range $1.995 – $2.995 million
* 155 Yorkville Avenue 16 condos for sale, $415k – $5.999 million
* 1 Bloor (Yonge and Bloor) 38 condos in one building for sale, price range $598k – $1.25 million
High Park Area (would still be expensive even in a crash):
* 296 Windermere Ave $1.499 million – half gutted home, on the market 24 days
* 105 Colbeck St – literally just the walls and foundation left, $1.449 million on the market 18 days
People close to retirement can’t sell their only asset to get the money to fund their retirement; local speculators who bought new condos or new houses with very little down payment, in hopes to sell at a higher profit once the place was built, cannot sell the finished unit and don’t have the money to carry the mortgages; flippers of older homes don’t have the money to finish homes in their portfolio, as other flipped homes that were supposed to sell in days, now have been on the market for weeks.
Doesn’t matter if it’s 30 minutes outside of Toronto or in the downtown core, it’s everywhere, multiple houses on the same street, on the market for weeks – no offers or low ball offers. The media has stopped talking about the hot housing market after daily articles and tv reports. The Toronto Real Estate Board said they will no longer be providing mid-month housing statistics and buries the fact that prices have fallen 6% in one month on the last page in a 27 page report.
Even if interest rates never went up or mortgage rates never increased, if you never really had the income to sustain your lifestyle or carry the mortgages on your speculative property, and no person in Toronto is going to cover your expenses as a tenant because there are lost of cheaper options, you are insolvent and delaying the inevitable by putting expenses on cheap credit lines. That can only work for so long.
Foreign investors have lots of choices around the world, they don’t need to invest in a risky complicated housing market like Toronto or Vancouver. Only local people who think these cities are the new greatest places on Earth would throw so much money at a such a risky endeavour.
Excellent info SimplyPut7.
(Dave, these are the requisite data that will produce the data points which will be our trend in the making).
The cost for 2nd and 3rd mortgages have jumped since Home Capital’s downward spiral.
Thanks for taking the time to write your comments. I learn a lot from them. From someone living in Canada
jeez guys, a new 15% surtax will whack anything if enough buyers are affected.
jeez.
“think i’ll take a walk.” here’s a bat to the knee. “think i’ll sit down.”
It’s not the 15% tax sellers are worried about it’s the new partnership with CRA (Canada Revenue Agency, our equivalent to IRS), to enforce current tax laws and make sure everyone is paying the correct amount.
We don’t throw people in jail for tax evasion and rarely have long drawn out court cases to make people pay back taxes. Once the CRA finds out you owe them money, they will send you a nice letter asking you to pay by a certain date. If you ignore them they will try to contact you again.
After a few attempts they send a letter to every financial institution in Canada where they think you have money and then empty all of the accounts. Your bank will freeze your accounts and credit cards until you have paid the debt in full to CRA or made arrangements to make monthly installment payments. If the money in your accounts was not enough, then they will go through the court system to garnish your wages to pay the taxes owed to them.
They are starting to look everywhere and question everyone to find flippers – local and foreign – to pay capital gains tax as well as looking at people renting houses, condos or basement apartments to ensure they are paying the additional income at the correct (higher) marginal tax rate: Airbnb and various levels of government are cooperating, CRA is looking at large sums of money going through bank accounts comparing it to the last CRA income tax filed that stated you made a lot less and/or did not show you sold a home.
My favourite, you are a real estate broker, lawyer or notary public, your buyer is a foreigner (or local) and you didn’t tell them about the 15% tax to buy or 25% capital gains tax to sell. When CRA goes after them, the buyer/seller can sue you for the tax liability and the CRA will go after you and make you pay the CRA taxes on their behalf, because you failed to determine if your client was a tax resident of Canada when they purchased or sold a home. When you are talking about homes costing $500,000 to over $2 million, a tax lien of 15% of the purchase price and 25% of the sale price, is a lot of money.
http://www.calgaryherald.com/business/house+buyer+beware+landmark+court+ruling+will+shake+real/13187081/story.html
I am so glad they are finally trying to enforce the laws already on the books, and hold people accountable, using technology that data that they have. This and your previous comments were very informative.
Governments have to stop punishing thrift and rewarding gambling on unproductive assets like real estate. We need to reward investment in productive assets.
Great Canadian coverage -a rarity in the USA-.
You covered Alberta fairly often in the past. If I were investing with a ten year time horizon I’d look to that beaten down area for a home.
Talk about an over-reaction. I’d say the price increases have another two years to run at least.
You’d be a fool to leave the market now and leave substantial gains on the table.
Wait to sell for far less later? No thanks. Getting out now with everyone else.
It is too early to see what kind of change this really is, but if you are an investor with millions of dollars, there are lots of opportunities around the world.
Canada would not be the first place to dump millions of dollars – at least not in housing, why not invest in our commodities and natural resources, millions of dollars would give you a minority interest in a junior mining or oil and gas company. Get dividends, actually see profits, sleep well at night knowing if, you sell, you will probably make money.
There are so many unknown risks with housing, you can’t move the home if there is a flood, fire, earth quakes, poor drinking water, or the quality of the area deteriorates. There’s also the foreign currency risk, the Canadian dollar has decreased nearly 30% over the past 5 years, a downturn in housing and a decrease in our currency would amplify the loss. A housing market would not be my first choice as an investor.
Julian That’s what I thought about Gold and Silver in 2011 Now my slogan is “Pigs get slaughtered” Better a year early than a day late All that kind of thing
not sure what bubble you’re talking about that has popped, what we are seeing is what every responsible sales representative has been saying for some time now, the market has balanced. Inventory, even though listing have gone up, are still only at about a 2 month supply, it should also be pointed out that many agents cancelled listings and relisted after the multiple offer scenario did not produce the results they wanted, so that number is inflated by probably a third. The problem with a general average sale price is that one month it could be a high activity in an affluent neighbourhood, then the next in your average Joe’s area, meaning average pricing drops because the actual values of the homes for sale are lower. This is one case where the numbers don’t tell the whole story. These are homes, not stocks, they don’t trade daily or weekly or even monthly, the large majority of home buyers are long term, the real numbers to focus on is the year over year, and that is still strong and still rising. We are far from a crash and far from bubble bursting as we are not in a bubble, we are a city that just has no more land to build on and the land that can be built on takes years to be approved by municipal government, and now that will worsen with the demise of the OMB. The fact that almost every new development launched in this city sells out within days still should be a good indication of the confidence there still is in our market place, media wants you to think otherwise, don’t be fooled.
You wrote: “The fact that almost every new development launched in this city sells out within days still should be a good indication of the confidence there still is in our market place, media wants you to think otherwise, don’t be fooled.”
May I suggest just three words: preconstruction condo flippers. A whole industry has sprung up to lend to them. Check Miami to see how great that’s now working out. Here’s my latest on that topic:
http://wolfstreet.com/2017/05/10/miami-preconstruction-condo-flippers-drown-in-condo-glut/
You do realize that developers control the flip don’t you? We are seeing more and more not allow assignments, which effectively takes out the condo flipper. The stats are out, Over 85% of condo purchasers close on them. We are not the USA, Toronto has only one real option to new housing and that is Condos. There’s no new land being built. Our market is not comparable to what happens in the USA, much different lending practices, much better banking controls, quite honestly if they had the same process the 08 crash would have never been. 9 years later they are still trying to recover, Toronto saw a 5 month blip which wasnt even that bad, as I said, housing is a long term plan, not an overnight money market.
Even average joe can’t afford then it’s a bubble.. there s always land to build… or you can build up…
real estate bubble has bursted many times in the history and this time won’t be different..
… and then house prices went sky high again.
Lolol. You used house salesmen are so deep in your own subterfuge you can’t find your way to the truth.
The truth is in the numbers, you do a drill down of the them and you will find that our market is still strong, there’s still growth in pricing, those who think the market will crash and we will see 20-30% price corrections or even 40% as some have suggested need to give your heads a shake. Basic global economics will tell you that is not possible, the only factor that can kill our market is interest rates, do you really think the Bank Of Canada is going to push rates up and jeopardize the entire country’s economic well being to curb housing prices????
Sounds like you’re talking up your book (Toronto condos) and hoping for a bailout from the BOC when things head south.
The used and new car salesmen are more transparent in Canada. They provide more useful information without the sales tactics used by real estate agents.
With them I can go to Autotrader.ca and find out for free:
* how long the specific vehicle I am looking at has been available for sale,
* look at their graph to see if is the sale price is a good price compared other vehicles of the same make, model and year in my specified selling radius
* if the price of the vehicle as been reduced since being listed and by how much.
No one expects you to pay over asking and it is required by law to show all fees and charges the dealer intends to collect in the advertised price.
No real estate agent in Canada can provide that information about any home easily or for free.
I’m so sorry for the government. They cannot manage the country.
The 12 years old kids can manage this system much better than you guys.
The investors from out of the Canada they like a gift from God for Canada.
What you did with this kind of the gift it is money it can help the industry or Canada. you don’t know how to manage the investors.
You think you can play with the people.
It is wrong.
Nobody give you a vote in next election
I bought a house 2.1 million and two days after you put the new property rules I cannot get the mortgage because the price is going down and I lost my $100,000 deposit and the owner want to sue me.
What do you think anything is wrong with me ?
or everything is wrong with the government ?
Bob, sue the government you voted in, good luck.
It’s you, not the Canadian government, not local or foreign investors.
But you have come to the right place for your intervention.
As stated in the Financial Post in Canada:
Nicole Wells, vice-president of home equity financing at Royal Bank of Canada, said her institution is relatively conservative when it comes to appraisals to begin with — limiting the impact of a shifting market…“We always promote affordability, making sure you know what you want and what you can pay. It’s really dangerous to get into a bidding war (with the minimum down payment).”
http://business.financialpost.com/personal-finance/mortgages-real-estate/real-estate-market-uncertainty-is-forcing-appraisers-to-take-a-second-look
* Why did you need a mortgage for a $2.1 million home? Don’t you have the money to buy the house cash? Do you know what banks/private lenders will do to you when they realize you can’t go to their competitors to get a mortgage because you don’t easily qualify for a lower competitive mortgage rate? Do you think they will give you a low mortgage rate when they don’t have to?
* I’m not sure where in the country you are, but, do you realize because of the downturn, if you bought in Toronto you probably could get a better quality home now for $2.1 million or paid less for the same home or if you are in BC you have lost nearly $100,000 in equity since the beginning of the 2017 as average sale price has fallen?
* Canada is not an island, to attract global investors to give us money so that we can give people mortgages, we have to keep our interest rates competitive. The US Federal Reserve has raised rates 0.50% and will probably raise them again next week.
Eventually those rates will seep into variable mortgages in Canada and have already started to cause fixed rates to rise. What would a 0.75% increase in rates do to your mortgage? Which may not be a 1:1 increase in your rates. It could be more as you did not have a sizable down payment to not be affected by the mortgage changes in Canada. Would your mortgage payments go up $1000 – $2000 a month? Or are you holding your breath hoping rates never increase over the life of your mortgage?
* Do you realize in Canada the cost of carrying a home is nearly twice the the asking price over a period of 25-30 years, or were you hoping to keep riding this property ladder to keep your monthly costs down? What if you cannot easily unload a $2.1 million dollar home like Toronto is experiencing now, is $4 million in mortgage principal, interest, household repairs and maintenance over a 25 year period, something you really wanted to commit to? Will you have money to have savings in other assets like stocks and bonds, to fund your retirement? We can’t write off our interest expense like the US, this is after-tax dollars you are using to maintain your lifestyle.
Lastly, most mortgages in Canada are recourse loans, being in debt to a bank is not something you should to take lightly.
Tralalalalala sky is falling, market crush, real-estate bubble tralalalalala I am happy camper living in my tent for the past 15 years…story of majority people here. Enjoy your rental or your RV, I stick with my luxury home and brand new Nissan GTR. Life is what you make out of it.
Trust me its going to get ugly fast the burst becomes real after the wall street hedge funds run on banks NO one buys anything at any price and contractors phones stop ringing peoples piggy banks being their homes and supossed equidy goes away over night it gets REAL UGLY fast and NO ONE can get out cause its too late like musical chairs the needle has already came off the record and there are no chairs left
OMG, you sound like one of those “paid stock bashers” on the Home Capital Group message boards. How’s that working out for you now that the Cdn banks are investing heavily in HCG.TO ?
Home capital is not heavily invested by banks, Equitable Bank received a $2 billion credit line supported by the big banks, and the only reason they did that was because there were some closed door meetings with the federal finance minister forcing them to give the credit line, as the major banks were reluctant to lend the money to them.
Home capital is still losing deposits slowly every day, their business model was heavily dependent on these deposits to give mortgages to people who do not qualify at major banks. This model is broken. No one has stepped forward to give them money so they can stop paying the pension plan interest of 22% on their credit line or offered to buy the company.
While I doubt it will get ugly fast, it could because most people in Canada are living beyond their means. No one has to give you a credit card or credit line or even low interest rates to help you maintain your lifestyle. The only thing banks are required to do is keep your money safe. People have become to trusting of banks and forgot they look after their bottom line first, then their shareholders and then their customers.
If this slowdown in housing is a long-term trend, banks will show their true colours again, and people will be reminded of who banks really care about.
“This model is broken.” Can’t count how many times they (the “bashers”) have used that line. The stock was supposed to go to zero by now and yet it’s holding around C$9 and change (up a small amount today).
And yes, you’re right SimplyPut7, banks are not “heavily” invested in HCG, my bad, but a lot more now than they were before this short attack on HCG started (BTW, the shorties have scurried away–the real “bag holders” now are the shorties themselves who bought into that short scheme and are feeling the pressure every time the stock goes up or doesn’t fall).
Home sales in Calgary, AB have slowed down but the prices have not dropped by much, and this is well into the second year of an oil price retreat. Toronto sales are slowing down, too, but the prices, not much, sorry (in my characteristicly Cdn apologetic tone of voice :-).
Yes, sorry to say (for non-Canadians, it’s pronounced sore-ee, in Canada) Alberta is on borrowed time, the number of people receiving EI increased from 30,000 in 2014 to 97,000 in November 2016.
http://edmontonjournal.com/news/politics/number-of-people-getting-ei-benefits-in-alberta-hits-near-record-levels
And Trudeau extended EI benefits to 70 weeks, so the full effect of the oil downturn won’t be known for a while.
http://thechronicleherald.ca/novascotia/1462432-a-by-the-numbers-look-at-the-federal-program-for-extended-ei-benefits
The last time I checked, most oil producers in Canada can’t survive on $50 oil forever, but the Permian Basin region in the US can still make a profit, at $20. I don’t think Canada is really prepared for the long-term affect of cheaper oil coming from the US and how to provide jobs for people who no longer can depend on the oil sector for employment.
https://www.bloomberg.com/news/features/2017-03-21/big-oil-s-plan-to-buy-into-the-shale-boom
Home Capital shares have not gone to zero because there are large shareholders who are hoping the federal government will bail them out. (Two of them wrote a sad article for one of the major newspaper outlets in Canada, I can’t find it – I think it was pulled, after seeing the backlash expressed in the comment section of the article, for having major shareholders whine about not being bailed out with tax payer money)
As for the housing market, sellers have large credit lines to transfer monthly expenses to, they don’t have to lower prices yet. Prices won’t move until people think the housing boom is really over and don’t want to be stuck with a large debt they didn’t plan to pay in full.
Indebted Canadians using ‘homes as ATMs,’ consumer agency warns:
* The number of households that have taken a home equity line of credit (HELOC) on top of their mortgage has soared nearly 40 percent since 2011, the Financial Consumer Agency of Canada warned on Wednesday.
* Outstanding HELOC balances reached C$211 billion ($156.2 billion) in 2016, according to the report. There are about three million HELOC accounts in Canada, with an average outstanding balance of C$70,000.
*The report by the consumer agency showed some 40 percent of consumers do not make regular payments toward their HELOC principal, and most consumer do not repay their HELOC in full until they sell their home.
http://ca.reuters.com/article/businessNews/idCAKBN18Y2QR-OCABS?sp=true
From today’s CBC news!
Link as follows:
http://www.cbc.ca/news/politics/banks-investments-finance-consumers-1.4149975
(Part of the article reproduced herein).
Canadians are being sold banking products they don’t need, signed up for credit cards they don’t know they have and encouraged to borrow more money than they can handle, former bank employees told a parliamentary committee Wednesday.
Testifying before members of the House of Commons Finance Committee, former Bank of Nova Scotia employee Sally Watson gave MPs a blunt account of what life is really like on the other side of the teller’s counter.
“The pressure to achieve sales goals did more than coerce staff into working for nothing. It also urged them to sell products to customers that they had no need for.
Raising credit card limits. Urging people to take out car loans, RRSP loans, open a line of credit or be approved for overdraft protection were common place,” she told MPs.
“The one that disturbed me the most was approving people for much larger mortgages than they could afford. Anything to raise the profit of the bank, whether the consumer could afford the product or not.”
(Did someone say our big Canadian banks are the most conservative and stable?)
I am finally getting sold housing price data for the Toronto area again. The information the Toronto Real Estate Board (TREB) provides is nothing like Zillow.com, but at least there is some transparency in the Toronto housing market again.
I won’t be sharing much information due to the terms of the agreement I agreed to from the site giving me the data, and because TREB fought hard to keep this information out of the public’s eye, and is looking for people who violate the terms of use of their housing data.
The sold property prices are in line with what has been stated publicly that prices have fallen 6% (i.e. selling price is 6% less than the listing price). A few properties still go for over asking price, for many of them, not by much e.g. $1,000. Some homes are selling for 7% – 10% less than asking, most of those are higher end homes e.g. $2 million or more.
For some homes the price decrease is worst than the stated 6% decline. The free public data (the one TREB already gives to the public without sending a thousand lawyers to sue you) does not account for the change in quality of homes at a certain price point. For example a house that is listed for $2 million, would have been listed for $2.5 million as little as a couple of months ago. If the final sale price for that home is now $1.8 million, the home has declined in value 28%. If people who recently bought in that area, have large mortgages that are now underwater as a result of the changing housing market, the bank/private lender may raise mortgage rates on these people when they have to renew or may not want to renew the mortgage at all.
Access to the sold housing data, just came back this week. We will find out soon what TREB is comfortable with people sharing as more people in Canada find out they can get access to this information again.
In the past couple of days, more empty condos have started to hit the market. I don’t know why now or why there was a delay to their listings in comparison to the flipped and empty houses.
So, it’s getting weirder in Toronto:
Canada Mortgage and Financial Group http://www.cmfg.ca/
* a mortgage company (non-bank private lender)
* Canada’s Top 75 Mortgage Brokers – Ranked #24 (as per their website)
* licensed syndicated mortgage broker with FSCO (which the OSC now regulates)
* Canada Mortgage Award for best new comer – individual broker/agent
(I had no idea these awards were a thing in Canada) http://canadianmortgageawards.com/index.php/awards?layout=edit&id=32
Posts on their website, not the full post, the links are below:
* Lending Fee – premium similar to a the mortgage insurance paid for having a non-conforming loan, added to mortgage and not paid upfront
June 1
We have an alternative lending option with 40 years amortization up to 85% of property value (LTV)…
On first mortgages, approximate rates are 3.75 to 4.99% and 9 to 11.99% on seconds (Subject to change without notice). Lending fee depends on the deal but approximately 2.50% on a first and up to 4% on seconds. Again loan amount is up to 85% LTV.
http://www.cmfg.ca/alternative-mortgage-40-yrs-amortization/
June 9
Private first residential mortgage in the GTA is now at 8.99 to 9.99% RATE – 65% LTV to 75% LTV. You’ll obtain 80% if you’re lucky and be prepared to pay higher rate and fees. Fees are 3 to 4% on a first now on private – This is INSANE. In fact many private lenders are out of capital. Options are minimum! These changes only affects clients and everyone having a tough time to close. Brokers are scrambling now to find alternative option for their clients since Home Trust is not funding and many other lenders who depended on Home trust money are stuck as well.
http://www.cmfg.ca/clients-are-stuck-and-brokers-scrambling-what-is-the-government-doing/
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The company has a license but it’s not really known how to classify them, especially when they made this comment in the June 1 post:
Stop worrying about how you’ll qualify your challenged credit clients or clients with good credit but they are self employed or those with only 15% down payment who cannot qualify with A or B Lenders or those who own several properties and ratios are off on the traditional lending options.
So are they a C lender? What’s a B lender? Who came up with these classifications?
Note: the government of Canada stopped backing 40 year mortgages in 2008 and 35 year mortgages in 2011. After “companies” began insuring these mortgages.
http://www.cbc.ca/news/business/flaherty-tightens-mortgage-taps-1.977280
Fascinating!!
There’s nothing new about private lenders, they have been in existence forever, and yes, they would be considered C lenders. A lenders are your 5 banks, they take on only the triple A client, minimum risk, discounted rates, B lenders will take on moderate risk, usually at prime and above, C lenders, Private equity funds, take on maximum risk, but will not be more than second on title to insure they don’t lose if there’s a default. Like I said this is nothing new, has been happening for many years.
Private lenders are not new but they used to lend to people taking out mortgages that were 3 or 4 times their gross family income. Lenders also had the benefit of rising home values in a decreasing interest rate environment.
Now we have home prices 10 to 20 times gross family income, rising rates and falling home values. If someone renews their mortgage at 9% when they were only paying 4% or lower, there are only so many mortgage payments that can go on their home equity line of credit to avoid default, before their lender takes it away.
Many syndicated mortgages have the status of junk bonds, they get paid last, if the home owner defaults, the big banks and secondary lenders get paid first and the syndicates receive nothing. There are already lawsuits in the works from mortgage holders who have stopped receiving interest payments on their investments.
Canada has never rescued home owners or investors for any type of boom and bust financial activity: The late 80s to early 90s housing boom and crash, Bre-X, all ponzi schemes, Nortel (shareholders and pensioners), mutual funds during the dot com and last financial crash, Blackberry (RIM) shareholders and Asset-Backed Commercial Paper (ABCP) during the last financial crash. Litigation takes years, investors never fully recover their money if they receive any money back at all. The Canadian government and regulators usually work on better policies to prevent future catastrophes, but never have the urge to catch a falling knife.
Even with Home Capital Group, if it is true the Ontario Securities Commission (OSC) are working on a settlement, the settlement won’t be given to the shareholders or depositors/lenders. They keep the money for themselves to work on better compliance and enforcement regulation.
Home Capital would have been long and drawn out case. Since the OSC budget and staff is limited, as well as they have other companies to regulate while dropping everything to deal with the mess that is Home Capital; better use of their time, would be to create the legislation they need to go after the entire alternative mortgage lenders industry. To ensure mortgage investment companies (MICs) are not going after retail investors and making them believe the 5% – 7% they are receiving on their investment is as safe as a GIC.
– Canadians have taken advantage of rising home prices. It has allowed them to use their houses/homes as an ATM machine. Just imagine what will happen to canadians when rates rise and home prices fall ………………
https://betterdwelling.com/canadians-using-second-mortgages-avoid-bankruptcy/