Canadian real estate versus literal European castles

[FireLane]

I saw this video series on TikTok and thought the Mustachians would appreciate it:

https://www.tiktok.com/@millennialmoron/video/7223622910609542406

This guy is a Canadian realtor. He has a video series showing how real estate prices in Canada are so insane that for the price of an ordinary house - or even a run-down house in a bad neighborhood - you could buy a literal castle in Europe.

Like I've always said, if I had millions and millions of dollars to spend on a house in a trendy city... I wouldn't! I'd use a small percentage of that money to buy a reasonable house in a less-expensive area, invest the rest, and live very comfortably off of dividends. Even if you weren't FIREd and still had to work, surely there are enough good-paying remote jobs nowadays that it's not necessary to pay these ludicrous prices to be where the jobs are.

What the heck is going on in Canada that's made the housing crisis so bad? Is it really that hard to build new housing? Wealthy foreigners snapping everything up as investments?

[Dave1442397]

We began our honeymoon in Vancouver in 1999, and on a city tour I commented on a fancy new high-rise apartment building, to which our driver responded, saying that it was sold out but at least 70% empty. He said wealthy Hong Kong residents were snapping up luxury apartments in anticipation of having to leave HK after the Chinese took over in 1997.

[ixtap]

Do they also compare the operating costs of a literal castle to a home in Canada?

[afulldeck]

Probably no difference :-)

[nedwin]

In 2005 I bought my first home for about $155,000 in Laramie, WY.  The next summer we were in northwestern Nebraska and my dad picked up the local real estate catalog and pointed out to me that, for what I spent in Laramie, I could buy every single home on the first page of that catalog and have about $100k to spare.  My only response was that none of those homes were in Laramie, where I needed to be.  It's an interesting exercise, but real estate is local. There are not many European castles in Toronto.

[AMandM]

There are not many European castles in Toronto.

There's always

https://casaloma.ca/about/
In my university days it was advertised as "the most authentic mediaeval castle in North America,"which provoked a lot of discussions. Is a 1914 building that looks kind of mediaeval more authentic, or do degrees of mediaeval authenticity simply not apply in the New World....

[Mighty Eyebrows]

Like I've always said, if I had millions and millions of dollars to spend on a house in a trendy city... I wouldn't! I'd use a small percentage of that money to buy a reasonable house in a less-expensive area

A good attitude. The problem is that even rural places in Canada have become stupidly priced (thanks, pandemic WFH). Avoiding Vancouver and Toronto is a great start, but many smaller towns are still insane, although a little less so in the last 9 months.

What the heck is going on in Canada that's made the housing crisis so bad? Is it really that hard to build new housing? Wealthy foreigners snapping everything up as investments?

The foreign buyer problem was a bit of a trigger for FOMO in a few cities, but we have mainly done this to ourselves. Once it got rolling, many cities introduced brutal foreign buyer taxes and the market never budged. A bigger problem is that Canada mostly escaped the 2008 crash and the low interest rates that followed just poured fuel on the fire.

If you want to know how key interest rates are in irrational financial behaviour, I recommend the book "The Price of Time."
https://www.amazon.ca/Price-Time-Real-Story-Interest/dp/0802160069

[Capsu78]

"The Greater Fool" blog is a daily deep dive from a financial guy in Canada and often discusses the housing situation in Canada.  I have followed him for a number of years and still can't understand the insanity in Canadian RE.  One thing for certain- I would never accept a promotion that involved relocation to Canada.

https://www.greaterfool.ca/

[achvfi]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

[GilesMM]

Is a literal castle different from a castle?

[AMandM]

Is a literal castle different from a castle?

I would say yes. A literal castle is fortified. Even if its use now is purely residential, it was originally built as a defensive stronghold, to protect the owner and the population of his surrounding lands.
A non-literal castle can be any fancy building, especially if it has features that resemble fortifications (see, e.g., Casa Loma's crenellations).

[ScreamingHeadGuy]

Is a literal castle different from a castle?

I would say yes. A literal castle is fortified. Even if its use now is purely residential, it was originally built as a defensive stronghold, to protect the owner and the population of his surrounding lands.
A non-literal castle can be any fancy building, especially if it has features that resemble fortifications (see, e.g., Casa Loma's crenellations).

And those windows on the ground floor are just begging to get invaded through.

[Capsu78]

the defensive fortifications also define the difference between a castle and a chateau.  Castles often built is anticipation of uncertain times and chateaus built during more stable times.

[SunnyDays]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

Not everywhere in Canada has crazy high prices.  There are lots of areas, including mine, where 350K or less buys you a very decent suburban 3 bed/1.5 bath.  It depends on demand, like anything else.  Avoid the huge cities and the desirable coastal areas and it’s really not that bad.  But a lot of people think “I couldn’t possibly live there,” yet tons of people do and quite happily.  There can be a lot of snobbery in where one chooses to live.

[GilesMM]

the defensive fortifications also define the difference between a castle and a chateau.  Castles often built is anticipation of uncertain times and chateaus built during more stable times.

Would that be a chateau or a literal chateau?

[deborah]

Recently I met up with someone I hadn’t seen for years and years.

Eight years ago, her husband bought a castle (a literal château) in an online auction while she was asleep, sight unseen, for less than the value of their house in Australia. So they moved to France and did it up so they could run it as a b&b. They gave themselves five years to do it up before advertising it to guests, and it was ready in February 2020.

[AMandM]

the defensive fortifications also define the difference between a castle and a chateau.  Castles often built is anticipation of uncertain times and chateaus built during more stable times.

So a château-fort is a literal castle.

[achvfi]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

Not everywhere in Canada has crazy high prices.  There are lots of areas, including mine, where 350K or less buys you a very decent suburban 3 bed/1.5 bath.  It depends on demand, like anything else.  Avoid the huge cities and the desirable coastal areas and it’s really not that bad.  But a lot of people think “I couldn’t possibly live there,” yet tons of people do and quite happily.  There can be a lot of snobbery in where one chooses to live.

That makes sense. Sounds just like US. Thanks.

[FrugalShrew]

Recently I met up with someone I hadn’t seen for years and years.

Eight years ago, her husband bought a castle (a literal château) in an online auction while she was asleep, sight unseen, for less than the value of their house in Australia. So they moved to France and did it up so they could run it as a b&b. They gave themselves five years to do it up before advertising it to guests, and it was ready in February 2020.

Ouch. Did they ever end up opening it?

[deborah]

Recently I met up with someone I hadn’t seen for years and years.

Eight years ago, her husband bought a castle (a literal château) in an online auction while she was asleep, sight unseen, for less than the value of their house in Australia. So they moved to France and did it up so they could run it as a b&b. They gave themselves five years to do it up before advertising it to guests, and it was ready in February 2020.

Ouch. Did they ever end up opening it?

No. They’ve recently sold it as a b&b, so I think they did ok.

[GuitarStv]

"The Greater Fool" blog is a daily deep dive from a financial guy in Canada and often discusses the housing situation in Canada.  I have followed him for a number of years and still can't understand the insanity in Canadian RE.  One thing for certain- I would never accept a promotion that involved relocation to Canada.

https://www.greaterfool.ca/

Ha!

Garth Turner predicts the imminent collapse of the housing market in Toronto at least once a year . . . and has been doing so for more than two decades.  I'm sure that one of these years he'll be right, but am not sure I'd trust in his understanding of Canada's real estate markets given the staggering number of times he has been wrong.  He's sort of a more subdued Canadian Jim Cramer.

[Dogastrophe]

"The Greater Fool" blog is a daily deep dive from a financial guy in Canada and often discusses the housing situation in Canada.  I have followed him for a number of years and still can't understand the insanity in Canadian RE.  One thing for certain- I would never accept a promotion that involved relocation to Canada.

https://www.greaterfool.ca/

Ha!

Garth Turner predicts the imminent collapse of the housing market in Toronto at least once a year . . . and has been doing so for more than two decades.  I'm sure that one of these years he'll be right, but am not sure I'd trust in his understanding of Canada's real estate markets given the staggering number of times he has been wrong.  He's sort of a more subdued Canadian Jim Cramer.

One of these days Garth is going to get something right and he'll go on another 3-month media book promotion bender to celebrate.

Here's a little snippet from 2010 when Garth was predicting the collapse of the real estate sector in Canada
https://www.canadianmortgagetrends.com/2010/12/garth-turner-the-housing-crash-liar-loans-more/

[ChpBstrd]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

Not everywhere in Canada has crazy high prices.  There are lots of areas, including mine, where 350K or less buys you a very decent suburban 3 bed/1.5 bath.  It depends on demand, like anything else.  Avoid the huge cities and the desirable coastal areas and it’s really not that bad.  But a lot of people think “I couldn’t possibly live there,” yet tons of people do and quite happily.  There can be a lot of snobbery in where one chooses to live.

I'd still call that a crazy high price. $350k is about 6x the average Canadian income in 2022, and that average national income number is propped up by large population concentrations in expensive places like Toronto and Vancouver so incomes in this relatively cheaper locale are probably lower.

The P&I alone on a $350k 5y ARM at 6.3% is $2300/mo or $27,600/year, which is 48% of the average Canadian income of $57,600. So even though we're comparing one of the more affordable areas against a national average income which is propped up by HCOL areas, it still involves spending far above the 30% of income that is supposed to be a sustainable housing budget.

I paid 3x my income for a 3/2 down in the balmy Southern states back in 2018, and today it might be worth 3.5X. My P&I is under 19% of my income. Plus I face zero risk of my payments ballooning because I'm locked in at 3.25% until the loan is paid off in another 12 years or so. That's what affordable looks like from my perspective.

Of course, I get the "I couldn't live there" snobbery too, despite my area's 3.0% unemployment rate, affordable housing, and plethora of jobs for educated people. I note as you note that people in HCOL areas have been spending half or more of their income on housing for decades now and the math hasn't caught up with them yet. They just aren't as likely to FIRE because they traded the ability to save for living in a trendier area.

[Mighty Eyebrows]

Here's a little snippet from 2010 when Garth was predicting the collapse of the real estate sector in Canada

Ironically, Garth is pointing out that real estate in Canada is going up right now and people shouldn't expect a 50% off sale any time soon.

He has been wrong about the direction of house prices so often, it almost makes me wonder if we will finally get a crash!

[obstinate]

Surprised that nobody has commented on the difference between asking price and sales price in the captioned listing. I'm very skeptical that that house will transact for 11M CAD, unless it's on an enormous lot in the best neighborhood in the city.

[SunnyDays]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

Not everywhere in Canada has crazy high prices.  There are lots of areas, including mine, where 350K or less buys you a very decent suburban 3 bed/1.5 bath.  It depends on demand, like anything else.  Avoid the huge cities and the desirable coastal areas and it’s really not that bad.  But a lot of people think “I couldn’t possibly live there,” yet tons of people do and quite happily.  There can be a lot of snobbery in where one chooses to live.

I'd still call that a crazy high price. $350k is about 6x the average Canadian income in 2022, and that average national income number is propped up by large population concentrations in expensive places like Toronto and Vancouver so incomes in this relatively cheaper locale are probably lower.

The P&I alone on a $350k 5y ARM at 6.3% is $2300/mo or $27,600/year, which is 48% of the average Canadian income of $57,600. So even though we're comparing one of the more affordable areas against a national average income which is propped up by HCOL areas, it still involves spending far above the 30% of income that is supposed to be a sustainable housing budget.

I paid 3x my income for a 3/2 down in the balmy Southern states back in 2018, and today it might be worth 3.5X. My P&I is under 19% of my income. Plus I face zero risk of my payments ballooning because I'm locked in at 3.25% until the loan is paid off in another 12 years or so. That's what affordable looks like from my perspective.

Of course, I get the "I couldn't live there" snobbery too, despite my area's 3.0% unemployment rate, affordable housing, and plethora of jobs for educated people. I note as you note that people in HCOL areas have been spending half or more of their income on housing for decades now and the math hasn't caught up with them yet. They just aren't as likely to FIRE because they traded the ability to save for living in a trendier area.

Sure, it’s still expensive if you’re only considering one salary, but double that for a couple and it’s a lot more affordable.
I bought my house by myself in 1993 for 1.5 times my salary, and I had a down payment for 60% of the purchase price.  I had it paid off in 2.5 years.  Had I not had that large of a down payment and/or chosen to buy a fancier house, it would have taken me a lot longer.  Certainly prices have gone way up relative to salaries since then, but with two people in a modest area paying for a starter type home (which mine is considered, even though I still live in it and have no plans to upgrade), it’s very doable.
People convince themselves that they need to live in an above average area, in an above average house with lots of amenities around them.  But when you consider that the lifestyle of this type of person/family is really no different than their “poor cousins,” it’s not worth it.  If they’re working full time, commuting and sleeping 8 hours a night, how much time do they really have to get their money’s worth out of all the extras they’re paying for?  It might impress other people, but it does the owners little actual good, when you consider the trade offs they’ve made.

[JAYSLOL]

"The Greater Fool" blog is a daily deep dive from a financial guy in Canada and often discusses the housing situation in Canada.  I have followed him for a number of years and still can't understand the insanity in Canadian RE.  One thing for certain- I would never accept a promotion that involved relocation to Canada.

https://www.greaterfool.ca/

Ha!

Garth Turner predicts the imminent collapse of the housing market in Toronto at least once a year . . . and has been doing so for more than two decades.  I'm sure that one of these years he'll be right, but am not sure I'd trust in his understanding of Canada's real estate markets given the staggering number of times he has been wrong.  He's sort of a more subdued Canadian Jim Cramer.

One of these days Garth is going to get something right and he'll go on another 3-month media book promotion bender to celebrate.

Here's a little snippet from 2010 when Garth was predicting the collapse of the real estate sector in Canada
https://www.canadianmortgagetrends.com/2010/12/garth-turner-the-housing-crash-liar-loans-more/

Unfortunately my parents got suckered by that blog’s doom and gloom in 2010 and they sold their beautiful home in Victoria BC (which they paid ~$300k for a few years earlier) for $500k, and rented a place expecting housing to crash while they left their money in GICs making almost nothing.  Well, long story short housing never dipped even for a second, that house is probably worth $1.5m+ right now, and 10 years after selling they had to scrape together what was left of their money and take out a mortgage to buy a tiny apartment in a much cheaper town.  Thanks a lot Garth. 

[obstinate]

If you just assume a confident prognosticator is a charlatan, you'll be right far more often than you're wrong.

[ChpBstrd]

In all fairness to the prognosticator, perhaps this is an issue of the market staying irrational for longer than a wait-and-seer can remain patient. There's a way to error by saying "see, it's not a bubble because it's lasted X years" and there's an opposite way to error by waiting for a correction that never comes.

All the quantitative affordability metrics are way outside historical norms. I think there's a frenzy going on right now based on the assumption rates are still relatively low, that rents are going to inflate quickly, and that the rumored shortage of houses due to under-building and NIMBY restrictions in trendy areas is going to lead to even worse prices in the future.

In the meantime, I think it remains true that people interested in building wealth should probably not buy houses at ahistorical multiples of their income just because everyone else is doing it. The bloggers at https://www.millennial-revolution.com/ are spending less on an all-in budget while living as full-time tourists with no traditional jobs than it would cost to rent a crappy apartment in Toronto. Why chase home ownership as a goal when you could alternately FIRE and see the world at a young age?

[AMandM]

Ouch, @JAYSLOL, my sympathies!

[JAYSLOL]

Ouch, @JAYSLOL, my sympathies!

Yeah, it definitely hurt them, but they are both still happy and healthy and not starving as they do have a pension coming in now that they are retired.  There’s also definitely some shared responsibility, they had the opportunity to do better research rather than rely on the doomers on the internet blogs, unfortunately I didn’t know better at the time to dissuade them from betting against the market.  But I do know better now, and I’m not going to make the same mistakes. 

[Heckler]

  One thing for certain- I would never accept a promotion that involved relocation to Canada.

umm.  Everything is 34% more expensive in the US (for us) btw.  A $500k CAD home is yours for $372k USD.

https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=CAD

[Heckler]

now, if you want some fun, talk about our real estate gem, Vancouver.  This game was from 2010, when Olympic fever hit.

https://www.crackshackormansion.com/

[Heckler]

I just calculated our personal real estate (a mansion shared with 200 other units) CAGR = 7.6% over the past 20 years. Is that so unreasonable? 

The young folk trying to buy in think so.  I probably think so too, since my salary's CAGR is 2.6% over the same time period.

CAGR of VTI over the same time period (20 years) is 7.9%, not including dividends.  Paying off our mortgage in 13 years did make sense!

[Heckler]

and, I bring you, Crackshack or Mansion, 2023 edition.

1:  Crackshack or Mansion?

https://www.rew.ca/properties/5083194/2215-nanaimo-street-vancouver-bc?page=5&search_params%5Bis_exact_bedrooms%5D=false&search_params%5Bnum_bedrooms%5D=1&search_params%5Bquery%5D=Vancouver+East%2C+Vancouver%2C+BC&searchable_id=15&searchable_type=Geography%3A%3ATag#

[Heckler]

2.  Crackshack or Mansion

https://www.rew.ca/properties/5111280/927-e-63rd-avenue-vancouver-bc?search_params%5Bis_exact_bedrooms%5D=false&search_params%5Bnum_bedrooms%5D=1&search_params%5Bquery%5D=Vancouver+East%2C+Vancouver%2C+BC&searchable_id=15&searchable_type=Geography%3A%3ATag

[Heckler]

3.  Crackshack or mansion?

https://www.rew.ca/properties/4961574/441-449-east-pender-street-vancouver-bc?property_click=map

[Heckler]

Unfortunately, all mansions.  There are no more crack shacks in Vancouver, they've all set up on the sidewalk.  sigh.

invest early, invest wisely kids.

[FrugalShrew]

Wow, those price tags are just nuts!

[ChpBstrd]

I did learn what a "land assembly lot" is.

Obviously at these prices the properties are not being marketed to regular middle class people.

[Heckler]

I did learn what a "land assembly lot" is.

Obviously at these prices the properties are not being marketed to regular middle class people.

Nope.  All getting built up into towers and condos, with some "affordable housing" buzzword marketing thrown in for the politicians to approve permits.

what I don't understand is where anybody in this town works, if it's not in housing construction.  Two of my local microbreweries just closed the doors, I'm really hoping they don't become bedrooms.

[Heckler]

I liked #1 best.  It actually looks like a crackshack.

[scottish]

"The Greater Fool" blog is a daily deep dive from a financial guy in Canada and often discusses the housing situation in Canada.  I have followed him for a number of years and still can't understand the insanity in Canadian RE.  One thing for certain- I would never accept a promotion that involved relocation to Canada.

https://www.greaterfool.ca/

Ha!

Garth Turner predicts the imminent collapse of the housing market in Toronto at least once a year . . . and has been doing so for more than two decades.  I'm sure that one of these years he'll be right, but am not sure I'd trust in his understanding of Canada's real estate markets given the staggering number of times he has been wrong.  He's sort of a more subdued Canadian Jim Cramer.

One of these days Garth is going to get something right and he'll go on another 3-month media book promotion bender to celebrate.

Here's a little snippet from 2010 when Garth was predicting the collapse of the real estate sector in Canada
https://www.canadianmortgagetrends.com/2010/12/garth-turner-the-housing-crash-liar-loans-more/

Garth has been predicting interest rates will go down this summer right up until last week.   Now he says maybe they'll go down next year.   At least his level of certainty seems to be going down a bit.

[scottish]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

There was a change in federal regulations allowing mortgage companies to offer extended terms on the mortgages.   Some mortgagees now have 60 year terms (which still need to be renewed after 5 years), some are making interest only payments and some are apparently *increasing* the balance every month because they can't cover the interest.

Sorry I don't have a citation handy for any of this, maybe it's just internet speculation.

I think the approach is just adding more risk to the whole consumer/mortgage debt scenario in the country.    If interest rates keep going up, a much larger number of people are going to default since there is really nothing else that can be done.   Better to flatten the curve than to have it all go at once.

[halfling]

Unfortunately, all mansions.  There are no more crack shacks in Vancouver, they've all set up on the sidewalk.  sigh.

invest early, invest wisely kids.

And if you missed the boat, good luck building your new life somewhere else. Lol

[afulldeck]

It boggles my mind how home prices in Canada are so high. It is such a large country with relatively few people.

In US we have 30 year fixed mortgages and more than 90% have locked in low fixed rates for entire term. But in Canada mortgages are mostly variable rate, how are people affording mortgages that are suddenly 400-500 basis point higher. Add that to already high price of homes. That must be stressful.

There was a change in federal regulations allowing mortgage companies to offer extended terms on the mortgages.   Some mortgagees now have 60 year terms (which still need to be renewed after 5 years), some are making interest only payments and some are apparently *increasing* the balance every month because they can't cover the interest.

Sorry I don't have a citation handy for any of this, maybe it's just internet speculation.

I think the approach is just adding more risk to the whole consumer/mortgage debt scenario in the country.    If interest rates keep going up, a much larger number of people are going to default since there is really nothing else that can be done.   Better to flatten the curve than to have it all go at once.

Its not speculation. Freeland made the request a few months back on the release of the budget. Here is a more recent announcement

https://globalnews.ca/video/9812997/freeland-announces-financial-protection-for-mortgage-holders

However, this is a mistake. House prices are already too high. The market needs to crash to get housing back to a more sustainable level for the country.