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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Dmy0013 on January 07, 2016, 10:10:32 AM

Title: Canadian Realestate - Is it a bubble?
Post by: Dmy0013 on January 07, 2016, 10:10:32 AM
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Title: Re: Canadian Realestate - Is it a bubble?
Post by: okits on January 07, 2016, 12:23:12 PM
For your specific situation, how bad are the job prospects in your area?  Have the well-paid careers been hit with layoffs?  Is unemployment high and expected to get worse (e.g. heavily related to commodity prices)?  Is general confidence okay or weakening/bad already?

Can you comfortably afford the house you want at current prices?  Does it require too much debt or will it consume all your other assets (so you own nothing but a house situated in the same local economy your jobs are tied to?)  If you lose one income can you still carry the house?  (Ignore that question if you are both unionized, federal employees.) How long will you live in the house?  Are you going to panic if you buy and prices go down another 20%?  Or up 20% (if you don't buy)?

There's a mix of "is this appropriate for your situation?" and "guess which way housing is going".  The first point is more important, though the considerations around the second point are worthwhile, for numerous reasons. 
Title: Re: Canadian Realestate - Is it a bubble?
Post by: ahoy on January 23, 2016, 03:35:50 AM
I think you are right "something will have to give".   I use to live in Alberta and sold a few yrs back.  I periodically look to see how the market is doing.  to my untrained eye, its out of whack and a lot of people are in denial (usually homeowners).   Seriously, why is a 3 or 4 bed home in the prairies worth 400k plus?   This is not coastal, these are inflated property prices sitting on very cheap land. 

The oil layoffs are still coming, and its working its way though the system.  These things do not happen overnight. 

Vancouver, Toronto... crazy prices.  Usually unsustainable, the Chinese which have been buying for a couple of decades are starting to back away.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: Retire-Canada on January 23, 2016, 06:39:48 AM
I live in Victoria so no idea what's happening in the Prairies. But as the other posters suggest you are well placed to evaluate the economic situation for housing in your area. It simply comes down to the number of people who can afford and want your type of condo vs. the # of suitable units available.

Where I live there is no bubble. That's not to say prices couldn't drop, but the reasons for the current prices are stable factors:

- desirability of the location for climate and lifestyle
- limited land available because we are surrounded by water on 340 degrees living on a peninsula
- demand based on retirees not needing jobs and government workers with steady jobs

I don't assume my house price will go up much more than inflation which is fine by me. My house is not an "investment" it's a savings mechanism since cost of ownership is equal to what an apartment would cost me and I gain ~$10K of equity every year. If I end up with a capital gain over and above inflation that will be nice, but I'm not counting on it.

Why don't you and your wife each take a role of pro or con for house prices in your area. List the appropriate factors based on which side you are taking and then compare notes and see which side of the debate seems best justified?
Title: Re: Canadian Realestate - Is it a bubble?
Post by: Think on January 23, 2016, 07:45:50 AM
home prices simply can only increase so much over time.  They can't go up ten percent each year indefinitely.  Debt can only be a certain percentage of one's income and the housing market can only support the national economy to a certain extent.

Title: Re: Canadian Realestate - Is it a bubble?
Post by: Think on January 23, 2016, 07:55:41 AM
I think you are right "something will have to give".   I use to live in Alberta and sold a few yrs back.  I periodically look to see how the market is doing.  to my untrained eye, its out of whack and a lot of people are in denial (usually homeowners).   Seriously, why is a 3 or 4 bed home in the prairies worth 400k plus?   This is not coastal, these are inflated property prices sitting on very cheap land. 

The oil layoffs are still coming, and its working its way though the system.  These things do not happen overnight. 

Vancouver, Toronto... crazy prices.  Usually unsustainable, the Chinese which have been buying for a couple of decades are starting to back away.

I noticed during the financial crisis in the US that there was truly a lagging effect in certain cities.  Even though financial institutions were going bust, people realized the economy was over levered etc it still took quite some time for housing prices in certain markets to start decreasing.  It didn't happen. Nearly as fast as one would think.  My point being that some people seem appeased because they haven't seen an immediate effect from the drop in oil prices but it simply doesn't happen that quickly.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: Gerard on January 23, 2016, 03:50:30 PM
I noticed during the financial crisis in the US that there was truly a lagging effect in certain cities. 

Prices can stay high as long as people don't have to sell. I think that's what's happening in Alberta right now... people there are used to boom-bust cycles, so they're keeping their houses off the market till things improve. And people who are losing their jobs can go a remarkably long time without having to sell their houses. I'm waiting for the "overheard at work" thread to start including things like "I'm using my HELOC to make my mortgage payments!"

Where I *do* see the hard times in the west showing up is in plane ticket prices. It's not simply due to fuel costs, because it's destination-specific. Holy crap, it's cheap these days to fly to places that oil-industry folks usually take vacations. Last week Air Canada had Newfoundland to Hawaii for under $600 return.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: mozar on January 23, 2016, 04:24:42 PM
The US economy crashed in 2008 and my neighborhood didn't reach bottom in house prices until 2013.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: JAYSLOL on January 23, 2016, 05:09:07 PM
Yes and no, as others have stated HH debt to income is at an all time high, at the same time that home prices are at an all time high at the same time that Canada is going through a slow growth period with layoffs in some sectors (oil and manufacturing) and a (so far) minor financial downturn all of which isn't a very good sign for housing market stability.  On the other hand, a weak economy and a low dollar make investment more affordable here to everyone outside Canada and could keep some key markets strong (Vancouver, Toronto etc).  Any correction will be very region-specific as others have stated, areas in the prairies with not a lot of desire other than certain (vulnerable) job sectors and already very high housing prices could get hit VERY hard, while areas with not many jobs but already relatively affordable housing (such as some of the east and west-coasts smaller towns) may not see as much of a drop.  I would personally avoid buying right now, but thats easy for me to say as i just flat out CAN'T afford to buy anything in my area (southern interior of BC) so i don't really have a choice :)
Title: Re: Canadian Realestate - Is it a bubble?
Post by: daverobev on January 23, 2016, 05:30:59 PM
The fall(ing? en?) CAD means that, globally, Canadian house prices HAVE just corrected.

It blows my mind that our little house in Ontario costs 1/4 as much in small town Texas (for example). Now, we are less than an hour from Ottawa which has some effect I'm sure, but still. Canada is a big country. Plenty of land.

I think inflation will kick in pretty hard, pretty soon. Grocery prices, electricity prices here in Ontario, I mean pretty much everything - except fuel at the moment - is going up *fast*. If house prices go up by less than inflation for a few years (man, people have forgotten 8, 9, 10% mortgages!!), it's all good.

Oil is madness. Every oil producing country is losing at the moment - I don't know how long OPEC can keep going, as they are losing money like crazy. But when they do tighten up - fuel will go up like a rocket, and inflation will kick twice as hard. IMO house prices won't move much. So it'll be ok.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: aspiringnomad on February 05, 2016, 09:33:13 PM
It blows my mind that our little house in Ontario costs 1/4 as much in small town Texas (for example).

I'm very bearish on the Canadian housing market right now, but some of the price differential with states like Texas probably has to do with that state's less restrictive zoning laws and much cheaper cost of labor thanks to proximity to Mexico. But yeah, Canadian real estate is probably the last place I'd put my money right now.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: FINate on February 05, 2016, 10:18:57 PM
I'm totally ignorant of your local RE market. I have, however, lived through two major bubbles (tech 1.0 in SF Bay Area and US housing). Two things I've learned to watch for: 1) People buying an asset for no other reason than being afraid that they will be priced out/miss the boat and 2) low-knowledge people talking a lot about how much they made/are making on their "investments." If either of these are happening or have happened then I would be concerned about a bubble. Not saying absent these everything is fine, I'm sure there are other tells to watch for, I just haven't lived through them yet.

If you are concerned about a bubble then why not keep your condo for a few more years, a wait and see approach? If prices go down for a few years your condo will drop in price, but so will the house you purchase. Historically housing busts take a number of years to bottom out (can't recall the specific number, think I remember it being 5-7 or something like that), so you should have time.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: daverobev on February 06, 2016, 12:36:41 PM
It blows my mind that our little house in Ontario costs 1/4 as much in small town Texas (for example).

I'm very bearish on the Canadian housing market right now, but some of the price differential with states like Texas probably has to do with that state's less restrictive zoning laws and much cheaper cost of labor thanks to proximity to Mexico. But yeah, Canadian real estate is probably the last place I'd put my money right now.

Sometimes mixed my up words get. I meant to say: our house in Ontario costs 4x as much as in small town Texas!
Title: Re: Canadian Realestate - Is it a bubble?
Post by: aspiringnomad on February 06, 2016, 07:34:26 PM
It blows my mind that our little house in Ontario costs 1/4 as much in small town Texas (for example).

I'm very bearish on the Canadian housing market right now, but some of the price differential with states like Texas probably has to do with that state's less restrictive zoning laws and much cheaper cost of labor thanks to proximity to Mexico. But yeah, Canadian real estate is probably the last place I'd put my money right now.

Sometimes mixed my up words get. I meant to say: our house in Ontario costs 4x as much as in small town Texas!

Think that's what I understood - Ontario more expensive than Texas. Was pointing out that some of the additional expense is down to differences in zoning and labor costs.
Title: Re: Canadian Realestate - Is it a bubble?
Post by: BigBangWeary on February 06, 2016, 07:57:47 PM
Some excellent points and advice already on here. I will hopefully add a few more:

1. As other posters have said, real estate is local. Look at the economic situation surrounding you. If incomes are supporting prices, then I wouldn't worry too much, especially if you plan to live in this condo for an extended period of time.

2. Unlike stocks, Real Estate tends to be very sticky. Just because prices have not dropped significantly in Alberta does not mean they wont over time Especially once EI runs out ...

3. Groupthink is a factor here. Canadians have been raised for several decades to believe houses 'only go up' and are the 'safest investment'. With cutbacks in the mainstream media, real estate 'stories' (AKA ads) permeate our collective conscience. We truly believe as a nation that 'this time is different'. This is also why all markets are likely to be affected to an extent if a major downturn does take place.

4. For many Canadians their home IS their retirement plan. The government is very aware of this and no elected party is going to do anything to purposely derail this. In fact, they have done, and will continue to do everything they can to keep things propped up. At least until the boomers are through ...

5. Emergency interest rates combined with a massive increase in personal debt are playing a huge role here. Prices based on debt can only inflate so high. Eventually we will have a pullback as a result of this.

6. Most of the limited studies into foreign investors show that they are only responsible for a very minor portion of our two biggest real estate markets. We are not being bought up or 'saved' by outside investors to the extent that the media would have us believe. Your neighbor with a household income of $80,000 and a $600,000 mortgage should worry you more

7. Markets can stay irrational longer than we can remain solvent. This is why making major plays based on when a market downturn will happen is not a wise strategy. Look at your income, savings, equity, and local job market and make a plan based on your house being a home, not an investment, and you will do fine.

8. I am obviously biased.