Can real estate values really go that much higher?
Could Garth Turner be right?
Long branded as a fearmonger, especially by people whose livelihoods require that home prices keep rising, he's been calling for a major correction in housing prices for some time now.
Actually, for about five years now, it seems. But at least he's consistent.
"So here’s the crayons version," he wrote recently. "Houses in Canada are absurdly overvalued and risky. Financial assets are largely unloved and undervalued. Seventy per cent homeownership should terrify you, given the financial track record of your friends. And the best defence in a stormy world is liquidity. But you can ignore me. Most will. Perfect."
Still, after all the bluster and infomercials in the past, it's easy to ignore his prediction that real estate is not the asset you want to depend upon -- at least not in this decade.
But, here's a more rational take for your consideration from Vancouver investment manager Tom Bradley:
When I pull together the economic fundamentals, valuation and sentiment, real estate, as an investment, doesn’t look very attractive. The distribution of potential outcomes looks asymmetrical to me – limited upside and plenty of possible downside.
But what really screams out at me is how many important factors are at extremes … bad extremes. One or two off-trend numbers can be explained away, but too many are jumping off the charts – price increases, mortgage rates, loan growth, consumer debt and home ownership levels.
To invest in an asset class that is illiquid, has high holding and transaction costs and involves large amounts of leverage, I want a significant margin of safety. Right now, there are more warning signs than guardrails.
Should you be in a rush to sell you house so you can rent and wait to pounce on post-meltdown bargains? Probably not, but it is worth thinking about if you're on the outside looking in.
Do local real estate values worry you? What, if anything, are you doing about it?
By Gordon Powers, MSN Money
Posted by: Western Guy | Mar 18, 2022 8:55:49 PM
Unfortunately the article above is skewed. Using an analysis of Vancouver's housing market to make predictions for all of Canada's housing market is truly flawed. Talk about chicken little. Come on Gordon, do better.
Posted by: Dave | Mar 18, 2022 11:11:26 PM
What happens when the babyboomers stop saving for retirement and actually start retiring? Will lots of cash still be available and will interest rates stay low?
"What happened in the US won't happen here", "What happened in Europe won't happen here", "Asia and South America won't ever go into recession" and" the party will run forever".
I wish I could be as positive on realestate as a realtor but I cannot get beyond the numbers (in any part of Canada). Our personal and national debt is too high, our average earnings are too low and our houses are not 3x the average income.
Sorry but raising the retirement age by 2 years won't fix the fact that many houses are at least $100K more than they should be and people are starting out family life with student debt they should not have to have.
Posted by: Mark | Mar 19, 2022 3:31:22 AM
in montreal we turned a 40,000 down payment and about another 30,000 and sweat equity over 13 years into 1.2 mill of which about 800 g is clear. real estate has been a good investment the only rule is buy revenue producing property only
Posted by: Mr. Negative | Mar 19, 2022 10:29:57 AM
Real estate values can go higher, until the bubble bursts. It is scary how much the realtors and mortgages agents don't care about the buyers well being. People are buying homes or "taking custody" of houses at these ridicualous prices as mortgage agents allow you to believe "you are richer than you think" and realtors tell you everytime is a great time to buy.
I recently bought "took custody of a house" and laughed at the mortgage agent who told me i could borrow $458,000 - my wife who was dealing with the mortgage agent/Financial Advisor - started to talk about our finances (to give the bank a better idea of what we really can afford). The agent basically said, i don't need that information (in other words, i don't care), this is what you have been approved for. Don't get me wrong, we as people have to financially make our own decisions, but when consulting someone to get there advice, you expect them to be honest with you, and look at your situation differently than the next person. They simply don't care, they want you, the buyer to pay a shit load in interest and for a very long time. You are asked more questions when you are looking for home insurance or car insurance. (it is a joke)
At the end of the day, we don't have anyone to blame but ourselves. We are the people over paying for these homes. The only problem is........we have let it get so over priced, that most middle class people truly can't afford the homes they live in. The first time home buyers are in for a big suprise if they really think they can afford a $350,000 home, have kids, get married and still have a life. (even starter homes are $300,000 - townhouse or condo, plus your maintenance fees.)
It isn't just the house that is overpriced. Everything is overpriced. We will continue to have the corporations (i mean government) sticking there hands in your pocket. Gas prices will hit an all time high this summer, food will hit an all time high this summer. It is a trend, until we all truly can't afford anything. Then we will all be poor and the rich will be extremly rich.
I hope this whole thing doesn't "bust" but comes down gradually. Canada is a great country, however we need to step back and realize what other countries did wrong and avoid it, if possible. After all, we were doing so well, until we let it get to our heads. Now, we are in a position of a housing bubble. We won't look very smart for long.
Posted by: Al-man | Mar 19, 2022 11:59:43 AM
Real estate values worry me a little. But not so much in terms of the houses themselves. I worry more about greed and speculation that drives the market. People hear a rumor and they start buying all kinds of houses on credit to sell later and make a quick buck. Then something happens and they lose everything. The other thing that bothers me a bit is people will only put the absolute minimum on a house as a down payment instead of putting just as much as they can to keep the payments low. Like Mr. Negative said, we are running ourselves into the ground. Its not going to stop anytime soon either.
I just hope I'm set up in time somewhere so I don't owe a thing and can ride out the storm. To make sure I don't get caught in this, I made a big down payment on my house, I throw a few extra dollars against the mortgage every couple of months, I live within my means, and try to keep the place maintained by myself if I can.
Housing along with many other things will finally correct. I hope it happens gradually too. But I'm a bit concerned that when things do correct, it will be an almost collapse. Then we will see what happens. I will be an extreme reality check for many.
Posted by: Northern Ontario | Mar 19, 2022 12:54:46 PM
The market won't collapse but the lifestyle of the middle class will fundementally change. Some will say there is no middle class. The housing market will slightly decline for the next few years and then likely be stable for many years afterwards. You will not see prices rise like it has in the past 20+ years. Most have locked in to 5-year mortgages thus not affected by hikes in interest rates should it happen. It will but maybe 1-2% in the future. Politicians can not afford to raise rates because our dollar will increase in value thus hurting exports. The thought of buying homes as an investment will change.
We do need to have mortgages get back to 10% down payment, not 5%, and rid the 30yr mortgage. Banks should also limit the amount of line of credit on your house. These changes will make it even harder to get a mortgage at the entry level but young people will have to either stay with their parents longer or simply rent to give them time to pay off student debt and save for a mortgage. People will just need to adapt.
Posted by: Emmanuel Abitbol | Mar 19, 2022 4:51:50 PM
I agree with Mr. Negative that we as Canadian's ought to be cautious. However, there is no Great Depression and things have moved forward mostly if not exclusively because of WANTS as opposed to NEEDS.
The old generation never had it so good as we enjoy it today.
The big difference is spending habits.
The old generation has today, great financial wealth because of past constraints.
This will be a big problem for us.
Housing is very expensive today and carried mortgages will too because of easy money.
We should avoid the lure of easy money. If you earn 10 cents - keep at least 5.
Posted by: jim | Mar 21, 2022 10:01:33 AM
No need to ignore Vancouver. There the market is fuelled by a powerful wave of immigrant investors drawn to a safe market, cheap on a world wide basis, proximate to the PRC and in the context of a series of very serious problems in the PRC. And Vancouver has virtually no land ( thank nature for that) and offers a v. large Chinese community (about 400,000 in the LM) and there are almost 2,000,000,000 in the PRC and about 200,000,000 are looking to de-invest from China.At least for the near term (7-10 years) this is an unstoppable reality.I can see problems with Toronto which ticks few of these boxes and elsewhere but this cannot be a one size fits all analysis.Sorry Garth. Wrong again.
Posted by: sjrw11 | Mar 21, 2022 10:06:15 AM
We have a 3% mortgage, and have increased our payment to get it paid off in ten years. The "trigger" point on our mortgage is 11.5%. We have a lot of leeway before the payment changes. The faster we pay it down, the less we pay in interest. The faster we pay on the front end, the bigger the buffer we build.We started this mortgage with a 32% equity. Have a great day, everyone!
Posted by: robert | Mar 21, 2022 11:17:25 AM
I live in a typical small canadian city in the commutershed of a large city. When average people cannot afford to puchase a typical home then prices are too high and must fall.
Average canadian household income today is about $65k but an average canadian home costs $350,000. almost six times earnings!
Historically, houses should cost 3 times earnings only. So an average canadian home should cost $195,000
Posted by: Financial Guy | Mar 21, 2022 12:16:44 PM
Historically interest rates have been 8%+ as well. At 3% over 30 years that 350K mortgage costs $1,476 a month. A 195K house at 8% over 25 years costs $1,505 a month. So how is the house now less affordable than before? If you are truly worried BMO now offers 10 year locked mortgages.
I would think of it more this way. A save place to be is spending about 2% of your annual wage on your monthly mortgage payment. That ratio hasn't changed in 50 years.
The real crazy time was when interest was at 15%+. How anybody afforded a mortgage then I will never know.
Posted by: Robert | Mar 21, 2022 1:38:42 PM
as we are in a free Business country,not like those we read about ,Greece, Cuba, and so on, we can only be thankful we have options. All things in life cost money and if you want a nice house get ready to make trade-offs for the 30 years it will take to pay it off. You will have pockets of dropping in house prices as the parts of Canada adjust to increasing loss of jobs going to more cost effective areas of the world. We as Canadians must not just ask those in power to fix something they can not fix or afford to fix but let the market do its tried and true service and let supply and demand set the amount we want to pay for a house. We need to stay the course and get away from thinking that grew in the 70,s to having a goverment run up hugh debts only so a few have a bit more,well now my kids are having to pay for those excesses,and will for the next 30 years, We still have a great amount to be happy about in Canada, and if we allow the real entrepreneurs to want to stay and invest in canada rather than cheaper cost based coutires then we may someday again have a decent average wage and middle class. I feel however the unions in canada have priced us out of increasing jobs which will effect our ability to own average homes until we see the new deal which is world wide and cash moves easily, so lets make reasons for those with the knowhow and $$$ want to invest here and help more than the 70% of employment now in the direct of benefit of total canadains employed, by free business.
Posted by: Mr. Negative | Mar 21, 2022 1:45:44 PM
I think it is very hard to compare the cost back then to now regarding interest rates. Yes interest rates were higher, but the cost of that home would be a lot less. (then you have the fact that people made a lot less back then) Which could bring up a whole other debate. Also, there has been a lot of growth in the last 30 years and quality paying jobs were had. (jobs are being lost, full time employment is going to contract or part time)
The truth is, you would have still be better off buying a home 30 years ago then now, financially. Don't forget, while back then there were higher interest rates, the interest rates probably were coming down over the last 30 years to bring it down to 2.99%. Which means, on a $90,000 home, they started to see the savings as there mortgage matured on a cheaper initial investment. (if the homes weren't already paid off) Also, back then, salaries or hourly positions paid less, they also grew over 30 years to make more money. (don't get me wrong, every person's scenario is different)
We can also start talking value of our dollar. Back then you probably paid for what you were getting. Now you pay a lot more and get smaller portions. Look at the average lot size these days, they have come down quite a bit from 30 years ago. (this doesn't just apply for real estate) Even the quality of the home has come down since all brick was used. Houses are built with cheaper materials these days.
Other questions to consider would be: what were property taxes, land transfer taxes, taxes in general, gas, heating and electrical, schooling, daycare, food, and the list goes on. From my understanding, TV at one point was free. (advertisers paid the bill) Not any more.
Don't forget real estate commissions. Have these come down? From what i hear, they are the same, the only thing that changed were the house prices.
I guess my point is, to add a few numbers together and say things haven't changed is not true. Mortgage calculators are tools, but they cannot compile the true cost of living.
Add on other payments to that $1500.00 mortgage and it starts to add up. Taxes alone would bring you close to 1800.00 depending on where you live. This doesn't even include the cost to heat it, run water or keep the lights on, not to forget you need to pay insurance on this home as well.
Just my opinion. Some people would say it is all relative, but somehow i can't see that. However, I am willing to learn and understand.
Posted by: don | Mar 21, 2022 2:38:37 PM
I can not figure out how the average home price can be what it is when the average Canadian wage
is around 40,000 per year. No one making that money (even dual income both making the average) would be given a mortgage for 300,000. Numbers dont add up. Which is wrong...the price or the wage? If the average wage is indeed fourty thousand then houses are over valued and where are all these home owners coming from?
Posted by: Ty | Mar 21, 2022 4:13:30 PM
I'm 31 years old and I still live with my parents because I'm waiting for some kind of equilibrium to appear between my wage and what's being offered in the housing market. My brother on the other hand has been approved for a loan for a condo worth $260k. We both make about $45k a year. He always says "well people need to live somewhere!" "Renting is throwing your money away!" and my personal favorite, "The financial system is going to collapse soon anyway so we'll all be in the same boat soon enough!" As you can see my brother is IRRATIONAL, which is the underlying cause of this madness in the housing market. I'm not saying his points are completely without merit but you have to look rationally at what's being offered, and for how much and make a decision based on that, keeping in mind the banker couldn't care less about your long-term personal financial position. In the meantime all you can do is scramble like a madman trying to get ahead, which for me has meant earning a university degree while I continue to work full-time.
Posted by: Mike P | Mar 21, 2022 6:17:43 PM
How can anyone say that in the past years watching the housing market in bc where i grew up my entire life, that the market isint insane, must be living in some far off place in there heads .I watched bc housing market more than triple in 5 years in the small town I grew up in 50 miles outside of vancouver and there is no explanation for this other than an inflated market. My wages stayed the same for 16 years in the mills i worked for (80 k a year ).I was approved for over 475,000 on a morgage and almost bought a home where i grew up then, I WOKE UP one day and relized that it would be my biggest mistake of my life to buy a home.The baby boomer generations dont relize that they never payed for cpp like my generation has just to keep the status quo for the time being but arent being given a fighting chance to make a life for our children and to find some level of happiness in this world of, have and have nots better wake up because we wont take it anymore. The greed of some have made living next to imposible thanks to outrages rents and fees and the taxes we must pick now due to any for thought 20 years ago about the boomers retiring, now you want me to work to 67 and im sure by the time i get there it will be gone. I have worked full time since 12 years old with no help from anyone but for christ sakes people you have to give us a fighting chance to have a life or else one day you will wake up and find out that the have nots wont take it anymore !
Posted by: Keith | Mar 21, 2022 7:57:32 PM
It's pretty obvious what's going on here. Home estimators are quite often buddy buddy with the banksters. They overvaluate homes meanwhile the people running the banks get paid commisions for mortgage approvals. The banksters don't care because either way they get the principal plus the interest. Even if the debtor fails to make payments the banks still take back ownership at a much lesser buy back value and with penalties to the debtor, only to re-sell the home with more principal attached.
The government can only put regulations on so much and when you get to the bottom of it all the government is in debt with the banksters anyways. It's a backward philosophy all together considering the government is more in tune with our monetary system then they are with our social order in general.
They keep these older generations working well into what should be retirement very well knowing the harmful stresses of this work till your dead ideology, which leads to more strain on our healthcare system. At the same time once the older generations primarily the baby boomers do retire, they know that we could more then likely face is an economic collapse. Consider that the debt loads, population ratio, and liquidity in the market would be thrown all off whack. It just looks to me like a kick the can down the road strategy.
They need to lower the retirement age regardless of the short tuned economic consequences, because ultimatly this kick the can down the road strategy is only going to hurt us all more down that path.
Posted by: Dave | Mar 21, 2022 10:24:48 PM
What is happening here? Why would anyone read this? Where are the facts? What are the writers credentials?
Financial Assets are undervalued? What is a financial asset if not real estate? So how can this financial assest be undervalued when this asset is overvalued?
Cash is King? How long are you going to put your money in the bank and get nothing for interest?
Geeze, these people are scary. No wonder they write for the internet.
Vancouver is the bell weather for the rest of Canada? Really ? I am pretty sure that a home in Winnipeg, Regina. Sudbury, Quebec City, Moncton, Halifax, or St, Johns has not increased in price as much as homes in Vancover and maybe due to the economic impacts on Van that maybe there will be a repositioning, but to make a blanket statement that real estste is overvaluved is not rational.
I do not know whom is paying the salaries of these "experts" but sure glad it is not me.
These people are scarey
Posted by: Claude D | Mar 21, 2022 11:30:45 PM
There are other statistics that are also worrisome. For example, what happens to the demand/supply equation when the babyboom starts dying off and their properties go on the market? Recent reports originating from the census also indicate that an unusually high percentage of the population live alone.Surely they were part of the demand equation that drove up the prices. Perhaps the most concerning is the inability of young people to buy into a market of ever-increasing prices. If a $200,000 house goes up in price by 2% a year, a person has to save $4,000 a year just to keep in step! It's simply not sustainable. A correction is inevitable
Posted by: Beeatch, Beeatch, Beeatch | Mar 21, 2022 11:47:44 PM
Me-Me-Me... Now-Now-Now. Ya gotta love all these 25-35 somethings beeatching about baby boomers. Take a guess what category your own parents fall under ? Ungratefull little %$#@& !! And if you're younger than that, start working on a career before you wish for a house. Ohhh and ya better hope that daddy and mommy keep their jobs so they can cover your azz and your heads for a while longer while you keep sucking at the family teat. Some baby boomers didn't buy houses until they were 35-40 and with probably less salary than some are making now. Trick is... they didn't buy over their means and they also saved for a 10%+ downpayment.
Posted by: Too Bad, So Sad | Mar 21, 2022 11:58:12 PM
@BBB. I agree. Maybe some of these entitled youngsters are just waiting for their baby boomer parents to die so they can come into a nice inheritance. And if not, they might feel even more animosity if their parents decide to sell the family home to cover their retirement home expenses... or travel to Florida for 6 months each year. God knows they should actually think about spending their life earnings/savings on themselves... instead of silver spooning their 30-40+ year old "kids". Looks like the greedy kids will continue to scream "What have you done for me, me, me lately"
Posted by: Northern Ontario | Mar 22, 2022 9:16:09 AM
Let's say house values stays status quo for 5-7 years, no doubt still very hard for first time homebuyers. A single person making 50K per year would have approx. $2700 per month to live on. Not everybody lives in big centres so getting a $200K house that will look decent is attainable. With 10% down, you should budget for an interest rate of at least 5% to ensure you have enough for a potential interest rate hike after your initial 3-5 years locked-mortgage. That means at $180K mortgage, your interest for the year would be $9 000 ($ 5400 now at 3%). By allocating $1200 mth to mortgage, that leaves you with $1500 mth for property taxes ($250), house insurance ($120), house bills ($250), food($500), car/insurance($500), gas($250)... Not much left for pension or any perks is there? Wait, you are in the hole $370 per month with still no pension or perks! You also better not have any oustanding loans.
Our society has evolved to make sure that 2 incomes will be required to pay the bills. Without 2 incomes, you are surely renting. Renting is not such a bad thing. Your privacy is not the greatest. Never mind those who tell you, you are throwing your money away. Homes will no longer be an investment like it use to be. For those who have one now, this is the time they can make money but those just buying won't see that return in the future. In the end, rent now and put aside as much as possible (sacrifice the lifestyle) so that you can get that starter home. You continue saving after that in hope of buyig a nicer home as your family grows. Baby steps is the key.
Posted by: SP | Mar 22, 2022 9:53:16 AM
Can real estate values really go that much higher? Yes.
Should they? Nope.
BUT many many babyboomers have much of their retirement calculations based upon some imagined value in their properties so until reality sets in the prices will continue to balloon.
One can stress about it or one can just accept that when the working population doesn't have enough money left over after paying for their student loans and IVF treatments the government will go after the one pool of assets that people can't sneak off to Florida. People complain about property taxes and utility taxes now. Just wait a few years...
Posted by: Mark | Mar 22, 2022 1:44:25 PM
I bought a house to live in it, at a price I could afford as compared to rent. I could care less about the friggin market, that's the problem with people now a days it's all about greed and making things more unaffordable for the next guy. I'm 50 years old and thanks to this mentality I'll be lucky to see any retirement before I'm dead, in an effort to keep my skills relevent I'm still taking night courses otherwise I'd be kicked to the curb. I really feel sorry for the younger guys that I meet at school looking to better themselves with little prospect of finding a decent job besides flipping burgers let alone ever being able to buy a house.
Posted by: New Grad | Mar 22, 2022 2:07:05 PM
Wow, people are really hating on the young ones. Stereotyping generations doesn't work. There are way to many people with such varying experiences. To BBB: I'm not waiting for my parents to die to give me a home because they have nothing to give! There are people of my age who have a sense of entitlement...only because of the way they were raised. There are also older people that have a sense of entitlement....again, probably because of the way they were raised.
Posted by: Mr. Negative | Mar 22, 2022 11:13:11 PM
BBB and follower - you guys are hilarious! Did you read what you wrote? Ungrateful %$#%! You are funny! Waiting for our parents to die to collect inheritance? Wow, that came from a dark place....I really feel bad for you.......And yes, i do know my parents are baby boomers. I love my parents. When i was growing up, I was taught that if you wanted to have money, you had to work for it. Nothing in life is free, well except when the tax man dips his grubby fingers in my pocket. (i mean, they didn't work for it?) Kind of like the mafia, they just take, and take, until you have nothing left. This will probably be the realest thing you have ever read (the government/corporations/banks are the biggest mafia) They don't even have flash a gun in your face to steal your money.
I can't speak for my peers, but maybe our bitching is simply just venting about the world today? I don't know how it was to grow up in your time, other than from stories i hear.
I am sure you have had really tough times, and guess what, you are going to go through it again. Only this time, you will have us ungrateful $$$$$$! to carry on your back.
We are all to blame for the way things are going and have to take responsibility at some point. You can say we are lazy and entitled, but have to realize that it isn't just us. You my friend, are probably in the same boat.
Anyhow, i have said what i needed to. So this last statement shouldn't come as a suprise.
If you are currently working, you should keep the knowledge you have to yourself. Don't share this with anyone. If you do, the youngster who is sitting at home milking his parents, will apply for your job and offer the employer an option to work for cheaper. (maybe half of what they pay you) just so that youngster could have some spending money. If your boss sees potential in this young man or women, and think they could do the job in time and with very little pay, you might be out of a job. Don't forget wise one, the less money they pay you or anyone, the more money in their greedy pockets. If you think the kids making our products over in asia are the only ones who will be working for cheap, you better wake up. When times get tough, people will do anything to eat.
I can't speak for anyone but me. My beacthing comes from knowing that tomorrow there will be a new excuse for some one to raise the price of something. Weather it be gas, a food shortage or interest rates. We all know it is coming, but there isn't anything we can do about it.
So all i can do...........is beeatch!
After all, it is only about Me - Me - Me, Now - Now - Now
Posted by: Joe Dirt | Sep 29, 2021 2:10:47 PM
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