I Haven't Been This Excited About Going Against The Herd in Years!

[maplevalue]

5 hours ago, Parsad said:

Rosenberg comments on prices in North Bay, ON.  Cheers!
 

David Rosenberg on Twitter: "I'm going to change the Einstein definition of insanity to this: when home prices in North Bay, Ontario begin to look like a dotcom stock in 1999. There's a whole lot of pain, globally speaking, if (when) this housing bubble bursts. https://t.co/NTR4H2Z7WT" / Twitter

 

Terrific sarcastic comment on this tweet

 

Quote

 

 

Disagree.

1. North Bay is a world class city now. NYC, London, HK, North Bay, LA, etc it’s right in that list without skipping a beat.

2. They aren’t making any more land and it’s pretty scarce up there.

3. Immigration. I heard at least a dozen people moved there this year.

 

 

[Castanza]

What's the primary driver of home prices in Canada? Every time I go up there is seems like there is so much room to build. Even just outside of the bigger cities the urban sprawl doesn't seem that terrible. I don't see the same geographical constraints that some cities like NYC have. 

[RichardGibbons]

6 hours ago, Castanza said:

What's the primary driver of home prices in Canada?

I think it's primarily the combination of zoning, bureaucracy, ideology, and immigration.

 

Essentially, a huge percentage of the major cities are zoned to single-family homes. And, it's hard to change that. If you want to build anything else, you have to change the zoning. That means fighting in front of city council with residents who are worried about the neighborhood character changing. And to even get that day in court, would typically take a couple years, and it might not be successful.

 

And if you are successful, it would typically require paying the city hundreds of thousands or millions for neighborhood amenities. Essentially, the city believes that if, as a result of rezoning, the value of the property increases, then the city deserves to take the money created, rather than the owners of the property. So, there's substantial risk and unusually high expenses associated with any development that increases density.

 

More broadly speaking, municipal politicians are fairly ideologically-driven, typically not believing in market-based solutions. Though they're very concerned about affordable housing, if they could get affordable housing, but in doing so, some property developers would become wealthy, they wouldn't view that as an acceptable solution. One councilor in Vancouver, Jean Swanson, sees affordability as a crisis and cares a lot about the underprivileged, but for two and a half years has voted against almost every proposal for adding more supply (because the poorest wouldn't be able to afford that supply. She doesn't see it as a good thing that middle class will move into the new supply, freeing up less-expensive space for the poor, but rather a bad thing because average rental prices will increase.)

 

Finally, on top of these supply restrictions, Canada has relatively high immigration. But much of the country is a frozen wasteland, so about two-thirds of immigrants end up in Vancouver and Toronto, and 80% in Vancouver/Toronto/Montreal. So, you have constantly increasing demand and artificially restricted supply, leading to high prices.

[Parsad]

8 hours ago, Castanza said:

What's the primary driver of home prices in Canada? Every time I go up there is seems like there is so much room to build. Even just outside of the bigger cities the urban sprawl doesn't seem that terrible. I don't see the same geographical constraints that some cities like NYC have. 

 

Vancouver has similar constraints to New York.  Essentially, we have mountains to one side, Pacific Ocean on another and the U.S. border on the third side.  So as such, we either build upwards, higher density or east to the Fraser Valley.  Cheers!

[Castanza]

1 hour ago, Parsad said:

 

Vancouver has similar constraints to New York.  Essentially, we have mountains to one side, Pacific Ocean on another and the U.S. border on the third side.  So as such, we either build upwards, higher density or east to the Fraser Valley.  Cheers!

The one major Canadian city I haven’t been to

3 hours ago, RichardGibbons said:

I think it's primarily the combination of zoning, bureaucracy, ideology, and immigration.

 

Essentially, a huge percentage of the major cities are zoned to single-family homes. And, it's hard to change that. If you want to build anything else, you have to change the zoning. That means fighting in front of city council with residents who are worried about the neighborhood character changing. And to even get that day in court, would typically take a couple years, and it might not be successful.

 

And if you are successful, it would typically require paying the city hundreds of thousands or millions for neighborhood amenities. Essentially, the city believes that if, as a result of rezoning, the value of the property increases, then the city deserves to take the money created, rather than the owners of the property. So, there's substantial risk and unusually high expenses associated with any development that increases density.

 

More broadly speaking, municipal politicians are fairly ideologically-driven, typically not believing in market-based solutions. Though they're very concerned about affordable housing, if they could get affordable housing, but in doing so, some property developers would become wealthy, they wouldn't view that as an acceptable solution. One councilor in Vancouver, Jean Swanson, sees affordability as a crisis and cares a lot about the underprivileged, but for two and a half years has voted against almost every proposal for adding more supply (because the poorest wouldn't be able to afford that supply. She doesn't see it as a good thing that middle class will move into the new supply, freeing up less-expensive space for the poor, but rather a bad thing because average rental prices will increase.)

 

Finally, on top of these supply restrictions, Canada has relatively high immigration. But much of the country is a frozen wasteland, so about two-thirds of immigrants end up in Vancouver and Toronto, and 80% in Vancouver/Toronto/Montreal. So, you have constantly increasing demand and artificially restricted supply, leading to high prices.

Thanks for sharing, I figured it was something along those lines,  but also assumed there were some policy differences between there and the states. Sounds pretty familiar 

[Spekulatius]

5 hours ago, RichardGibbons said:

I think it's primarily the combination of zoning, bureaucracy, ideology, and immigration.

 

Essentially, a huge percentage of the major cities are zoned to single-family homes. And, it's hard to change that. If you want to build anything else, you have to change the zoning. That means fighting in front of city council with residents who are worried about the neighborhood character changing. And to even get that day in court, would typically take a couple years, and it might not be successful.

 

And if you are successful, it would typically require paying the city hundreds of thousands or millions for neighborhood amenities. Essentially, the city believes that if, as a result of rezoning, the value of the property increases, then the city deserves to take the money created, rather than the owners of the property. So, there's substantial risk and unusually high expenses associated with any development that increases density.

 

More broadly speaking, municipal politicians are fairly ideologically-driven, typically not believing in market-based solutions. Though they're very concerned about affordable housing, if they could get affordable housing, but in doing so, some property developers would become wealthy, they wouldn't view that as an acceptable solution. One councilor in Vancouver, Jean Swanson, sees affordability as a crisis and cares a lot about the underprivileged, but for two and a half years has voted against almost every proposal for adding more supply (because the poorest wouldn't be able to afford that supply. She doesn't see it as a good thing that middle class will move into the new supply, freeing up less-expensive space for the poor, but rather a bad thing because average rental prices will increase.)

 

Finally, on top of these supply restrictions, Canada has relatively high immigration. But much of the country is a frozen wasteland, so about two-thirds of immigrants end up in Vancouver and Toronto, and 80% in Vancouver/Toronto/Montreal. So, you have constantly increasing demand and artificially restricted supply, leading to high prices.

It is not just politicians, it is homeowners as well. I have yet to see a homeowner who welcome when single family homes are replaced by multi family homes or a commercial development. There simply is self interest at work.

Perhaps sharing economics in a smart way with the city and neighbors might help, but I doubt even that. The more expensive homes gets, the harder rezoning/ repurposing get’s ironically.

[Viking]

14 hours ago, Castanza said:

What's the primary driver of home prices in Canada? Every time I go up there is seems like there is so much room to build. Even just outside of the bigger cities the urban sprawl doesn't seem that terrible. I don't see the same geographical constraints that some cities like NYC have. 

1.) historically low interest rates. It is normal in Canada to go with a 5 year fixed mortgage (amortized over 25 years); this rate was under 2% last year and is currently around 2.4%. (If US had interest rates this low for years would it result in higher house prices?) My guess is this is the single biggest reason. 

- another related factor is central bank policies / flush of liquidity that is spiking all asset categories (real estate, stocks, collectables, bitcoin etc).
2.) speculation. Real estate has been going up lots and pretty much every year since 2000 (20 years and counting). It is viewed as a pretty much guaranteed winner. Lots of people i know own 2 or more houses. Momentum is huge. FOMO is real.
- My neighbour recently sold his 25 year old house; original owner; purchased $250,000 and sold for $1,335,000. Who wouldn’t want to get in on this money train?

3.) money flows: lots of offshore money (China, Hong Kong etc) and drug money sloshing into this market. Vancouver is such a small city it does not take much new money to spike demand and prices. No government wants to discuss this bucket; although the offshore bucket has been getting more attention.

4.) big tax advantage to own real estate: gains on primary residence is tax free

5.) people cannot walk away from their mortgage in things go bad; real estate market in Canada is VERY resilient. Canada did not experience housing bust in 2008-09. 

6.) covid impacts: families/work from home want space spiking demand for single family homes.

Edited June 12, 2021 by Viking

[ERICOPOLY]

What is the typical/average amount of mortgage debt to equity in the US today?  An amortized mortgage carrying a 3% rate is 40% paid off today if that mortgage was taken out when the housing market peaked in 2006.

Edited June 12, 2021 by ERICOPOLY

[Peregrine]

On 6/11/2021 at 9:36 PM, Spekulatius said:

It is not just politicians, it is homeowners as well. I have yet to see a homeowner who welcome when single family homes are replaced by multi family homes or a commercial development. There simply is self interest at work.

Perhaps sharing economics in a smart way with the city and neighbors might help, but I doubt even that. The more expensive homes gets, the harder rezoning/ repurposing get’s ironically.

 

This is the big factor IMO. NIMBYism exists everywhere. I don't think the situations in Toronto and Vancouver are all that different from other cities that's 1) attracting a lot of net migration; and 2) experience chronic obstacles to increase housing supply. 

[thepupil]

On 6/12/2021 at 12:58 PM, ERICOPOLY said:

What is the typical/average amount of mortgage debt to equity in the US today?  An amortized mortgage carrying a 3% rate is 40% paid off today if that mortgage was taken out when the housing market peaked in 2006.

 

https://constructioncoverage.com/research/where-residents-have-paid-off-homes#:~:text=According to Census Bureau data,to rise significantly during recessions.

 

it's surprising to me, but 38% of homes are owned free and clear, but looking at the data, a lot of that is on the lower end (example West Virginia has the highest amount of free and clear homes, but that's with a median value of $85K). 

 

Proud Maryland resident, where only 16% (the lowest in the country) don't partake in the leverage! 

Edited June 16, 2021 by thepupil

[thepupil]

https://www.corelogic.com/insights-download/homeowner-equity-report.aspx

 

there's also some good stuff here regarding home equity and typical LTV