Jump to content

Canada - US Real Estate Markets


Recommended Posts

One of the blogs I check out, and that happens to be Canadian, is Garth Turner.

Yes, he can be grating (to say the least).

But his latest post (With Bloated Hearts) makes an interesting point: either Canadians or Americans are delusional.

I agree with Turner in that I think it's Canadians who are deluded.

There’s always been a price to being Canadian. Paying twice as much to fly from Toronto to Vancouver, as New York to LA. Income taxes. Laying down $230 to watch the Leafs lose. GST. Now the HST. Booze.

And houses.

In fact, this has turned into the single greatest cost differential between the two countries. Sadly, housing also accounts for the greatest family expense and the largest lifetime purchase.

Look at this: The average Canadian house price is currently $324,779. The average US house price is $189,500 – or $204,600 C$.

The difference: $120,000, or a staggering 58%.

Why is this so? After all, median incomes are about the same in both countries. Mortgage rates are about the same. The unemployment rate is similar. The household income-to-debt ratio is about the same. In fact, Yanks have greater disposable income than we due because of a lower tax regime. So, if anything, you’d expect that extra cash to be pushing housing values higher.

I do believe in mean reversion.

Eventually, reality sets in and house prices either fall or incomes find a way to rise while real estate treads water.

Let's hope it will end, for Canadians, with rising incomes - but that doesn't look very probable.

Link to comment
Share on other sites

  • Replies 62
  • Created
  • Last Reply

Top Posters In This Topic

Simple explanation: Turner has been bleating about the imminent collapse of everything in Canada since Harper hurt his feelings by confirming the longtime suspicion that Turner is an idiot.

Turner was and is wrong and endlessly repeating the same wrong conclusions doesn't make it right. Housing in Canada took a brief battering, but recovery is underway right now. Foreclosures are up a bit, but nothing even remotely close to the US. Drops in prices have halted and in many markets gone up, activity is stronger in nearly all resale categories, new housing starts are stable or up, mortgage rates are low and will stay low.

He is wrong. Again.

Link to comment
Share on other sites

I like how when people disagree with someone, they have to attack the person rather than his arguments.

Sure, Turner is grating.

It doesn't change the facts about declining growth in disposable income over the past year (even going negative).

Nor about high debt levels (comparable to Americans).

Etc...

But I will lay off the facts since it is obvious there's no point arguing the facts with someone who prefers to argue against the person.

Link to comment
Share on other sites

I like how when people disagree with someone, they have to attack the person rather than his arguments.

Sure, Turner is grating.

It doesn't change the facts about declining growth in disposable income over the past year (even going negative).

Nor about high debt levels (comparable to Americans).

Etc...

But I will lay off the facts since it is obvious there's no point arguing the facts with someone who prefers to argue against the person.

If what your saying is true, then what happened in BC is what would have happened in SK during the 80's, I think the Bank Act says that banks can't leverage themselves past 75%, if that's true, then even with people making payments in that market, it could still be forclosure time (if houses take a nosedive)

Link to comment
Share on other sites

I think the disparity in housing prices is not as facile as Garth Turner would like. Unlike Canada, the US has literally thousands of small towns where the price of homes have always been very afordable....small towns that aren't bedroom communities for large cities.

Housing growth in Canada has been in the suburbs where demand has outstripped new homes so the prices have rose accordingly.

That being said, if you want a home for a reasonable price, and don't mind living 150K from a major urban centre, there are plenty of homes to chose.

Link to comment
Share on other sites

M. dancer, I agree that there are important differences.

Where I disagree is when people take these differences and use them to support the "it's different this time" crowd.

There are important statistics about debts levels, income and unemployment which should be a concern.

All it would take is a spike in unemployment or a small increase in interest rates and the housing market can change very quickly.

Sooner or later, perfection in the marketplace won't be here and the market will have to find a new equilibrium.

Probably won't be anywhere as near bad as the US - but it could still effect many Canadians.

Link to comment
Share on other sites

If what your saying is true, then what happened in BC is what would have happened in SK during the 80's, I think the Bank Act says that banks can't leverage themselves past 75%, if that's true, then even with people making payments in that market, it could still be forclosure time (if houses take a nosedive)

It is 80% now.

The reality is this: the days of banks foreclosing on borrowers that are servicing their mortgage loans are over. The banks recognize that there is absolutely no gravy in them owning homes in a poor market, when the option is to simply ignore neutral or negative equity and continue to allow people to stay where they are and keep faithfully paying. CMHC will ignore it too, if and when the circumstances arrive. But they have not, likely will not and if they do it will affect only a relatively small group of people: first time buyers who bought with zero or 5% down in the last couple of years.

And think carefully on who this is likely to apply to: people who bought on the (now discontinued) zero down programs, and only those with new mortgages in the last couple of years. For many, many Canadians if you bought your home prior to 2007 or if you had equity already and bought in that span, you have equity and have no real concerns.

Turner wants to apply the ridiculous loans made to many Americans with garbage credit to Canada, where those loans simply do not exist. He is a shameless panic monger and media whore, appealing to those who have political reasons for spreading panic about a non-existent situation.

Sure, there will be foreclosures, there are always foreclosures. But this is not Arizona, or Florida, not by a long shot.

Link to comment
Share on other sites

The reality is this: the days of banks foreclosing on borrowers that are servicing their mortgage loans are over.

Yeah, because we all know banks foreclose on borrowers who are up-to-date on their mortgage payments. :rolleyes:

The banks recognize that there is absolutely no gravy in them owning homes in a poor market, when the option is to simply ignore neutral or negative equity and continue to allow people to stay where they are and keep faithfully paying. CMHC will ignore it too, if and when the circumstances arrive. But they have not, likely will not and if they do it will affect only a relatively small group of people: first time buyers who bought with zero or 5% down in the last couple of years.

No kidding.

Banks often don't know when a household goes into negative equity. And they don't really care, either.

Look at the mortgage contract. It is concerned with the repayment of the principal and payment of the interest.

That's why foreclosures happen - when people are delinquent with their mortgage payments.

And think carefully on who this is likely to apply to: people who bought on the (now discontinued) zero down programs, and only those with new mortgages in the last couple of years. For many, many Canadians if you bought your home prior to 2007 or if you had equity already and bought in that span, you have equity and have no real concerns.

The concern is not equity but repayment.

If you have 25% equity in your home but your spouse loses her job so that you end of skipping 5 months of mortgage payments - well, you are a candidate for foreclosure (although a loan modification is more likely).

Turner wants to apply the ridiculous loans made to many Americans with garbage credit to Canada, where those loans simply do not exist. He is a shameless panic monger and media whore, appealing to those who have political reasons for spreading panic about a non-existent situation.

Sure, there will be foreclosures, there are always foreclosures. But this is not Arizona, or Florida, not by a long shot.

I agree it is not nearly as bad as the US.

However, I still see several of my clients getting loans that somehow work around whatever rules we have in place. I send tax returns to mortgage brokers all the time and then I'm surprised by the amount of financing that they get.

I see many couples making no more than $50,000 per year with mortgages that are in the $250-300,000 range.

There are a large number of people in the Lower mainland, Calgary, and Toronto who have mortgage and property tax payments that are much higher than 40% of their income.

That kind of thing isn't supposed to happen and yet it does - even before a spouse loses a job and even when interest rates are at historic lows.

It only takes a small change in joblessness and/or interest rates and .... well, we know what happens.

Link to comment
Share on other sites

Look at this: The average Canadian house price is currently $324,779. The average US house price is $189,500 – or $204,600 C$.

I think the key word here is "average". For several reasons, the average house price in Canada or the US is almost a meaningless statistic. (Where did Turner get that number? How was it calculated?)

----

I will offer two other arguments. First, since mortgage payments are tax deductible in the US, Americans have an incentive to buy rather than rent. (This partly explains why trailer parks are common in the US but are rare in Canada and this may push the US average down.)

Second, how are are property taxes assessed? In some jurisdictions, services are included in the purchase price. In others, property taxes are higher. (For example, other than municipal services, we pay GST on new houses.)

In general though, we have higher taxes in Canada than in the US (and more public services) and this may be reflected in the cost of property.

-----

As to the question of who is delusional, I think it is fair to say that most of Canada avoided a housing bubble. In this, it is not the average housing prices that matter but the changes in average housing prices over the past few years that matter.

Edited by August1991
Link to comment
Share on other sites

That's why foreclosures happen - when people are delinquent with their mortgage payments.

Incorrect, that is only one cause and it is not the one we should worry about.

The one we should worry about is when mortgages come due for renewal, often every five years when the term expires and you must essentially requalify for the loan. Formerly, you can be making payments regularly, be employed, have excellent credit and still lose the home because the value of the mortgage is higher than the value of the house. And that is when the banks find out for sure about negative equity, though of course they have a very good idea long before then.

Sound familiar?

That is what happened to many, many Canadians in the early 80s when they lost their homes.

Won't happen this time though, the lenders and CMHC do not want a supply of foreclosed houses, they won't make a cent on them. In any case, there aren't nearly so many because far more people have equity today.

Link to comment
Share on other sites

First, since mortgage payments are tax deductible in the US, Americans have an incentive to buy rather than rent. (This partly explains why trailer parks are common in the US but are rare in Canada and this may push the US average down.)

The rates of home ownership in both countries are much the same: 67% in Canada and 69% in the uS. One significant difference is tyhat Candians have more equity, at about 70% on average compared to about 50% in America. That is likely due to their penchant for refinance.

One factor that influences cost of housing is the cost of building. Our climate is much harsher overall and requires better insulation, heating/ventilating, windows, the provision of basements etc.

Link to comment
Share on other sites

  • 4 months later...

Time for an update.

An interesting chart of CDN/US home prices: Despite Bank Stability, Canada’s House Prices Bubbled

An interesting look at CMHC's balance sheet here: CMHC out of control

And a reminder to all that some of those government guarantees do get paid with taxpayer dollars as we see with the losses to Fannie Mae and Freddy Mac in the US.

Fannie Mae has recently requested $15 billion from the US treasury.

But, trust me, in Canada this time things are different! :rolleyes:

Link to comment
Share on other sites

  • 3 weeks later...

Found a really good paper (PDF though) on the Elusive Canadian Housing Bubble.

ABSTRACT

The cause of the housing bubble associated with the sharp run-up and the subsequent drop in home prices in the US over the period of 1999-2008 has been the focus of significant research attention. Despite numerous similarities, the Canadian housing market escapes the same level of interest, mostly due to the seemingly stable housing prices.

This paper explores the subject of a possible housing bubble in Canada. It examines a diverse array of factors that may have contributed to the rise in house prices in Canada. The paper evaluates each factor individually and determines the health of the Canadian housing market using common valuation techniques.

Results suggest that economic fundamentals in Canada provide little explanation for the Canadian house price dynamics. Market fundamentals have become insignificant in affecting house prices, and the price-momentum conditions characteristic of a bubble now exist. The extreme decoupling of the market prices from the underlying fundamentals suggests an upcoming correction in housing prices in Canada.

At 52 pages its a bit long, but its a good read with some good references.

Link to comment
Share on other sites

Time for an update.

An interesting chart of CDN/US home prices: Despite Bank Stability, Canada’s House Prices Bubbled

An interesting look at CMHC's balance sheet here: CMHC out of control

And a reminder to all that some of those government guarantees do get paid with taxpayer dollars as we see with the losses to Fannie Mae and Freddy Mac in the US.

Fannie Mae has recently requested $15 billion from the US treasury.

But, trust me, in Canada this time things are different! :rolleyes:

We shouldn't be too self-congratulatory about this -- in fact, our banks lusted to get into the derivative game, and confronted the Chretien government with their fait accompli merger -- they were determined to form two or three mega-bank. Chreitien and Martin, God bless them, stopped that.

But credit does, in important ways, determine the price of housing. Can anyone doubt, if people had to put 25% down, or look for a second mortgage, prices on houses would never have been bid up to these levels? The present, artificially low interest rates has revived a slumping real estate market (at least in Toronto) and made it a minor boom. So -- doesn't it also follow that when mortgage rates go up, the cost will drop like a stone?

Toronto has tens of thousands of new condo projects starting up right now -- based on cheap money. It's going to be awful, trying to sell those places if the interest rates are 8% in two years. That over-production is a efficient economy reading the signals right, but the signals are wrong ...

Link to comment
Share on other sites

Toronto has tens of thousands of new condo projects starting up right now -- based on cheap money. It's going to be awful, trying to sell those places if the interest rates are 8% in two years. That over-production is a efficient economy reading the signals right, but the signals are wrong ...

8% isn't bad, my first home was in that range...then it shot up to 19%, that sucked....
Link to comment
Share on other sites

  • 2 weeks later...

Interesting take on government interference in the housing market and how this impacts other markets:

The great sucking sound of Ottawa's housing focus

something has got to give, the banks are tightening lending and interests rates going up to stifle housing growth... but prices are still going up is there going to be a housing bubble to pop? some say no others yes ..the housing industry and all it's suppliers is bigger than the auto industry,shutting it down in any way is dangerous for the economy...how do you house a growing population if housing becomes unattainable for first time buyers? were is this going???
Link to comment
Share on other sites

I'm linking to this blog post because I don't think many people realized just how much of a role the federal government has played in keeping Canada's housing market from going bust.

Mortgage rates are rising right now in Canada because of the end of the insured mortgage program (where the CMHC insured mortgages so that mortgage lending was risk free to the private sector while the taxpayers takes on the risk of any defaults - aka as privatizing gains and socializing losses).

I'm thinking that Canada would have been better served had Flaherty implemented the new mortgage rules back in April 19, 2009 rather than for April 19, 2010.

To have the insurance mortgage program end at the same time as the changes to qualify for mortgages begins may not be the wisest timing.

Wouldn't be surprised to see the government find a way to extend the insured mortgage program.

Link to comment
Share on other sites

I think we'll see a change for some of the next generation, they won't be able to afford a house. The down payment for some will be the firewall. Even now for seniors who own their homes, the price of gas, water, sewage,hydro is rising every year plus throw in property taxes. I can see that maybe it may be cheaper to rent a house than buy in some areas of the country.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Unfortunately, your content contains terms that we do not allow. Please edit your content to remove the highlighted words below.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Tell a friend

    Love Repolitics.com - Political Discussion Forums? Tell a friend!
  • Member Statistics

    • Total Members
      10,714
    • Most Online
      1,403

    Newest Member
    wopsas
    Joined
  • Recent Achievements

    • Venandi went up a rank
      Explorer
    • Jeary earned a badge
      One Month Later
    • Venandi went up a rank
      Apprentice
    • Gaétan earned a badge
      Very Popular
    • Dictatords earned a badge
      First Post
  • Recently Browsing

    • No registered users viewing this page.
×
×
  • Create New...