Canada - US Real Estate Markets

[Bonam]

Does Your City have the Most Overvalued Real Estate in Canada?

Yes, yes it does. Vancouver is #1 on that list. The 635k number is way of an underestimate too. If you filter out the unsavory neighbourhoods and the junk houses the average is probably closer to a million.

Obviously beyond any sustainable amount given that incomes in Vancouver probably don't average more than 50-60k or so. If only the supposed "housing crisis" had knocked 80-90% off the price of housing instead of 5-10% we might finally have started getting to a reasonable level.

[Handsome Rob]

Yes, yes it does. Vancouver is #1 on that list. The 635k number is way of an underestimate too. If you filter out the unsavory neighbourhoods and the junk houses the average is probably closer to a million.

Seen this?

Crack Shack or Mansion?

[wyly]

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.

it's going to be tougher to become a landlord as well, 20% down and only be allowed 50% of potential rental income to figure into the qualification process...this IMO will drive rental costs up as the landlord has to able to recoup to cover the cost of their investment...

fewer home sales, fewer landlords, increased rent...how is this all going to work out?....

[eyeball]

fewer home sales, fewer landlords, increased rent...how is this all going to work out?....

When the water hole gets smaller the animals get meaner.

[wyly]

When the water hole gets smaller the animals get meaner.

I think that percentage of homeowners is going down as will the percentage of landlords, and the rental market will be dominated by large rental corporations...

[Oleg Bach]

I think that percentage of homeowners is going down as will the percentage of landlords, and the rental market will be dominated by large rental corporations...

VERY astute..the banks are refraining from giving mortage money to young wanna be home owners..that will drive them into rental complexes that are owned by who else..the banks..This is called corporate socialism.

[wyly]

VERY astute..the banks are refraining from giving mortage money to young wanna be home owners..that will drive them into rental complexes that are owned by who else..the banks..This is called corporate socialism.

I was speaking with a small landlord the other day and he said he was done, the qualification process for revenue property was to high for him and revenue homes were no longer a viable investment, it's knocked me out of the market as well...and the tax incentives the government created for renovation projects to create employment will be undone as renovations projects in revenue properties will dry up as small landlords pull out of the market...what effect will this have on the housing market? the construction industry ?...the government bailed out the auto industry to protect the regional interest in central Canada, will it do the same for the much larger construction industry that effects the entire country? laid -off construction workers don't buy new cars and trucks...

[Duf]

The housing market should not be seen as "investment" that is what has caused the housing bubble. A house should be seen as a home.

Though I am not a fan of Garth Turners and have only read his site once, I believe he is fundamentally correct.

The Harper govt. changed the rules by which CMHC securitized mortgages and the Canadian Govt. became the biggest sub prime lender of sub prime mortgages in the world. 90 per cent of existing mortgages in Canada are "securitized" the same situation that happened in the USA.

Up until 2007 the loan requirements were tight and the securitized mortgage rates were low. In 2007 Harper's govt allowed CMHZ to back zero per cent down and extended the amortization period to 40 years. This is one of the things that kept Canada bouncing along nicely during the recession.

In 2008 the govt changed the rules again to 5% down requirement and 35 year amortization. These are still pretty loose requirements for qualification.

In 2007 people, mostly first time buyers where qualifying for mortgages at low interest rates and purchasing homes that they barely qualified for at low interest rates. this resulted in $138 billion in NHA securitized pools outstanding and guaranteed by CMHC --17.8 per cent of all outstanding mortgages.

By June of 2009, $290 billion were guaranteed by CMHC.

It does not take much of a genius to realize that the housing prices cannot keep increasing, increased prices removes buyers out of the market, the historical interest rate in Canada is 10.5 % over the last twenty five years.

Interest rates have no where to go but up, and they will because they will need to rise to control inflation, that 5% or O% down buyer has little or no equity in their home.

With interest rates rising, people can easily see hundreds of dollars of added mortgage payments each month, the market will get tighter because people will not be able to borrow money at the higher interest rates causing less buyers, people will not be able to afford higher interest payments on their mortgages, thus you will see the combination of the two come together.

Less people qualifying because of higher mortgage costs, higher mortgage costs causing people to sell their homes because their homes are now unaffordable to them, this will lower the cost of homes. Already where I am we are seeing condo's taking 9-13% hit on prices. I sold my home four months ago, others in the same complex are now selling below what I sold for.

Yes, the prices are going to come down. The bubble is starting to contract.

[patrizi]

Ours/US markets could really find a compromise.

I don't think it's us to blame that it's not there yet.

Having consulted cv services, I know my point.

[msj]

I have stated on this forum (although maybe not in this thread) that I doubt Canada will have a foreclosure rate as bad as the US due to many factors including, primarily, our recourse loans (although Alberta isn't as big into them as the rest of the country - smart people those Albertans - and, no, I am not being sarcastic).

Might be time to check my assumptions at the door after reading this: Canadian foreclosure wave

I admit that I have my reasons for why I want to see Canadian real estate prices to decline (because I have spent the past few years getting ready for it economically).

Now I have another reason - to see if that guy's article pans out.

Could be interesting times.

[msj]

Kinda related to the above: I didn't realize one could get a "liar loan" in Canada after the rule changes made in April.

Sure, need at least 10% equity for a high ratio mortgage, but that just means Canada's foreclosure rate could soar higher than I first thought should house prices drop by more than 10%.

If the article in my post directly above is right that ability to make payments is not as important as being underwater then lets hope things don't get too ugly (a little ugly is fine and good, though).

Oh yeah, and don't forget that you don't need much of a down payment, still. Maybe the rule changes aren't such a big deal after all and it's still business as usual in good old Canada where we're only a little bit different than the US.

[msj]

It is "froth" day in the US.

According to Jon Lansner at the O.C Register (thanks to Calculated Risk), it seems that five years ago today Al Greenspan stated:

“Although a ‘bubble’ in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.” [said Fed Chairman Alan Greenspan, June 9, 2005 in testimony to Congress]

In 2010, Bernanke states:

nderlying housing activity appears to have firmed only a little since mid-2009, with activity being weighed down, in part, by a large inventory of distressed or vacant existing houses and by the difficulties of many builders in obtaining credit.

Yes, that's right, there are too many existing vacant houses and not enough credit for builders to build even more vacant housing!

Irrational.

Edited June 9, 2010 by msj

[msj]

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.

Sure enough, we now have at least one media columnist asking for a "review."

What's next? Maybe an $8,000 tax credit for first time home buyers?

Canada's tax credit (new for 2009) only amounts to $750 in tax savings (and a "first time home buyer" is someone who hasn't owned property in the past 4 years).

Wonder is we will see that go up in future years?

Edited June 9, 2010 by msj

[msj]

Time to resurrect this old thread.

According to this article the average Vancouverite is paying 70% of their pre-tax income on housing costs (mortgage P&I, property tax, utilities, insurance).

Apparently some people are literally eating their credit cards.

I don't live in Vancouver (across the pond on Vancouver Island) but looking at my rent, utilities and home insurance I can state that our housing cost is less than 13% of our gross income.

If I would buy my rental unit then I can say that the total housing cost (including strata fees too) would be about 32% of our gross income.

Hmmm, maybe I should buy after all.

Nahhhh, I still think people are kooky for houses so I'm gonna pass.

So, what's your housing costs as a % of your gross income?

[Bonam]

Time to resurrect this old thread.

According to this article the average Vancouverite is paying 70% of their pre-tax income on housing costs (mortgage P&I, property tax, utilities, insurance).

Apparently some people are literally eating their credit cards.

I don't live in Vancouver (across the pond on Vancouver Island) but looking at my rent, utilities and home insurance I can state that our housing cost is less than 13% of our gross income.

If I would buy my rental unit then I can say that the total housing cost (including strata fees too) would be about 32% of our gross income.

Hmmm, maybe I should buy after all.

Nahhhh, I still think people are kooky for houses so I'm gonna pass.

So, what's your housing costs as a % of your gross income?

My friend and his wife back in Vancouver just bought themselves a house in the Kerrisdale area. It's just a normal three bedroom, two story, home, the cost was just over 3 million. Their monthly mortgage payment is just over $15,000, which is about $180,000 per year. That's just over 80% of their combined income (one is a surgeon and the other an engineer).

Edited April 28, 2011 by Bonam

[GostHacked]

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.

Some good points. Living a short way out of town drastically lowers the price of a house. And if you are not looking for a big house, then you win again. I'd love to get a nice comfortable house just outside of town. It's also nice n quite out in the country. But what you save in money on the house you end up paying for commuting to work (gas and maintenance of vehicle). So there is some kind of trade off with each option.

[GostHacked]

So, what's your housing costs as a % of your gross income?

I rent an apartment at the moment and am saving up for a house. Right now my rent is about 21% of my yearly wage. Good thing it's all inclusive.

[Guest American Woman]

My friend and his wife back in Vancouver just bought themselves a house in the Kerrisdale area. It's just a normal three bedroom, two story, home, the cost was just over 3 million. Their monthly mortgage payment is just over $15,000, which is about $180,000 per year. That's just over 80% of their combined income (one is a surgeon and the other an engineer).

I looked at the listings of some homes being offered through Realtors in the area of Vancouver that you mention and it seems as if most of the 3 million dollar homes have lots of bedrooms and lots of square feet. There must be something about your friends' home that makes it stand out from your average three bedroom home, which seem to be priced in the 1+ million dollar range, which is, of course, still very expensive for what one is getting. That's probably not so far fetched for a house in a good section of any city, though, which I'm assuming the Kerrisdale area is. Still, I can't imagine a $15,000/mo. mortgage payment, or 80% of my income going towards a house payment. But then, perhaps they get a large income tax break and get money back that way -- is mortgage interest a write off in Canada? What about real estate taxes? -- Which must be enormous on the house you mentioned.

[Bonam]

I looked at the listings of some homes being offered through Realtors in the area of Vancouver that you mention and it seems as if most of the 3 million dollar homes have lots of bedrooms and lots of square feet. There must be something about your friends' home that makes it stand out from your average three bedroom home, which seem to be priced in the 1+ million dollar range, which is, of course, still very expensive for what one is getting. That's probably not so far fetched for a house in a good section of any city, though, which I'm assuming the Kerrisdale area is. Still, I can't imagine a $15,000/mo. mortgage payment, or 80% of my income going towards a house payment. But then, perhaps they get a large income tax break and get money back that way -- is mortgage interest a write off in Canada? What about real estate taxes? -- Which must be enormous on the house you mentioned.

They get to write off some for taxes because my friend, who is the engineer, does it as a consulting "business" and thus can claim that one of the rooms in the house (his office) is his place of work. I don't know all the exact details. Looking around online, there are plenty of houses in the Kerrisdale area with 3-4 bedrooms that are listed for 2-3 million. Theirs is pretty new and has a decent sized yard for the Kerrisdale area. If you can find a $1million 3 bedroom house in Kerrisdale, I guarantee you it's gonna be something ancient and probably quite unpleasant. $3 million is really not an atypical price for houses there. The Kerrisdale area is a pretty good area of Vancouver, but it's far from the best or most expensive. Most of Kits and West Point Grey are more expensive, not to mention condos in Yaletown and other trendy parts of downtown.

[TimG]

I looked at the listings of some homes being offered through Realtors in the area of Vancouver that you mention and it seems as if most of the 3 million dollar homes have lots of bedrooms and lots of square feet.

You need to know Vancouver. Kerrisdale is a pretty expensive neighborhood. Drive 10 minutes east past Main and the prices drop considerably.

[Guest American Woman]

Thanks so much for the additional info Bonam, I appreciate it. The real estate market in Vancouver really is much steeper than I realized. Interesting to hear about/learn about how things differ in different places. Do you know if Vancouver has the highest real estate prices? I can't imagine paying three million for a three bedroom home, though I'm sure it's a good investment since real estate generally increases in value.

As for taxes, though -- aside from getting a tax break for using the home as a business, can't everyone list the interest paid on their mortgage and/or property taxes paid as a tax deduction?

[TimG]

As for taxes, though -- aside from getting a tax break for using the home as a business, can't everyone list the interest paid on their mortgage and/or property taxes paid as a tax deduction?

No. Deducting mortgage interest is a distortion unique to the US.

[guyser]

As for taxes, though -- aside from getting a tax break for using the home as a business, can't everyone list the interest paid on their mortgage and/or property taxes paid as a tax deduction?

In a word no. Never have been as far as I know.

There is the Smith Manoeuver ,The essence of the strategy is that each month the homeowner pays down a little bit of the principal owing on the home mortgage, and then borrows it back. The borrowed money is then invested and the carrying charges on that newly borrowed money only are tax-deductible.

But hey....lottery winnings are tax free so when you win $10M...you get $10M , none of that tax stuff

[Guest American Woman]

Thanks for answering my question, TimG and guyser.

And I have something new to wish for now; I don't just wish I'd win the lottery, I wish I'd win the lottery in Canada!! (Though I suppose the U.S. would tax me on the winnings........ )

[guyser]

And I have something new to wish for now; I don't just wish I'd win the lottery, I wish I'd win the lottery in Canada!! (Though I suppose the U.S. would tax me on the winnings........ )

Oh they would do that.

If it is a small lotto win...just ask your nice Canuck friend to cash in the ticket . That way you can grab a nice stipend every month in cash.

If talking millions.....well....grab the cash and pay off Uncle Sam. It aint worth it. Dont forget the nice beachfront place in the yup!