Can we have an honest discussion here?
Can we, really?
What is the “problem” with the Toronto real estate market?
Does anybody care to admit what so many of us already know to be true – that jealousy and have-not’ism are at least partially responsible for the backlash against rising prices in the Toronto real estate market?
Over the last week, I’ve been bookmarking several newspaper articles in anticipation of writing a long-overdue blog post for which I would basically need to lock myself in my office with complete silence for a full day.
Consider today to be that day…
Last week, many of you probably read this article:
“Renfrew, Ontario House Sells For $1 Million Over The Asking Price”
CTV News
April 7, 2021
I wasn’t actually surprised by the headline.
And as much as I want to say that the following comment surprised me, it, unfortunately, did not:
“It was nice that it wasn’t some guy from Toronto, or someone who wasn’t connected with the place and dropped in on an every third Saturday.”
I remember going on a New York State golf trip with some buddies in university, and when out at dinner one night, the waitress asked us where we were from.
“Toronto,” I said.
The whole table erupted in disagreement.
“He’s from Toronto,” one of the guys said. Then they all rattled off where they were from: Burlington, Dundas, St. Catharines, and Ottawa.
Hostilities toward Toronto, whether through sports, culture, or demographics, have always been present among various people and places across the country, and this comment from the seller of the Renfrew, Ontario house is nothing new. But with the real estate prices in Toronto now higher than ever before, the calls for the government to “do something” about it have grown louder as well.
The disdain and disgust for those who live and own houses in Toronto have grown too, and I can’t help but think that jealousy has something to do with it.
It’s the old, “Me think thou doth protest too much,” which is true of every bearish commenter on Garth Turner’s website who “laughs” at the people buying real estate, even though that commenter secretly wishes he or she could do the same.
But the backlash against rising real estate prices isn’t just specific to Toronto.
In 2021, it’s everywhere.
So again, I ask: what is the problem?
There are all kinds of solutions out there, from raising interest rates, to tightening mortgage regulations, to instituting a capital gains tax. But what is the problem?
As I said at the onset, before we can even begin to assess the problem, we have to wade through an incessant amount of complaining, much of which is often misplaced, misunderstood, or at times, completely off-base.
The media has exacerbated these sentiments this year to another level altogether.
I understand that news media has changed dramatically and has to compete with social media. So it’s no surprise when the attention on the Toronto real estate market is inherently negative.
On the sidebar of that CTV story about the house in Renfrew, Ontario, you will see this:
Three videos about the housing market, all of which are exceptionally negative.
So is there a “problem” in the real estate market? That’s a question that nobody can agree upon.
Take that first video, for example.
This story is about a couple who sold their house in Brandford, Ontario last July and who now are trying to buy a house in Hamilton, but they’ve lost TWENTY-ONE bids.
They sat down for a video interview with Ben Mulroney and this was, to me, at least, four incredibly painful minutes.
Two things that I, and the long-time readers of TRB, immediately know to be true:
1) They got caught trying to time the market and failed.
2) When you’ve lost twenty-one offers, the market isn’t the problem…
But the CTV news story didn’t address this. Instead, Ben Mulroney gave these two a platform to complain about how “hard” it is out there.
In the tough-love world, we often hear the words “teachable moment” used, and I can’t think of a better scenario than this one.
In the video, Ben Mulroney asks, “Where are you guys right now?” to which he probably knows the answer.
The woman says, “We’re in my parents’ basement.”
The viewers are supposed to feel bad for these people. We’re supposed to be mad at the real estate market and shake our fists in the air, asking God-only-knows to “do something” about it.
But the teachable moment is this: if you want to take risks, you might suffer consequences.
Recall my March, 2021 blog post: “The Friday Rant: Stop Talking”
In this blog, we explored Rob Carrick’s column in the Globe & Mail where a gentleman named “Greg” was crying poor because he sold his condo in mid-2019 and is now having trouble buying a home.”
This is called “timing the market,” or in this case, trying to time the market, but failing.
The sad couple in the CTV video above tried to time the market and they were unsuccessful because the market went up, and up, and up, and they never bought.
Instead, they made twenty-one offers on properties and lost.
As the video explains, the lady got so frustrated that she reached out to the local newspaper, the Hamilton Spectator.
Huh. Okay.
So that’s what we do when we fail?
We don’t keep trying or try harder. We bitch, moan, and then seek to elevate our bitching and moaning to somebody with a louder voice.
I know from experience that you don’t make twenty-one unsuccessful offers unless you’re doing it wrong. These people are in their own world on price, conditions, et al, and/or they don’t have proper representation.
You, the TRB readers, know this. Even those of you who are bearish on the market, or have issues with the industry, or hate real estate agents, are rational and honest enough to know this. But the general public? Do they know this?
Not a chance.
The young couple in the video said they spent their time writing letters to home-owners, and admit that in one instance, they had the highest offer but had a financing condition! So they’re pulling on the heart-strings of the viewers, who aren’t well-versed enough in the real estate market to understand the role that conditional offers play.
“Oh my goodness,” Ben Mulroney says, in response to the idea that the owners could reject a conditional offer.
This is what I refer to as “everything in between.”
We are seeking solutions to a problem we haven’t yet addressed.
But before we identify the problem, or evaluate the solutions, we first have to wade through “everything in between.”
The banter, the misinformation, the spite, rage, jealousy, and disgust.
It’s ever-present in our real estate market, and as we saw above, it’s not just Toronto.
Having said that, Toronto is the current whipping-boy.
Here’s an article that ran in the Toronto Star last week:
“Want To Make Your Life Miserable? Buy A House In Toronto”
Toronto Star
April 9, 2021
No fewer than eight people sent me this article, including a client of mine who has been flirting with moving to Sault Ste. Marie for years, but whom I have chained to the porch of her beautiful Toronto house as it continues to appreciate in value…
This isn’t as much of an article as it is a headline, since most people who see the headline won’t even read the article (who reads anymore when you can just ‘click’ or ‘like’?) but the headline tells the whole story.
Poo-Poo, Toronto.
Yucky!
Ick!
Why would anybody want to live in Toronto? Or buy in Toronto?
Bunch of assholes. Same with Vancouver.
Now, I’m going to stop short of looking up the author to see where she lives, when she bought, and what she paid, since that would be wrong. But I’ll let you jump to conclusions, since making assumptions and often labeling them facts is all-the-rage in 2021.
Here are some of the scare tactics in the article:
You will learn, possibly to your surprise, that the deal is stacked so that you mostly pay the interest first. This means that initially you get almost nowhere. If you can prepay every now and then — I hope you insisted on that — the resultant savings will dwarf the payouts on the biggest investments you’ll ever make.
But it will mean no extras, no overseas travel, no fine dining, a scantier Christmas than your kids imagined, and an awareness of money that will cramp your life. In other words, it will mean life at a pandemic lockdown level for decades. If you are able to defer gratification — you learned your money skills from grandparents who survived the Depression — you’re good. But those skills have been discarded.
So let’s look at that first comment about how “the deal is stacked so that you mostly pay the interest first.”
Hmmm….
Buying for $1,000,000, with 20% down, and a 2% interest rate, means your first payment is $3,387.61, of which $2,060 is principal and $1,328 is interest.
I guess she’s talking about the 1980’s, when rates were at 18%?
Yeah, sure, with an 18% interest rate, the first payment is $11,731.04, of which $158 is principal and $11,573 is interest.
But why the *$&# are we talking about 18% interest rates and the 1980’s?
Because it sells newspapers?
It gets clicks?
There are many funny little rooms, could be a sewing room, could be an informal child punishment centre. And a toilet at the base of the basement stairs. Not a bathroom, just a toilet. Is that a stuffed bird on the wall? Birds?
I’m no stranger to sarcasm and cynicism, but this is now making fun of what people in Toronto live in, regardless of circumstance or affordability.
How is this helpful?
The inspector you snuck in — they don’t allow inspectors — says asbestos is fine as long as you don’t disturb it.
This isn’t accurate.
You can book a home inspection, no problem. But with pandemic protocols, there are no double-bookings allowed and thus you might not have the window necessary to book a 2-hour inspection. What’s the alternative? Should we ignore pandemic protocols?
All this banter, whether it’s CTV videos glorifying willfully ignorant people who can’t navigate the Brantford & Hamilton housing markets, or columnists who have made a fortune through their primary residence but like to make fun of 2021 home-buyers, simply clouds what “problems” exist in the real estate market and makes it impossible to suggest, let alone implement, any solutions.
Then when it comes to potential solutions, once again, we’re seeing anti-Vancouver and anti-Toronto bias.
Are we going to see a new capital gains tax on a primary residence? Yes, for sure. At some point, at some level, especially as Justin Trudeau will be in office for at least a decade.
Have you heard rumblings about the tax being on properties of a certain value, or above a certain threshold? Yes, absolutely.
So while it wouldn’t be “fair” to implement country-wide policy to single out residents of two particular cities, you could implement a tax on real estate above $2,000,000, and that would essentially avoid taxing people (ahem – voters) in an overwhelming majority of the country, while simultaneously taxing residents of Toronto and Vancouver.
This is a topic we will spend a lot more time discussing on Friday, not to worry.
For now, it’s the “everything in between” that’s got me riled up.
We have no idea what the problem is.
Some think that the problem with the Toronto real estate market is rising prices, but I think it’s envy. I think that with social media overtaking our lives, we’re constantly inundated with photos of houses, often with two people standing in front of them (and a ‘SOLD’ sign), and we’re quick to judge and/or hate those people, that house, and the entire process of buying and selling real estate.
It’s gotten way, way too personal.
Just ask Karen Scutt.
Who is Karen Scutt?
I dunno. I’d never heard of her until I read this article:
“Calls Grow To End “Blind Bidding” To Cool Red-Hot Housing Markets Across Canada”
CTV News
April 6, 2021
Again, we’ll address the idea of “ending” blind bidding on Friday, since I don’t know who‘s job, if anybody’s, it is to end this.
But in this article, “Karen Scutt” laments that her bid of $100,000 over the $1,800,000 asking price lost to a bid of $400,000 over the asking price.
Imagine that?
A much higher bid was accepted?
No freakin’ way!
I guess in Karen’s world, “fair” is defined as her getting what she wants?
“They’re pricing the houses so much under what they want that even if the listing is in your range, you’re already resolved that you’re not going to get it,” she told CTV News.
Congrats, Karen. You seem to understand now. So use that knowledge to adapt to the market, rather than complain about it.
If houses that are being listed around $1,800,000 are all selling for $2,300,000, and Karen has a budget of $1.9M, then all things being equal, why isn’t Karen looking at $1.6M listings?
Oh, I see, because she likes houses she can’t afford.
A client of mine who moved out west emailed me last week. He’s coming back to Toronto and is looking at houses in the $1.5M range.
“Everything I’ve seen that I really like seems to sell more in the $2 Million range,” he told me.
But you know what he and I aren’t going to do?
We’re not going to walk into houses we can’t afford, make offers that won’t be accepted, and then call the Hamilton Spectator to complain.
The general public has yet to come to a very important consensus: not everybody can have everything they want.
We’ve accepted this in many other areas of life, especially in commerce.
How come nobody stands out front of the Porsche dealership, hating on the guy who just paid $90,000 for his Cayenne, and then jumps in their Hyundai and drives to CBC News to whine about it?
Why only real estate?
Is it because “housing” is a physiological need? Shelter, clothing, and food?
Okay.
So then why is nobody complaining that Kiara Von Snobbalot spent $4,000 on a Louis Vuitton handbag, and the rest of you have to make do with that shitty Michael Kors consolation prize?
I don’t see anybody standing outside Jacobs & Co. lambasting those who enter and exit, suggesting that the government take steps to ensure that ALL may enjoy wagyu.
So why real estate?
Why is the Toronto real estate market a “problem?”
Is it really because society has a genuine concern about Tom, Dick, and Harry’s ability to service their mortgage if rates “skyrocket” to 3.49%? Or is it because you’re envious of Dick?
On Friday, I want to leave behind the banter and everything in between and actually discuss the problem(s) in our market, and potential solutions. As far as solutions go, before you all go thinking ahead, I want you to remember that there are two ways to come up with solutions: one is addressing the demand-side, which has been done to death but the other………wait for it……………is to address the supply-side.
Wow!
What a novel idea!
Does that mean we don’t have to tax our way out of every problem? That raising billions of dollars in tax revenue to “cool the market” isn’t the only answer?
Egad!
See you Friday, folks. Crack those knuckles now, because I want to hear from you…
Christopher
at 6:54 am
David, the problem is not envy. There are many homeowners including myself that feel housing affordability and prices are way out of control and it’s a negative for our country.
If you want to compare a 2.5 million dollar detached house in Toronto to a luxury item not everyone can or should afford, that’s fair. To compare a townhouse in Mississauga or a detached in Bradford that both go for a million dollars to luxury items is bullshit. Are young people/middle income people now expected to live in 500 square foot condos in the suburbs as well?
The problem is not envy, it’s a combination of low interest rates, over-investment in real estate from foreign/domestic sources, and a failed government government policy that allows more people in than we can house.
Bal
at 8:12 am
Agreed…. i feel same…we all know that house market will go up …but issue here is how fast prices have gone up…..40% shot up within eight months is not heathy for any market. If these prices would have gone up within five years or so..it would have made perfect sense.
Chris
at 9:21 am
Your opinion seems to be fairly widely shared.
From Angus Reid, 61% of GTA residents described real estate market prices as unreasonably high; 27% said they were high, but understandable given the area, while only 8% said they were reasonable.
And lest anyone accuse them all of being jealous renters, 62% of respondents to Angus Reid’s survey were homeowners.
https://angusreid.org/housing-prices-2021/
I think David is getting a bit animated because talk of government intervention is getting louder and louder. Recent commentary, like BMO saying the market is “playing with fire” or RBC that it “threatens to destabilize the economy”, along with survey results like the above, will encourage taking action.
JL
at 9:28 am
Largely agree as well. I think it’s the rate of price appreciation that’s “the problem” more than anything (with “why” that’s happening a separate debate on its own). Luxury items were always unaffordable for a portion of the population, and everyone was fine to accept that they couldn’t own a Porsche or a designer bag. That wasn’t the case with homes, until recently. People don’t complain about things they could never afford; they complain about losing access to something they once had access to and now don’t, especially something as critical as housing.
And a large part of this is not in their control either. There may be people that sit and wait for a crash or to time the market, but the majority are willing to buy as soon as they are able. The problem is “when they are able” keeps getting pushed out further and further through little fault of their own (e.g. unreasonable to expect a university student to buy a house while enrolled because they should have foreseen that they would be priced out trying to do so after graduating).
When Toronto homeowners (after celebrating years of price appreciation) themselves start thinking “this is weird”, either out of worry for their kids or younger friends, then it seems there is at least broad agreement that there is a “problem”. How to solve it is a whole other debate.
Joel
at 10:33 am
He is asking what the problem is, not what you think is causing prices to be high.
Is the problem that you need to be two professionals with a condo to sell in order to buy a semi now? Is the problem that you need to sell your semi to buy a detached?
My wife and I are currently selling our semi because we wanted a detached with a larger yard. The person that owns and lives in the other half of a semi is a 90 year old lady. She moved there when she was 20 and had her kids there and they lived in this house their whole lives. We think the space is too small for us, but obviously there is plenty of room to raise a family there, since she did.
I think it is expectations that are the problem and wants. Plenty of families around the world and in Toronto have a family in a 500-600 sq ft condo and manage just fine. You don’t ‘need’ a house in the city proper and if you do, you are going to have to pay for it.
Most 50+ year olds would not be able to afford to buy the home they live in currently and their kids won’t be able to either. In the last 20 years there has ben an increase of over 1.5 million people in the Toronto metro, of course there is more demand for the properties and there isn’t more land.
daniel b
at 12:53 pm
i agree with the sentiment that the lack of housing affordability is a real concern and a problem for canada. “a failed government policy that allows more people in than we can house” suggest to me that you view immigration as the problem. i’d encourage you to note that we’ve effectively kept the number of homes we’re building pretty consistent since the 1960’s.
https://www150.statcan.gc.ca/n1/pub/11-630-x/11-630-x2015007-eng.htm
Meanwhile our population has gotten way bigger, and our household sizes have gotten smaller (therefore more housing units required for the same population). Perhaps our complete collective inability to scale housing production along with the size of our population and economy is more of the problem than the immigration levels…
Many canadians view the construction of housing, whether it’s suburbs or highrise in the city, as some sort of blight. So i guess to their way of thinking the best solution would be to let our population decline. not sure how these people are thinking through the implications of this strategy…
Bob
at 2:20 pm
Problem is from a very young age we’ve been taught the idea that we need to own a home. A thought that’s been drilled into us from our parents to family to friends to the media. So ya there’s always going to be the Karen’s of the world whining about being shut out of something they really want but can’t afford. Tbh that’s life and who cares about that. My immigrant parents scrimped and saved for years to buy their first modest home out in the “burbs” back in 1980 which now is part of the city just a stones throw below steeles ave. Wasn’t convenient location wise back then and far from everything. But it was something they could afford and didn’t complain about. So what’s changed now? Karen can probably afford something further out that’s nice if she so chooses. But of course not with the entitlement culture that exists today. Both my kids know that the possibility of home ownership in a desirable area/city might not be possible in the future but hopefully it teaches them to at least give it all they got in life.
Geoff
at 4:06 pm
Why is it that in countries like Germany most people rent? Right, prices. Only renting doesn’t have the stigma there that it does here for reasons I don’t understand. Can’t afford to buy? Rent. Problems solved.
Average Joe
at 5:07 pm
Why did you use Germany and not countries with high home ownership rates like Singapore and Norway? What does Canada have in common with Germany geographically, politically, economically, etc? Germans rent because their policies are optimized towards it, not because of a calamitous market and high prices.
Chris
at 5:50 pm
A good, if slightly dated, article on why so many Germans rent:
https://qz.com/167887/germany-has-one-of-the-worlds-lowest-homeownership-rates/
daniel b
at 11:51 am
note that germany’s population grows at barely 1% in a good year, and shrank for many years between 2004 and 2012. It recently picked up and, perhaps expectedly, housing prices really started to surge when pop growth increased…
Joel
at 7:26 am
Great read today!
I agree,if you have lost 21 offers the problem is your expectations. Also, there is nothing wrong with renting if you can’t find your dream home, you don’t have to live in your parents basement.
Sirgruper
at 9:31 am
Agreed. To quote Ned Flanders mom “I’ve tried nothing and I’m all out of ideas”
CB
at 7:33 am
oooooh-weeeee, I’ve been waiting for this post and it was so worth the wait!
Jonnathan Bravo
at 10:19 am
I agree
Elle O'lelle
at 8:58 am
Not that I give a shit but this is what the problem is:
In the past the size of house you got (to a degree) was based on your job.
Now since incomes aren’t keeping up it’s bases on mostly inheritance.
So people think it’s bs.
Is it bs? I don’t know probably.. But taxes aren’t going to help. At the end of the day these keyboard warriors all are living somewhere, even if its a shit apartment.
I’m not complaining. I work a career where 15 years ago I would be able to get a house in Lawrence Park but instead got lucky with a condo and got some house in a working class neighbourhood. That’s life
Serge M
at 9:27 am
A great article David.
I agree with your main points about managing the expectations, looking broader, and (above all) not complaining to the press about your own preferences and the price you pay for them.
I also agree with Christopher about “The problem is not envy, it’s a combination of low interest rates, over-investment in real estate from foreign/domestic sources, and a failed government government policy that allows more people in than we can house.”
Not everyone *HAS* to live in Toronto-City, like not everyone in NYC *HAS* to live in Upper East Side Manhattan. There’s a place for everyone, and even New York has plenty of space available “a little bit outside” that is rapidly gentrifying and grows in value.
When I was looking for a property 18 months ago, I evaluated my budget, looked in Toronto and outside, bid on 3 properties and bought the 3rd, that turned out to be the best for me (not the largest or the cheapest… whatever). No drama, no over-the-moon expectations, just looking at the market and your own finances and making a decision.
Buckly B. Buckington
at 11:00 am
lol, you are comparing “Upper East Side Manhattan” to half the province of Ontario.
Jonnathan Bravo
at 10:17 am
Beauty article
Kerry
at 10:23 am
Hell yes, this is great insight and needed to be said! Real estate envy is is a powder keg in this city and it’s gonna blow big time. And then what happens?
Marty
at 11:12 am
BEST LINE:
I know from experience that you don’t make twenty-one unsuccessful offers unless you’re doing it wrong.
R
at 12:19 pm
Better question is – how do real estate agent commission rates make sense any more? Does any other industry have wages increasing 20% year to year?
Do agents even do anything in the market these days when a shack will sell itself?
5% may not solve the price issues but surely I don’t think anyone thinks it helps
Bal
at 1:11 pm
???? good point
Joel
at 1:23 pm
Purplebricks is a viable option at $5000.
Personally I saw value in using a full service realtor, but if you don’t there are other options out there.
If most people move that way we will see a change. In Quebec purplebricks is very common.
jeanmarc
at 9:50 pm
Regardless who you use to sell, the buyer agent should always get the 2.5% commission otherwise, they will not bring their client or reluctant to do so. If you are a seller using a discount brokerage, you could possibly set an offer night on the listing and let the chips fall similar to a full agent representing yourself. I’ve done a sale before using Realtysellers back in 2011 and sold in less than a week. Got more than asking at that time. Location, location, location.
Condodweller
at 2:42 pm
You can save a lot of money by doing it yourself if you are capable and willing and I agree the buyer’s agent should get paid (by the buyer IMHO) but in the GTA 2.5% is way too much. Prices have quadrupled the last few decades yet the inputted effort has not. The same goes for the seller but at least you have the option to do it yourself. Problem is that an agent in Moosejaw would disagree given the regional differences. But that’s a topic for another day.
jeanmarc
at 3:57 pm
In the midtown TO area, good luck telling full service agents in bringing in their buyers and give them less than 2.5%. Won’t happen. I can name a few of agents (some of which work in the same brokerage as David 🙂
Condodweller
at 10:10 am
Yes I know. But 2.5% + a few thousand for MLS listing and staging is still a lot less than 5%. I was trying to say that 2.5% even for a buyer agent is way too much in TO. But this is what you get in a monopoly.
Average Joe
at 2:33 pm
The problem is that huge swaths of the population don’t see Southern Ontario real estate as a luxury offering. The sell side of the market insists high prices prove high quality and desirability. The buy side just sees increasingly high costs and a rapidly declining lifestyle. The fact that it’s a national pastime to gasp at how much crappy properties sell for in Ontario and B.C. should be a signal that people see them as *expensive* and not valuable.
There’s a huge supply of money – overseas investment, money laundering, HELOC, refi, low interest, inheritance, new Canadians – chasing a fixed shelter supply because of poor zoning and poor planning in the green and yellow belt. Turns out a lot of people don’t really like the end result of the tall & sprawl approach. Oops.
The demand side is almost completely unregulated or policed but the supply side is heavily controlled which pushes prices up. Restricting market supply and facilitating unlimited demand makes things unreasonably expensive, who knew? So the industry says it’s a luxury to raise a family in more than 2 bedrooms and be able get to work but even above average people aren’t buying what they’re selling now – literally. We’ll see how much longer Canada can keep selling old Subarus at Lamborghini prices.
Alex
at 3:21 pm
You wait until people from HK are going to move here in droves. Anticipating the moment 🙂
Chris
at 3:33 pm
The UK has provided British National Overseas (BNO) passport holders, their dependents, and their 18-23 year old children with the ability to live and work in the UK, and apply for full British citizenship after only one year of doing so.
They estimate that 5.4 million Hong Kong residents are eligible for this scheme. They expected about 300,000 would take them up on the offer over five years. Yet, between July 2020 and January 2021, only 7,000 have actually done so.
Doesn’t appear to be a mass exodus from Hong Kong as of yet. Unless the situation worsens dramatically, I wouldn’t hold your breath on them moving here in droves.
Geoff
at 4:08 pm
Hey Chris, stop spreading truth, fears of immigrants taking over the country is as Canadian as Tim Horton’s. In my experience, the only people who have a legitimate basis for fear of that happening are the indigenous people of Canada.
Andrew
at 4:26 pm
This whole conversation is a waste of time.
The government is going to step in next week with their federal budget and blow up the housing market. Too many people are complaining, and even though the measures will probably backfire in the same way that they did in 2017, the government doesn’t care about the results. They care about perception.
I agree with the other commenters on here who suggest that lack of government initiative and foresight is as much to blame for current housing prices, if not more so, then low interest rates.
jeanmarc
at 5:06 pm
They will implement the increase in the stress test from 4.79% to 5.25% as of June 1. The gov’t will do nothing further but monitor the effects of this increase.
Chris
at 5:13 pm
Freeland give you a sneak peek at the budget?
Condodweller
at 5:24 pm
I keep hearing about a new death tax. It’s a good way of extracting money from people who have enjoyed large increases due to RE holdings without removing the PRE. It’s a great way to capture past increases. Plus you are not likely to complain once you’re dead.
jeanmarc
at 5:01 pm
If only the same people who live/own homes in the affluent neighborhoods are also the same ones who hold the control over not loosening the restrictions of allowing more new builds on land that is restricted in the GTA. These people who hold this control are putting a strangle hold on the younger generation who will have difficulty owning a home.
Condodweller
at 5:08 pm
I saw that article with the comment about the Toronto buyer and thought that was pretty odd to include it.
It’s amazing how many RE articles are coming out regarding pricing etc. the other day there were about 5 in a row in my news feed. They are openly talking about the blind bidding process.
I’m glad David has finally acknowledged in a recent post that not all “bears” are live in parent’s basement types waiting for a crash and actually own property. David, common let’s take the final step and acknowledge that all the complaining isn’t all RE envy. Just because you keep repeating it doesn’t make it true.
I think it’s a perfectly reasonable expectation to own a home in the GTA if you grew up here and all your family, including previous generations, have owned a home. Sure, people need to wake up and smell the coffee and realize they can’t afford to buy here anymore but that doesn’t mean they are all negative bitter envious people. If I was saving up for a downpayment and the market kept moving away from me I’d be disappointed/upset as many of these people.
The key is to recognize the new norm and if they can get on the first rung of the ladder do it, or start moving further out until they can afford a place. The problem is, it seems that people are doing this now and pretty soon they won’t be able to find anything in Ontario they can afford.
I read an article about people pushing prices up in Perth outside Ottawa. Locals are getting priced out of the market just like the rest of Ontario.
Another article said that these steep increases can’t continue at this rate and prices will probably retrace at some point however, they are expected to reverse and keep climbing in the hot spots (GTA/GVA) but small towns might not.
I keep saying that I think our biggest risk is higher than expected interest growth and people being forced to sell in droves when they can’t afford their own home after their 5 year renewal. I know people don’t think rates can reach 5% in 5 years but if they went up just 1% each year would already put us above 5. If things were to start heating up rates can climb quite fast. I recall when this all started there were times when the over night rate in the US went up by half a percent at several meetings and by the usual .25% in between. If people are maxing out their credit and taking on close to million $ mortgages look out when rates go up even by 1-2% never mind if it’s more.
Chris
at 5:53 pm
Ben Tal seems to think we’d see trouble well before rates climbed to 5%, stating “this market is not ready for a brief 100-basis-point increase in mortgage rates, by any stretch of the imagination. So, we have to be really careful when it comes to the housing market.”
Appraiser
at 5:38 pm
“Driven by hunger, a fox tried to reach some grapes hanging high on the vine but was unable to, although he leaped with all his strength. As he went away, the fox remarked ‘Oh, you aren’t even ripe yet! I don’t need any sour grapes.’ People who speak disparagingly of things that they cannot attain would do well to apply this story to themselves.”
Greek Fable: Phaedrus (IV.3)
Ciena
at 5:57 pm
I really really hope they don’t implement capital gains tax. It seems unfair to change the rules now when so many are counting on their home equity for retirement. It would definitely change my vote to conservative in an instant.
I was thinking less drastic measures such as more transparency in bidding process should be first steps to cool the market. As well as working on increasing the supply and creating more affordable housing would be better and fair to all.
I’m looking forward to your article Friday. Hopefully nothing to worry about on the capital gains front?
I also agree we should be factoring in the bidding war factor when determining our price point as buyers. I don’t like the process but it’s a reality of current market.
Ciena
at 6:36 pm
I suppose I didn’t properly answer the question. Problems I personally see:
-lack of supply
-lack of transparency in bidding causes people to overbid which causes increased housing prices
-low interest rates that could change at any time, causing more frenzied buying behaviour
-Covid a temporary problem is shaking things up (eg, relocations, remote work), adding pressure to the market
Izzy Bedibida
at 6:58 pm
“But it will mean no extras, no overseas travel, no fine dining, a scantier Christmas than your kids imagined, and an awareness of money that will cramp your life. In other words, it will mean life at a pandemic lockdown level for decades. If you are able to defer gratification — you learned your money skills from grandparents who survived the Depression — you’re good. But those skills have been discarded.”
The comment above also hints of increasing relationship strife, and also as an issue for the economy as a whole when all income is being diverted on mortgage payments.
I have seen two marriages fall apart because of this
One of the things that is rarely mentioned in articles like this.
Keith
at 7:21 pm
The problem is that the vastly increased price of land is exacerbating inequality all across the board. When there is too much financial inequality in a society, it ends in war, revolution or societal breakdown. If we fail to learn from history, we will repeat it. Our society will destabilize.
I saw a recent comment on social media that it was a sign that the market in Vancouver was overpriced because a doctor with a family couldn’t afford a decent house in Vancouver, and had to buy a house 40 kilometers away in the Fraser valley and suffer the commute. Interesting point.
So when is a market “too expensive?” In the sixties, a family could buy on the west side of Vancouver with a single tradesman’s income. By the eighties that was impossible. Was the market too expensive then?
By this century, a two income household was pretty much shut out of the city of Vancouver in terms of single family ownership. Maybe then the market was “too expensive.”
People are not entitled to a house, or indeed necessarily to own real estate. If the price of land puts ownership out of reach for working people, there needs to be a massive supply of non market housing with rents at an affordable price for real people, or you are on course to be Monaco. The market hasn’t built affordable rental housing without government subsidies since the 1960’s. There are major cities in the world where up to 60 percent of the housing stock is publicly owned. Terrifying, I know.
If we become a society of housing haves, and have nots, with continued income and wealth inequality the consequences will be grave. Young people are being accused of being whiners. My inlaws arrived in Vancouver in 1967, with six kids and didn’t speak a word of English. In 1968 they bought a house on the east side for 13,500. They were mortgage free three years later. Union jobs, and great timing.
Don’t tell me its about hard work.
Dont’ tell me its about saving money and doing without.
Don’t tell me its about character.
Timing beats all that six ways to Sunday. Now a doctor can’t afford that house. When the doctor can’t afford, is that the jump the shark moment? Or is it when a schoolteacher married to a firefighter can’t afford it. Or when a garbage collector working for the city can’t afford. You tell me. At what point is it unfair, or at what point is it a societal crisis? Unless we realistically address housing affordability for the upcoming generation, it will end badly. And the market ain’t going to do it. Extracting the maximum value out of the asset and being affordable don’t go together.
Appraiser
at 7:32 pm
“Toronto rent prices increase for the first time in a year”
https://dailyhive.com/toronto/toronto-rent-prices-increase-first-time-in-year#.YHc1Tz0WOoU.twitter
Chris
at 9:07 pm
“Rent prices in the city are still down 18.7% annually, which is the most dramatic decrease seen in any major Canadian city.”
1BD up 0.3% MoM, while 2BD down 0.5% MoM.
Johnc
at 10:20 pm
Thanks for this post
I blame the media (especially John Pasalis) for riling everyone up and distracting from the real issues behind housing in Toronto (poor planning, no supply, low interest rates).
Appraiser
at 6:16 am
“Canada Ranks No. 1 in 2021 U.S. News Best Countries Ranking”
“The North American country ranked first in both the Quality of Life and Social Purpose subrankings, meaning that it is seen as a stable and safe society in which individuals can develop and prosper, and is open, fair and equitable.” https://www.usnews.com/news/best-countries/articles/us-news-unveils-best-countries-rankings
Average Joe
at 11:31 am
“A total of 17,326 individuals from 36 countries in four regions – the Americas, Asia, Europe and the Middle East & Africa – were surveyed.”
I imagine not many of those respondents were in the market for a family home in Ontario or B.C. when surveyed. The polling was done by a global brand management firm.
https://www.wsj.com/articles/canada-record-housing-sales-prompt-concerns-over-central-bank-policy-11618498587
“Canada is experiencing a housing craze triggered by the Covid-19 pandemic and the demand for more space, rock-bottom interest rates, and demographics, with millennials moving into their prime-buying years. Yet Canada has seen a more dramatic price run-up than all Group of Seven countries, according to housing data collected by the Federal Reserve Bank of Dallas.”
“The Bank of Canada said last week that Canadian housing vulnerabilities have increased in recent months amid sharp growth in single-family house prices and rising mortgage debt. Among the concerns the central bank identified was the rapid increase in the share of newly issued mortgages with loan-to-income ratios above 450%—levels last seen in 2017, when Canadian authorities introduced tougher mortgage-financing rules meant to cool activity.”
Pretty strange that a country with an ageing demographic and huge landmass has the most trouble finding space for young families.
cyber
at 11:18 am
Sure, no one ‘deserves’ a detached by a subway stop just because they want one, and should adjust expectations to reality.
And sure, Toronto is a world class city closer to NYC now, than the relative ‘backwater’ it was back in the day when people’s parents and grandparents bought bungalows without speaking English.
However, real estate envy and backlash is more of a symptom of the sad fact that Millennials are the first generation to be worse off than their parents, a first in the history of North America. No real wage growth, need for university education plus associated debt and 4 years loss of earnings just to get same jobs that used to only require high school (if that), shrinking middle class (though still strong in Canada relative to the US).
West Germany’s first housing minister—a former Wehrmacht man by the name of Eberhard Wildermuth—who oversaw build-out of rental housing post WWII destruction of 20% of housing stock, once noted that ”the number of communist voters in European countries stands in inverse proportion to the number of housing units per thousand inhabitants.” So that capital gains tax on primary residences is definitively coming, as the “voting market” will speak on policy the same way real estate market speaks on prices.
Kat
at 9:07 pm
The problem certainly is not envy but the lifestyle and wealth differences between those who own and those who rent. Rent in the GTA has also been growing absurdly. Not to mention, when you’re a renter, you have so little control. You never know when you might get “renovicted”; you never know when the pest/electrical/plumbing problems will ever be addressed; and even with the “rent control” we have now, you never know whether your landlord could be approved for an exceptional rent increase. Plus, renting results in losing money whereas owning means having something that actually appreciates in value while also having roof over your head (and you in essence get paid to live there). The people who have will move further and further ahead while the people who don’t will be pushed further and further behind.