1. It needs to separate out Vancouver and the rest. Vancouver is its own bubble of self-perpetuating nonsense propagated by Chinese money.
2. The article states shares are better because companies can plow money back into the business, which completely misses the point because price rises aren't pure speculation. There is a HUGE labour cost in housing such that housing prices track inflation (particularly wage inflation).
And that's the real value in property investment in periods like the 1970s that saw really high inflation.
What's more land represents a largely non-renewable resource. Take Manhattan as a fairly extreme example. They're not making more land to put things on. Other cities like Chicago, LA and especially Atlanta can basically spread forever. But even in those cities, inner city land is irreplaceable and finite.
Now I'm not saying Canada isn't in a bubble or that bubble won't burst. But the author takes a naive stock-centric view of things.
Actually it _is_ mostly due to Chinese money and the fact that Vancouver is the closest Canadian metropolis to Hong Kong, which jump-started the Vancouver bubble in 1999.
Vancouver Island has Ewoks! Call me a tree-hugger but I'd favour a forest walk beneath a canopy of 800 year old trees over gaining a tan in Kelowna any day.
True, but it's one of the comparatively few places in Canada that absolutely never experiences -20c, and normally doesn't have snow on the ground for longer than a couple days at a time (except this last winter.) Most other Canadian cities go through ice-building cycles in the late Autumn that can persist in neighborhood streets all the way through to late Spring.
True, but that's still better than -30degC and 2m of snow during winter; and +40degC (without humidex) during summer. So for Canada, yeah, that's pretty good.
Yeah, in my experience most of the US has shitty food. Take NY as an example, if you want an expensive meal you can get great food, but if you want a quick and healthy lunch you find yourself struggling.
it's not great but if it's sunny in vnancouver it means it's a nice day to be outside. there's almost no days where it's sunny but too hot or cold to use your patio/deck/balcony
Horrific is a major exaggeration since the weather is the least extreme of all major Canadian cities. Rain and clouds for months isn't horrific, it's bland.
Australia and New Zealand are in the same boat as Canada, and Sydney and Auckland as Vancouver. The countries have high immigration, especially Chinese. Those cities are bounded and the land already developed, but climate doesn't seem to be a factor for their popularity because there's other places in those countries with better climate.
Not for cities like Vancouver. The cost is land. That is where the inflation is. Whenever you price out a house in the far outskirts, it is crazy cheap in comparison.
> Other cities like Chicago, LA and especially Atlanta can basically spread forever.
In the case of LA, not really. The whole city is surrounded by mountains, and there are just a few mountain passes connecting most of Los Angeles County and Orange County to the rest of California [0]. The only part of Los Angeles County that hasn't been fully developed is the Antelope Valley around Palmdale, and that's separated from the rest of the county by the San Gabriel Mountains.
I guess there's some room left to sprawl in the Inland Empire too, but that's technically not part of the LA metro area, and it still has the problem of the mountain passes bottlenecking any commute between LA and the IE, so businesses will have to embrace the edge city model and start locating their headquarters in the Inland Empire.
(Edit: Oh, and as for Chicago... they're not quite as free as landlocked cities. They've got Lake Michigan to the east, and they can't go too far north because then they'll run into Milwaukee's suburbs. That just leaves the west and south. Landlocked cities can sprawl in all four directions.)
I don't have the source, but I've read that the amount of Chinese money in Vancouver's real estate is usually blown out of proportion. The latest number released by the province I've seen suggests that foreign investments in the housing market is close to 15% in Vancouver (still way more than anywhere else in Canada by a wide margin). Not to say that it has no effect, but still a thing to keep in mind.
Also, the stock market historical average of annual return is 6-7%, whereas it's lower for real estate. As with anything, diversification is the most important point.
There isn't a lot of good data on foreign transactions because regional and federal governments have worked hard to make sure data was not collected on it. Popular pressure is slowly changing that.
One observation I have is that even if it's just single digit as a %, it can exert very significant pressure on the market. A bubble is a mob effect. It begins with some properties purchased at prices the local market can't support, regional opportunists jump in seeing the opportunity for flipping, then fear of missing out, especially for first time buyers, results in a stampede as people see the ladder going up and leverage themselves to get the last rung before it goes out of reach. But there was never any real scarcity in the first place.
Point being, a small amount of foreign investment can have a leveraged influence on local markets.
I do think the "foreign" word there gets too much attention though. The more important question to ask is - should property as an investment be something we economically encourage. How much economic activity does a $5M 3 bedroom house actually generate? I don't pretend to know the answer but I think this focus on the "foreign" bogeyman is blocking us from having more important conversations about the role of real-estate in economic policy.
From what I've heard and read, the numbers released by the province were debunked and rejected by pretty much everybody. Having visited a few times, I don't see how the number could possibly be so low.
Its because they don't record the all too typical situation of a Canadian Citizen with financing via foreign relatives/friends.
Eg. Chinese family has one member whose been granted citizenship. They all come together to pool money, transfer it to the Canadian relative, purchase together, profit(for now).
All thats recorded is a Canadian purchased a home, "how" they purchased is not yet a government issue.
The government/banks/real estate industry has known about this for years...
It's not the author taking a stock-centric view; it's the author pushing back against the conventional wisdom of the value of property investment.
As Shiller demonstrates and you even agree to, home prices track inflation over the long term. Further, Shiller -- in Irrational Exuberance -- shows that this is largely because of the money some owners reinvest in keeping their homes modern, so this isn't even a passive tracking of inflation, on average.
The arguments about finite land mass, etc, have been said for decades and I suspect one of two things is true:
(1) It's wrong: Manhattan continues to build vertically and while it has a high average rent, the median and lower quantiles are actually much lower than on the West Coast, for example.
(2) It's already priced by the market.
Finally, stocks also perform very well in high-inflation environments, so this isn't unique to property. The one difference is that most people have 5-to-1 leverage on their homes, so they enjoy outsized gains, but this is a risk as much as a benefit.
> There is a HUGE labour cost in housing such that housing prices track inflation (particularly wage inflation).
Prices have risen _way_ above inflation in Vancouver and Toronto the last 10-15 years. Incomes have been virtually flat, possibly even dropped in real terms after adjusting for inflation.
>> Other cities like Chicago, LA and especially Atlanta can basically spread forever.
Atlanta's spread slowed to a crawl once it got to about an hour's drive outside the perimeter. If you pay close attention on Google Maps (satellite view), you'll see the growth hugs major highways and interstates, and falls off sharply after a point. There is definitely a limit.
This might change if the NIMBY crowd dies off or moves away and MARTA is finally able to expand to the metro area.
What surprises me is that Dallas hasn't had this problem. We're sprawling farther away from the center than ever, and long commutes downtown aren't really a problem because businesses are choosing to locate themselves in the suburbs. This was recently underscored by a number of large businesses, Toyota being the most well-known, relocating themselves to the Dallas area and planting their headquarters in Plano and Frisco. In fact, we've hit the point where it's not uncommon for people in or right next to the city proper commuting to suburbs farther out than where they live.
Why hasn't Atlanta embraced the concept of edge cities [0] as Dallas has?
Atlanta has these. They're roughly where the development stops. Winder (where I live), Gainesville, etc. It's probably an environment thing. Past the edge, it's all trees, hills, farms, and mansions. That makes it hard to get the big, cheap, contiguous spaces developers like.
Caterpillar did open a plant outside the edge, but it's also close to Athens with its airport and relative proximity to both a port and a major city.
Looking up Winder on a map makes the problem a little more clear: the layout of roads there is awful. There's no nearby freeways, and the major roads look like spaghetti.
The Dallas area did a very good job of organizing outward sprawl into rings like a sequoia. There are edge cities, sometimes more than one, within each ring (Far North Dallas & Richardson, Plano, Frisco & McKinney, Prosper...). Freeways delineate the rings (380 isn't a freeway yet, but plans are in the works), six-lane arterial roads are laid out in a nice, neat grid even extending into the exurbs' exurbs, and subdivisions are packed closely together to get more use out of the same space (I honestly can't stand how suburbs in eastern states look rural to my eyes... I grew up in a suburb filled with single-family homes with yards, and we still don't waste space like eastern states do).
> It needs to separate out Vancouver and the rest. Vancouver is its own bubble of self-perpetuating nonsense propagated by Chinese money.
It seems to be you who is perpetuating the non-sense. Provide some actual data and proof of this and then we can talk. No anecdotes please.
Counter proof: since BC's 15% foreigner tax was implemented, has the Vancouver housing market cooled off? No.
To the contrary, it has actually heated up even more. This indicates that the "illegal Chinese dirty money" that the wonderful local Vancouverites keep spouting is not, in fact, the driver of this growth. It's too bad because they are such an easy racial scapegoat, aren't they?
> Counter proof: since BC's 15% foreigner tax was implemented, has the Vancouver housing market cooled off? No. To the contrary, it has actually heated up even more. This indicates that the "illegal Chinese dirty money" that the wonderful local Vancouverites keep spouting is not, in fact, the driver of this growth. It's too bad because they are such an easy racial scapegoat, aren't they?
It could also be possible that the Chinese market for Vancouver houses is inelastic enough that the foreigner tax doesn't have teeth.
The question isn't if it will, the question is when & how.
It's very easy to predict a bubble popping, it's a lot more difficult to predict when. "The market can stay irrational longer than you can remain solvent" - Keynes
And the other question is how. Sometimes bubbles deflate slowly, for example in our market house prices in $ terms were basically flat between the late 80s and the late 90s. That's a definite decrease in real dollars, but nothing like the chaos that the same decrease would cause happening instantaneously.
The third question is whether just Toronto & Vancouver will pop, or whether it will affect the rest of the country.
One thing that should scare anyone holding expensive assets (stocks, real estate) is that even though US interest rates have started to rise, the size of the federal reserve balance sheet hasn't even started to reduce [1]. Quantitative easing is still turned to 11. When the Fed starts pulling liquidity out of the markets (which they are discussing starting to do later this year), I suspect a lots of these asset classes are going to deflate, not just in Canada.
While yes, there is a serious bubble going on here in Toronto, it's also important to note the complex causes.
Canada has something like 240,000 immigrants per year, and half of them come to the Toronto region- or 10,000 people per month. Then you add in the thousands of Canadians who are moving to the city as small towns and suburbs stop being attractive. There's a greatly increased demand for housing here.
But supply is tricky. Toronto is full, land-usage-wise. There's something like two small parcels left (Downsview Park and I forget the other place) where there is honest-to-goodness undeveloped land. Apart from that, all new homes are in the suburb cities around Toronto.
This means all new housing supply in the city is from building up and other densification- which is moving too slowly. The suburb cities are also growing like mad, but the infrastructure to support all that growth isn't there, causing smaller price booms nearby any Go-train station.
But that's just the start. High demand, low supply caused housing prices to rise- leading to speculators buying second homes to flip, which shrinks the supply. It leads to people buying homes they don't want, at prices they can barely afford, because they plan to sell it in 3 years for a profit. The bubble inflates.
So why pop now? Ontario passed laws saying foreign buyers have to pay an additional 15% tax. And foreign buyers were a large chunk of sales. The latest numbers say sales are down something like 50% or more. Prices will start to sink soon.
When the Bank of Canada finally raises interest rates to prevent total catastrophe on the exchange rate, things will really get wild. In Canada, most mortgages have to be renegotiated every few years- how many of them are going to have homes worth well less than their mortgage with rates so high they can't afford to make payments? That leads to a 2008-USA style pop.
It's going to be a bumpy ride...
Edit: also worth noting, this is just Toronto. Vancouver has some similar dynamics. The rest of Canada may not have a housing bubble at all- they'll just have to deal with the economic fallout of this mess.
The US, Japan and the EU are all printing absurd amounts of money. That "stimulus" needs to go somewhere, and right now it's going to every single asset class.
The central banks wanted inflation, but they got some perverted form, where wages and prices remain stagnant, and only stocks/real estate/etc have had their prices increase.
Depending on how idealistic/cynical you are, a new feudal dystopia of renters vs rent seekers, a bloody revolution, or just a gradual increase of consumer inflation to match.
I mean, as a sorry Java jockey, I make around $5,000 per month. I frequent Reddit, a news aggregator with comments. Reddit is worth $1,700,000,000 dollars, according to the latest funding round.
Hint: Governments have more perceived control than actual control.
It's seriously disappointing, but if the claims by people crying out about "Chinese money" are correct, 15% was never going to be enough. If your concern as an individual is your currency losing 50% of it's value over night [likely worse case for these individuals], then a 15% tax, even in a bubble market starts to look like a good deal.
Which they are, but in the case that you need to get to your 'asset' Vancouver is a hell of a lot closer so it's a preferable option. As someone who regularly commutes to the other side of the world, i feel like what I'm saying probably sounds odd if you don't...but i suspect this is a major factor.
Part of that is that the Government relaxed the rules, e.g. allowing students and foreign workers to purchase real-estate without paying the tax. So the markets do work.
The government and their developer pals were counting on the tax not making a huge difference. And when prices started moving down they immediately relaxed it to counteract that. At least that's one way this story can be told.
There were already loopholes where foreigners could avoid the tax through local corporations or have relatives buy for them.
Seems to get swept under the rug. But Toronto's 'bubble' is not inside a bubble.
It has huge push on the surrounding City housing markets.
People either leaving Toronto to retire selling while prices are high.
Or simply people giving up on Toronto and moving outside the city to commute, happy to pay high prices for the city but low compared to Toronto.
The thing is labor/wages in smaller towns hasn't increased to match the rising house prices. A city like Toronto with lots of jobs the costs can be justified. But when you have 'rich' people from Toronto come in to buy a home they push local First Time buyers/less affluent out or cause them to take on bigger mortgages(and when rates go up with their lower incomes, they'll suffer most).
>> Seems to get swept under the rug. But Toronto's 'bubble' is not inside a bubble.
I live in Markham (suburb bordering the north end of Toronto) -- houses here get sold over asking within days of the listing, and most of the houses in my area are actually occupied by the owners. The demand appears to be real. Any time a house in my area has an open house, there are piles of cars on the street.
I've seen home prices in my neighborhood triple in the 12 years I've been here, and houses here are more expensive than a lot of areas inside the 416. Our property taxes are also generally higher than Toronto.
>> Ontario passed laws saying foreign buyers have to pay an additional 15% tax. And foreign buyers were a large chunk of sales. The latest numbers say sales are down something like 50% or more. Prices will start to sink soon.
If prices level off in the GTA (I don't think prices will sink), I think it will be because of the upcoming bylaws relating to AirBnB more than the foreign buyer tax.
Oh, please, stop repeating the mantra about 120K immigrants flocking into Toronto every year. Quite a lot people are leaving the city due to insane real estate market as well as retirees, going as far as St.Catharenes. Nobody knows how many exactly, therefore no good numbers on the net inflow (which is still positive, though).
Edited to note: $2.5 billion is probably not really a significant amount as far as the Canadian mortgage market is concerned (e.g., around ~700 houses in Vancouver's good neighbourhoods), but the fact Warren Buffett is behind this should calm nerves and cause the lending taps to re-open a bit in the subprime markets that are so key to the bubble. The government backed Canadian Mortgage and Housing Corporation (CMHC) won't sell default insurance for mortgages over $1 million CDN.
One counter to that is Buffett doesn't try to time the market, he finds stable, productive businesses and buys in. Housing might collapse but in 10-15 years he will be profitable. Most homeowners aren't looking at things with the same perspective.
Yeah, and frankly the deal doesn't really look that reassuring to me. HCG had already negotiated a 9.5% loan on the $2 billion CDN (around $1.5 billion USD). Buffett is letting them refinance that loan down to 9% and he's buying some stock at a 30% discount. But the general market will not look that closely at the details, and will just be reassured by the Buffett brand name.
>Here is a harsh truth about homeownership: Over the long haul, it’s hard for homes to compete with the stock market in real appreciation (Robert Shiller quote)
>By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.
Wow, I never really thought of it that way. I guess I implicitly understood that buying a home was, at best, a hedge against inflation. But it also seems like a good investment. But it's not, really, in the long run, unless you are "timing the market" and buying into an area with long-term population growth.
A primary residence shouldn't be compared to stock market investment on pure returns basis, as you get additional utility out of the home by living in it, using all that the neighborhood offers etc.
However, you can absolutely compare rental income (a kind of perpetuity, or an annuity with an indefinite payment stream duration) with another annuity (such as a dividend producing stock or a bond). In general, these all can (and in my opinion should) factor into your investment diversification strategy.
Real estate cash flows tend to be more volatile than say a bond from a AAA+ rated borrower (leases end, people stop paying, roof leaks, etc), but that should be measured against your required rate of return for the said risk.
When compared with stocks, real estate cash flows tend to be less risky (if valued properly), because even in disastrous situations you have some salvage value, whereas if a company goes bankrupt that's kind of that. (Gross oversimplification but still.)
One aspect of homeownership that I am a very big fan of is that even in a flat market, the mortgage acts as a type of forced savings account with negative interest (that is, you pay the bank). In a culture where the savings rates are dismally low, this is better than nothing. Unfortunately, refinancing and HELOCs really screwed this up for people. At the extreme of the last housing bubble, people were literally treating their home as an ATM...
Great general comment but this specific point is one I try to make to people I know that are in the insanely stressful, desperate search for buying a house.
In LA, there are plenty of neighborhoods on the way up or already there with houses at minimum of $600-700k. I hear all the typical rhetoric from these folks of "why waste all my money on rent, when I can get equity, etc." and I try to point out that yes, you're "building equity" for 30 years but you should also be ready for the reality that in 10-15 years (or sooner) the shit could hit the fan. When looking at a house, instead of purely as investment vehicle, maybe approach it as "If the house doesn't grow in value, or even sinks a little bit, would I still be happy to call this place and my neighborhood my home?"
Because I think that gets lost and none of the reality tv shows help. You're taking out a 30-year mortgage and hopefully you get 30 years good use out of the house and much more. Will it be enough to raise kids, relax, enjoy neighborhood stuff, what have you?
So much is about the money/investment side of it that I think lots of folks lose sight of the idea of a "home".
All good points. Another benefit of investing in real estate (compared to investing in the stock market) is that you have significantly more leverage. You can ask a bank to give you a loan for hundreds of thousands of dollars and use that to produce positive, monthly cash flow. It's a lot harder to convince a bank to give you a loan to buy dividend producing stocks.
Yeah, this is a really simple insight that's not obvious at first. I like the way it's stated in The Wealthy Renter:
> The Golden Rule of Real Estate:... Buildings never go up in value. Ever. Period. ... Only land can go up in value.
I take some minor exception with the absoluteness of the statement (I could imagine a building designed by some architect who later became extremely famous increasing in value), but overall it's obviously true.
This is false. Vacant lots don't appreciate nearly as much as constructed and occupied buildings. A vacant lot in a downtown district has a lot of development risk associated with it. Look at how many years it takes to get plans approved and construction completed in a city like San Francisco or Manhattan. It's difficult to finance a project across that many years and you never really know what plans will get approved or how long it will take until you're well into the process.
Look into the history of the LinkedIn building at 2nd and Howard for example (which was for many years a parking lot).
The quote doesn't claim that you can't do things with a lot to cause it to appreciate less, just that a building won't appreciate more than the lot it stands on. I don't think what you said disagrees with that thesis.
Depending on where you live and your level of income, the most realistic way to think of buying a home may be as simply a more cost effective way of putting a roof over your head than renting would be. It's certainly the case for me.
This is exactly why I recently purchased a home. Rent in the same area is $2.2k/month and purchasing the same home is $1.8k/month. Didn't make sense for me to keep renting.
Our home in Vancouver rents for just under two grand, and would sell for something around one million. The math doesn't make sense anymore, but everyone wants to get on that sweet rocket ship. Own a place for a year, watch it go from a million to 1.3 million, cash out via HELOC or selling to the next sorry sod.
Only a $400 difference? That will get quickly eaten up once you replace the AC, roof, siding, have to fix the foundation, and other things you have to do to maintain a house.
To get an accurate comparison you should probably just include the mortgage interest at 4 or 5% (closer to long-term mortgage rates, and similar to the income you would get from equities), and also include property tax, maintenance, etc. The principal can be thought of as building up equity, similar to a renter putting their spare cash in the stock market.
When you run the numbers for places like Vancouver and Toronto it's probably cheaper renting, small towns in the prairies the opposite might be true. We're paying $1250/month to rent a nice $200k townhouse on Vancouver Island, so the numbers are similar either way when you factor in property tax, water, etc., and we don't have to worry about maintenance.
Yeah I don't know what homes he is talking about but in most of the UK the land is virtually all of the cost.
People all want to live on the same land. That's why house prices go up, not because the physical homes are somehow getting more valuable. It's so obvious... how was this article written?
Yep, this is what happened with my grandmother in West Meade (next to Belle Meade). The land has appreciated drastically, but most new buyers in the area just tear down the existing houses to build something new. It's kind of sad, really.
which doesn't mean that the building was worthless, at best, it mean that the new building is expected to be worth more than the old one. With the current easy access to credit, why not ?
This doesn't seem to account for rental income, either by renting out a building or by spending money on a mortgage which would otherwise be spent in rent. The real appreciation may be less, but are dividends from stocks greater than rental income from real estate?
Housing is unique because it is a sunk cost. You need to live somewhere so you either pay rent or buy. You usually can't refuse to buy and put 100% of that money into the stock market.
A house is an asset that also provides shelter services. In addition, if you buy a house with a mortgage, you're only putting down a portion of the house's cost, while you will realize all of the capital gains.
Contrast with owning stocks where you (in the typical buy-and-hold case) have to keep 100% of your money in the stock in order to keep owning the stock.
I completely agree. In Vancouver and Toronto (and to a lesser extent, Edmonton & Calgary), housing prices are raising at ridiculous rates, while income is largely stagnant. I have multiple friends who've bought houses in terrible condition with 5% down because that's all that they can afford. If interest rates increase at all they're in massive trouble.
Well you'll never get your wish if you keep wishing for that!
While it's a small sample size, I keep on hearing of friends who want to buy a house but are waiting for the current "bubble" to deflate a bit. Combine that with a limited supply in popular metro areas, a larger percentage of young (and old!) people renting and you get demand that will likely last a while (yes my personal sample size of N is small). As the renting population ages and sees themselves flushing thousands down the pipe every month, more renters will be saving up war-chest sized nest eggs to make the plunge into home ownership. I suspect that'll prop up prices for a good while.
If you want to buy a house, I don't think you can count on another great downturn to make popular locations more affordable. More likely it'll take an increase in supply or some major change in our lives to push people out of cities.
In the case of US cities (sorry, I don't know about research that covers Canadian cities) research shows it's a limited supply and failure/inability to grow that makes popular cities expensive: https://www.buildzoom.com/blog/cities-expansion-slowing
Edit: They key section of that study is the section called "Expensive cities and expansive cities"
The article makes the argument that US and Canada shared similar house price trajectory till 2005, then diverged significantly.
The argument has merits, but can there be other arguments? Such as US and Canada are becoming dissimilar economically, or a change in real estate desirability in the eyes of foreign investors?
If looking at the past price data can predict the future price trend, the stock market would be a very different beast altogether.
Compare that Canada map with Seattle and the bay and Boston and I'll bet it will look almost the same. There's some other pattern happening here within a lot of US cities and Canada
Also, there is space constraint. Eg, Vancouver: everything which can be built has been built. South, it is blocked by the US border, north by the mountains and native lands, west by the ocean. The only option really is east, though, it directly translate into crazy commute time. Combine this with one of the best weather conditions in Canada (mild winter/summer) and high asian immigration, and that's a recipe for [very] high prices.
Yeah, the lack of high-capacity bridges across the rivers.
The house prices in that 30 minutes worth of land (I live in it) are also approaching $1 million. The only reason they don't go higher is because of commuting.
The newly elected provincial government has just announced they will suspend the construction of a new bridge; many condo and houses to the south were built with the assumption that the bridge will open and make the southern suburb much more attractive.
For whatever reason, the mayor of Vancouver and its immediate surrounding satellite cities (Burnaby, Richmond, etc.) are fighting hard to not expand the road system. Instead they are 'pushing' for better mass (not rapid) transit between the out-rim suburb and the core cities. I don't know if they are sincere in reducing traffic, but this has an knock-on effect of keeping the house prices in the core cities much higher than otherwise (eg. a rapid transit thru that 30 minutes worth of land.)
>For whatever reason, the mayor of Vancouver and its immediate surrounding satellite cities (Burnaby, Richmond, etc.) are fighting hard to not expand the road system. Instead they are 'pushing' for better mass (not rapid) transit between the out-rim suburb and the core cities.
I won't pass judgement on whether it works or not, but it does appear to be supported by logic and data, so those mayors aren't just acting on NIMBYism.
I am sorry the house you buy that you live in is not an investment it is a liability.
Real estate is only an investment, and a very good one, when you are buying property that you then rent out. Then the leverage helps you out as long as you have renters and rents go up or stay the same. The price of the home matters far less in that case until you are ready to trade up.
I am sure at this level though inverters are having a much harder time finding real estate that is cash flow positive.
> By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.
But the majority of the value of homes in expensive cities (i.e. SF, New York) is actually the real estate it sits on.
And so will the current USA housing bubble in western states and a handful of other trendy locations where housing has far exceeded the realm of affordability by median income standards.
I would bet it still sold in the realm of affordability though. Out west we have many completely average mediocre homes selling for 10x-25x regional median income levels, which is beyond absurd when historically an affordability marker is somewhere from 1.5x-3x.
So will the Bay Area's. Incomes aren't keeping up with property values and eventually property values will have to adjust. Property values are derivative of incomes. I'm not sure when or how, but it's not possible for it to keep going up forever.
Agreed. I sold in Toronto nearly 4 years ago believing that the end was nigh.
Stupidest decision of my life. 4 years appreciation on that property is likely another 200-300k that I walked away from. Should have rented, rather than sell.
It's more that the US dollar has gained 30% on the Canadian dollar. The Canadian dollar has been relatively stable compared to most currencies while the US has been actively propping up the USD higher. You can't just compare two currencies -- you have to look at the whole market to have a reference point.
1. It needs to separate out Vancouver and the rest. Vancouver is its own bubble of self-perpetuating nonsense propagated by Chinese money.
2. The article states shares are better because companies can plow money back into the business, which completely misses the point because price rises aren't pure speculation. There is a HUGE labour cost in housing such that housing prices track inflation (particularly wage inflation).
And that's the real value in property investment in periods like the 1970s that saw really high inflation.
What's more land represents a largely non-renewable resource. Take Manhattan as a fairly extreme example. They're not making more land to put things on. Other cities like Chicago, LA and especially Atlanta can basically spread forever. But even in those cities, inner city land is irreplaceable and finite.
Now I'm not saying Canada isn't in a bubble or that bubble won't burst. But the author takes a naive stock-centric view of things.