“Toronto Is The 13th-Least Affordable City In North America”

There’s a headline for you, although it could be worse than some expected, and not nearly as dire as the expectations of others.

A company called Point2Homes recently did a study on the affordability of the fifty largest North American cities, using a metric that I don’t believe we’ve talked much about on Toronto Realty Blog, and that’s the “median multiple.”

This post is a good follow-up to the “UBS Global Real Estate Bubble Index” from last week, since it’s a different way of looking at various markets, and provides a very different result…

TorontoSign

As you can imagine, I get a lot of solicitations each and every day, both from Toronto Realty Blog, but also just from nature of transacting in real estate.

Last week, I literally hung up my office phone after saying, “thanks, but no thanks” to an “SEO Specialist,” only to have the phone ring about twenty seconds later, and hear the voice on the other end say, “I’m Cooper, and I can change the face of your Instagram for a nominal cost!”

When it comes to TRB, I get 2-3 solicitations daily from people wanting me to post their material, offering to write posts, or even sponsor posts.

A developer once offered me five-figures to put a banner ad on the top of TRB, for, get this – a pre-construction condo.  Oh, how well they know me…

I’m amazed at the offers I get.

Some of them are automated, but most solicitations are direct, from people offering their writings for free, except their writings are things like, “Ten Tips For Better Tulips,” or “Top-Selling Condos In Mesa, Arizona.”

I suppose this is the cost of doing business, and sorting through them is as repetitive as it is frustrating.

But once in a while, something comes through my inbox that’s worth looking at, and as somebody who strives to provide original content on a bi-daily basis, I have a tremendous amount of respect for people, or companies, who can produce innovative and investigative pieces on real estate.

The other day, I received an email from somebody in public relations at Point2Homeswhich is an international real estate search portal, and like just about every company out there that has anything to do with real estate, they’re trying to drum up content that people want to talk about.

They recently released the following: “Housing Affordability: How Fast Could You Pay off Your Home in the 50 Most Populous Cities in North America?

And while I’m not concerned with the idea of “how quickly you can pay off your home,” (I’ll explain why after we read the article), I was absolutely enamoured with the study.

So I’m taking them up on the offer to reproduce the article.

Let’s have a look, then discuss.


Say you could put your entire income into paying off your house. That would make things quicker, right?  To find out exactly how fast that might be, our researchers brought together data on  home prices and annual incomes to determine housing affordability in the 50 most populous cities in Canada, the U.S. and Mexico. To measure affordability, we calculated the affordability ratio, also known as the median multiple, which is the median home sale price divided by the median annual family income (all amounts are expressed in U.S. dollars). Essentially, the higher this ratio is, the more time it takes to pay off your house, and the wider the affordability gap in the housing market.

Our study found that Vancouver is North America’s most unaffordable real estate market. With its insane affordability gap, Vancouver exceeds even notoriously inaccessible Manhattan, and all other North American markets. In fact, 32 out of the 50 locations we analyzed are considered seriously and severely unaffordable.

According to The International Housing Affordability Survey, here’s how housing affordability is rated:

Housing1

Overview: Owning a Home in Vancouver is Less Affordable Than in Manhattan and San Francisco

With a median home sale price of $1,108,345 and a median family income of $63,944, Vancouver is the most unaffordable market in North America, more so than other expensive housing markets such as Manhattan and San Francisco. Its median multiple currently stands at 17.3. Although homes in San Francisco and Manhattan are more expensive than those in Vancouver, with median selling prices of $1,275,000 and $1,207,500, respectively, a lower median income is what makes Vancouver’s affordability index higher than that of the two U.S. cities.

According to The New York Times the affordability crisis was fueled by foreign investments in the real estate sector. The median home sale price has escalated way above the median family income, turning Vancouver into one of the least affordable housing markets in the world.

This has put home ownership out of reach for many first-time buyers, pushing them out of the local market. To make matters worse, even many well-paid local professionals are finding it increasingly difficult to afford housing in their communities.

This worrisome trend isn’t isolated to Vancouver only. House prices in big cities that attract young professionals have risen way above what people could afford on a median income and Manhattan is no exception. While the median family income in Manhattan ($77,559) is considerably higher than the U.S. median ($56,516), it still can’t keep up with the current market asking price of $1,207,500, which is more than 4 times the median U.S. home sale price ($258,300). This has led to a severely unaffordable median multiple of 15.6, securing Manhattan’s position as the second most unaffordable housing market in North America.

The third most expensive market on our list, San Francisco boasts the highest median income in the U.S. ($92,094), almost twice as much as the national median. But even though San Francisco residents earn the most, it would still take 13.8 years’ worth of the median wage to pay off the mortgage in this overheated housing market, given that the median home price here is $1,275,000 – the most expensive selling price in North America and quadruple the national median price.

Housing2

Point2Homes

The annual median family income in Canada is $64,752, slightly above the American benchmark of $56,516. However, a Canadian home sells for the median price of $485,680 – almost twice as much as the median sale price in the United States, currently standing at $258,300.

With a median multiple of 7.5, Canada leads the way as the most unaffordable housing market in North America. And while the median multiple in the United States is 4.6, considerably lower than that in Canada, according to The International Housing Affordability Survey, the U.S. market still qualifies as seriously unaffordable.

A Mexican home might only cost $41,748, but at the same time the average income of $12,806 is 4.4 times less than that in the U.S. and 5 times less than that in Canada. This makes the median multiple in Mexico 3.3, which is considered moderately unaffordable.

CANADA

Housing3

Vancouver Is in a League of Its Own

In terms of home values, Vancouver boasts the highest median selling price in Canada. In fact, luxury has become the norm in this Canadian city, where 76% of homes fall in the $1-million-plus category. By comparison, Toronto is the second most unaffordable market in Canada with a median home sale price of $471,600 and a median income of $62,624. This means Toronto’s affordability ratio is 7.5, considerably less than Vancouver’s 17.3.  To put it simply, it would take you 10 years longer to pay off a house in Vancouver than it would in Toronto.

Calgary, Ottawa & Edmonton Are Canada’s More Affordable Options

With salaries way above the Vancouver and the Toronto benchmarks and enviable home sale prices, Calgary,Ottawa and Edmonton are the most balanced Canadian housing markets. The median income is $81,496 in Edmonton and $83,256 in Ottawa. With equally advantageous home sale prices, $287,960 and $291,120, respectively,  these two cities have the second lowest affordability index in Canada, 3.5.

Calgary comes close to Ottawa and Edmonton in terms of median income. But with a slightly higher median home sale price, $340,000 USD, the median multiple rises to 4.1.

THE UNITED STATES

Housing4

New York and San Francisco Set the Unaffordability Bar in the U.S.

Manhattan is the most unaffordable U.S. market overall, with a median multiple of 15.6 – more than twice that of neighbouring borough the Bronx (6.7). However, California stands out for having four cities in the top 10: San Francisco (13.8), Los Angeles (12.1), San Jose (9.0) and San Diego (8.3).

San Francisco boasts the highest median income in the U.S., $92,094, but its housing market remains one of the least affordable due to its inflated home prices. It would take 13.8 years to pay off a house in San Francisco.

With a housing affordability index of 12.1, Los Angeles ranks as the fifth most unaffordable market in the United States. While the median home sale price has been on the increase, currently standing at $628,750, the median income is only $52,024.

Brooklyn is New York’s Burgeoning Housing Market

Once a moderately-priced borough, Brooklyn now has a median selling price of $725,000, considerably less compared to the likes of San Francisco and Manhattan, but almost three times as much as the national median. And with the median household income just shy of the U.S. benchmark, Brooklyn’s severely unaffordable median multiple of 13.1 secures its position among the top 5 most unaffordable U.S. markets. As a whole, New York City sports a median multiple of 12.1.

Seattle Gives San Francisco a Run for Its Money

Ranking eighth in the U.S., Seattle also has a severely unaffordable median multiple of 8.7. But if we take into account that in terms of median income Seattle is only steps behind San Francisco, and the median home price hovers around $700,000, this attractive tech-hub is the real winner in terms of housing affordability.

North America’s Most Affordable Housing Markets

With a median multiple of 3.4, Winnipeg stands out as the cheapest Canadian real estate market. While the median income might not deviate too much from the national benchmark, Winnipeg homes have the lowest median selling price of any major city in Canada, $225,254 USD.

With a median multiple of only 1.8, Detroit ranks as the most affordable market in North America. Sure, this might sound good in theory, but it might not be enough to bring back any potential home-buyers. In Detroit, you might be looking at the lowest home values in the U.S., at around $48,000, but it also ranks worst in terms of median family.


Check out the article here:

Point2Homes

There’s a few other tools on the site you can play around with to sort the data, but I think what you’ve seen above is the meat and potatoes.

So my very first question is this: should we be using “Median Multiple” as a measure of housing affordability?

There are a lot of ways to quantify the market, and as we saw with the UBS Bubble Index, they were primarily concerned with past appreciation.

Point2Homes is linking income to housing prices, which, of course, seems like a no-brainer.

What I said at the beginning – about not really being interested in how long it takes to pay off one’s mortgage – this is because, quite simply, people don’t pay off their mortgages.  Very few people take a 25-year amortization and set their stopwatch.  Most people move up the chain, throughout the life cycle, always having some level of mortgage debt.

I don’t think the story here is “how many years would it take to pay off your mortgage,” since very few buyers look at the purchase that way.  The buyer of an entry-level condo doesn’t care if it takes 17 years to pay off his or her condo, since a house will come calling in 4 years when he or she gets married, and moves on.

So tell me that’s “yet another measure” of a market, and I’ll say it’s fine.  But “the” measure of the market?  No.

Not only that, dividing your 2017 family income by your 2017 home purchase price ignores things like the interest rate, amortization period, down payment, risk-free rate of interest and/or opportunity cost, rate of inflation, etc.

What I do like about the idea of home price divided by income is that, as I’ve said, it’s yet another measure of the market.

You might argue that the point is completely lost on Vancouver, since most of the money buying real estate there is in some way, shape, or form, coming from overseas.  So what the hell does the median family income matter?

Now methodology aside, what do we make of the Top-5o list, which is actually 54 cities in total?

Well personally, I draw a similar conclusion here as I did with the “UBS Bubble Index” from last week.

In the UBS Bubble Index, 19 of the 20 cities profiled had a “positive” bubble score.

And in the Point2Homes affordability survey only 6 out of 54 cities were deemed “affordable,” and five of those are in Mexico!

Of those five cities, Juarez is apparently one of the deadliest places on earth, nicknamed, “Murder Valley.”

And then there’s Detroit…

So what conclusion can we draw from yet another study that tells us what we already know – that real estate prices are high?

The UBS Bubble Index tells us that 19 out of 20 cities has some level of bubble risk, and the Point2Homes survey tells us that only cities you hear about while watching “Narcos” on Netflix are affordable.

As I said in my blog post last week, is it possible that what exists on paper, doesn’t always exist in practice?

Is it possible that typical and/or historical measures of affordability are no longer relevant in a changing global economic climate?

Or maybe the idea of home ownership is becoming less and less realistic as the world’s population expands, specifically in major cities, like Toronto.

Draw your own conclusions…

149 Comments

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  1. Tudval says:

    So many lose themselves in this ‘unafordability’ index… it’s bollocks! A lot of income may not be captured in these stats. You add up a lot of welfare cases.. the more bums you have (and Vancouver has more than its share) the more unafordable houses are? For bums. Stick to the real prices. Still very high in some areas, but not so much in others. No , Vancouver is not more expensive than Manhattan. As in Toronto , there are still many pockets of affordability. Stop complaining and get to work finding the many bargains still to be had.

  2. Kramer says:

    “Just cause neither of us is 100% certain, doesn’t make your position equivalent to mine. There’s decades of similar behaviour supporting my position…”

    … as well as common sense and practical and rational thinking.

  3. Chris says:

    Kyle, did you have a chance to read John Pasalis’ report? I notice you are no longer addressing this topic. Do you accept his findings, or do you still have concerns after familiarizing yourself with the report?

    1. Kyle says:

      Nope i’ve read it before when it came out and have no intention on re-reading it again. I admit he has raised some questions with his number crunching, but his conclusion remain unfounded.

      1. Chris says:

        I would recommend you re-read it, as many of your earlier criticisms demonstrated a misunderstanding of the information within the report.

        Which conclusions of Pasalis’ do you reject, and why?

        1. Kyle says:

          Said it many times before. There is no misunderstanding on my part. That people accepting a cash flow negative situation makes them a speculator.

          1. Chris says:

            “There is no misunderstanding on my part.”

            I mean, there were clearly misunderstandings. You misunderstood his math with regards to down payment (which you admitted). You misunderstood his inclusion of historical trend data. You misunderstood how he arrived at a number/rate of investment properties.

            So, you disagree with his assessment that someone buying a property and renting it out at a cash flow negative rate is a speculator? What else are they doing, but speculating on sufficient appreciation of the home to make up for the monthly loss? If the home were stagnate in value (let alone drop in value), the speculator will be losing money with each passing month.

            Again, it is unclear to me why you reject Pasalis’ conclusion.

          2. Kyle says:

            “f the home were stagnate in value (let alone drop in value), the speculator will be losing money with each passing month.”

            This is incorrect. Just cause a property is cash flow negative, doesn’t mean the owner is losing money. Every time the landlord makes a mortgage payment a portion goes to equity. So unless the amount he has to “subsidize” is greater than the equity pay down, he is not necessarily losing money. Rents also rise every year. As long as rents rise, cash flow negative properties eventually become cash flow positive properties. One can argue that an investor who is willing to accept an initially cash flow negative situation, is more of a long term investor than a speculator.

          3. Chris says:

            Fair point, they aren’t necessarily losing money; yet, from Pasalis’ research:

            “The average monthly loss per property in 2016 was $1,121.”

            Tack rent control onto that equation, limiting a landlord’s ability to raise rents, and the prospects for turning that cash-flow to the positive side are not very good.

            In some of those 905 areas, where speculative investments were rampant, and now prices are down 10-15% y/o/y, how long do you think these buyers will hold out?

          4. Kyle says:

            Again, he is wrong to say “their monthly average loss”. What he means is their monthly average cash outflow. But part of that outflow will be equity paydown and the remaining part of the mortgage is a tax write off. In fact if the landlord actually loses money in the first few years, he can write off those losses against his income too. Which is another legitimate reason some people might be fine with a cash flow negative property. So how long can he hold out? Depends on who the landlord is.

            But to be honest though i actually don’t care how long he can hold out. I’m not even sure why you keep bring it back to the 905’s. I’ve already said my right tail hypothesis is applicable to large cities, it isn’t meant to tell you what happens next to the green belt nor is it meant to tell you what happens in New Market or Aurora. Whether there is speculation out there or not is moot.

          5. Chris says:

            “So how long can he hold out? Depends on who the landlord is.”

            Fair enough. Although, this does impact the demand side of the equation as well, if fewer speculators/investors are buying. But difficult to predict how that will move.

            “I’m not even sure why you keep bring it back to the 905’s.”

            As I’ve said multiple times, my posts are in reference to the entire area covered by TREB, not the City of Toronto exclusively. I hardly think it is fair of you to call that region, the home to 3.7 million people, “moot”.

          6. Kyle says:

            I never called the region moot. I’m calling the debate about whether there is speculation up there moot, and frankly whether there is speculation up there or not is largely irrelevant to my model, which i’ve said is meant for use in cities.

          7. Chris says:

            I mean, the debate about speculation and the impact on the local real estate market is probably far from moot for those living in those regions.

            Either way, it seems that at least part of our disagreement can be attributed to the fact that you are commonly discussing exclusively the City of Toronto, whereas I am commonly discussing the GTA as a whole.

    2. Tudval says:

      LOL, you read Pasalis? Man, a 7 year old can do better.

      1. Tudval says:

        I guess it never crossed his mind that one can invest CASH, mortgage free, let’s compare apples and apples. Do people borrow to buy Dollarama stock (now, that’s an investment, right?) Why should we compare that with one that leverages 10:1 into real estate? FACT: If you buy cash, you are not cash flow negative. I have more, but why debate with the brain dead? Just as well, whenever you leverage into the stock market you should be deemed a speculator. Perhaps they should close down the darn thing, they’re all speculators in my book.

        1. Chris says:

          “LOL, you read Pasalis? Man, a 7 year old can do better.”

          I didn’t know any seven year olds had their work cited by the Bank of Canada’s Financial System Review.

          “Why should we compare that with one that leverages 10:1 into real estate?”

          You’re the only one comparing Dollarama to real estate. Pasalis is contrasting real estate investors to real estate speculators; not real estate to Dollarama shares.

          “FACT: If you buy cash, you are not cash flow negative”

          Not sure what point you’re trying to make here…

          “Perhaps they should close down the darn thing, they’re all speculators in my book.”

          Here you go, let the SEC know how you feel:

          https://www.sec.gov/contact-information/sec-directory

          “but why debate with the brain dead?”

          You sure do seem to like resorting to insults. That’s disappointing.

  4. Kyle says:

    “So your position is that land is locked until a municipality builds avenues, sewers, water mains and hydro connections to this hypothetical piece of undeveloped land?”

    Not what i’m saying at all. My position is not whether you can or can’t build on it. Like i said with land in the City, it’s about timelines. Sure you can build on that land…eventually. But eventually, we could also argue that one can tear down 40 storey towers to put up 80 storey towers..That isn’t the point. The point is how long does it take to bring about supply (i.e. actual residences that someone can live in) and is that supply keeping pace with the growth in demand? Like i said, Developers are going full bore and the inventory continues to shrink and is at historically low levels. Saying we are not undersupplied is pure crazy talk

    1. Chris says:

      I suspect much of our disagreement on this point stems from the fact that you seem to be referring exclusively to the City of Toronto, whereas I am referring to the entire area covered by TREB. A quick drive through the GTA will demonstrate that there remains much developable land and many construction projects.

      Further, construction sales seem to be in decline, at least in the low-rise segment:

      https://beta.theglobeandmail.com/real-estate/toronto/early-sales-of-new-low-rises-in-toronto-take-steep-dive/article36739326/?ref=http://www.theglobeandmail.com&

      1. Kyle says:

        From the article you quoted above:

        “Dana Senagama, CMHC’s principal market analyst for Toronto, said the condo sector is expected to see lots of construction because of strong presales in 2016 – when almost 30,000 preconstruction condo units were sold – as well as strong sales so far in 2017. But she said the detached-home sector will be a drag on growth.

        “It’s not due to the lack of demand, it’s just a lack of inventory and a lack of new site openings, largely due to land constraints and other issues associated with the low-rise housing sector,” Ms. Senagama said.”

        1. Chris says:

          Also from the article I quoted:

          “The launch frenzy that had characterized the market over the past year is over,” said Patricia Arsenault, executive vice-president at Altus Group, which provides data on new home sales for BILD. “Buyers now feel that they can take a bit of time to shop around, without fear of losing out.”

          We can both cherry pick whichever quotes we like!

          1. Kyle says:

            I think that’s a false equivalence. We’re debating supply being limited by land constraints. Dana’s quote literally says the supply of low rise is being constrained by land. The quote you chose, simply suggests demand has cooled, and has nothing at all to do with supply.

          2. Chris says:

            If demand has cooled, would that not imply we need less supply?

          3. Kyle says:

            If you gave a starving man a few bites and he is less hungry than before (i.e. his demand for food has cooled), does it mean he doesn’t need anymore to eat?

          4. Chris says:

            Now that is a great example of a straw man argument!

          5. Kyle says:

            Why don’t you explain why then?

          6. Chris says:

            One quote is saying demand remains robust. Another is saying demand has fallen away. I suppose we can believe whichever one we like?

            As to supply, the CMHC source feels it is inadequate. Prof. Josh Gordon feels it is ample. Once again, comes down to who you believe.

          7. Kyle says:

            If i’m not mistaken CMHC was one of the sources you commonly list, right up there with Stephen Poloz…

          8. Chris says:

            Yet another straw man argument.

            My citing Evan Siddall or CMHC publications does not mean that I take everything that comes from any individual at the institution as gospel.

          9. Kyle says:

            No clearly you don’t, just the stuff that that you agree with.

          10. Chris says:

            More unnecessary antagonism.

            Yes, I tend to cite sources and statements that I agree with when debating my point. I would imagine most people, yourself included, do the same, wouldn’t you agree?

  5. Kyle says:

    ‘Exactly. Some may die, some may downsize to smaller units, some may move out of the city, some may fall ill and move in with family, some may move into a retirement community, really there’s any number of possibilities, and yes, some may continue to live in their home. As I’ve said in another post, life happens, and with the Baby Boomers being such a large population cohort (with very high homeownership rates), they will likely be a significant source of supply in coming years. Maybe the Millennials will fully absorb this? Maybe they won’t? Tough to say at this point.”

    It’s not tough to say at all. Boomers that downsize do not add supply. They sell one unit and buy another. Only those that exit ownership add supply. Under any objective measure, there is no question that the number of millennials expected to enter home ownership will far exceed the number of boomers exiting it.

    1. Chris says:

      Downsizing was but one possible movement for a hypothetical Baby Boomer. In my quote, there are clearly situations where they exit ownership and add straightforward to supply.

      Further, I would argue that if two Baby Boomers downsize from their old five bedroom home where they raised a family, to a 2 bedroom condo, they have added to supply.

      “there is no question that the number of millennials expected to enter home ownership will far exceed the number of boomers exiting it.”

      I disagree. This is speculation on both of our parts. We do not know what Millennials will do, nor do we know what Baby Boomers will do. Perhaps Millennials will follow in the footsteps of their European peers, and rent in greater numbers? Who knows what will happen. But we cannot simply assume that because the Baby Boomers bought homes in record numbers, the Millennials will do the same. Many are quite precariously employed, and thus may not want to tie themselves down with homeownership. Like I said though, this is just more blue-sky hypothesizing from us both.

      1. Kyle says:

        “Further, I would argue that if two Baby Boomers downsize from their old five bedroom home where they raised a family, to a 2 bedroom condo, they have added to supply.”

        Unless you’re suggesting 5 millennials will co-buy and co-occupy the old five bedroom house i would argue not.

        When we don’t know something, we use stats, probabilities and reasonable assumptions, i do not consider that coming up with blue sky hypotheticals. This quote on the other hand is what i mean by blue sky hypothetical, “”Perhaps Millennials will follow in the footsteps of their European peers, and rent in greater numbers”. We don’t suddenly assume some unforeseen, unprecedented change in behaviour across an entire generation could occur that could invalidate the obvious math that larger % of larger population > smaller percentage of smaller population. Besides the majority of millennials have all stated that they want to own detached houses:

        http://business.financialpost.com/real-estate/half-of-peak-millennials-renting-while-14-still-live-with-parents-survey

        1. Chris says:

          “Unless you’re suggesting 5 millennials will co-buy and co-occupy the old five bedroom house i would argue not.”

          You’re entitled to your opinion. I personally consider downsizing to be adding to supply, in a minor way. Plus, as I’ve stated multiple times, that is just one possible scenario of many I postulated.

          “This quote on the other hand is what i mean by blue sky hypothetical,”

          Yes, I thought I made it pretty clear that I was speculating with that line. My apologies if that was opaque.

          “larger % of larger population > smaller percentage of smaller population”

          Did we not just establish using Statistics Canada data that the Baby Boomers are the larger population cohort?

          “Besides the majority of millennials have all stated that they want to own detached houses:”

          And yet, “The study found 53 per cent of those surveyed would be willing to spend up to $350,000 on a home”. Seems there’s a disconnect.

          “We don’t suddenly assume some unforeseen, unprecedented change in behaviour across”

          I didn’t assume this; I speculated a possible change in behaviour, and thought I was quite clear when I said I don’t know what will happen. Just as you speculated that behavior will remain static and consistent. As I said, neither of us truly knows what will actually come to pass.

          1. Kyle says:

            “Did we not just establish using Statistics Canada data that the Baby Boomers are the larger population cohort?”

            Now this is a strawman argument. We’re talking about the boomer population exiting ownership. (i.e. the really small slices in the upper age groups, not the bulge of 50-55 year olds)

          2. Kyle says:

            “I didn’t assume this; I speculated a possible change in behaviour, and thought I was quite clear when I said I don’t know what will happen. Just as you speculated that behavior will remain static and consistent. As I said, neither of us truly knows what will actually come to pass.”

            Again false equivalence. What we are doing is not the same at all. I am making a reasonable assumption that that many of the people entering prime home buying years will want to buy a property just like those before them. You are taking a wild guess that this behaviour could suddenly shift, out of no where, simply because you don’t want to see the other side of the argument.

          3. Chris says:

            It’s not just 90 year olds who leave their Toronto home.

            And no, I wasn’t making a guess, I was speculating a possible scenario. I thought I made it pretty clear that I don’t know what will happen. Just as you can’t know that the behaviour of millennials will be the same as those of Baby Boomers in the mid 1980’s.

          4. Kyle says:

            You seem to have forgotten about all those people whom also wanted to own properties once they hit their prime home buying years in the 1990’s, 2000’s and 2010’s…

          5. Chris says:

            Nope, also didn’t make a guess as to what would happen, was just illustrating that neither of us know what will come to pass. You could be right and Millennials will own at the same rate as their parents. Or you could be wrong. But you’re speculating either way.

            Personally, I think millennials will own at a lower rate than their parents due to increased precariousness of employment, and a higher need for flexibility. But I don’t know what will happen anymore than you do!

          6. Kyle says:

            Just cause neither of us is 100% certain, doesn’t make your position equivalent to mine. There’s decades of similar behaviour supporting my position…

          7. Chris says:

            Yet again, that wasn’t my position. I don’t know how to make this more clear? It was simply a possible scenario I postulated.

            Further, the scenario you postulate is a prediction as well. It may come to pass, or it may not. We’re already seeing home ownership rates decline, with more Millennials renting. Some may convert to owners. Others may continue to rent. Neither of us knows.

          8. Kyle says:

            You are totally missing the point and focusing on semantics now. The point is not about certainty, we can agree neither of us is can be 100% certain. The point is about probability. Your scenario, has no historic support whatsoever, whereas mine is grounded in decades of people exhibiting the exact same behaviour, so from a probability perspective they are not equivalent not even close.

          9. Chris says:

            I never claimed that the scenario I postulated was more probable, or even equally probable.

            Anyways, we’ve gone way off into the weeds on this one. The point remains, we do not know if supply (from Baby Boomers, new construction, reduced speculative demand, etc.) will be fully absorbed by Millennials. There are far too many factors at play.

          10. Kyle says:

            Finally now that we’ve wasted a bunch of comments arguing semantics, and finally acknowledged that probability wise your scenario is not even close to equivalent…

            Like i said, under any objective measure, there is no question that the number of millennials expected to enter home ownership will far exceed the number of boomers exiting it.

          11. Chris says:

            Maybe? Depends at what rate millennials become home owners, and at what rate baby boomers move away from home ownership. This equation could change if price appreciation changes (yes I know, conjecture, but hey much of our talk has been conjecture I suppose!)

  6. Kyle says:

    “Again using bear as a pejorative?”

    Given that my theory is 13/13 and the bears are 0/13. I would say “bearsplanation” isn’t a pejorative, it’s a quantified fact.

    1. Chris says:

      I would implore you to debate the points I raise, rather than resorting to pejorative “bear” comments and straw man or other logical fallacy arguments.

      Once more, “the bears” is not a clan or a team that I belong to. It is a position on the valuation of an asset class. It is a logical fallacy for you to postulate along the lines of:

      “Well the bears have been wrong 13 times before, and you’re a bear, therefore you’re wrong now too!”

      1. Kyle says:

        If you don’t identify as being one of these bears, then you shouldn’t feel offended when i make reference to them.

        1. Chris says:

          Similar to the use of hyperbole and antagonistic comments, the use of logical fallacies, straw-man arguments, and “bear” pejoratives detracts and distracts from your overall points. They add nothing to the discussion, thus my repeatedly asking you to discontinue their use.

  7. Imagine Nagas says:

    Are NYC (12.1), San Francisco (13.8), Los Angeles (12.1), and Boston (10) real estates overvalued? The arguments are always that people living in these cities make much more than Torontonians, but even after taking incomes into account, the ratios between the median house prices and the median incomes of these cities are much higher than Toronto (7.5).

  8. Kyle says:

    Frankly, pure science, social science or any discipline outside of voo doo, there is no situation where it is acceptable to assume that a hypothesis clearly refuted by empirical data for 4 years is still valid and that the empirical data is irrational. In Toronto’s case it would actually be more like 20 years.

    1. Kyle says:

      meant as a reply below

      1. Kramer says:

        What frigging hypothesis are you discussing?

        1. Chris says:

          Kramer, nobody is going to summarize for you; read the posts if you want.

          Kyle, nobody has been positing the hypothesis that Toronto is overvalued for 20 years. That is 1997, the first year that Toronto real estate started climbing after about 7-8 years of decline.

          Additionally, if I am to take your suggestion, are there any overvalued assets in your mind? Is Tesla stock worth its value? Bitcoin? Because the empiracle data says so as of today?

          1. Kramer says:

            Is NYC real estate overvalued?

            It must be, it’s higher on the list than us, right?

          2. Kyle says:

            Yes of course there are over-valued assets. But the fundamentals used to determine that are ones where the price actually has sensitivity to those fundamentals. I’m not refuting the existence of over-valuation i’m just refuting your data mined set of “fundamentals”.

          3. Chris says:

            I didn’t make the fundamentals that the various economists have used to measure valuation. Do you think they all data-mined together?

            So what are the fundamentals of bitcoin? Is it overvalued? Or is 1 BTC truly and fundamentally worth ~$10k CAD?

          4. Kyle says:

            Honest feedback for you – the reason everyone eventually loses their patience when debating with you is that you respond to objective arguments with subjective arguments. And you respond to substantive points with pedantic points. 20 years, 7 years, 8 years…it doesn’t matter Your fundamentals empirically telling you the wrong direction for any of those periods means it is your fundamentals that are just plain wrong, not the market. Full stop.

          5. Kramer says:

            Amen

          6. Chris says:

            By everyone, you mean yourself and Kramer?

            “Your fundamentals empirically telling you the wrong direction for any of those periods means it is your fundamentals that are just plain wrong, not the market. Full stop.”

            You mean the fundamentals of all the economists I’ve cited? And for yet another time, it hasn’t been 20 years of the fundamentals saying Toronto is overvalued. And there’s a huge difference between 4 years and two decades.

            And once more, your statement sounds vaguely familiar…

            “This time is different! The old rules of valuation no longer apply and that the new situation bears little similarity to past disasters!”

          7. Kyle says:

            Again, subjective. Not Objective. As usual when you can’t refute the objective point, you fall back on name dropping Economists and then try to make it a subjective judgement about whether to believe the Economist or the guy on the internet.

          8. Chris says:

            Ok well if you feel you have a better grasp on the topic than these economists that I’m name dropping, please feel free to share.

            What are the fundamentals of the Toronto real estate market? What does current data say about them? What is your forecast for these fundamentals and price growth in the short and medium term? I look forward to reading your assessment!

          9. Kyle says:

            Already posted below. If you want to know how any factor is going to affect real estate in Toronto then one needs to get their head around how that factor is going to affect the right tail.

          10. Kramer says:

            Was an excellent post with great graphs on that site.

          11. Chris says:

            Those articles discussed the right tail growing as a function of increasing income inequality (with growth to the left tail as well and hollowing out of the middle). Do you predict the government will sit idly by and allow this to continue, as Trudeau trumpets “middle class fairness”?

            Further, is that the only fundamental that impacts real estate? What about population growth? Construction? Where’s consideration of the credit, economic, and real estate cycles?

            And finally, what is your prediction for the short and medium term? Your “right tail” posts didn’t seem to address this, unless I missed it?

          12. Kyle says:

            To be clear, my right tail hypothesis will not predict what Trump will do – nothing can do that. And it doesn’t identify what factors to assess. What it does is objectively looks at what impact a factor will have on those households that actually actively buy/sell houses, barring some major economic shock. So if Trump announces a policy, you can gauge the effect. For example, if Trump kills NAFTA, bears imaginations usually go into overdrive and they come up with all manner of conjecture and fantasy situations that involve how goods will cost more and people will have less to spend on housing…

            My hypothesis is simpler and needn’t be clouded with all sorts of hypotheticals that may or may not have any probability of occuring. Simply put – will the number of right tail households expand, decrease or stay roughly the same? IMO, NAFTA has very little impact on the number of Toronto’s right tail households, so i don’t expect to see much impact from that policy, unless it throws the Country into a recession.

            If we bring back the list of events that were supposedly going to cool the market. you can see how looking at the right tail, instead of conjuring fantasy situations (as pretty much every bear did at the time these changes were happening), would have lead to more objective predictions (i.e. little impact to the # number of households in the right tail = little impact to prices):

            *Eliminating 107% financing and other products that require no down payment, and offer money back on closing
            *Instituting a minimum 5% down payment rule (from 0%, or negative down payment, as above)
            *Eliminating the 40-year amortization
            *Eliminating the 35-year amortization
            *Instituting a minimum 20% down payment rule for second properties, ie. investment, or non-primary residence
            *Increasing the downpayment for purchases over $1,000,000 to 20%
            *Ensuring all borrowers qualify at the 5-year, fixed-rate mortgage on a 25-year amortization (this was a precursor to stress-testing)
            *Increasing CMHC insurance premiums
            *Increasing the downpayment for the portion of purchase price from $500,000 – $999,999 from 5% to 7.5%
            *Creating a “stress test” for insured mortgages, ie. those under $1,000,000.
            *Drop in oil and other resource prices
            *Home Capital Group financial troubles

            As for my near term prediction. When Vancouver was experiencing the same cooling early on after the FBT went in, i said the effects will be temporary and that prices will hit a new high…which it did. Then when Toronto followed with its FHP, i said Toronto will follow Vancouver’s experience, because at the heart of it the # of households in the right tail has not fundamentally shrunk. Those right tail buyers that out numbered Sellers 10:1 in Spring have not suddenly decided that they want to rent, so at some point they will be re-entering the market just as they did in Van.

          13. Kyle says:

            “Further, is that the only fundamental that impacts real estate? What about population growth? Construction? Where’s consideration of the credit, economic, and real estate cycles?”

            Again to be clear, my hypothesis isn’t a fundamental, it’s just a framework for analyzing impacts in an objective manner:

            What about population growth? – If that population growth expands the right tail then yes prices will rise. If Amazon HQ2 builds in Toronto will have a huge upward impact. If say however Target decides to come back to Toronto, then likely will have no impact.

            Construction? – If construction expands the right tail then yes prices will rise. This happened in Alberta during their boom years, when construction lead to a tonne of $100K + jobs. In Toronto, Construction has definitely expanded some of the right tail, but most unlicensed trades are still not part of the right tail.

            credit, economic and real estate cycles – Changes to credit don’t affect the size of the right tail, and as we’ve seen have had little impact on prices. Unless they over-regulate to the point of killing the market and triggering a recssion, i don’t expect this to change. Economic and housing cycles obviously increase the number of right tail households in the boom phases which increases real estate prices, and then usually a major shock occurs that no one sees coming (e.g. recessions/depressions, wars, savings and loans failures, commodity spikes and busts, credit crisis) ends it all.

          14. Kyle says:

            “Those articles discussed the right tail growing as a function of increasing income inequality (with growth to the left tail as well and hollowing out of the middle). Do you predict the government will sit idly by and allow this to continue, as Trudeau trumpets “middle class fairness”?”

            I would bucket the above in the realm of fantasy conjecture. The reality is that the increasing income inequality has largely been created and encouraged by Government policies and initiatives. Amazon HQ2 is the latest example, Governments all over the world are trying to attract the best and brightest talent and investment, which leads to high paying jobs, which lead to more income inequality. Not only are they not trying to fight it, they are actively encouraging further income inequality.

          15. Kramer says:

            Bravo.

          16. Chris says:

            Kyle,

            Appreciate the answer; I don’t disagree with your assessment that the right-tail of income distribution impacts home prices. However, where you say it is simple, I would say it is too simple, and misses a number of factors that also play important roles.

            “Those right tail buyers that out numbered Sellers 10:1 in Spring have not suddenly decided that they want to rent, so at some point they will be re-entering the market just as they did in Van.”

            This, in my opinion, is one shortcoming of your model; it does not account for the impact of speculation/investment. Not all buyers in the spring were looking for a place to live in, thus with appreciation slowing (or dramatically reversing as in the 905) it would stand to reason that some of that demand has left and will not soon return.

            By construction, I was more referring to the supply of new homes, and how that impacts the supply/demand equation and resulting price. I’m not sure what provisions your model makes for this impact?

            I disagree with your assessment that credit and economic cycles do not impact prices. Time will tell which of is right or wrong, as between increasing interest rates and the new B20 changes, credit is tightening. We can check back later I suppose, to see who was correct.

            I also disagree with your labeling as “conjecture” my assertion that the Trudeau government is seeking to reduce inequality. This is a stated goal of the government:

            https://www.liberal.ca/trudeaus-plan-for-the-middle-class-will-reduce-inequality-in-canada-stephane-dion/

            Whether they succeed or not remains to be seen, but the point remains, I am not “conjecturing” when I say that this is something the Federal Government claims to be striving for.

            So, your prediction is that Toronto follows Vancouver’s path, with a dip followed by a rebound, driven by price growth in the condo market and stagnation in the detached market? What do you predict comes after that? Continued appreciation (how much?), a leveling out, or something else? Not trying to be contentious, genuinely curious what you think is around the corner.

          17. Kyle says:

            I don’t see speculation as being much of a factor at all. Investing – yes. Speculation as in someone looking to buy and flip a property in a very short amount of time – no, especially given the high transaction costs associated with real estate. Except maybe in precon. The vast majority of real estate is bought by end users, and their impact is still by far the dominant factor.

            WIth regard to construction, it can not keep up with the flow of demand that we’ve been seeing in the last 5 years. Builders are literally building as fast as they possibly can and the standing inventory of new homes is at historic lows an continues to shrink. This is one of the reasons why the right tail applies in large cities, because there is already built in scarcity. In cities where all of the available land is locked up and require long timelines to unlock, supply is insufficient to keep prices under control. A decade ago, a developer could buy acres of surface parking from a single land owner and start building multi tower projects as soon as each phase was pre-sold. Today, the land needs to be assembled from many small owners which takes a lot of time, and even though the building is pre-sold in a day, it still takes 3-4 years of fighting with the City and neighbourhood groups before a shovel can even go in the ground. This timeline has only gotten longer and longer. And as the City moves to pre-designate many of the two storey buildings along the mid town avenues as heritage the available lands just keep shrinking.

            I see Toronto rebounding similar to Vancouver, lead first by condos. But followed soon after by detached houses. In the next 5 years i see a lot of positive right tail factors, like the recently announced increase in immigration levels (25% of immigrants choose to settle in Toronto and 60% of all immigrants are economic immigrants), the recently announced Sidewalk Labs project. I don’t know the first thing about “building a city from the internet up”, but i bet many of the people who do, would fall into the right tail. Also the largest slice of the population is still between 25 and 30, there are huge numbers of millennials that are just about to enter their prime home buying years. Many of them have been working and living at home to save up 20% down payments, but given there isn’t much benefit of having the full 20% anymore, i suspect we could see some of these millennials start launching sooner than they originally planned.

          18. Chris says:

            “The vast majority of real estate is bought by end users, and their impact is still by far the dominant factor”

            Do you have any stats to support this assertion? Because I would once again (as I have done many times before) point you to John Pasalis’ research on speculative activity, where he found some neighborhoods in which speculative buying was >20% of sales. And at what point does speculation like this seriously impact market prices? 15%? 5%?

            Your point on construction also hinges on this assessment of demand: how much is true demand (for homes to live in) vs. how much is speculative. I also disagree with you when you say land is locked up, unless you mean exclusively within the City of Toronto? Because the GTA as a whole has quite a bit of land available for development, between current build up and Green Belt zones. Prof. Josh Gordon’s paper with the Ryerson City Building calculated over 45,000 hectares of land available to be developed before impediment from the Green Belt.

            “Also the largest slice of the population is still between 25 and 30”

            Sorry, but that is incorrect. From 2016 Census Data, Toronto had 424,345 people aged 25-29; the largest cohort was those aged 50-54, with 460,465 people. Full data set is available here:

            http://www12.statcan.gc.ca/census-recensement/2016/dp-pd/prof/details/page.cfm?Lang=E&Geo1=CMACA&Code1=535&Geo2=PR&Code2=35&Data=Count&SearchText=Caledon%20East&SearchType=Begins&SearchPR=01&B1=All

            One other factor that the right-tail hypothesis fails to account for is foreign buyers, or more accurately, the impact of foreign capital. Even if we take TREB’s conservative estimate of 3-5% of buyers being foreign (which doesn’t capture the full impact of foreign capital), could this not be enough to artificially inflate the market? As of January 2017, China implemented strict capital controls, and we have seen their impact with a reversal in Foreign Exchange Reserve balances:

            https://tradingeconomics.com/china/foreign-exchange-reserves
            http://www.reuters.com/article/china-economy-forex-reserves/update-1-chinas-oct-fx-reserves-rise-slightly-in-ninth-month-of-gains-idUSL4N1N82S0

            If these buyers are gone, what does that mean for both the GTA and Vancouver?

            Anyways, we’re both just speculating at this point, but it is an interesting discussion nonetheless.

          19. Kyle says:

            I follow new listings and sales very closely. If high percentages of people were buying and flipping then you would see high percentages of properties being listed, sold and then re listed shortly after. I don’t see any evidence of that happening at all.

            As i’ve already pointed out Pasalis’ research only proves that some people have bought homes and rented them out for less than it costs to carry with a 20% down payment. That is all, nothing more. There are valid reasons people do this – has he explored that? NO. Has he compared his research to what people have done at other times in history? NO. Has he gone back to see if those same homes are still renting for less than it cost to carry with 20% down? NO. Has he provided any credible foundation that his research equates to “speculation”? NO.

            Again i see zero evidence of flippers buying and selling back and forth to each other, each time raising the prices. Investors buying to rent out, and end users buying to live in – yes. As for Josh Gordon, i see zero validity whatsoever in his study. It should be quite clear to any objective person that his contrived, hokey methodology is nothing more than an attempt to come up with alternative facts when the obvious way to measure supply and demand refutes the narrative he is trying to sell.

            The graph i was looking at for age distribution was not for Toronto, but regardless whether they are the largest slice or the third largest slice, their slice is large. And the results don’t change – peak millennials are just starting to enter their prime home buying years, so demographically there is a wall of demand coming on stream.

            When we were talking about a ridiculous pre-FHB supply and demand imbalance of like 10 buyers to 1 seller (no i don’t have data on this ratio, so feel free to assume it isn’t 100% accurate), IMO, removing foreign buyers becomes immaterial. As well I think any objective person, would accept that foreign buyers are a far bigger influence in Van than TO. So given how quickly Van has rebounded, it would be naive to expect the removal of foreign buyers to knee cap TO.

            My theory on the right tail is that it is the dominant influence in pricing, not the only influence. Of course there are other factors that come into play, but from my experience they are subordinate. Anyone can blue sky factors and hypotheticals that could lead to *what they hope to see the market do*, but that’s not the point. The point of using the right tail is that it imparts objectivity and filters out all the hope and fantasy scenarios. Like i said above, each and every time one of those events that was supposed to cool the market was announced, i got all manner of bearsplanation on how that event was going to be the beginning of the end. Like how there would be contagion this or that, how this would be the one event to make those 10 buyers vs every 1 seller suddenly tap out, how psychology would kick in and suddenly every one was going to decide to rent, etc.

          20. Chris says:

            “As i’ve already pointed out Pasalis’ research only proves that some people have bought homes and rented them out for less than it costs to carry with a 20% down payment.”

            Sorry, this is incorrect. His research clearly states that he analyses home sales which were then listed on the MLS for rent within a short time-frame. This was how he estimated investment/speculation activity, and he indicates that this is likely under-representative (doesn’t capture rentals on Kijiji, AirBnB, homes left vacant, etc.). A 20% down payment did not factor into his methodology whatsoever in identifying these homes.

            “Has he compared his research to what people have done at other times in history? NO. “

            Sorry, this is also incorrect. In his report, he shows multiple times how speculative/investment activity has changed over time. Here is one such example:

            http://realosophy.typepad.com/.a/6a00d83420cedf53ef01b7c8e2aab3970b-pi

            “Has he gone back to see if those same homes are still renting for less than it cost to carry with 20% down? NO.”

            Sorry, but this is incorrect too. His calculation of cash-flow assumed a 35% down payment.

            “Has he provided any credible foundation that his research equates to “speculation”? NO.”

            Sorry, incorrect; he has provided a logical explanation for this as well, differentiating investment activity (based on cash flow and cap-rate) from speculative activity.

            As you seem to be a bit unfamiliar with the details of his research, and thus are making incorrect assumptions and statements, I would highly recommend you read it in its entirety. It is available here:

            http://www.realosophy.com/special-reports

            “As for Josh Gordon, i see zero validity whatsoever in his study.”

            You can certainly question his methodology when it comes to things like measuring demand, but I don’t see how you can question it when he measures available land. It seems pretty straightforward; look at where the Green Belt is, look at where there is already developed land, measure the distance area the two. If you believe that he has erred in this relatively simple measurement task, I’m all ears, but just slamming this calculation of developable hectares because you don’t like the author or his conclusions doesn’t really cut it.

            “so demographically there is a wall of demand coming on stream”

            Sure, we can agree on that. Yet, with Baby Boomers being, factually, the largest cohort, does this not represent a source of significant supply?

            “IMO, removing foreign buyers becomes immaterial”

            Hard to know for sure, because measures of foreign capital in real estate are almost impossible to find. Will certainly be interesting to watch as China continues to restrict capital outflows, what impact this has on markets such as Vancouver, Toronto, Sydney, Auckland, etc.

            “Anyone can blue sky factors and hypotheticals”

            I mean, that’s basically what we’re both doing right now. We’re discussing hypotheticals that neither of us know for sure how will play out.

            “i got all manner of bearsplanation on how that event was going to be the beginning of the end.”

            Again using bear as a pejorative? Further, it’s a bit of a straw man argument to bring up previous examples of when other people were wrong in the past, as evidence of my being wrong today, wouldn’t you agree?

          21. Kyle says:

            My mistake, replace all the places i said 20% with 35%. Then everything else i said still stands. And to be clear when i said did he compare with other times in history, i am talking about re-testing his hypothesis at other times in history, not just comparing certain data elements at a different point in time.

            First, just because land is not developed and not part of the green belt does not mean it isn’t locked. Developers don’t build things like avenues, sewers, water mains, and hydro corridors. So sure Developers could build houses on that land, those houses just won’t happen to have any access, plumbing or electricity. Second, my right tail hypothesis is talking about real estate behaviour in large cities, not 75 kilometers outside of a large city.

            How exactly do you think the baby boomers represent a source of supply? Unless they die, move into a home or move out of the City, i don’t see how they will be freeing up a “unit” of supply. As well using the stats you provided the largest slice of boomers are early to mid 50’s. Long way away from dying or moving into a home. And the slice that may be freeing up a “unit” of supply 80+ are a mere fraction of the millennials coming on stream.

          22. Chris says:

            “My mistake, replace all the places i said 20% with 35%. Then everything else i said still stands.”

            Sorry, but as I pointed out, you made more errors in assessing Pasalis’ research, beyond simply substituting 20% for 35%; thus everything else you said does not “still stand”.

            He has clearly shown investment activity increased. He has clearly shown that at a 35% down payment, many of these investment purchases are cash flow negative. He has clearly articulated what, in his opinion, differentiates an investment from a speculative purchase (cap rates). And, to your point about re-testing his hypothesis, he shows cap rate and percentage of cash-flow negative properties trending from 2012 to 2016 (thus other times in history) in his report.

            Once more, I would implore you to read and familiarize yourself with the report, so that you may better understand what he has found and is postulating. To this point, many of your criticisms of his research have been erroneous and based on misundestanding or incomplete information.

            “sure Developers could build houses on that land, those houses just won’t happen to have any access, plumbing or electricity”

            So your position is that land is locked until a municipality builds avenues, sewers, water mains and hydro connections to this hypothetical piece of undeveloped land? Sorry, but I disagree. I consider land to be locked when it is not available to be developed (such as the Green Belt). Land that lacks utility connections can be developed and have these connections built by municipalities. Certainly, if the price of new build homes is high enough, there is great incentive to do so. Further, this point does not refute Prof. Josh Gordon’s calculation of developable hectares. Do you have a calculation of how much land is developable?

            “Second, my right tail hypothesis is talking about real estate behaviour in large cities, not 75 kilometers outside of a large city.”

            Ok, but through all my discussions, I have been talking about the GTA as a whole; I have differentiated the City of Toronto (416) from the outskirts (905) when appropriate. In my prediction in the most recent blog post, I clearly state that I foresee very different things for areas like The Beaches than I do for areas like Uxbridge. Yet, many of my points refer to the entire area covered by TREB.

            “Unless they die, move into a home or move out of the City”

            Exactly. Some may die, some may downsize to smaller units, some may move out of the city, some may fall ill and move in with family, some may move into a retirement community, really there’s any number of possibilities, and yes, some may continue to live in their home. As I’ve said in another post, life happens, and with the Baby Boomers being such a large population cohort (with very high homeownership rates), they will likely be a significant source of supply in coming years. Maybe the Millennials will fully absorb this? Maybe they won’t? Tough to say at this point.

          23. Kyle says:

            When i say”move into a home”, i mean an old age home.

          24. Chris says:

            No problem, I assumed that was what you meant by that statement.

  9. Kramer says:

    Well, at least you’re going on the line and making a prediction… I dig it… as oppose to some who for months/years just keep saying “it’s overvalued”… without ever saying/estimating what fair value is.

    I have no prediction for November… as you eluded to… no way of telling if this latest tranquilizer dart is gonna result in an overdose or not.

    1. Kramer says:

      That was a reply to Ralph.

  10. Ralph Cramdown says:

    My predictions for 416 detached, November:
    675 sales. $1,236,000 average price, $960,000 median price.
    Big wildcard: How will new stress test affect market? It was announced over two weeks ago, so the busier realtors and mortgage brokers should already know whether it’s moving people onto or off of the proverbial fence. But I have no inside information, so I won’t guess either way.

  11. Jay says:

    LOL these numbers are way off. Someone please sell me an average home in Toronto for US$471,600.

    Even funnier – “a Canadian home sells for the median price of US$485,680”. Does anyone actually think a Toronto home costs less than the national average. This study is junk to say the least.

    1. Chris says:

      Huh good point. At current conversion rate, that’s only ~$600-620k CAD. Definitely a bit on the low side.

    2. John Smith says:

      When the study was conducted, I’m assuming they were using either the August or September data, in which case the median figure of around US$ 480,000 was actually not that far off. It was the median figure, not average. For the City of Toronto, the median price is mostly lower than the average price.

      In August 2017, Toronto (416) median price was 584,000 CAD, which worked out to be a little lower than 460,000 USD. Even after the price rebounded in October 2017, the median price was still ‘only’ 650,000 CAD, or a little higher than 500,000 USD.

      http://trebhome.com/market_news/market_watch/2017/mw1708.pdf

      1. Jay says:

        Lol or you could look at a non-downward biased number that reflects reality.

        Median home sold is a condo – kind of absurd to disregard the detached houses and townhouses that have made the market so out of whack which is what this study is supposed to be representing affordability.

        There’s a reason the median is so much lower – and pretending the city is a one bedroom condo still makes it grossly unafforable (#13 on this list)

  12. Kyle says:

    @ Chris

    Robert Shiller has been incorrectly calling a Canadian housing bubble since 2012 and you worship the ground that he walks on, and faithfully accept everything he says without the slightest hesitation. David Fleming calls the recovery to the very month, and you repeatedly complain that he missed by a couple 10’s of thousands?

    Let’s take off the bear coloured glasses for a second and look at this objectively. Here are his predictions and track record:
    1. The September Average Sale Price will be higher than July or August – Which he got correct
    2. The October Average Sale Price will be higher than September – Which he got correct
    3. Prices will go up 10% from the summer – Fall isn’t over. Lets revisit in December
    4. Conditions will be reminiscent of the spring – and some buyers will be caught off guard – meaning bidding wars will return, not that prices will rise 30% per year. He actually says, “Nothing will ever rival January to April of 2017” Lets revisit in December
    5. Rental battles will be fierce – Which he got correct
    6. It will go by very fast – He says, “This is part of the reason why I think a bit of mania will set in eventually. Not to the same extent as the spring, but if you’re a buyer still looking by the third week of November, and you know that the market dies out in the first week of December, you’re going to push a little harder, bid a little higher, and be more aggressive.” Lets revisit in December.
    7. The government will continue to meddle in the market – Which he got correct

    He’s already 4 for 7, and the rest have not come to pass yet. I think most objetive people, would say Shiller ought to be giving up his Nobel prize to David.

    1. Chris says:

      Kyle, ease up on the hyperbole and unnecessary antagonism a little bit there, eh?

      Do I respect Robert Shiller and his opinion? Of course; he’s a Nobel Laureate and economics professor at Yale University. That hardly means I “worship the ground he walks on” or “accept everything he says without hesitation”. When you take things to such an extreme like that, it distracts from your other points, and is needlessly antagonistic.

      As an aside, I can’t find any mention of Shiller commenting on Canada in 2012 (he discussed Vancouver). But even if he had, he first called the US a housing bubble about 3-4 years before it collapsed. He, like many other economists, is pointing out overvaluation, not predicting the day it drops.

      As for David’s predictions on his post, the only ones I contested were predictions 1 and 2 (prices will go up, conditions will be Spring-like). I am simply pointing out that his first prediction is partially correct, and his second is not (and unless November and December are huge months, likely won’t happen). I’m not “repeatedly complaining”; again, why do you feel the need to word things in such a needlessly antagonistic way?

      I suspect your last point is a joke, but I’m really not sure…it’s a bit absurd if you actually believe that Shiller deserves to be stripped of his Nobel Prize and David Fleming, a Toronto realtor, deserves one instead, for a handful of correct, short-term predictions on his local real estate market.

      1. Kyle says:

        Sorry you feel it is hyperbole, other than the Nobel prize part, i believe it all to be truthful and factual. And i suspect in your heart of hearts you do too. Otherwise you’d have already plastered all the examples of how you thought it wasn’t true.

        As i’ve already mentioned David was bold enough to make 7 predictions and actually put time lines on them. He’s already nailed four of them and is on track to be correct for the remaining three…WHEN THOSE TIME LINES ARRIVE. FYI the fall market runs from Labour day to the Christmas holidays, not Halloween. So not sure how you’ve already declared him wrong, not just once, but repeatedly:
        Like in your comments here: http://torontorealtyblog.com/archives/19285#comments
        Or your comments here: http://torontorealtyblog.com/archives/19403#comment-76101
        Or again in the below comments.

        When the December numbers are released is when we’ll see whether he was right or wrong, not before then. And if you want to retain even an ounce of credibility and class, then you should judge his forecast results objectively. And what i mean by objectively is being as critical of his forecast results as you would for the stuff you believe in.

        For example: you seem to have a lot of faith that “your fundamentals” are determinants of the market, despite by your own admission they can have no bearing on the market for 5, 10, 18 or even 50 years and that they are worth squat at forecasting. In mine, as well as many others’ opinions, this a massive logical fail, but yet you persist on believing in. So if you’re going to give your fundamentals such a huge free pass, it would not be objective to be nickle and diming David’s forecast results over 10 – 25K half way through the forecast period.

        1. Chris says:

          Saying that I “worship the ground” that Robert Shiller walks on, simply because I respect and have cited him, is hyperbole. It is also antagonistic, and unnecessary.

          Yes, Fall runs from September to December. But historically, the market is most active September/October. So barring a buck of historical trends, the prediction of a return to Spring-like market will prove incorrect.

          Please read my comments more carefully. I clearly say he was right in direction of price movement, yet overly optimistic in scale.

          I don’t think anyone has said “Toronto is overvalued but it’ll take 50 years to come down”. This is more hyperbole, and yet again, detracts and distracts from your overall point. As I’ve said, time and again, Real Estate moves slowly. Let’s not forget that in took nearly two decades to re-attain the peak average price reached in 1989 (when adjusted for inflation). Hence I don’t expect these economists to give me a date; only to provide general assessment.

          1. Kyle says:

            To be clear whether it takes 4 years or 50 years, it’s still a logical fail. It’s straight multi factor math, if a factor is “the” major determinant of real estate’s value then the value would be most sensitive to that factor and would respond accordingly and the corollary if a value is moving completely independent and contrary to that factor for 4 years, then that factor is NOT “the” major determinant of the value. It’s that simple. The real story is that Shiller’s call took 4 years to materialize, because of lucky coincidental timing not skillful analysis.

          2. Chris says:

            “The market can remain irrational longer than you can remain solvent” – John Maynard Keynes

            This especially applies in an asset as emotional as real estate.

            As to Shiller’s warning in the USA being lucking and coincidental, I disagree.

          3. Kyle says:

            “The evidence linking the quote to Keynes is very weak, and may be due to confusion with another saying attributed to Keynes as mentioned above.”

            Myth busted….

            https://quoteinvestigator.com/2011/08/09/remain-solvent/

            This quote is more likely associated with an over-confident Financial Analyst named Gary Shilling, whom like many bears couldn’t accept that he was wrong, so instead convinced himself that he was right and it was the market that was wrong.

          4. Chris says:

            Great, thanks for that website, Kyle, but the focus was on the content of the quote, not who said. Further, some quick research on Shilling shows that he made both correct and incorrect forecasts.

            Additionally, as Ralph said to you earlier, you should try to take it easy on using “bear” as a pejorative. The more you lean on that, the hyperbole and the antagonistic comments, the more you come across as angry and irrational. As I’ve said many times, these are clans; they’re perspectives on valuation of an asset. It’s very odd to use that as a way of belittling someone.

          5. Chris says:

            *these are not clans

          6. Kyle says:

            Actually i disagree, in this case who said it makes a big difference. If the content was from one of the world’s preeminent Economists, it would be likely that it was grounded in some empirical tests, but if it is some random sore loser Analyst, then the validity of its contents is very much in question.

          7. Chris says:

            I think most economists, even Keynes, would agree with the general sentiments:

            – You can’t time the market
            – Fundamentals can be outweighed by opinion for an unpredicatable length of time

            I also hardly think Shilling is a “sore-loser”; he’s had a successful career, earning a PhD from Stanford, working for the Federal Reserve Bank of San Francisco, Merril Lynch, Standard Oil, and has made correct predictions and incorrect ones. Why are you so hostile to this random man?

          8. Ralph Cramdown says:

            Kyle, why are you working so hard to defend the honour of David’s fall forecast when he himself has already told us that it didn’t turn out the way he thought it would? Read his posts from September 11th, 13th, 18th, and October 18th.

          9. Kyle says:

            Has nothing to do with timing the markets. Most Economists especially Keynes would agree that a hypothesis not supported by empirical data should be rejected and not clung to in the hopes that empirical data might one day support it.

          10. Chris says:

            I disagree. You’re suggesting that economics be treated like a pure science, akin to chemistry or physics, where there are clear experiments, empirical data, and replicable results.

            Economics, as a social science, does not fit this mould. Keynes very much embraced theory and thought experiments, beyond what he could prove with empiracle data.

          11. Kyle says:

            You’re confusing situations where empirical data isn’t available, with your case in which there is empirical data and that data says to reject.

          12. Chris says:

            No, sorry, but I am not.

            Unlike a scientific experiment, economics does not come to an end. It is constantly moving. Unless you are assuming that the valuation level today will continue in perpetuity?

          13. Kramer says:

            What the hell are you two talking about now anyways? Median Income still?

            Kyle… The World Bank endorses it… come on man…

          14. Kramer says:

            And Chris, if you believe that NYC, Toronto, Vancouver, Chicago, etc… will ALL ever, ever revert to median income AFFORDABLE, then you’re not only a bear, you’re a wild-eyed, foam-mouthed, rabid grizzly bear.

          15. Chris says:

            Kramer, instead of posting sarcastic and immature jeers, why don’t you try scrolling up to read what we’ve been saying, so you can catch yourself up?

          16. Kyle says:

            “Unlike a scientific experiment, economics does not come to an end. It is constantly moving. Unless you are assuming that the valuation level today will continue in perpetuity?”

            Not following what you’re trying to say here. Day in day out Prices have been rising in Toronto, contrary to your fundamentals for decades. In fact historically and empirically speaking the worse your fundamentals got the, the higher prices went. In other words empircally THERE HAS BEEN STRONG NEGATIVE CORRELATION between your fundamentals and real estate prices. What we’re talking about has nothing to do with standing still in time, what we’re talking about is rejecting decades of empirical data that prove your fundamentals wrong in favour of embracing blind faith.

          17. Chris says:

            As I said in another post, nobody has been saying for decades that Toronto is overvalued. For example, RBC only began sounding the alarm on Toronto in recent years, as affordability dramatically eroded (one of those fundamentals they base assessment on):

            http://www.rbc.com/newsroom/news/2017/20170929-housing-affordability.html

          18. Kyle says:

            Chris, to be clear, you don’t start the stop watch on measuring correlation between two factors, once it reaches some data-mined magic level. The point is the market responds opposite to how your fundamentals predict it should. That means your fundamentals are broken.

  13. Kyle says:

    TREB released October numbers today. http://www.trebhome.com/market_news/release_market_updates/news2017/nr_market_watch_1017.htm

    Average price is 780K or 6.5% higher than August’s 732K average. So bears, i thought prices were supposed to just keep falling from August onward? What happened?????

    1. Ralph Cramdown says:

      Suggest you read the market watch instead of just the news release. YoY price declines (average and median) across the region in detached (the ones they aren’t making any more of), and six months inventory in York region. Downtown condo dwellers are still golden.

      1. Kyle says:

        There is softness remaining in the 905’s and the overall average detached market is still being anchored by those areas. But ex 905 detached, most other portions of the market are clearly reversing the slide, that bears were not long ago touting as the beginning of the end.

        So again i ask, where are all those smart bears who were accusing David of blowing smoke up the market’s a$$? Where are all those super confident bears who said prices are just going to keep dropping from August onward? David was prepared to post a picture of himself in a dunce cap, but not one of those bears has come back on here to hold up their side of the deal, let alone admit they were wrong.

        Having argued with bears for many years, i know admitting they were wrong is something that they never do, because bears are nothing if not obstinate and in denial. So today let me help you all out.

        https://lilyabearwithabounty.files.wordpress.com/2013/03/gummy-bears-dunce-caps.jpg?w=645

        1. DAvidNotFleming says:

          Compare median and average condo prices between the ‘peak’ April 2017, and October 2017, and you would see some interesting numbers.

          All TREB Areas:
          April 2017 (average/median): $541,392 $475,000
          October 2017 (average/median): $555,226 $510,000

          Toronto:
          April 2017 : $578,280/$506,000
          October 2017: $636,934/$579,000

          Even the chill market of York:
          April 2017 : $515,882/$460,000
          October 2017: $636,934/$579,000

          Peel:
          April 2017 : $406,444 $390,000
          October 2017: $510,017 $502,000

        2. Ralph Cramdown says:

          Look at 416 detached, which I believed you compared to exotic automobiles and couture. About the same number of new listings as last October, but 75% more actives, 25% fewer solds (all-time low for October), prices flat year over year. Compared to April, sales are down 36%, active inventory is up 37% to a near all-time* high, median and average price are down 22% and 18% respectively. * – since TREB changed their stats format

          David predicted the fall market would be reminiscent of spring, there’d be bully offers, bidding wars, offer nights, and some buyers would be caught off guard and get left behind. He predicted low supply and high demand, and that nobody would be getting houses for 20% less than in the spring. Who’s blowing smoke here?

          And that’s 416 detached – the stuff most likely to be bought with over 20% down. Tune in next month. Who knows what will happen?

          1. Kyle says:

            Not sure why you bears rattle on and on about the # of sales dropping? It’s like saying, “the # of shares traded on that stock is dropping clearly that stock price is doomed”. You can try and cherry pick stats and periods all you like, but we are talking about prices here not activity.

            Detached in 416 is up 8% since August (the day of reckoning according to the bears) from 1.191M to 1.2878M. It’s looking pretty V-shaped to me.

          2. Kyle says:

            As far as Inventory numbers building up i would refer you back to David’s post from 2010, to get a better understanding of how a high # of active listings doesn’t translate into more supply:

            http://torontorealtyblog.com/archives/2938

          3. Ralph Cramdown says:

            I thought David did a pretty good job explaining why freehold prices in April and in August aren’t quite comparable — because people trying to get top dollar selling the best homes mostly aren’t on the market in August, but they are in April or October.

            And quit with all the strawbear arguments, please. I look at all the stats, not just #sales, and I don’t recall ever saying August was the month of reckoning — anybody who knows anything about Toronto freehold real estate was waiting to see what the fall market would bring. Labelling me a bear and then expounding on what all bears do or think is just argumentum ad ursa. Read TREB’s news release (you linked it) and see them spin October’s sales being down “relative to last year’s record pace” but up from September by more than usual. 416 detached sales all time low for October.

          4. Kyle says:

            “I thought David did a pretty good job explaining why freehold prices in April and in August aren’t quite comparable — because people trying to get top dollar selling the best homes mostly aren’t on the market in August, but they are in April or October.”

            Sellers are always trying to get top dollar no matter what month. The difference this year vs last is that there are a lot of sellers who continue to keep trying for last April’s prices. If the V-Shaped recovery continues they may end up getting it, but until then that inventory is nothing more than dummy inventory and has no impact on the market. Much like a seller of a stock putting in a GTC order way above where the stock is trading at.

          5. Chris says:

            “If the V-Shaped recovery continues they may end up getting it, but until then that inventory is nothing more than dummy inventory and has no impact on the market”

            Sometimes, sure. But sometimes, sellers are forced to sell. The Three D’s come to mind: Divorce, Disease, Death. Life happens, and some people won’t have time to wait for a rebound to April/17 prices.

            As to David’s predictions, as I’ve said before, he was correct in direction, incorrect in scale. He predicted price rises of 10% from July through Fall. With October in the rear-view, the actual increase was 4.6%.

            I also doubted his second prediction, that conditions would be reminiscent of the Spring. I think we can all agree, that did not come to pass. Sales volumes remain low, listings remain high, and the hysteria that seemed to grip the market in April was nowhere to be found in September.

          6. Ralph Cramdown says:

            Kyle, everybody who studies real estate already uses the percentage-of-inventory-that-buyers-don’t-think-is-just-overpriced-crap indicator. We just call it something else.

          7. Kyle says:

            @ Ralph

            If you were actually aware of and tracking such a percentage of dummy inventory or whatever name you have for it, then why are you quoting the active inventory like it was a thing? If you were tracking it and aware of it, you’d know that much of the current active inventory and new listings is in fact nothing more than the same unrealistic dummy inventory getting relisted over and over. And that any true new inventory (i.e. not relisted junk) is often selling quickly and in bidding wars.

    2. Appraiser says:

      Oh my, the bears will be going into overdrive trying to spin and cherry-pick stats this time. I can hear it now – “The market has just pulled forward demand for fear of the new stress test in January”

      Oh well, it keeps them salivating for another two months. Then on to the next perceived calamity…which is always just around the corner.

  14. Ralph Cramdown says:

    Optionality:

    One thing that several of the top cities on the above list have in common is that more than a few of their citizens are working for a chance. The Bay area, Boston, NYC and LA are places that young people flock to hoping to be discovered, orto work for young tech firms with equity participation. It is a known economic fact that many people will overpay for a low probability chance of a high payout, be that a role on Broadway or in cinema, a stake in a new tech venture, or a lottery ticket. Spending 1/2 your income on rent may seem like a good idea in your 20s, if you’re hoping for a big bump. If you give up, well, “another hundred people just got off of the train.”

  15. Condodweller says:

    I find these kind of studies are really only useful to select a city you want to move to and to find out where you have the best chances of affording a home if you are willing and able to move. One has to live under a rock to not know how expensive housing is in Toronto.

  16. Ralph Cramdown says:

    “quite simply, people don’t pay off their mortgages”

    This is the classic pre-Minsky Moment way of thinking. Stability leads to increased leverage, and higher leverage leads to instability.

    Most Canadians used to work hard at paying off their mortgages as soon as possible,* which they would then celebrate with family and friends. Every financial planning book stressed that a paid off home was a foundation for a successful retirement. So, things have changed.

    Now I’m not disputing that there’s many financially successful people who’ve borrowed against home equity but have relatively low debt and a diversified portfolio of assets. But for every one of those there are probably five or more who are just plain overleveraged and overconcentrated in local real estate — because that has absolutely been the winning trade. I’m old enough to remember when the same thing was happening in Japan; the infamous hundred year mortgages (at 9%!) In the West we thought the idea was completely preposterous, but it made sense to the locals, who feared being priced out forever.
    http://archive.fortune.com/magazines/fortune/fortune_archive/1990/05/21/73567/index.htm

    I was surprised to discover in the Bank of Canada’s latest Monetary Policy Report that only this year is it incorporating mortgage debt into its main model of the economy. “ToTEM III also features a more elaborate structure of the housing market. On the demand side, the main innovation is that borrowers now contribute to overall housing demand, allowing mortgage debt to influence house prices.”

    * – I am sure that there are still lots of Canadians working to pay off their mortgages as quickly as possible, but they’re not the ones walking into real estate brokerages. Mortgage industry news sites give one another point of view, and bankruptcy trustees yet a third.

    1. Kyle says:

      “Every financial planning book stressed that a paid off home was a foundation for a successful retirement.”

      Wrong: The amount a home owner has at retirement is determined by how much Equity one has, not whether one still has Debt.

      1. Chris says:

        Equity = Market Value – Debt

        So you’re correct, it’s not a binary question of “do you have debt”; but, it does factor into the equation.

      2. Kramer says:

        I agree Kyle… Every financial planning book should stress:
        – Grow your Net Worth (from a perspective of Equity = Assets – Liabilities)
        – Assets: Stress diversification
        – Liabilities: Stress never have any high interest debt

        1. Kyle says:

          Some solid advice

      3. Ralph Cramdown says:

        It shouldn’t need explaining, but the variance of your net worth at retirement is a LOT higher if you were carrying significant debt 5 years before than if you were unleveraged at that stage. It may be rational for someone 5 years before retirement with a $5mm net worth to be somewhat leveraged, taking a small risk of ending up with a net worth of $2-3mm if things go really bad, in exchange for the chance at $10mm if it works out. To each their own. But at those wealth levels, we are talking about a very small fraction of households. For people with more typical net worths five or ten years before (planned) retirement — say the 60th to 95th percentiles, significant leverage (i.e. debt) is risking what you have and need for what you don’t have and don’t need. It is far more likely to work out when most people think it is a stupid idea than when the consensus is that it’s normal.

        1. Kyle says:

          Your example seems very unrealistic. I’ve never heard of people in the twilight of their careers (5 years away from retirement) shopping for their first home or looking to trade up considerably….Downsizing maybe.

          I think a much more typical situation of people having debt up to their retirement or downsizing, would be home owners who at 40-50 traded up to their forever home, and come the time that their 60-65, may still have a little bit of mortgage debt outstanding.

          1. Kramer says:

            I forgot to mention, there’s an appendix at the end of the new financial planning manual… It simply says: “If you’re leveraging yourself to the #### to be highly concentrated in high risk investments close to retirement, then call gambler’s anonymous.”

            A financial planning book won’t help the extreme cases of risk seeking or risk averse behaviours.

          2. Ralph Cramdown says:

            When David says people don’t pay off their mortgages, he’s talking about older people and significant mortgages, either because of equity withdrawal or leverage and multiple properties. Everybody already knows that 30 year olds and 40’s couples with children are likely to have large mortgages. And the people that David sees all have one thing in common: They’re buying or selling real estate. Think about it.

          3. Kyle says:

            I see no indication of that in what David has said. Here’s his quote:

            “What I said at the beginning – about not really being interested in how long it takes to pay off one’s mortgage – this is because, quite simply, people don’t pay off their mortgages. Very few people take a 25-year amortization and set their stopwatch. Most people move up the chain, throughout the life cycle, always having some level of mortgage debt.”

            Tell me where does he mention “old people and significant mortgages”. All he is saying is that no one buys a house and stays in it for 25 years, instead they upgrade over time, port and add to their mortgage, and tend to have some debt until such time that they downsize.

  17. Kyle says:

    New study shows average or median households are continuing to disappear from Toronto. So again, why would anyone expect the average or median income to be a good proxy for what real estate in this City costs?

    https://www.thestar.com/news/gta/2017/11/01/toronto-region-becoming-more-divided-along-income-lines.html

    1. Kramer says:

      I have never expected the average or median income to be a good proxy for what real estate in this city costs.

      1. It never has been (at least in the relevant historical range)

      2. Wealth compounds and accumulates (across years, decades, generations), most notably in the big/best cities… and this compounded wealth (ACTUAL amount, not AVERAGE amount) competes for LIMITED resources/assets.

      I was going to go into my neighbourhood by neighbourhood timeline of when each became “medium income unaffordable”, beginning with Rosedale decades ago… but I’m not risking getting into a stupid debate.

      The above two points are facts. Apply them to Real Estate, which just happens to be something EVERYONE NEEDS (whether rent or own) and is LIMITED.

      Next, assuming that yes, these best cities in North America are “medium income unaffordable”… SHOULD they be “medium income affordable”? Would that make any sense?

      Assuming no, that would not make sense, at the very least because they never have been (in relevant historical range)… then what should determine just how “medium income unaffordable” each one individually city should be? What are THOSE metrics? Those are the metrics I’m interested in.

      1. Kramer says:

        Add on of course the argument that when population is increasing and Average or Median Income grows or even stays the same, it means a greater NUMBER of people for whom the real estate is still affordable… just as it means a greater number of people for whom it is unaffordable, but they are not in the market.

        These posts are not meant to argue frothiness / future of home prices… only to argue why Medium or Average Income are completely worthless metrics on their own in a steady or growing population (unless of course they are shrinking or growing at some hyperactive pace).

        1. Professional Shanker says:

          Kramer – your #2 point I would agree is a fact. That said with homeownership rates at 60% to 70% historically how doesn’t median income become a strong if not they most important determinant of the market value of assets over the long-term? If over half of your society owns a home the median income should factor into the price, no? Further, if wealth accumulation transpires over decades and competes for limited resources (land of course being one of these resources) you would expect home ownership rates to decrease if median income does not increase at the same rate of land prices. Perhaps we are about to see this very fact intensify – only the fortunate will own. Now on a short term basis I can understand that median income does not have to be an accurate proxy for an increase in dwelling prices, especially when the carrying costs have been artificially reduced by governments but when the credit curve turns I would argue it would be most important – need income to offset increased carrying costs.

          Your fundamental argument holds in a environment of reducing interest rates – but does it when carrying costs increase? Will the fortunate who own continue to purchase more land and become landlords to the increasing % of people who are forced to rent due to affordability?

          1. Kramer says:

            Shanker,

            I’m realistic about it and I can’t argue against every point about this… but the very fact that these 50 cities all have different Medium Income vs. House Price ratios is mathematically logical proof that Median Income doesn’t outright decide house prices… so I can never with a clear and unbiased mind go and say that a market must abide to any kind of rule regarding Median Income vs Home Price, nor that it is even a high ranking driver outright on its own.

            Because of this, I look for the other drivers, market by market… and if we all agree that YES the best cities in North America are Medium-Income-Unaffordable (“MIU”), then what determines how MIU each one should be… what is an appropriate MIU for each city individially?

            Why is NYC more MIU than Toronto?
            Why is Toronto more MIU than Mexico City or Chicago?

            The only thing I can say is that there must be 50-100 drivers that have to be considered to differentiate each one of these cities and where they rank on this list.

            Yes, Median Income absolute and growth plays a part. But how much of a part in each city?

          2. Kramer says:

            And sorry… for some reason i was typing medium vs median in that post.

          3. Kyle says:

            @ Professional Shanker

            Home ownership rates are sticky and lagging, many median income earners whom already own, would not be able to re-afford the houses they are in based on their current incomes alone (i.e. not withstanding the equity they gained). But because they already own, they continue to be a part of the home ownership rate.

            As well the definition of “home” in Toronto has gradually shrunk over time as more owners have bought condos, and ownership rates don’t reflect the fact that the type of “home” being owned has gradually diminished.

          4. Kramer says:

            One could also argue that if median income was the all-important key long term driver of real estate prices, then in the long term, the median multiples of all the cities on that list should revert to “3.0 Affordable”…

            Ain’t. Gonna. Happen. Why? Because of the 50-100 or whatever number of other drivers that vary by city… which make New York New York and which make Phoenix Phoenix and which make Juarez Juarez.

            Small cities and towns. Maybe. Completely stagnant cities. Maybe.

            The top cities to live in in North America. No chance ever.

            Median Multiples – garbage, except maybe as a variable for ranking “the best cities to live in”.

          5. Professional Shanker says:

            You both bring up good points –
            1) median income to price is not a linear equation so using this singularly gets you nowhere in explaining a market at a point in time – both sides of the equation Bear/Bull – this should be easy to agree upon.
            2) Agreed – ownership rates are a lagging indicator – driven primarily by affordability – therefore when prices & cost to carry become too high compared to income – they do not increase further at a similar rate – something would need to give – Price/&cost to carry vs. incomes. I would summarize the Bull camp believing incomes will rise given Toronto is a world class city? vs. Bear saying – when have we seen any meaningful growth in incomes.
            3) If homes are getting smaller (including land size) which is indisputable this makes the rise of prices vs. income even more alarming.
            4) I agree with the statement that large city centers will definitely always lead the trend of having higher median incomes to prices.

      2. Chris says:

        Point 1 is your opinion, rather than a fact. And it is an opinion not shared by The World Bank, who recommends the use of the Median Multiple (median home price:median income) in evaluating housing affordability. I suspect that they considered the role that population growth, construction, densification, etc. play, when they assessed the Median Multiple and decided to endorse it.

        1. Kramer says:

          I’m not debating with you Chris, we’re still in a fight.

          1. Chris says:

            Looks like it isn’t exclusively the RE Bears who get angry.

            Good luck in your “fight”, Kramer! I can assure you, you’re the sole participant in it.

      3. Kyle says:

        “What are THOSE metrics? Those are the metrics I’m interested in.”

        Agreed, average income is irrelavent when it comes to real estate prices, unless average people can afford and are actively buying real estate (in that given market). The only relevant incomes, are the portion of the income distribution that is actually actively buying homes. And in cities it is the right tail.

        In large cities owned real estate is a luxury good not a commodity. It’s really no different than other luxury goods, are the prices of Lamborghinis and Balenciaga bags constrained by the growth in average incomes? Of course not, prices on luxury goods have been sky rocketing, but there are no annual calls for the Lamborghini bubble to burst. And it is also no coincidence that Lamborghinis and Balenciaga bags tend to be sold in the same cities that have high real estate prices, because those are the cities with fat, expanding right tails.

        See link below, about half way down is a super cool graphic that shows the changes in income distribution over the last 45 years, for many US cities. You can clearly see the cities where the right tails (dark red and burgundy bars) have expanded the most are the same ones that have had the greatest growth in real estate prices (e.g. San Fran, Seattle and Washington) and the cities where the right tail has stayed stagnant are the cities that have low real estate price growth (e.g. Detroit Pittsburgh, Philidelphia, and Phoenix):

        http://metrocosm.com/income-us-cities-1970-2015/

        In large cities like Toronto this rule has worked flawlessly:
        – If a factor increases the distribution to the right tail, it’s supportive to real estate prices (e.g. more jobs in high paying industries like banking, finance, IT, Management, higher bonuses, more stock options, etc)
        – If a factor does not affect the right tail, it does not have much if any affect on real estate (lay offs in retail sector, death of manufacturing industries)
        – If it decreases the distribution to the right tail, then it will decrease real estate prices (e.g. loss of high paying finance jobs in NY, Ireland)

        1. Kramer says:

          Great post and great charts on that site.

  18. Geoff says:

    Talk about lies, damned lies and statistics…. Personally, I’ve seen more lives ripped apart by factors closer to them than anything ‘the market’ has ever done to them (the 3D’s come to mind – death, disease and divorce – but still the stats are fun to read and pick apart, ain’t they! 😉

  19. Kyle says:

    This is essentially the same study that Demographia puts out. They have said certain alpha cities (Toronto included), warrant a high median multiple.

    Aside from the obvious fact that median income is not representative of the home buying population in large cities, there are other factors that should be considered when looking at these rankings, like tax treatment, health care costs, exchange rates, and what the average home price represents (i.e. it could be a studio in NY vs a house in Toronto) that make these multiples hard to compare city to city.

  20. Chris says:

    It seems odd that New York City as a whole is listed, yet also broken into it’s boroughs (Queens, Brooklyn, Manhattan, etc.).

    Personally, I suspect the “changing global economic climate”, namely the expansion of debt and printing of money by Central Banks through Quantitative Easing and ultra-low interest rates, has more to do with price appreciation, than does population expansion.

    From 1990 to 2017, NYC’s population grew a total of 16%. Over the same time period, SF grew by 20%. We’ve discussed Toronto’s slow population growth ad nauseam here, so I’ll leave that one aside.

    The Economist had a great article a few weeks ago about the Bull Market in Everything, as prices of all assets are at frothy valuations (anyone looked at the P:E ratio of the S&P500 lately…):

    https://www.economist.com/news/briefing/21729988-low-interest-rates-have-made-more-or-less-all-investments-expensive-bubble-without-any-fizz

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