In The News!

Once upon a time, I’d come home from vacation and see 16 rolled up newspapers sitting by my front door.

But video killed the radio star, and online media has made my various newspaper subscriptions redundant.

Instead, I have a long reading list of links and URL’s, and I’m only now getting caught up.

I have a lot to say about the last week’s news, specifically as it pertains to real estate…

handsome young business man drinking and reading a newspaper

“New homebuyers getting squeezed out of Toronto market as government fees on new builds skyrocket”
Financial Post
May 1st, 2019

This is so eff-ing juicy, I can’t get over it!

Remember the blog post I wrote in March called, “What Does It Cost To Construct A Condo In 2018?”

Well the impetus for that post was the absurd amount of fees that our various levels of governments charge on condominiums, and my theory that this is the #1 driver of real estate prices in the city of Toronto.

Consider me feeling vindicated!

The sub-headline for the above article reads:

“Industry report shows government fees on a new, single-detached home in the GTA was about $186,300, or 22% of the full price, and it’s even more for a condo.”

Well, what did you expect?

Monday’s blog post about financial literacy spawned some excellent comments and insight, but the one I found the most intriguing was this one:

“Why practice financial literacy when the world (governments) is run in such a financially irresponsible manner? I truly ask this why would someone do this if there is no near and/or immediate near consequence?”

No kidding.

I make no bones about the fact that I’m a fiscal conservative, and even though we’re not supposed to talk about religion, money, and politics, I’ll go on record saying that I vote Conservative in elections.  But I’m also loud when it comes to the amount of money our government taxes us, and how they spend it.

Trudeau’s swarm of new auditors are like Donnie Brasco’s pals, sitting around a table talking about who they got their hooks into.  Lefty Ruggerio knows a maintenance guy at Laguardia who’s boosting shipments of car stereos, but CRA Auditor #24879 is going after a convenience store owner for an extra $2,200 in reassessments.

Off topic here, and I’m sorry, but read this:

“What happens when you offer ‘basic income’ for not working? People stop working”

And this:

“No wonder Canadian politicians are so popular. They keep giving away ‘free’ stuff”

I could go on here, but I’m already off on a tangent.

I believe that the role of a government is not to do what is best for the people.  It is not to guide, lead, and deliver.  It’s not to promote the general welfare of the people.

The true role of government is to stay in power.

And to stay in power, or win power, you need to win votes, and that means giving people things and spending money.

As our parents told us, “Money does not grow on trees.”  It grows inside the pockets of tax-paying Canadians.

As Monday’s commenter wrote, governments around the world are running insurmountable budget deficits, and spending money like it’s going out of style.  All this money has to come from somewhere, so why in the world should we be surprised to hear that the government is primarily responsible for running up the price of Toronto real estate?

Not the evil foreign buyer, not the well-off speculator, not the millennials with their parents’ money, not the greedy real estate agents, but the governments, who are responsible for almost a quarter of the price of a new home.

“Doug Ford plans to open up ‘big chunk’ of Greenbelt for development”
CBC.ca
April 30th, 2018

From the moment I read this headline, I knew this wasn’t going to be the end of the story.

In fact, I figured Kathleen Wynne probably saw this as her only real opportunity to get back into the race.

I thought it would get dirty, but so far other than Wynne saying that Ford would make the greenbelt “swiss cheese,” I’m surprised at how clean it’s been.

The left-wing Toronto Star jumped on board with this headline:

“Doug Ford assured developers he plans to open up Greenbelt to housing development”
Toronto Star
April 30th, 2018

The Star all but left out the part about him putting cute puppies in a wheat-thresher, and handing out “razor-apples” on Halloween…

For what it’s worth – I don’t like Doug Ford.  As a person, or as a politician.  But I despise the Liberals, and the NDP is completely redundant since the Liberals are actually more leftist than the NDP, so what the hell choice to we have?

As for the saga, it continues:

“Doug Ford reverses course on Greenbelt development after public backlash”
Globe & Mail
May 1st, 2018

Good for him, at least he’s listening to the public.  Which is more than I can say for Ms. Wynne.

Green Party leader Mike Schreiner called the notion that building on the greenbelt would help ease GTA house prices, “idiotic.”  But I’m not convinced.

Our city has always had a problem with supply, and adding more supply would easy the deficit between supply and demand.

However, as we’ve seen so far in 2018, the prices outside the core have levelled off.  So would building on the Greenbelt actually encourage more people to move outside the city, thus decreasing demand in the core?

Maybe, maybe not.

But as I have been saying for the last decade, what would ease the prices in the central core is rapid transit in the Golden Horseshoe.

If the provincial government wasn’t too busy spending billions of dollars buying votes in the election, and if the federal government wasn’t too busy giving our tax revenue to any and every bleeding-heart cause, perhaps they’d soon realize that almost a third of the country – 10,000,000 people, live in the Golden Horseshoe.  It is, without a shadow of a doubt, the economic engine of the entire country.

Both federal and provincial governments routinely shun the City of Toronto when it comes to expenditures, but eventually they’ll realize that this should be the primary focus, not the afterthought.

What if, and just humour me here – what if you could wake up every morning in your $150,000 detached bungalow in Niagara Falls, walk to the train station, and take a 25-minute bullet-train to Union Station?

Doubt me if you want, but I have one word for you: Shinkansen.

Have you ever been to Japan?  Have you been on the Shinkansen?  Click on that link – have a look.

These trains travel upwards of 320 KM/H.

And guess when the Shinkansen was first built?

Not 2018, that’s for sure.

Try 1964.

The infrastructure would cost tens of billions.  But so what?  If you added up everything Kathleen Wynne has promised to give away since the start of 2018, there’s a goddam bullet-train right there.

Tokyo has 285 stations, and a daily ridership of 8.7 Million people.  There are 13.6 Million people residing in metro Tokyo.

Toronto has 75 stations, and a daily ridership of 950,000 people.  There are 3.1 Million people residing in metro Toronto.

I know many of you are cracking your knuckles, ready to poke holes in my Toronto-vs-Tokyo comparison, but what’s wrong with a little day-dreaming?  I haven’t been on the subway in a decade, but I still see that public transit is the future of any growing metropolis.

But what if you took things a step further than simply “expanding public transit?”  What if you saw the end game of uniting the entire Golden Horseshoe through a series of investments in super-modern infrastructure?  Then not everybody who works in Toronto, which is the defacto capital of Canada, would have to live here.

It’s never going to happen.  There’s no real “advantage” in a 20-year project for a politician with a 4-year term…

“GTA millennials look farther afield after new mortgage rules”
Toronto Star
April 26th, 2018

I loved this part – just to crush our spirits:

“A peak millennial can purchase a home in Moncton, N.B., for the cost of the 20 per cent downpayment on a home in the market segment accessible to them in the Greater Toronto Area,” says the report.

Well, we can’t all live in Moncton, can we?

For what it’s worth, I haven’t had a single client under 30-years-old put his or her search on hold after January 1st.

Some of my clients saw their purchasing power drop, but only a handful of them actually bought for less than what they would have, could have, last year.

This was another thought-provoking part of the article:

The poll shows that renters save less than those who already own too. Renters had accumulated personal savings averaging $26,058, compared to home owners, who had saved $60,631.

I shudder to think…

“B.C. government targets tax evasion in condo market to keep prices down”
Globe & Mail
April 24th, 2018

Umm, a bit of a reach here, no?

“If at first you don’t succeed, try, try again.”  Or so the saying goes.

Vancouver’s foreign buyer tax and vacancy tax cooled the market………for about five months.

Now what, they’re out of ideas?

This isn’t about “keeping prices down.”  This is about collecting tax:

Finance Minister Carole James said legislation introduced Tuesday would require developers to collect and report buyer information on the purchase and sale of condos before they are built to ensure the proper amount of tax is paid.

The prices of so-called presale condominiums are inflated by people who buy and sell the properties without ever living in them or paying capital gains tax, she said.

I’m not going to debate the merits of collecting more tax revenue or not.

But I don’t like the false-assertion that this is about “keeping prices down,” as the Finance Minister continues here:

“This is a key step to stopping people from using presale condos as a quick, lucrative investment,” James said. “It’s also to stop them from driving prices up for British Columbians trying to get into the housing market.”

“Two JV developments to build 2,200 apartments in Toronto”
Real Estate News Exchange
April 27th, 2018

Why didn’t this get more attention?

Why didn’t I see this in any of the major newspapers?

Send me the links if I’m wrong, but isn’t this a major victory for the rental market, not to mention for affordable housing?

The project will apparently include 30% of units as affordable housing:

The development is to be built in stages and include approximately 1,500 purpose-built residential units, up to 75,000 square feet of retail amenity space, and possible future office building. The first phase will feature approximately 750 rental units and 26,000 square feet of retail which is zoned and approved by the City of Toronto.

That’s as positive a thing as you’ll see in the Toronto media as it pertains to real estate, so let me end it there, and bid you a good day!

83 Comments

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  1. Tommy says:

    There isn’t a supply problem in Toronto, and developers and their contractors are working at full capacity. The fact that half of condos are sold to investors/speculators means that when appreciation disappears next year, they will begin off loading their units and suddenly there will be a glut of supply.

    We’ve seen this movie before. In 1989, the market would never crash due to foreign investment, strong job growth, strong demand. Then it did a year later and only recovered 12 years later. When adjusted for inflation it took 20 years to recover (so around 2012).

    All metrics point to a correction in the near future. Record mortgage debt, record consumer debt, record HELOC usage, growth in part-time low wage jobs, increasing interest rates, stress test, strong investor/speculator component in the market, record high condo prices, uncertainty over trade, record government debt, unrealistic expectations from millennials of buying a house when they’ve only managed to save $5k, inventory growing rapidly, sales volume way down to 2001 levels.

  2. Housing Bear says:

    As per some of my comments from yesterday ……… keep an eye out for increasing amount of stories about bad debt, ruined households and fraudulent activity.

    http://www.macleans.ca/economy/realestateeconomy/toronto-real-estate-losses/

    Just the tip of the iceberg folks. Who knows how deep this rabbit hole goes.

    Never just one cockroach in the kitchen…….

    1. Tommy says:

      Looking forward to it. I hope it’s fast and fugly. I want to buy a 4th investment property but the costs (even with a large down payment) don’t make any sense and haven’t for several years. The unsustainable prices of 2016 and 2017 still have not subsided to any significant degree. The power of regression to the mean, means that prices must fall quite a bit further for the market to be properly re-balanced.

      When two bedroom condos are going for $550k – $650k rather than $800k+ we’ll be back in a very expensive but balanced market.

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  4. Kyle says:

    OMG, it’s been a long day and my brain is fried….

    Should actually say,”“You would need condo prices to fall by about 33K per year (i.e. 1 year rent + principal repayment in first year) in order for that gamble to come out ahead.

    1. Housing bear says:

      Should be one years rent- cost of interest

      1. Housing bear says:

        What you pay and never get back from Landlord vs what you pay and never get back from bank.

        Further considerations would include how much more debt costs if you buy a year from now (even at a lower prices) and rates are higher. Works against those waiting on the sidelines.

        Vs how much future income I can on interest payments if buy price falls by x vs my rent. This is if rates are the same.

        If paying cash it’s simply sticker price decline vs rent

        1. Kyle says:

          Your math is right, i stand corrected.

          Point is by renting/waiting instead of buying the risk/reward payoff is heavily skewed toward the downside, since prices must fall fast and by a lot before you can even start making a return. If prices don’t fall by enough you lose, if prices stay flat you lose, if prices rise you really, really lose. Only if prices fall by more than the diff between rent and interest is it possible to win.

          Contrast that to buying something you can comfortably afford that you plan to stay in for along time, instead of renting. The risk/reward payoff is heavily skewed to the upside, with very limited downside.

        2. Potato says:

          No, you guys, there are rent-vs-buy calculators out there so you don’t have to try to re-derive it from first principles on the fly (PS., don’t forget investment return on the downpayment, maintenance and condo fees, insurance, property taxes, and transaction costs). Short answer: it depends on a lot of assumptions and the price:rent. For ~ 225X, the renter comes out ahead if the condo doesn’t appreciate by at least inflation. At ~400X (like in the detached market in the northern reaches of the city) the renter comes out ahead if appreciation falls below ~6-7%/yr. So no price decline is needed at all for renting to be a fine move, just a cooling.

          The risk profiles are quite different, there are non-financial factors at work, etc. etc.

          1. Chris says:

            I agree with Potato, while it’s commendable that you two are breaking down the math of Rent vs. Buy for bal, there are pretty comprehensive calculators that do this already.

            One great example is provided by the New York Times, where you can adjust for property price, interest rates, maintenance, expected home price appreciation and other investment return, length of time you’ll live there, etc.

            https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

            bal, if I were you, I would run through a number of scenarios, crunch the figures, and then decide what is going to be best for you and your family. As Potato said as well, there are a number of financial, and non-financial things to consider.

            One caveat to all of this is that, if you rent rather than buy, you need to have the discipline to save and invest the difference. Otherwise, you’re probably better off buying, if only for the “forced savings plan” aspect of it.

  5. Kyle says:

    Sorry another correction. Should say, “You would need condo prices to fall by about 13K per year (i.e. 1 year rent – principal repayment in first year) in order for that gamble to come out ahead.

  6. steve says:

    Sales continue to decline … how long before prices follow?

  7. Appraiser says:

    Months of inventory in the GTA is 2.5

    Months of inventory in the 416 is 1.9

    Balanced markets have 4-6 months of listing inventory.

    1. Ralph Cramdown says:

      Serious Q: How many months of inventory does an auction house have?

      If every seller’s instructions are “list it at 10% below comps and sell to the highest bidder 8 days later” then you’re going to have 8 days’ inventory all the time, whether prices are rising, falling or flat. Not every seller in today’s market is doing that, but a lot are. Maybe months’ inventory made more sense when agents tried to list at or slightly above market, and selling after 50 DOM wasn’t considered a pricing failure? MOI says this is a strong sellers’ market, but TREB says the HPI is flat. Just thinking out loud here.

      1. Appraiser says:

        Re: Listing Inventory: Your red herring references to an auction house are nonsensical, as are your empty speculations about what you apparently believe sellers are doing based on some mysterious “instructions” from the nefarious “real estate cartel.”

        Get a grip Ralphy.

        1. Ralph Cramdown says:

          I think you misunderstood. “Instructions” were meant to refer to the seller’s instructions to his broker.
          https://en.oxforddictionaries.com/definition/instruction

          1. Appraiser says:

            Still fucking nonsense.

          2. Chris says:

            You stay classy, appraiser.

        2. Housing bear says:

          Appraiser, I get that you are probably angry and scared right now as your industry has taken a 30-40% haircut on average so far this year. Paid on volume no? Positive blogs like this are probably your refuge and I’m sure it’s frustrating when people like me come here to point out that there are factors at play that go beyond any single government, the desirability of any specific home type or neighbourhood, or even the percentage of people who don’t own yet that would like to.

          Search credit cycles. Search Stephen Poloz and read about the pickle he is in right now trying to balance inflation, with rising rates and the debt in our society.

          I feel bad that pain is coming for you, I could just stick to bearish blogs and let you have a couple more months of bliss……… but then I wouldn’t be able to explain to people like Bal that a purchase today could easily be financial suicide

          1. Appraiser says:

            Rank amateur.

          2. Housing bear says:

            Well hopefully you have enough of the former. And actually should be a busy for appraisals in any case. 47% of mortgages are up for renewal and something tells me the banks are going to be taking a much harder look at what they are exposed to.

  8. Appraiser says:

    Average prices back over $800K, low listing inventory, near full employment and “Real GDP by industry grew in every province in 2017, StatsCan says” http://www.cbc.ca/news/business/real-gdp-growth-industry-statistics-canada-1.4644940

    Yup looks like a housing crash to me.

    1. Chris says:

      Active listings up 40.8%. In March, active listings were at their highest since 2014:

      http://creastats.crea.ca/treb/images/treb_chart03_xhi-res.png

      Yup looks like “low listing inventory” to me.

      As for “Average prices back over $800K”, this equates to a 12.4% decline from April 2017.

    2. Housing Bear says:

      New listings down 24% YOY but total inventory up 40% YOY…………….. Its funny, the industry likes to declare that you should ignore all the comparisons to last years numbers because they were not normal OTHER THAN new listings………. We had a huge spike of new listings the second half of April 2017 through May and June last year……. way above normal trends…… shoulndn’t we ignore that too?

      In regards to those economic numbers……… that is all 2017. Notice how for Ontario they point out “services” accounted for 80% of our growth but did not define which “services” like they did for every other province?

      Ontario had record growth in new construction starts last year (service), RE sales and numbers as a whole were still above long term trend because of the craziness at the start of the year. RE agents, home inspectors, staging companies…RE lawyers……APPRAISERs are all services. Those later services have been taking a 30-40% YOY haircut each month so far this year.

      Here’s my prediction. Prices will be up MOM in May vs April (happens every year except for last…. lets blame that on fair housing plan) but will still be down YOY vs May last year. June through August prices will trend down MOM (as they do ever year). At this point the industry will stop comparing MOM because “Seasonality, we always see MOM declines in the summer”. August 2018 might actually be up YOY from Aug 2017. Industry will claim victory!

      By the fall, I believe we will start to hear more and more stories about households who are unable to refinance, 47% of mortgages are renewing this year…….. We will start to hear about more fraud and shaddy lending activity…..How did these households get their mortgages in the first place……….. I do not thikn we will be in full blown panic mode by the fall though. YOY i think the fall of 2018 will be almost on par with most of the metrics of 2017. Winter months will start to look really scary. Think we will be in full blown panic mode by spring of next year at the latest.

      If over the next 8 months as 47% of mortgages renew, we are not hearing stories about bad debt, shady lending, and or increasing inflationary pressures…… then maybe I will turn out to be wrong.

      Just be patient my friend

      1. bal says:

        Housing bear…you sound overconfident. some of the houses in my neighbourhood I thought will never sell without reducing the price..but to my shock, I just saw sold signs..:)

        1. Housing Bear says:

          Sales down 30% last month YOY, not 100%. Again, house prices do not correct like the stock market, just look at the US ten years ago. Peak pricing reached in 2006. Signs of debt issues in 2007, and panic building in secondary markets. By end of 2008, full blown panic, credit crunch and financial crisis. 2012 prices hit their lows. If Canada were to follow this playbook, peak prices 2017. Signs of debt issues in 2018 (have seen some already). Panic building in secondary markets (Richmond hill, vaughn, Newmarket). 2019, full blown panic……….

          If you would like to provide the neighborhood or street I would be happy to do a quick search on Housesigma to see how that area has fared as whole over the last year and what the final selling prices were.

          1. Housing Bear says:

            Also there still could have been non B20 pre approvals kicking around in the market last month. Those are all done now. If somehow May is down MOM from April then things could be worse then I am predicting. For the record I think prices will up MOM for May this year.

          2. bal says:

            the only reason I am reading and responding to this blog as I am looking myself to buy….but when I read all this.. I just get confused…. don’t know should I buy or wait…buy or wait…lollol

          3. Kyle says:

            @ bal

            If you truly want to buy, my advice is to buy when you are financially ready, when it makes sense for you to buy and when you find the right home. Trying to time the market, IMO is a terrible idea.

          4. Housing Bear says:

            Timing the market is tough, and one of the first things you will hear from most financial advisers. The second thing you will hear is not to put all of your eggs in one basket.

            By most indications we are nearing the end of a credit cycle. Debt dependent assets do not do well when credit shrinks. If you absolutely have to buy (partner will leave you otherwise or you are about to have kids), and are looking in the GTA or GVA I would highly recommend that you make sure its a place you can easily afford now and with higher rates and payments in the future. If you have a job you could lose make sure you have a big buffer zone in savings. Also be prepared to live there for at least 10 years.

            If you can wait. I recommend renting a new condo from one of those socialist landlords that lose money month over month out of the goodness of the heart.

          5. bal says:

            Thanks, Kyle for your advice.
            Housing Bear- you know I was about to sign the deal in 2016 but I kept thinking and thinking.. .I missed the deal and right after that house price skyrocketing. I could not afford. I felt horrible for not buying in 2016. Now, I am thinking I should buy anything before the market goes up again this year. So far whatever I like, is getting sold fast 🙂 and whatever I don’t like, sitting in the market….lol lol…. Maybe you are correct….Maybe I should just rent….but what if the market go higher next year.I might kill myself…lollol ( just kidding). Thanks for your advice though…By the way, I don’t think that you are a realtor. are you? you cannot be otherwise you would have told me …buy now..buy now…lollol hope you are not a loser like me either..lol

          6. Housing Bear says:

            Well I am renting right now…….. but thats because I sold my house last year and figured I would try to time this bad boy out. Really lucky in that I got pen to paper two weeks before fair housing plan came out. (very lucky) Do not know if that makes me a loser or not.

            I wouldn’t worry missing the boat in 2016 however. A lot of the industry has already started to say “forget about 2017, not normal. Lets compare to 2016″…… Have even heard a couple agents starting to say 2016 was also not normal and we should be comparing to 2015 instead………. In my opinion the real craziness started in 2015 right after oil collapse and our rates got dropped from 1% to 0.5%……. Predict the industry will be using this as a bench mark soon enough

          7. Kyle says:

            As Housing Bear suggested, if you are planning on staying there for a while, then you are pretty insulated from risk if you are buying. If the market goes down, you have until you sell for prices to recover. Your downside, is that you may have been able to buy for less (assuming you timed it perfectly). If on the other hand prices go up your payments are locked in from now until your renewal.

            However if you rent in hopes of prices falling, your risk profile changes. I don’t know what you’re planning on buying, but lets use a $450K, 1 bedroom condo as an example, and say you wait for 1 year for prices to fall. 1 Bdrms now rents for just under $2000/mth these days, so let’s pretend you had 20% down. You would need condo prices to fall by about 9K per year (i.e. principal repayment in first year) in order for that gamble to come out ahead. Could happen, but….if prices rise (which they have been) then now you are out by 9K in sunk rent and will be forced to pay more or risk having to settle for a lessor condo 1 year out.

            Personally i know for a fact i don’t have the ability to time the market perfectly, so i would rather buy now and lock in a price i am comfortable with, rather than risk sinking money into rent and hoping that prices come down enough to make that gamble worth while, and also potentially risk seeing prices rise further and potentially pricing me out of the market.

          8. Kyle says:

            Sorry meant to say, “if prices rise (which they have been) then now you are out by 24K in sunk rent and will be forced to pay more or risk having to settle for a lessor condo 1 year out.

          9. Kramer says:

            Bal, I just posted this in an older thread… may be applicable… (and kyle i refer to your comment about potentially living paycheque to paycheque being a near-certain ‘no not the time to buy’)

            Some opinions (and that is all) from a random person:

            Don’t try to time the market or any markets. Base it on your financial situation and your long term objectives.

            It depends on your age, holding period/time horizon for the property, security of your employment, potential for future increases in income (i.e. raises)… are you contributing to an RRSP program through your employer before the paycheque is printed? Are you a teacher and part of a pension program? Etc. All needs to be considered. Regarding Kyle’s comment… I think his comment is based on the fact that if you’re living paycheque to paycheque with no buffer/savings and if that is a reflection of the next 10 years in the condo, then you will not be growing a diversified investment portfolio… so the RRSP/pension question is especially important.

            It also depends on if you could find a unit that you would be truly happy living in for the next 10 years and there is no risk of you having to sell under duress (because that could happen at a time where the market is not in your personal favour).

            Also as my old man always said: you should buy real estate when you NEED it… his translation to that is it’s a long term commitment, you no longer need flexibility to move to another city for work or any other big life things.

            Net: it depends on your whole situation. Focus on that and not timing the market.

          10. Professional Shanker says:

            Purchase the house and purchase staggered put options against the an ETF which is linked to Canadian lending. That way you will sleep easy at night.

      2. bal says:

        Thanks, Kyle and Housing Bear…

        1. bal says:

          Thanks, Kramer…I just read your comments just now…well we all don’t have that much money saved up…and no one knows about job security…. I know at one point, I will need to take some risk….but don’t know if this is the time to take a risk..lol…but I believe whenever I will take, in the beginning, it will be scary and I will need to make a firm decision. Holding a property for 10 yrs is a long time and I have no idea how future will unfold….I have seen people taking money from credit cards and taking big mortgages in 2016 and their risks paid big time…they made huge profits… I don’t have that guts. I think I want to play safe and also want to make sure I don’t lose money…lolol.. as like everyone I work hard to earn my living..Yes, I am looking a house to raise my family. I will need to buy a starter home and planning to move to next house within five years. Thanks for all your help….

          1. Kramer says:

            Good luck Bal.

            Risk is not a bad thing in the right context. Portfolio Management revolves around the exposing a portfolio to risk… the suitable level of risk for the risk tolerance of the investor. Risk tolerance of investor is based on both willingness and ability to take risk. Ability to take risk depends on time horizon, etc. Risk tolerance dictates the risk to be taken, which dictates the expected returns.

            Your family home situation shouldn’t be risky (the bank will see to that hopefully) and shouldn’t be viewed as an investment.

            Don’t admire idiots who have treated their family homes as a gamble by making it risky by taking on risk way above their actual risk tolerances that could have destroyed them financially.

            Save your ‘risk budgeting’ for your investment portfolio.

          2. Condodweller says:

            @bal if you are still reading. There is nothing wrong with being risk-averse, however, it’s been said that the biggest risk most people take is not taking any risk at all. Calculated risk is a good thing. Don’t let a little risk scare you out of action, but also don’t take on unnecessary risk for fear of missing out. It’s okay to miss an opportunity as there is usually another one later, but if you take on too much risk it can ruin you financially that you may never recover from. Calculate the downside risk by considering the worst case scenario (5-30% price declines, 5-10% interest rates, job loss) and be sure you can either withstand it financially or have a viable exit strategy before pulling the trigger.

  9. Appraiser says:

    Great article regarding Toronto transit from the Globe and Mail last year. I was pleasantly surprised to learn of how many transit projects are actually underway and of those that have been approved.

    https://www.theglobeandmail.com/news/torontos-grand-transit-plan-maybehopefully/article29194407/

    1. Carl says:

      Don’t hold your breath. Two elections coming up, Ontario and Toronto. It wouldn’t be the first time if the new government cancelled transit projects approved and under way.

      1. FreeMoney says:

        Doug Ford would never cancel transit projects. That would be Henry Ford.

  10. Appraiser says:

    TREB sales data for April has been released. Average price $804, 584. That’s down 12.4% from last year’s all-time peak, but up 8% from April of 2016.

    It also marks 4 months in a row of average price growth in the GTA. Surprisingly perhaps, new listings are down 24.6% vs. last April.

    What happened to that U.S. style housing crash that the bears have been predicting for the past decade? I know, I know, it’s just around the corner.

    1. Chris says:

      April 2018 Year over Year Statistics

      Sales: -32.1%
      New Listings: -24.6%
      Active Listings: 40.8%
      Average Price: -12.4%
      Days on Market: 122.2%

      Full report, without Appraiser’s spin (but with Jason Mercer’s and Tim Syrianos’ instead):

      http://www.trebhome.com/market_news/market_watch/2018/mw1804.pdf

      Or you can read Bloomberg’s take on it:

      https://www.bloomberg.com/news/articles/2018-05-03/toronto-housing-sales-are-off-to-weakest-start-since-2009

    2. Housing Bear says:

      Appraiser, you must be pretty new to the industry. Find me one year where prices do not increase January- Spring and then do not decrease from June-august. Normal seasonality.

      The US style crash took 6 years to play out. Be patient my friend.

      Few relevant articles from last week that David missed.

      http://www.cbc.ca/news/business/cmhc-housing-forecast-1.4636620
      The Canadian Mortgage and Housing Corporation points out large vulnarabilities in certain regions. Think TOR and VAN.

      and
      https://www.bnnbloomberg.ca/royal-bank-joins-td-in-raising-fixed-five-year-mortgage-rate-1.1067804
      Woah! banks can raise rates on their own?

      Can’t beat the credit cycle.

      1. Appraiser says:

        “Normal seasonality”

        Sounds like someone reads Ben Rabidoux’s tweets besides me. So we are all agreed then – the market is “normal” for this time of year.

        Funny, I thought that was ‘unpossible’ in a weak and declining real estate market. Huh.

        1. Housing Bear says:

          Normal for prices to trend up between January and May, then normal for prices to trend down between June and August. Happens every year. Even when we are in a long term up trend. Why would we not see these patterns play out during a longer term down trend?

          1. Appraiser says:

            What “long-term” downtrend are you referring to. Nono, don’t tell me, the one we are going to have one day. Got it.

            Hey Bear (Ben “wannaberealestateguru” Rabidoux fanboy), the correction is history.

            Quit looking in the rear-view mirror.

          2. Housing Bear says:

            Until household debt levels are squeezed and tested I would argue that the correction has barely begun. I am not basing my predictions on anything to do with RE for Dummies type material, I would agree that there is still a lot of demand for GTA real estate.

            This all comes down to larger macro economic principals that can affect any asset class. Specifically unsustainable debt loads will fail once the credit cycle reverses………..it has started to reverse…….. we just haven’t seen much of the existing mortgage debt reprice yet. 47% reprices this year.

    3. Housing Bear says:

      I should also add

      https://www.theglobeandmail.com/investing/markets/inside-the-market/article-canada-australia-sweden-listed-among-countries-most-at-risk-of/

      Basically, the western world advanced economies that escaped the last financial crisis, have levered themselves up to the levels of the worst offenders from 2008. We got the same low interest rates those nations did (we have to follow the fed) however our households added way more debt to their balance sheets while the impacted areas reduced debt.

    4. Ralph Cramdown says:

      With apologies to William Gibson, it’s already here; it’s just not evenly distributed. Look at dollar volumes, and April’s numbers are crap even if we forget 2017 ever happened and compare to 2016. So there goes the income of the real estate, finance and renovation sector. Do a differential to discover 416 is not-quite-so-crappy and 905 is even crappier. Look out West and discover that lower mainland volumes have gone to crap too.

      https://www.bankofcanada.ca/rates/banking-and-financial-statistics/selected-credit-measures-formerly-e2/
      Oops, household credit growth has gone to crap. Alas, the bond market is showing no pity, and the mortgage qualifying rate is likely to bounce 20 bps next week, shaving another 1.5% off some peoples’ buying power, and curtailing the negotiating position of more mortgage renewers. Crap!

      On the upside, 416 detached averages and medians look like they might surpass last fall’s level, starts and units under construction (= well paying employment) are higher than last year, and there is so much freakin’ economic uncertainty (NAFTA, Trump, Ontario elections &c) that practically any news may well be viewed as an upside surprise.

  11. steve says:

    When you fly over Toronto, you immediately see what we are dealing with ….. a concentration of towers downtown, and the rest of the landscape is mostly 2 story buildings … even along major transit routes.

  12. Parkhurst.bessborough says:

    Loved this blog. You managed to touch upon at least half a dozen issues, incorporating politics, real estate, and common sense. The politicsl games are depressing, but you are bang on.

  13. m m says:

    I love your posts that stay on the topic of real estate. I have learned much from years of reading your blog. You are great with that topic. Politics, not so much. I know you’re on vacation and all, but it almost sounds like Timmy Hudak ghost wrote this post.

  14. Carl says:

    So the new theory is that “the absurd amount of fees that our various levels of governments charge on condominiums […] is the #1 driver of real estate prices in the city of Toronto”. What happened to the old theory of supply and demand?

  15. Fordoofus says:

    [Caution: hyperbole alert!]

    “I don’t like Doug Ford” yet “I vote Conservative in elections” is like saying “I don’t like that Adolf fella, but those National Socialists have some pretty good ideas.” Cue the outrage!

    1. Ralph Cramdown says:

      Obviously it’s because his local candidate is a star.

      1. Fordoofus says:

        Ralph, I assume you’ve read “Manufacturing Consent: The Political Economy of the Mass Media” by Noam Chomsky and Edward Herman (it sure sounds like you have). Even after thirty years, it’s difficult to refute the book’s analysis and assertions.

        1. Ralph Cramdown says:

          I haven’t read it, actually, though Chomsky is on my list of reading to get to, someday. Maybe I’ll watch the documentary tonight.

          JK Galbraith’s work has been influential, especially The New Industrial State. Ogilvy’s Confessions of an Advertising Man. I’ve read a lot in the last few years about cognitive bias and behavioural economics.

          But really, one could probably pick a lot up just by studying the Ontario real estate industry during the last few decades. It’s blossomed from TREB’s laughable old reports, where they’d just highlight the biggest winner (“Agincourt! Sales up 120% and prices up 17% year over year!” i.e. 11 units) to today’s shuck and jive where the industry can simultaneously maintain that foreign money/immigration is driving prices up, is having a minimal effect, and has an unknown effect (so we should spend a few years gathering data before changing any rules). The industry drives memes into the media, one after another: Get on the property ladder, single women aren’t waiting to buy condos, parents are gifting down payments to adult children, parents are buying their six year olds condos, grandparents are taking out reverse mortgages to help their grandchildren into the market.

          Organized real estate told us that prices were going up because supply and demand. Now they’re high, but it’s actually the government’s fault because of high development charges. But if prices go down, that’ll be bad too, of course, and will also be blamed on the government. Obviously the ideal world is one where prices are affordable for young buyers but high for old sellers, transactions are quick and friction free (except for that five percent, which the other guy pays anyway), sellers always get the highest price but buyers don’t have to compete in bidding wars, everyone on your street knows what you got but no potential buyers have access to sold prices, buyers are savvier than ever but see the value in paying extra for rented furniture and San Pellegrino, it’s easy to borrow against your equity or refinance but you never have to pay it back, the economy will do well but interest rates will stay low, we can run trade deficits forever without having to pay the piper, and government will build bullet trains but not raise taxes or run deficits. Increased density is necessary and good… somewhere else, I want transit for the other folks so I can drive faster, and government is a meddling, interfering brute which has no right to tell me what I can or can’t do with my property, but had damn well better stop my neighbour from doing anything objectionable with his.

          1. steve says:

            Hahaha … that’s about the size of it.

          2. Libertarian says:

            that last paragraph is the definition of what wrong with society today. Everything is….I want what I want and screw the rest of you. I’m old enough to see that his has changed over the years. The question is why. My guess – started with the first Trudeau and gov’ts deciding to become big social spenders because the gov’t didn’t have any wars to fight. The last 40 years have been relatively peaceful on a global stage. Or at least more peaceful than previous generations.

    2. LazyParker says:

      Of course no one believes Doug Ford is Adolf Hitler. And no one believes Kathleen Wynne or Andrea Horwath are Karl Marx. (Well, except David…)

  16. Kyle says:

    I am all for more high speed rail and transit investment, but the reality is Southern Ontario and Toronto are so far behind where we should be, that we will never ever catch up. At this point, rather than trying to furiously build infrastructure that helps move people around, i’d actually rather see Governments spending on infrastructure that reduces or eliminates the need for people to move around.

    Unless a job involves physically handling things, much of it can probably be done remotely. If everyone could even work 1 day a week remotely, you’d basically eliminate close to 20% of the traffic. 2 days a week and you reduce 40% of traffic. With 40% less traffic, on the remaining three days a week were you have to work, living outside of Toronto in places like Hamilton, Port Hope, Barrie, Collingwood, etc becomes a lot more attractive.

    1. Colin says:

      > With 40% less traffic, on the remaining three days a week were you have to work, living outside of Toronto in places like Hamilton, Port Hope, Barrie, Collingwood, etc becomes a lot more attractive.

      Unfortunately, induced demand would be a effect of reducing commute times and congestion on highways. People may choose to take jobs in Toronto instead of a local job if what was once a 60 minute commute becomes a 35 minute commute. We’ll be in the same place as we started.

      Despite the high cost of building rail infrastructure, building, maintaining and clearing snow from highways is also extremely expensive in the long run.

      1. Kyle says:

        That’s definitely a fair argument. Clearer roads, mean more people will want to use them which will offset the benefit. Maybe tax incentives for businesses to decentralize their locations is another remedy. Not every downtown company needs to have everyone working from that downtown location each day. That shift is already happening and it’s been fueling a lot of the growth in companies that facilitate working from somewhere other than a downtown head office, like WeWork, Slack and the many cloud based applications. IMO that is where the future of working is heading, i’d rather Governments invest in that transformation, rather than trying to catch up on outdated modes of transportation.

  17. Natrx says:

    I agree on the rail infrastructure. One leading to Hamilton/Niagara area. Another through Waterloo to London. Every ‘infrastructure’ project is spent on repaving existing roads, digging a hole and then filling it back up, or refreshing current bridges. We need real improvement which has pretty much stopped since the 60s (if they could build the 401 back then, as they did the TTC, why can’t anything get done today?… of course too many rules n regulation affects nowadays).

    The Millennial generation also want to live in the Downtown district, and many will stay there at higher rates (smaller families, tighter living is accepted) vs wanting to move out into the suburbs. So building out more in the Greenbelt is not the solution.

    Regarding all this ‘Scare’ talk, as long as people are employed, they will DOWNSIZE their expectations and carry on. People that would have bought a $2 mil. last year will buy a $1.5 mil. place this year. That $1.5 mil place purchaser will buy a $1.0 mil. place today with the trend continuing downwards. As long as people are working, they’ll find and want to find a way. The marginal buyers last year will may not buy this year, but their segment will be taken over by the group ahead of them (500K budget vs 375K budget).

    1. Chris says:

      “The Millennial generation also want to live in the Downtown district, and many will stay there at higher rates (smaller families, tighter living is accepted) vs wanting to move out into the suburbs. So building out more in the Greenbelt is not the solution.”

      In the United States at least, this doesn’t appear to hold true.

      “Academics began theorising that perhaps the “back to the city” movement would endure, driven by millennials who cared less about white picket fences than about being within strolling distance of cafés hawking cold brew and avocado toast. Recent migration trends suggest otherwise. Analysis of United States Census Bureau data by William Frey, a demographer at the Brookings Institution, a think-tank, shows that lower-density suburbs and exurbs—areas separated from cities by rural land—have been growing more quickly since the Great Recession, while the growth of urban cores is slowing. Since 2012, considered the peak year of the urban renaissance, the growth of urban cores has fallen by half and exurban county growth has quadrupled.”

      https://www.economist.com/news/united-states/21740775-1970s-violence-drove-americans-suburbs-time-its-property-prices-high

      1. steve says:

        People are re-discovering the burbs. More space, newer buildings (although often poor quality), and less transients ….

    2. Ralph Cramdown says:

      Millennials will “want” whatever it is that the rich have to sell, because that desire will be manufactured.

      It’s no accident that, after the housing collapse in the US, and particularly the collapse of the suburban and exurban new home building/lending industry, the media was full of stories about how then-young millennials “wanted” downtown places where they didn’t need the cars that they couldn’t afford. Now that the home builders and lenders are back on their feet, millenials “want” houses with yards to play in and garages to store all the crap that they supposedly didn’t “want” just half a decade ago?

      Want being created/kindled, low end: “Want fries with that?” — McDonalds employee.
      High end: “When you ask Canadians, they say one of the defining characteristics of the middle class is home ownership.” — Tim Hudak, OREA CEO and former Ontario PC leader, who is probably lying about the asking part.

  18. Zar says:

    Smaller developments will be hurting a lot, singles/semi’s development charges will double by 2020 (from $41 251 today to $80 227 by fall 2020). So much for the missing middle.

    https://www.toronto.ca/wp-content/uploads/2018/04/8e62-DC-Review-Fact-Sheet-April-27.pdf

  19. Misha says:

    Development costs: I agree they are a bit high, but they are priced into the cost of land, and only have impact in two situations: (a) if the charges increased after the land was bought, which is only relevant in the short term, or (b) if these charges made development too expensive compared to not building anything. There is definitely some housing that is not getting built because of the impact of development charges, but to the most part it’s really an indirect tax on land owners that saw the value of their land increase.

    Opening the Greenbelt: it will for sure bring the prices down a bit, but it will also make the congestion worse for everyone compared to directing most new development to areas that are closer to the centre and with some transit access.

    Bullet trains: because of their costs, they usually can only compete with flying, and are only affordable as a commuting alternative for a tiny fraction of the population. What should be done is improvements in regional express rail, which is only viable alternative in a huge region like the GTA (some new subway service might be justified, but the subway is just too slow). This is exactly what the government is doing through Metrolinx by converting the GO network into an all-day, two-way system, even if the process is painfully slow and would benefit for faster implementation.

    1. Kyle says:

      Just to be clear, development charges are not priced into the cost of purchasing the land and they are not paid for owning the land. They are only paid when the owner wants to build something on the land.

      1. Misha says:

        You are right. By “priced in” I meant that the cost a developer is willing to pay for the land is defined by the costs of development, profit and profit margin and risk, so development charges are already factored in as part of the costs of development.

  20. Chris says:

    “The poll shows that renters save less than those who already own too. Renters had accumulated personal savings averaging $26,058, compared to home owners, who had saved $60,631.

    I shudder to think…”

    Correlation does not equal causation. Without controlling for other variables such as incomes, I wouldn’t be too quick to base conclusions off that statistic. Is it that millennials who buy homes are more disciplined savers? Is it that they have reaped the benefits of rising property prices? Or is it that millennials with higher incomes are more likely to buy a home, and thus also more likely to have more money saved as a result of their higher incomes?

    ” “B.C. government targets tax evasion in condo market to keep prices down”

    Umm, a bit of a reach here, no? This isn’t about “keeping prices down.” This is about collecting tax”

    I don’t understand how anyone can have an issue with this? This isn’t a debate about a new tax, or higher taxes, or anything of that ilk. This is about enforcement of the current tax law, and targeting of illegal tax evasion. If one has objections to the current tax code, well, we can certainly debate if we believe that it should be changed. But the article merely suggests that the current tax laws should be enforced, and that those who would skirt them should be subject to scrutiny and punishment. I really don’t see how any honest person could disagree with that.

    The BILD advertorial has already been addressed by other posters, so I won’t bother wading into that mess.

    1. Ralph Cramdown says:

      Pull apart Royal LePage’s “poll” and you’ll discover that their composite “typical” peak millennial is a couple of 28 year olds with a household income of $76,000 who’ve managed to save $85,000 for their down payment + closing costs with no help from their parents. If anyone reading this fits or has fit that description, I say congratulations! If anyone’s trying to make a living in real estate catering to people like that, I say good luck.

      Royal LePage isn’t going to argue with you about whether their numbers are loony or whether correlation implies causation, the junior reporters on the real estate beat don’t have the time or the inclination to drill down into the numbers, and David’s just blogging about what he’s read in the papers. As far as getting the message out, it’s mission accomplished for organized real estate.

  21. A Grant says:

    Expand public transit. Absolutely. I agree that high-speed rail is an excellent option for the Golden Horseshoe. The problem is how to pay for it (I would suggest using toll roads to fund public transit investment, but that’s a political non-starter)

    1. A says:

      Just on the rapid transit point – votes are rich in the urban centres. So building mass rapid transit from say Niagara which can have the effect of depressing home prices might be political suicide.

    2. Kyle says:

      It has already been approved and is being funded by the Provincial Govt. Projected to start running in 2025

      https://www.ontario.ca/page/high-speed-rail#section-6

  22. A Grant says:

    First, that BILD Report. Anybody care to post a link to it? So far all I can find is the press release on the BILD site, which was simply regurgitated by the Financial Post.

    Secondly, the wording in the Financial Post is as follows: “The report … showed average cost from government charges on a new, single-detached home in the GTA was approximately $186,300. This accounted for about 22 per cent of the price of an average home.

    The fees include development charges such as property taxes, utility costs and building permits.”

    Which implies that the “government charges” are made up solely of property taxes, utility costs and building permits. In fact, as noted in BILD’s news release, only “some” of the government charges listed above include development fees. I’d like to see a breakdown of everything BILD considers a “fee/government charge”

    Also, a chunk of the fees cited in the press release (HST; property taxes) are based on the overall price of the home. So by cherry-picking a date – say 2004 – BILD can note that government fees have risen by an exorbitant amount. When the fact is these fees have only increased in relation to the costs of the homes themselves. Which shouldn’t be surprising.

  23. RPG says:

    Great work on this one David!
    Tough to not get political in today’s climate, but politics is in everything we do.

  24. Carl says:

    Taxes are only a small part of government influence on real estate markets. Over the last ten years, the largest government distortion of markets, if you want to call it that, has been the availability of cheap money. It was engineered by governments and central banks to deal with the Global Financial Crisis and its aftereffects. The result was rapid appreciation in many asset classes, including real estate. This is a worldwide phenomenon. Toronto real estate is just a small part of it. Compared to that, the combined effect of all the other government actions on markets is small potatoes.

    If you want less “interference” by governments and their agencies, your wish will be soon granted. Central banks are starting to take back the extra money that they injected into the economy after the GFC. This is a new situation, so nobody knows how it will turn out. Maybe commercial banks will pick up the slack by issuing even more loans, so households will become even more leveraged and we will all just merrily move along. Or maybe not. We’ll see.

  25. Ralph Cramdown says:

    Where can I get a new build detached house in the City of Toronto on a 36′ lot for $930,000? That’s the number BILD used in their report on development charges. Oh, and their “development charges” include a homebuyer’s CMHC insurance premium – which isn’t ever included in the sale price, and HST (because I guess it’s a rental, wait don’t rentals need 20% down and thus not need insurance?), and full land transfer tax, so not a first time buyer I guess.

    Garbage in, garbage out. Local builders’ association pastes up BS report, talent and content starved local media report it uncritically. This sentence is a gem, though: “Industry report shows government fees on a new, single-detached home in the GTA was about $186,300, or 22% of the full price, and it’s even more for a condo.” Highly misleading, though technically not wrong, under one interpretation, if you unpack it. And not part of BILD’s press release, so it appears the capitalist roaders at the Financial Post came up with it all by themselves.

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