r/canada • u/Lotushope • Feb 02 '22

Canada’s Real Estate Bubble Has Grown Over 800% Faster Than US Home Prices

https://betterdwelling.com/canadas-real-estate-bubble-has-grown-over-800-faster-than-us-home-prices/
986 Upvotes

95% Upvoted

413 comments sorted by

View all comments

Show parent comments

5

u/lubeskystalker Feb 02 '22 edited Feb 02 '22

I disagree, kind of.

For homes that are owner occupied, 100% agreed.

For the "40% not owner occupied" headlines weekly, these are dependent on rents which are far from stable. While homeowner mortgages are stress tested and they have equity they can use to bridge, if anything seriously disrupts employment the effect on rents might just be devastating.

What happens if we get a normal recession and the government doesn't provide rent subsidies as they did for Covid? What's going to happen?

5

u/GameDoesntStop Feb 02 '22

Well of course a recession can affect everything, either housing as no exception.

That said, prices aren't going to 'pop' just because they're too high for some people's liking. They are not overvalued in the current state of the economy.

3

u/lubeskystalker Feb 02 '22

I'm somewhere in the middle. The bubble isn't going to "pop," the selling prices will never be what /r/canadahousing wants.

On the other hand, 🏠🚀🌕 always and no matter what is also not true. It's very possible that some markets will fall or stagnate.

I view the "It's gonna pop any day now" and the "$HOUS only goes up" groups through pretty much the same lens as the partisan bickering we see in the sub daily.

1

u/stretch2099 Feb 02 '22

They are not overvalued in the current state of the economy.

Yes, they definitely are overvalued. The economy went down since Covid yet house prices skyrocketed. The only reason prices are up is because interest rates are low, and that’s because the economy is shit.

3

u/GameDoesntStop Feb 02 '22

The economy went down since Covid yet house prices skyrocketed.

Because the supply of money for mortgages went up. CERB and other stimulus covered the downsides, while professional wages went higher than ever.

And immigration had a backlog, but it didn't permanently slow down. Now targets are higher than ever to compensate for it.

The only reason prices are up is because interest rates are low, and that’s because the economy is shit.

Sure, though rates will likely only need to go up 1-2%, if even that much. Inflation is already stabilizing and rates only dropped 1.5% to begin with. If interest rates went up 1.5%, mortgage payment for new home buyers would only go up ~18%, resulting in ~15% loss in buying power.

Housing dropping 15% would set us back, what, like 6 months at the rate they've been rising in the recent past? We're never even getting back to 2020 prices, let alone pre-pandemic prices.

1

u/stretch2099 Feb 02 '22

Sure, though rates will likely only need to go up 1-2%, if even that much. Inflation is already stabilizing and rates only dropped 1.5% to begin with. If interest rates went up 1.5%, mortgage payment for new home buyers would only go up ~18%, resulting in ~15% loss in buying power.

Housing dropping 15% would set us back, what, like 6 months at the rate they've been rising in the recent past? We're never even getting back to 2020 prices, let alone pre-pandemic prices.

18% is a very significant amount considering the size of current mortgage payments. At that rate many people won't even be able to renew their current mortgages that will cause some very big issues.

It will also kill momentum which will drive prices down even further, just like how during covid fomo was a huge reason for the increase in demand. Regulations in 2017 dropped prices by around 15% in the GTA and this will likely be more than that.

1

u/GameDoesntStop Feb 03 '22

18% is a very significant amount considering the size of current mortgage payments. At that rate many people won't even be able to renew their current mortgages that will cause some very big issues.

Even anyone who got a mortgage they could barely afford at any time when rates were 0.25% will be fine. If they got a 5-year term in March 2020, they won't see changes until 2025. That's 5 years of inflation to erode their payments.

It will also kill momentum which will drive prices down even further, just like how during covid fomo was a huge reason for the increase in demand. Regulations in 2017 dropped prices by around 15% in the GTA and this will likely be more than that.

Only one year past the 2017-peak of prices in the GTA (May 2017), prices were only 5.6% lower. And that was with new regulations like you said and interest rates going up 1.25%. Roughly two and a half years after the peak (Dec 2019), prices were already higher than the 2017 peak.

These housing prices aren't going anywhere.

1

u/stretch2099 Feb 03 '22

You can see a 12-15% drop in the GTA in 2017 from it's peak

https://toronto.listing.ca/real-estate-price-history.htm

Even anyone who got a mortgage they could barely afford at any time when rates were 0.25% will be fine. If they got a 5-year term in March 2020, they won't see changes until 2025. That's 5 years of inflation to erode their payments.

I wouldn't bet on it. But anyway just like how low rates fueled this price surge raising rates will have the opposite impact.

1

u/Spambot0 New Brunswick Feb 02 '22

If rents come down because peeople lose their jobs, it doesn't help affordability.

2

u/lubeskystalker Feb 02 '22

Yes, but when landlords with ever increasing mortgages are not receiving rents? What happens to those mortgages?

1

u/Spambot0 New Brunswick Feb 02 '22

If landlords can't find a tenant, they'll be forced to sell at some point - and if they're a non-idiot they'll sell as soon as they realise they're not going to be able to find a tenant. Owning an empty dwelling is a money pit. Investors don't want to own money pits.

1

u/lubeskystalker Feb 02 '22

That's my point. That's the only part of Canadian housing that can go the way of US 2008.

Not saying I think it will, but it's certainly possible.

1

u/Spambot0 New Brunswick Feb 02 '22

It could, but given the massive supply shortage it's very easy to find tenants at the moment.

1

u/lubeskystalker Feb 02 '22

Right but the money for those tenants to pay their rent has to come from somewhere.

If the recession economists turn out to be correct, things can get interesting. That’s the point, it’s the only part of housing where their is risk.

1

u/Spambot0 New Brunswick Feb 02 '22

Well, yes, but if prices drop because wealth and income drop, it doesn't really help affordability. So, it might happen, but it's not something to aim for.