It's the wild west out there right now

[duffer_mcmulligan]

Pretty happy that I have a cottage in Tiny! Thanks Dad BTW! Ours is water access but it is our little piece of heaven on earth. The dock at right side is now my sisters and I. Dad had put it in a trust way back when to avoid the taxes but he and Mum both continued and continue to outlive the term that is allowed so they transferred it to us and paid the capital gain. Even though that did not quite go to “plan” making the change last year turned out pretty good actually.

Nice spot! My in-laws are just back of Balm Beach. Last there two summers ago. The beaches have gone insane, and the waterfront rules changing have made anything other than true waterfront almost worthless.

[Arthur Dailey]

I think every generation has home ownership challenges, just in different ways. In the 80’s, when starting salaries could be as low as 25k, home prices were in the low to mid 100’s, but inflation was north of 2% and interest rates were coming down from the mid-teens, interest costs on a 25 year mortgage ate up essentially 100% of the early payments. The math on the interest costs kept home prices low, but the total burden of home ownership was probably the same, relatively speaking.

Fast forward 30 odd years, two to three major financial crisis later, population of the country 37MM vs 25MM, and more people concentrated in cities, the demand for urban housing is far higher, and the other critical component, is we have a generation of homebuyers who have experienced nothing more then 3% in nominal mortgage rates. Now, I think you can get a 30 year mortgage for under 2%. (Note that they do re-new every 5-7 years though...when interest rates are re-set). So, salaries are higher, money costs nothing to borrow, markets, being what they are, adjust. House nominal prices go up to reflect current supply and demand fundamentals. If no one was buying, prices would stagnate or fall.

BUT, the fly on the wall....the risk here is hugely significant. Because total debt loads are so high and strained, any of several factors can send this thing into a tailspin. A significant economic downturn and employment reductions are one. Less cash to spend servicing mortgages and debt. Mortgage rates rising even 1% nominal will cause huge pain for borrowers since they are already on the edge. Sending mortgage rates above 3.5% nominal could cause huge default risk. With the twin borrowing sprees in 2008-2010 to support the economy after the financial crisis, and then the current government ramping up borrowing even before the pandemic to insanely stupid and irresponsible levels, then add to that the totally unchecked spending since the start of the pandemic (with zero controls or accountability...a subject for another thread, but needs to be noted), we have a massive risk of inflation creeping into the system. How do central banks deal with inflation? Raise interest rates to cool the overexuberant expansion, reduce money supply. Cost of money goes up, defaults increase, housing market cools, though a soft landing in some centres, I view as nearly impossible.

I think every generation has home purchase pain for first time buyers. That hasn’t changed. The mitigates are: buy in a more affordable area (usually longer commute); 2. Buy less house/property than you desire, take the time to work yourself into your dream house; 3. Rent longer and save more of a down payment, wait for a correction.

Home ownership isn’t the be-all and end-all. There are real choices to renting as well. You save costs associated with upkeep, taxes (paid indirectly) and other maintenance. At times when the nominal costs of buying a house are insane, renting makes immeasurable sense. Chasing a dream when that dream risks financial suicide, especially when you don’t have a lot of equity to absorb the inevitable financial blows, is potentially very short sighted tunnel vision.

Housing prices in the late 1950's/early 1960s in Toronto were relatively flat and actually decreased for much of the mid to late 1960s.

My parents bought a detached 3 bed, 1 bath bungalow in Scarboro for $14k circa 1959-60, With a government guaranteed 25 year mortgage at rates not much higher than current interest rates.

Housing prices dropped in the early 1980s when interest rates skyrocketed and many walked away from their homes.

In 1985-86 they skyrocketed. We bought our first home then, it was a new build and the new home agents didn't even bother printing new price sheets. Nearly everyday they just crossed out the old price and added a new one. We could have made about 30% by selling without ever moving in.

Prices crashed again circa 1989-90. Those who bought at the peak in '88 generally had to wait a dozen years before their home was again priced at what they paid.

So housing prices do not always go 'up'.

As for affordability, the average income to house price has indeed gone up dramatically.

[Weirfan]

Agree with Arthur, while the trend has been up long term. One must look at ups and downs, inflation etc. Prices will revert to the long term trend line, even below again.

people who bought in 1987-89 took as long as 20 years to regain their value.

[Weirfan]

Good graphic of a bubble
(words cut off at the top are new paradigm)

[duffer_mcmulligan]

Housing prices in the late 1950's/early 1960s in Toronto were relatively flat and actually decreased for much of the mid to late 1960s.

My parents bought a detached 3 bed, 1 bath bungalow in Scarboro for $14k circa 1959-60, With a government guaranteed 25 year mortgage at rates not much higher than current interest rates.

Housing prices dropped in the early 1980s when interest rates skyrocketed and many walked away from their homes.

In 1985-86 they skyrocketed. We bought our first home then, it was a new build and the new home agents didn't even bother printing new price sheets. Nearly everyday they just crossed out the old price and added a new one. We could have made about 30% by selling without ever moving in.

Prices crashed again circa 1989-90. Those who bought at the peak in '88 generally had to wait a dozen years before their home was again priced at what they paid.

So housing prices do not always go 'up'.

As for affordability, the average income to house price has indeed gone up dramatically.

Don’t think I ever claimed house prices only went up, I was looking at the housing market less from a pure price perspective and more from a relative affordability perspective. Price is only a portion of that equation.

When interest rates were ramping up in the 81-82 period, my folks were being transferred from Vancouver to Toronto. Vancouver was in the midst of a massive housing market boom at the time. The house they paid 175k for in 1980 went. On the market in ‘82 for 280k and sold. As the Bank of Canada ramped up short rates to 20+%, the market in Vancouver fell of a cliff. The buyer had put a 20k deposit down in March and was due to take possession in July. The market was collapsing so fast, he could have forfeited his deposit, walked away and probably re-purchased the house a month later for 210k, saving himself 50k give or take. His motivation was different, as he had been diagnosed with MS and wanted to make sure his family was taken care of after he was gone, so he held to the deal.

My parents then bought in the Kingsway in Toronto, an old Georgian for 220k or so. In 1987, when things were going bananas, they had a 1MM spec bid. At the time my Dad was being transferred overseas and he was keen to sell, but my Mom wanted to keep a real estate toe-hold in Canada, so they kept the house and rented it out. NDP government came in and the market collapsed. I think the house dropped into the 400’s or so at the time or worse. Eventyually, they sold it in ‘98 for 875K, so in the end, did OK, but investing that 1MM for the 12 years they were away would have put them way further ahead had they hit the bid in ‘87.

[Arthur Dailey]

I was looking at the housing market less from a pure price perspective and more from a relative affordability perspective. Price is only a portion of that equation.

When interest rates were ramping up in the 81-82 period, my folks were being transferred from Vancouver to Toronto. Vancouver was in the midst of a massive housing market boom at the time. The house they paid 175k for in 1980 went. On the market in ‘82 for 280k and sold. As the Bank of Canada ramped up short rates to 20+%, the market in Vancouver fell of a cliff. The buyer had put a 20k deposit down in March and was due to take possession in July. The market was collapsing so fast, he could have forfeited his deposit, walked away and probably re-purchased the house a month later for 210k, saving himself 50k give or take. His motivation was different, as he had been diagnosed with MS and wanted to make sure his family was taken care of after he was gone, so he held to the deal.

My parents then bought in the Kingsway in Toronto, an old Georgian for 220k or so. In 1987, when things were going bananas, they had a 1MM spec bid. At the time my Dad was being transferred overseas and he was keen to sell, but my Mom wanted to keep a real estate toe-hold in Canada, so they kept the house and rented it out. NDP government came in and the market collapsed. I think the house dropped into the 400’s or so at the time or worse. Eventyually, they sold it in ‘98 for 875K, so in the end, did OK, but investing that 1MM for the 12 years they were away would have put them way further ahead had they hit the bid in ‘87.

It is the house price to family income ratio which is most important.
In 1985 the average Toronto home cost 3.41 times the average family annual income.

In 2019 the average Toronto family income was $107k. Doubt that it went up last year during the pandemic.

The average Toronto house price in 2020 was $930k.


https://www.huffingtonpost.ca/2019/0...ng_a_23647609/

https://www.statista.com/statistics/...-ratio-canada/

https://financialpost.com/personal-f...n-30-years-ago

[veryold]

Good graphic of a bubble
(words cut off at the top are new paradigm)

OK, I am sure I missed it and it was discussed already, BUT WHERE ABOUTS WE MAY BE ON THIS CHART RIGHT NOW ???

[Weirfan]

OK, I am sure I missed it and it was discussed already, BUT WHERE ABOUTS WE MAY BE ON THIS CHART RIGHT NOW ???

No you didn't miss it . Opinions may vary but I would say for stock markets we are in the delusion to denial stage.

Real Estate markets is a bit tougher to peg due to the impact covid19 is having on so many people and prompting them move out of cities and downtown cores to outer lying areas. Another friend and a neighbour across the street told me this week they are moving. One to suburb one to rural .... that makes at least 1/2 dozen recently. I'll say in the enthusiasm to new paradigm phases. Demand is outstripping supply so not over the hump ...I'm no economist so JMHO

[mrcltuch31]

It is the house price to family income ratio which is most important.
In 1985 the average Toronto home cost 3.41 times the average family annual income.

In 2019 the average Toronto family income was $107k. Doubt that it went up last year during the pandemic.

The average Toronto house price in 2020 was $930k.


https://www.huffingtonpost.ca/2019/0...ng_a_23647609/

https://www.statista.com/statistics/...-ratio-canada/

https://financialpost.com/personal-f...n-30-years-ago

I wonder if anyone has a breakdown of the average family income for home owners vs. renters.

Those who are actually buying houses now likely have a much higher average income than $107k. More like $200k. While the low-income families are priced out.

I think that the wealth gap has grown significantly in the housing market. Most of the low-income families are renting... could the proportion of them have grown since 1985?

This trend has been amplified during Covid as well. A lot of people in the low to middle-income people lost their jobs. Those with well-paying corporate jobs kept their jobs and were able to save more for their downpayment. They can make a larger downpayment now while the others' savings dwindled.

[luv2kruz]

I wonder if anyone has a breakdown of the average family income for home owners vs. renters.

Those who are actually buying houses now likely have a much higher average income than $107k. More like $200k. While the low-income families are priced out.

I think that the wealth gap has grown significantly in the housing market. Most of the low-income families are renting... could the proportion of them have grown since 1985?

This trend has been amplified during Covid as well. A lot of people in the low to middle-income people lost their jobs. Those with well-paying corporate jobs kept their jobs and were able to save more for their downpayment. They can make a larger downpayment now while the others' savings dwindled.

Having a high income is not the only way to buy an expensive home. You're forgetting the role of inheretences. This is now becomming a signficant factor as many immigrant families that came in the 50s or 60s after WWII are having the older folks now pass on and leave wealth to the younger generation(s). This has happened to several of my friends and some have used these funds to solidify their retirement, buy cottages and others have simply upgraded homes to what would be otherwise unattainable with income alone.

[davepratt]

Having a high income is not the only way to buy an expensive home. You're forgetting the role of inheretences. This is now becomming a signficant factor as many immigrant families that came in the 50s or 60s after WWII are having the older folks now pass on and leave wealth to the younger generation(s). This has happened to several of my friends and some have used these funds to solidify their retirement, buy cottages and others have simply upgraded homes to what would be otherwise unattainable with income alone.

100% true

[SeanAvery2point0]

A semi in Kitchener was listed for $500,000, 53 offers later it sold for $801,000....

[Chambokl]

I was reading that the US has about 50% of their usual inventory of house for sale . . . I would guess it is pretty much the same on this side of the border . . .

[Gwelfgulfer]

I was reading that the US has about 50% of their usual inventory of house for sale . . . I would guess it is pretty much the same on this side of the border . . .

Currently yes, lots less listed in our immediate area compared to previous years. Our realtor also said that the usual busiest months for him have changed. This past December was the busiest month he ever had I think.

[Chambokl]

In Town . . . February was crazy busy. Also in February, lots of Southerners (12+) buying land around Kirkland Lake to build . . . interesting time . . .