The Housing Market needs to crash.

[Riverdale Rink Rat]

I'd take this option over a housing crash - http://opinion.financialpost.com/2012/04/13/to-tame-torontos-housing-bubble-ban-foreign-buying/

I still fail to understand this argument. If someone wants to use cash or credit from outside the Toronto/Canadian economy and wishes to inject that money into the Toronto economy by buying a good the average Canadian feels is overvalued at some price level, why would we not encourage that injection of capital? As long as it's not a Canadian bank doing the lending (if it's Canadian bank solvency we're worried about), isn't this a 100% benefit to the Toronto economy?

Anyone who thinks the price of condos in Toronto is too high should act on that belief by not buying a condo in Toronto. It's not anyone's God-given right to own one. Renting or living elsewhere are very reasonable alternatives.

 

[ttk77]

I still fail to understand this argument. If someone wants to use cash or credit from outside the Toronto/Canadian economy and wishes to inject that money into the Toronto economy by buying a good the average Canadian feels is overvalued at some price level, why would we not encourage that injection of capital? As long as it's not a Canadian bank doing the lending (if it's Canadian bank solvency we're worried about), isn't this a 100% benefit to the Toronto economy?

Anyone who thinks the price of condos in Toronto is too high should act on that belief by not buying a condo in Toronto. It's not anyone's God-given right to own one. Renting or living elsewhere are very reasonable alternatives.

I think we have to be careful about implementing something like the Australian system so that we don't actually cause the crash while doing it, but I think it's a good idea to gradually phase it in. It may not be a god-given right to own a home, but when ownership of a small house or even a two bedroom condo starts to become difficult for a two income household, something is definitely wrong. Vancouver has passed that point, and Toronto is approaching it. It should primarily be the supply and demand amongst people who want to live in a residence that determines it's price, not a non-resident foreign investor looking to make a quick buck.

The first step is getting rid of CMHC mortgage insurance for all investment properties (foreign and domestic), and implementing an outright ban on insured mortgages on investment properties for non-resident foreign buyers. The next step would be to ban mortgages on investment properties for foreign buyers unless that mortgage is obtained through a non-Canadian or non-Canadian owned institution. That should at least slow things down a bit so we can figure out if further restrictions are needed.

 

[Riverdale Rink Rat]

I think we have to be careful about implementing something like the Australian system so that we don't actually cause the crash while doing it, but I think it's a good idea to gradually phase it in. It may not be a god-given right to own a home, but when ownership of a small house or even a two bedroom condo starts to become difficult for a two income household, something is definitely wrong. Vancouver has passed that point, and Toronto is approaching it. It should primarily be the supply and demand amongst people who want to live in a residence that determines it's price, not a non-resident foreign investor looking to make a quick buck.

The first step is getting rid of CMHC mortgage insurance for all investment properties (foreign and domestic), and implementing an outright ban on insured mortgages on investment properties for non-resident foreign buyers. The next step would be to ban mortgages on investment properties for foreign buyers unless that mortgage is obtained through a non-Canadian or non-Canadian owned institution. That should at least slow things down a bit so we can figure out if further restrictions are needed.

Maybe I'm wrong, but I was under the impression that CMHC insurance was only available for owner-occupants. Is there a different program for investors through CMHC? (I'm not talking about portfolio insurance or CMBs, just straight SFD insurance.)

As for the 'ban on mortgages to foreigners', isn't that the bank's issue? Or OSFI's? Wouldn't you want Royal Bank to give a mortgage to a deep-pocketed foreigner with the ability to pay it back plus interest, rather than a guy making minimum wage with no job security? i.e. -- wouldn't you rather RY DIDN'T have mortgage insurance through CMHC on questionable Canadian credit?

 

[ttk77]

Maybe I'm wrong, but I was under the impression that CMHC insurance was only available for owner-occupants. Is there a different program for investors through CMHC? (I'm not talking about portfolio insurance or CMBs, just straight SFD insurance.)

As for the 'ban on mortgages to foreigners', isn't that the bank's issue? Or OSFI's? Wouldn't you want Royal Bank to give a mortgage to a deep-pocketed foreigner with the ability to pay it back plus interest, rather than a guy making minimum wage with no job security? i.e. -- wouldn't you rather RY DIDN'T have mortgage insurance through CMHC on questionable Canadian credit?

You're right, my bad, CMHC insurance is not available to foreign investors, but is available to non-Canadians if they plan to live in the home. I'm not sure if the same is true for not government insured mortgages though.

My point about the mortgages though has little to do with Canadian banks reaping the profit on foreign investment. It's about maintaining the affordability of housing for Canadians and non-Canadians who actually live here. It's about making sure that there are enough hoops to jump though for foreign investment that the advantage lies with a potential resident rather than someone from overseas with deep pockets who never even sets foot in the home.

 

[Automation Gallery]

Seems like home prices will not be going down anytime soon

Toronto housing prices up 23 per cent since 2008

“Since we came out of the recession, in the second half of 2009, and what initially was a housing based recovery, we’ve seen tight enough market conditions to see very strong upward pressure on home prices,” he said.

“With a little bit more supply in the market we’ve started to see more listings come on line, so that should see a bit of moderation in terms of price growth. We’re expecting the average price to continue to grow, but just at a slower pace.”
http://www.thestar.com/business/article/1231142--toronto-housing-prices-up-23-per-cent-since-2008

 

[James]

Seems like home prices will not be going down anytime soon

Toronto housing prices up 23 per cent since 2008

“Since we came out of the recession, in the second half of 2009, and what initially was a housing based recovery, we’ve seen tight enough market conditions to see very strong upward pressure on home prices,” he said.

“With a little bit more supply in the market we’ve started to see more listings come on line, so that should see a bit of moderation in terms of price growth. We’re expecting the average price to continue to grow, but just at a slower pace.”
http://www.thestar.com/business/article/1231142--toronto-housing-prices-up-23-per-cent-since-2008

To generalize, based on the paragraph below taken from the linked article...

The hot spots, cited for the most significant increases are: northwest and southwest Scarborough; detached, semi-detached, and town homes north of Bloor St. through the central part of the city, close to amenities and the subway; and Mimico.

...for the most part, if you have a detached home in a central location in Toronto, you're doing fine.

 

[neubilder]

I still fail to understand this argument. If someone wants to use cash or credit from outside the Toronto/Canadian economy and wishes to inject that money into the Toronto economy by buying a good the average Canadian feels is overvalued at some price level, why would we not encourage that injection of capital? As long as it's not a Canadian bank doing the lending (if it's Canadian bank solvency we're worried about), isn't this a 100% benefit to the Toronto economy?

Anyone who thinks the price of condos in Toronto is too high should act on that belief by not buying a condo in Toronto. It's not anyone's God-given right to own one. Renting or living elsewhere are very reasonable alternatives.

The problem is that foreign investment is not tied to real market forces as they relate to housing. Foreign investment on a large scale turns a housing market into something akin to a stock market, with all of it's dizzying ups and downs, and eventual crashes. Some will get rich along the way while many may loose everything. Is that a sound basis for housing - one of the basic needs of those actually trying to make a living in Toronto?

 

[Riverdale Rink Rat]

The problem is that foreign investment is not tied to real market forces as they relate to housing. Foreign investment on a large scale turns a housing market into something akin to a stock market, with all of it's dizzying ups and downs, and eventual crashes. Some will get rich along the way while many may loose everything. Is that a sound basis for housing - one of the basic needs of those actually trying to make a living in Toronto?

People need somewhere to live. They do not need to own it. If we want housing to be built by the private sector, we need investment in housing. We do not need that investment to come from any specific investor. The investor does not need to commit to living in his investment, although I believe any investor should be required to maintain his real estate up to community standards.
Folks are confusing owning and living in - my point is just that if a Chinese investor wants to build a fabulous house in Toronto at an exorbitant price, and then rent it to me at a market-clearing price below his cost of capital, that's his loss and my (and Toronto's) gain because I can then use the money I saved on housing to go out more, or invest in something else, or otherwise recycle it in the Toronto economy. Win-win for Toronto!

 

[Riverdale Rink Rat]

BTW - I'm not immune to, nor disagree with, the idea that Toronto housing is currently overvalued. It's why I sold and went walkabout. I just don't think you should blame 'the other', particularly foreign investors. I have seen the enemy, and it is us, when it comes to a Toronto housing market.

 

[James]

BTW - I'm not immune to, nor disagree with, the idea that Toronto housing is currently overvalued. It's why I sold and went walkabout. I just don't think you should blame 'the other', particularly foreign investors. I have seen the enemy, and it is us, when it comes to a Toronto housing market.

I agree with RRR above. It's always easy to blame the unknown especially if it's a group outside of the majority. In this case, foreign investors. If you look at single family dwellings in the city core, speak to real estate agents who have sold those homes. They'll tell you that the individuals buying those homes are Torontonians (whether Toronto-born, Canadian-born, born outside of Canada but currently residing in Toronto, etc.) who are planning on living in the home. The impression of "foreign investors" could be attributed to the notion that the individuals may belong to a visible minority or have a foreign-sounding last name. That alone does not and should not classify them as "foreign investors". I still don't understand why we don't keep track of actual figures for properties (residential moreso than commercial at this point) purchased by actual foreign investors. That statistic would quell much of the debate regarding the correlation of it to the current housing bubble.

 

[Eug]

To generalize, based on the paragraph below taken from the linked article...

"The hot spots, cited for the most significant increases are: northwest and southwest Scarborough; detached, semi-detached, and town homes north of Bloor St. through the central part of the city, close to amenities and the subway; and Mimico."

...for the most part, if you have a detached home in a central location in Toronto, you're doing fine.

Yeah, it seems the lower cost near-core regions are doing quite well. Part of this though has to do with homes being torn down with large 2-story homes being built in their place though.

It's certainly true in my neck of the woods, which is Southwest Scarborough. When I purchased a SFH 5 years ago, I could afford a place in the core of Toronto, but it wasn't the size or type I wanted. So I looked a little bit further out, but not far out. It seems a lot of people are doing the same these days. My place was already a 2-story home, but several of the homes in the neighbourhood have been torn down and rebuilt (or at least heavily renovated) in the last few years.

Even condos are being built in these areas now. For example, this mid-rise condo complex is being built in an area that was characteristically only SFHs and low-rise rental apts., which in the old days was considered the boonies with derelict motels.

 

[James]

^ That sounds about right. From the aforementioned article in the Toronto Star, they're essentially saying:

Northwest Scarborough = Victoria Park/Sheppard area (e.g. L'Amoreaux)
Southwest Scarborough = Birchmount/Kingston Road area (e.g. Bluffs, Cliffside)
North of Bloor through the central part of the city = Yonge/Bloor all the way up to Yonge/Finch (e.g. Rosedale up through Lawrence Park, Hoggs Hollow and Willowdale)
Mimico = Royal York/Lakeshore Blvd area

I think the properties in L'Amoreaux, the Bluffs and Cliffside, for example, sport some pretty nice generous-sized lots. With L'Amoreaux being a hop away from the DVP & 401 and the Bluffs and Cliffside being a short drive to the downtown core, combined with the mature, safe and somewhat secluded neighborhood feel of these areas, I can see the appeal.

Anything off of Yonge Street north of Bloor is a no brainer. As most already know, this is essentially the most sought-after real estate in the city. The newest entrant into the hot market being Willowdale. Everyone remembers that old bungalow selling for $400k over asking earlier this year, right? Newspapers were all over that story.

Mimico is definitely the up-and-comer of the group. It is most certainly one of the few neighborhoods where you can find a house for $300k. There hasn't been all that much development in this area so the only way to go is essentially up.

 

[Automation Gallery]

Thank goodness

Canada’s housing market frothy, but not a bubble
Canada’s pricey housing market is frothing — driven by debt-ridden borrowers — but a dangerous U.S.-style housing crisis isn't in the cards, experts say. ................http://www.marketwatch.com/story/canadas-housing-market-frothy-but-not-a-bubble-2012-08-20.

 

[Glen]

Thank goodness

Canada’s housing market frothy, but not a bubble
Canada’s pricey housing market is frothing — driven by debt-ridden borrowers — but a dangerous U.S.-style housing crisis isn't in the cards, experts say. ................http://www.marketwatch.com/story/canadas-housing-market-frothy-but-not-a-bubble-2012-08-20.

This from the same experts that missed the 6 trillion dollar housing bubble in the USA. Yay. The more we hear 'experts' say things the more worried we should become.

 

[Eug]

You're right, my bad, CMHC insurance is not available to foreign investors, but is available to non-Canadians if they plan to live in the home. I'm not sure if the same is true for not government insured mortgages though.

My point about the mortgages though has little to do with Canadian banks reaping the profit on foreign investment. It's about maintaining the affordability of housing for Canadians and non-Canadians who actually live here. It's about making sure that there are enough hoops to jump though for foreign investment that the advantage lies with a potential resident rather than someone from overseas with deep pockets who never even sets foot in the home.

The foreigners I met buying Vancouver real estate paid in cash, in total, up front. I wonder what proportion of them are doing that. Yes, they were speculating, but it wasn't leveraged speculation. And even if it were leveraged in some cases, I don't see them often getting the money from Canadian banks, unless they were landed immigrants living in Canada.