Weekly Real Estate Market Update, Jan. 27/16

That's a wonderful report but I still can't seem to be able to predict the future depending on the data provided.
If anyone has any experience in translating the numbers in the report and what they might mean for the future please give us your opinion.

I know it's hard to predict what prices might be like in the long term like in 10 years but I'd still like to hear the opinions of the experienced homeowners or investors specially those who are familiar with the real estate cycles in Canada.

I have reviewed the cycles for the last 50 to 60 years and noticed some of the major cities go in opposite directions in terms of boom and bust and have been trying to figure out whether Alberta will have a boom in a couple years or so as the prices have been almost stagnant or appreciated only a little bit in the last 9 years after the boom of 2006 and 2007. And I have been trying to figure what cities will perform better if you buy now and resell in 10 years.

In your opinion if you invested the same amount of money today in the same type of housing (say about 800 k) hoping to get the best ROI in price appreciation after reselling in ten years taking into consideration the cycles, would you buy in Alberta or Ontario or BC?

One thing to think about is that "alberta" real estate is not very accurate as Edmonton and Calgary are quite different even though they are close and both heavily invested in O and G. Calgary had a big run up a couple years ago where as Edmonton did not. Calgary seems to be hurting quite a bit more then Edmonton right now. Is that because Edmonton did not have the run up? Tough to tell.

Wally- If you've got the option, and are dead set on making RE your investment vehicle of choice, what about splitting that investment into a couple of smaller condos? $400k in Vancouver, $400k in Toronto, keep your primary residence in Edmonton (assuming you're a local). Diversified exposure = reduced risk.
Not sure I'd advocate going all-in on RE, as being an absentee landlord in a far-away city isn't as glamorous as it sounds. Plus, there's more liquid ways to invest (i.e. stocks/bonds) that don't involve big commissions to buy or sell and can be liquidated in minutes should you require the cash. But if you have the cash to make some big investments like that, it couldn't hurt to spread it around a few markets IMO.
I do think that out of the four markets we're discussing (Edmonton, Calgary, Vancouver, Toronto), either of Alberta's cities are the best place for a 10-year investment. Toronto seems like a madhouse to me. I think there's a great chance you could get 20% in a year there- then again, keep in mind that city in particular has crashed several times before. HARD. And last time took 20 years to recover. Vancouver I view as equally volatile- Could be the best investment of your life, could cost you hundreds of thousands.
Alberta, conversely, I belied has relatively little downside risk. Our prices have been range bound since the 20% pullback in late 2007. I'd have to go digging for some data (will later and re-post), but through all the boom years we enjoyed from 2008-2014 (and yes, I think they were ALL boom years for Alberta in general; we were protected from the GFC with very high commodity prices and business investment), our pricing went up slow and steady, and was just re-gaining some of those 2007 peaks. RE finally seemed to be picking up some steam in 2014, right as the bottom fell out of the oil industry.
Point is, Alberta still has a very affordable housing compared to other major cities in Canada; we simply haven’t seen hardly any real-dollar price inflation in almost 10 years. I don't see much downside risk, because it's already quite affordable. I also see some upside potential- if confidence comes back (and it will, barring further bad news), unemployment stabilizes, and our O&G industry finds some solid ground, we may get a few years of 5% appreciation. In real-dollar terms, and considering the cost of money, I'm not sure I've seen real estate this cheap since before the 2007 peak. Calgary in particular I think is a great place to purchase at the moment- it's been hit harder than Edmonton, and is closer to the bottom of their cycle. It's also a city with an (artificially imposed) land availability restriction. Edmonton will keep building out indefinitely. And as far as desirability goes, I love Edmonton (born and raised), but being 45 minutes from the Rockies is a draw we can't emulate. That said, I think the best investment opportunity right now are SFHs, and if you’re going to rent out a house, you may not want to do so in another city. Depends on whether you’re going to manage it yourself, or pay a property manager. Call me crazy, but I see Alberta as low volatility (unlike TO and YVR), but with the chance (medium-long term) of some nice capital gains, unlike some super-stable cities like Winnipeg. And if you’re going to buy, try and position yourself to take advantage of a market niche that you believe will benefit the most from a rejuvenated Alberta economy.

From what I've seen the Chinese distort every housing market that they enter. The Chinese are the only race that pays more and more for real estate with zero regard for value. The Chinese are the drivers of the real estate market in Canada and the rest of the world. Now read this:

http://www.zerohedge.com/news/2017-01-26/chinese-capital-controls-threaten-property-bubbles-all-over-globe-buyer-lose-access-

That's right China is really clamping down, as the yuan continues to fall and as the yuan falls everyone from China becomes poorer outside of their native homeland. Meaning eventually Chinese money will be all but worthless and the "Chinese affect" that's turning every housing market into a giant ponzi will end. Given that, Vancouver is looking at a 70 to 80 percent retracement and Toronto and the Greater Toronto area a 60 to 70 percent retracement in residential home prices. It also means many, many millennials who copied the Chinese will be filing for personal bankruptcy and will lose their house/houses. The Chinese race is either/or meaning they all do the same thing. This means market prices swings will be exaggerated. Just as we've seen real estate overshoot in price we'll once again see the average price for a home in Canada fall far below the average price for a house in America.

In theory the only thing that drives up the price of real estate is the annual increase in real wages. With the price of real estate so far out of kilter as it relates to wages Canada is looking at an extended bear market in real estate that could last several decades. As the next generation becomes poorer through higher taxes and lower wages and seniors burn through cash thanks to zero interest rates that really leaves no driver for real estate prices in the future.

Not sure why you are mentioning "canadian" real estate. Useless number. What does Vancouver or Toronto have to do with Edmonton ? Nothing.

Tony, man, I stopped reading at the zero-hedge link. ZH is a conspiracy theory site with a financial twist.

Wally- back up data as promised:
http://www.housepriceindex.ca/default.aspx
Based on Teranet, we are currently still below the 2007 peak. Through all the boom, ultra- low interest rates, huge earnings improvements, we are still below '07. Factor inflation in, and we're probably close to 20% below peak in real dollars.

If you look where we're at vs the minimum in the past decade (2009 low) looks like we're about 15% above that point. So 15% over 8 years. That's basically inflation. Edmonton has been a model of stability since 2009. I would argue that some areas have seen greater appreciation than others, but on the whole we really haven't moved in a decade, and adjusted for inflation we're 20% cheaper than we were at the peak. This in a city that has great jobs (yes still), a world class university, a booming downtown, a 30 minute commute from the major burbs to the core, the river valley, great health care- I could go on. I see nothing but upside for Edmonton. Maybe another weak year or two, but prices will hold as they did through the last decade, and then there's real chance of some above-inflation appreciation.

Trev- I'm almost thinking the same as you because when I checked the graphs for Toronto I noticed a crash from 1989 to 1996 then took too many years to bounce back and if history repeats itself at some point in the next few years as things have been crazy hot in the last few years then it could be a real nightmare. Vancouver has different dynamics but also highly volatile. Edmonton and Calgary I think are safer and less volatile and I have a feeling there will be some nice gains if you hold for 10 years because eventually the economy will pick up and we haven't seen huge gains since 2007. I also have a feeling Calgary will perform a bit better than Edmonton in the long term.
I thought about the possibility of condos in Toronto and Vancouver and also in Calgary as in Calgary condos depreciated more than 10% so you can benefit from a nice discount but I'm thinking in the long term a SFH will appreciate more.
Regarding the management of property I will pay a property manager because I don't have the stamina to do it myself.

Jason, would you be able to explain your opinion in terms of real estate cycle?
I agree with you that those who bought 3 to 5 years ago in Toronto and Vancouver are fine even if a correction happens but for those entering the market today do you think it's still the same? I personally doubt it.
If you look back at the past corrections happened in those markets and the last one in Toronto in 1989 whoever but in that year had to wait a minimum of 12 years to get back to the price he bought at.
Cycles exist but the question is how long the booms and busts last. This last boom in Toronto has lasted for 20 years now and exacerbated the last few years due to ultra low interest rate and foreign investment. Most experts predict the interest rate will go up in the coming years and when the oil price goes up again and the Canadian dollar goes up the foreign investment will slow down.
This doesn't necessarily mean Toronto housing will crash but there might be a prolonged period of price stagnation in the next decade.
You bought 8 months ago and yes after that the market is up for at least 15 to 20 % due to the factors I mentioned but now things started to change with new rules, foreign tax, rising mortgage rate so prices are expected to slow.
Honestly I can't understand what you're basing your analysis on and that's why I'm asking for an explanation if you can

Nobody has a crystal ball. However

1/ There is bidding war in GTA even in Jan, 2017. Typically, the best time to buy resale is in Jan.
2/ Shortage of single detached homes
3/ Condo price is up too
4/ Condo Rental price is up.
5/ Price spill over to surrounding area outside GTA
6/ Trump Factor. More people now are looking at Canada
7/ Low Interest Rate. Canada rate will still be at 0.5% until 2018. HSBC fixed rate is now at 2.35%. Why?
8/ Employment is fine here.
9/ Traffic jam in 401, 404 QEW. More and more people are moving here

Just google 'GTA real estate news' and get a taste of that.

So if you buy a single detached house today, do u think it will go down?
If you buy a pre-sell one that won't be finished in a year, do u think it will go down?

Wally, I am no expert on the housing market but have made money in real estate. I travel from Quebec City to Vancouver and every place in between. I would not invest in AB, BC or ON. You want to look at places that have good governments that are business friendly. Saskatchewan or Manitoba, I would invest in Winnipeg big time. But you need to move fast to get in before prices start moving higher.

Disagree with you Ron. You're gonna buy an investment based on what the current government is and not economic fundamentals? Seems silly to me. Government has little effect on housing. Besides that, real estate os loooong term investment. So you would avoid edmonton because it has NDP government when in less then 2 years it will be back to right wing and business friendly? silly

Again, I laugh when I see the comment here.

1/ Chinese. You think Chinese will stop investing in Canada because the Yuan is going down.
On the contrary, the reverse is true. They will invest more in Canada. They will make money in three ways.
a/ Canadian currency against yuan. b/ Canada real estate appreciation. c/ money is now sitting safely outside China.
That is why they even leave the condo/house empty and not even bother to rent it out.

2/ There will be a crash that will take 10 years to recover. Tell that to the investors who brought RE in Vancouver or Toronto 3 or 5 years ago.
Remember, the correction, if any, is from high. People are predicting the RE in Vancouver will go down ten to 15%, if that happens, it is still higher
than 3 to 5 years ago. As an example, I brought a single detached house here in Toronto for $700K 8 months ago, guess how much it is worth today.

A good example is Edmonton and Calgary, the price of Single Detached House is not going down by that much.

Bottom line is, if you have some spare money, invest in either GVR or GTA, you will be fine.

My parents just sold their 1600 sq foot very generic townhouse in the middle of a pretty unexciting spot in Richmond Hill for $990,000 ($90,000 over asking) in 8 hours. They paid $240,000 for the townhouse about 10 years ago. They are close to retirement. Have cashed in and decided to rent.

I just simply don't see how the GTA can sustain these housing prices. I am a well paid professional and I have struggle to pay down a much smaller mortgage. Is there really that huge a an income differential between Alberta and the GTA that these housing prices can be supported. To me it has the feeling of a house of cards ready to collapse but Jason has a point that no one has a crystal ball and so far everyone predicting an imminent crash has been priced out of the market.

When I read a comment such as yours I savour my shorts on Home Capital and Genworth Canada. The Canadian housing market is looking at a multi-decade long bear market.

The converse is true on the Canadian dollar. Investment pours in when the currency is appreciating not depreciating. You've been reading too much garbage from those online newspapers.

The only positive for real estate in the GTA is present day low interest rates. Everything else is a negative that's why every investor is shorting real estate in Canada and mainly in the greater Toronto area by shorting Home Capital Corporation. I'm short Home Capital and short Genworth Canada.

Tony, regarding the currency and the Canadian dollar my guess is that foreign investors buy when the currency is depreciating because of two reasons. 1- they save money when they convert from their own currency. 2- even if the currency is depreciating eventually it will appreciate specially in the long term so here it depends at what depreciation point you do the transaction like if you buy when the CAD is 90 cents is different than if you buy when the CAD is 70 cents so this means the lower the dollar like it is right now the higher the probability it will bounce back in the future and at that point you make big money when you resell.
This happened in the States when many bought when the USD was at par with CAD and today they sold with a big gain as the USD is higher than CAD.

You can argue till the cow comes home. The fact to the matter is those who buy a year ago in GTA makes money.
While those who keep saying that is a crash for at least 10 years loss the opportunities. And I think if you invest in good location in GTA today, you will still make money.

Interest rate will stay low until at least until middle of 2019, if it does go up, it will be moderate anyway.
The driving force behind GTA is because of green belt of net immigration.

In any cases, like I said, nobody has a crystal ball, you can short Genworth as much as you want.
Again, I read a story almost 2 years ago that a lot of people are shorting RE in Canada, I don't really see it happening.
Not even in Edmonton/Calgary esp those who buy single detached house.

Richmond Hill probably holds the record for the biggest percentage gain over the shortest period of time. The average 1,200 square foot bungalow cost $30,000 in 1984. The same 1,200 square foot bungalow bungalow on average sold for $1,200,000 in 2016. A forty fold increase in just 32 years.

@Tony
"In theory the only thing that drives up the price of real estate is the annual increase in real wages."

What theory is this? Who published it, where? Did you just come up with this using a 30 second processing power of your brain?

I can instantly point to you that the price of real estate is not only related to real wages, but also the percentage of that wage people are willing to pay. For example, let's say, Edmonton residents are making $100k per year and are willing to pay 400% wage as house purchase price; but Vancouver residents are making $80k per year and are willing to pay 1500% wage as house purchase price (through parents' help or prior property).

That's just one example of a factor other than "real wage". There could be many more factors.

@Ron

The problem is that SK and MN have unlimited amount of raw land next to the cities. (It's not like there is zero land close to Vancouver.) The only time to make money in such an environment is when growth already took off and road construction lags behind. So, it's only short term and speculative.

You can't argue with this: This will collapse the entire housing ponzi in every city the Chinese inhabit. Toronto being one of the meccas.

https://betterdwelling.com/city/vancouver/chinas-capital-controls-could-crash-vancouver-real-estate/

Yawn... more prophetic tea leaf reading as many are trying to surmise the direction of the market.

Fact of the matter is, I am STILL waiting for the crash that many harped on about when the NDP last got into power. Now that time has passed, many who voiced those sentiments have disappeared and are no longer towing the NDP as the root cause to a pending "crash"....

Now, its immigrants or foreigners, or some ponzi scheme as a plausible root cause to our pending demise.

Let me state this to you clear and simple. Alberta's "household formation rate" in urban centres is similar to those of emergent economies coupled with the expectations of the young who want bigger better and the amount of money that is being printed (i.e. inflation). You own near the central business districts for the long term (I mean god made LAND; I do not mean the air that is owned through an apartment or a second floor condo).

Those who have land near and as close to the central business districts of our urban cores will be safe for the long term regardless of what the tea leaves show. The slope for capital return will be positive over the long run. Guaranteed.

Those who are in the RE markets for the short term, to incur what ever capital gain that you can, good luck to y'all, unless you have the guts, the game plan and the mental and emotional fortitude to stay calm.

Also, because of Mr Selfie Prime Minister (the offspring of the salmon finger), our dollar has plummeted under the idiot's watch, and so our homes have deflated for those, say, holding on to US dollars.

Bottom line.

If the yuan is going to be worthless then those Chinese who bought real estate outside of China will look like geniuses, no matter what price they paid.