Irrational Exuberance by Robert J. Shiller I just spent some hours reading this book about behavioral finance. It’s quite a good read if you have not been exposed to the topic before. It discusses how we get into these “bubble” scenarios in financial and other markets such as real estate. For me, it was really […]
I have been bearish on Toronto real estate for a while. The moon and the stars are lining up against the market. Affordability, new mortgage rules and the insane amount of debt that Torontonians carry. Here is an article that makes me wonder from the Motley Fool: Will 2017 Finally Be the Year Toronto’s Real Estate Bubble Bursts? Now I am not so sure. The Motley Fool is a tip sheet, in my opinion, selling products that no one needs. The writers are amateurs. In this case, the writer looks too young to have experienced any real estate downturns in Toronto, how quickly they happen and the damage done to homeowners. Some will say it doesn’t matter, but I believe that an experienced hand is an experienced hand.
The party will end
Every bubble ends badly. It’s only a matter of time.
I don’t know if 2017 will be that year. Nobody does. The market could continue rising for years. Or it could crash spectacularly. Anything could happen.
All I know is this: eventually, real estate will get out of favour. The froth will leave the market, and we will see values decline.
The time to sell is before this happens. Don’t worry about capturing the last 10% or 20%. Just focus on the 100% run-up.
Sounds like wise advice, but it provides little help for those that need to get into the market……some day it will happen. I’m not sure if he’s talking about homeowners or stock investments. Matters not. In the end, the inevitable rise in interest rates will bring this to a crashing halt the same way other real estate bubbles were brought to a halt. But this does not mean to say that the rise in real estate prices over the long term will not occur, albeit at likely a more muted pace. ∞
Here is an interesting analysis in Maclean’s magazine discussing the Canadian housing situation with respect to the continual call for a bubble-namely that housing prices will drop precipitously at some point or another. The problem with all these analyses There is, however, a problem with many of these analyses. Case in point that there are some institutional […]
Finally, the Government of Canada has stepped in to try and cool the Canadian real estate market. As usual, the real estate agents either claim that these moves will damage the market while others say that it will have no effect. Pick the way that you think it’s going to go.
What are my thoughts?
It’s quite remarkable to see the spin that the government has put on this. These changes were easy to implement so one has to wonder why the government dragged their heals for so long. But that’s politics.
The guys that are going to get hurt are the last ones in (as usual) if the measures take hold. The change in qualifying for a mortgage using the five-year posted rate rather than the promotional rate is something that I have mentioned before. It should squeeze out the buyers that just squeak by.
Finally taking a hard line on the principal residence exemption was an easy fix that should have been done years ago. By the way, it’s not closing a loophole as some have written. It’s always been there as a provision that was poorly enforced by the Canada Revenue Agency. It’s not a loophole, it’s tax evasion. It’s about time.
The risk sharing with lenders will definitely put a lid on things as it will eliminate the shoddy underwriting standards of lenders who sloughed the risk off on the government.
Let’s wait and see, but it’s not good news for GTA and Vancouver real estate agents and mortgage lenders. But they will undoubtedly look for new games to play.
Should we tax foreign real estate buyers? Benjamin Tal’s writing on this issue comes to a number of unsubstantiated conclusions. One of them is that the main motivation foreign investors in Canadian real estate is not the flipping of the property, but merely to look for a safe haven for their money. Unfortunately, this has little to do with the issue.
Their motivation is one part of the equation. Vacant real estate in markets that are short of supply exacerbates the problem for locals. The prices are driven up by buyers who seem to have virtually unlimited resources. In addition, what should government policy be? To support Canadians in buying homes or foreigners?
In my opinion, writers and “talking heads” such as Mr. Tal have the wrong end of the hockey stick. Canada is a country first and foremost for Canadians. If governments do not protect Canadians what purpose does government serve?
A recent class action lawsuit in BC is a prime example of this. They are taking the position that the rights of foreigners need to be protected. What about the rights of Canadians? Middle-class Canadians are being crowded out of their own housing markets by double standards on mortgage underwriting and competing with foreigners who have more financial resources available to them than the majority of middle-class Canadians. I would love to hear the “talking heads” speak up for Canadians rather than always looking at the so called damage being done to foreigners.