Canadian housing bubble?

Puppycow · 25th January 2013, 09:36 PM

Quote:

The distinction between higher prices and bubbly prices isn't as subjective as it might sound. Like any other financial asset, there should be a fairly steady relationship between the price of housing and the stream of income -- rent -- it produces. Should be. The chart below, from The Economist, looks at the price-to-rent ratios across different countries, and measures how under-or-overvalued housing is, with negative numbers corresponding to the former and positive ones to the latter.

The Biggest Housing Bubble in the World Is in ... Canada?

I don't know whether there's a bubble or not, but what the chart tells me is that it makes more sense to rent in Canada than to buy. Conversely in Japan it makes more sense to buy than to rent.

Caper · 25th January 2013, 11:44 PM

I have been saying it for a while. I live in Halifax. We just bought our house for 207k.... and a little over 2 years later they are saying it is worth ~230k. There's no way. It's still a city full of low paying jobs.... our whole subdivision was told not to list any properties below 200k.... which is a bit of a joke. My brother in law just sold his home he bought for 113k ten years ago for 230k this year... I don't even think the economy is better.

Anyway.... I agree with the report...... I'm sure we are in a bubble.... but it probably varies from province to province.

Kaosium · 26th January 2013, 01:10 AM

Originally Posted by Caper

I have been saying it for a while. I live in Halifax. We just bought our house for 207k.... and a little over 2 years later they are saying it is worth ~230k. There's no way. It's still a city full of low paying jobs.... our whole subdivision was told not to list any properties below 200k.... which is a bit of a joke. My brother in law just sold his home he bought for 113k ten years ago for 230k this year... I don't even think the economy is better.

Anyway.... I agree with the report...... I'm sure we are in a bubble.... but it probably varies from province to province.

Yeah, it does kinda look that way using that metric, doesn't it?

One thing that occurred to me: is there some sort of reason, perhaps taxation, law or subsidy, that houses might be more valuable or rents especially low?

psionl0 · 26th January 2013, 01:19 AM

Quote:

1) Rich Chinese buyers tend to make for overheated markets. Some of the priciest housing markets in the world have one thing in common, besides low-interest rates (which prevail most everywhere): Chinese expats. Vancouver, Hong Kong, Singapore, and Sydney are among the most popular destinations for wealthy Chinese looking to hedge their bets, and this exit-strategy buying has helped push prices in these locales into the stratosphere.

It's not so much a bubble as land being sold to the Chinese and thus pushing the price out of reach of the locals.

Gord_in_Toronto · 26th January 2013, 10:23 AM

Originally Posted by Kaosium

Yeah, it does kinda look that way using that metric, doesn't it?

One thing that occurred to me: is there some sort of reason, perhaps taxation, law or subsidy, that houses might be more valuable or rents especially low?

There are a couple of reasons for the anomaly in the Canadian housing market. One is that mortgage rates are currently very low (from under 3% for short term up to around 6% for a ten-year term) and that profits on residences are not subject to any income tax.

Both owners (according to current polling and trends) and the Federal Government (and Bank of Canada) are concerned about what would happen if interest rates were to suddenly jump and are taking steps to mitigate this eventuality.

Puppycow · 26th January 2013, 05:45 PM

Originally Posted by Gord_in_Toronto

There are a couple of reasons for the anomaly in the Canadian housing market. One is that mortgage rates are currently very low (from under 3% for short term up to around 6% for a ten-year term) and that profits on residences are not subject to any income tax.

Both owners (according to current polling and trends) and the Federal Government (and Bank of Canada) are concerned about what would happen if interest rates were to suddenly jump and are taking steps to mitigate this eventuality.

Well the same is also true in Japan, which is at the opposite end of the scale. My mortgage rate is fixed to 1.9% for 10 years (there were some fees at signing so practically it's somewhat higher than that, but still really low). By profits, I assume you mean capital gains if you resell your house for more than you bought it? Or does that include income from rental properties?

Gord_in_Toronto · 26th January 2013, 07:16 PM

Originally Posted by Puppycow

Well the same is also true in Japan, which is at the opposite end of the scale. My mortgage rate is fixed to 1.9% for 10 years (there were some fees at signing so practically it's somewhat higher than that, but still really low). By profits, I assume you mean capital gains if you resell your house for more than you bought it? Or does that include income from rental properties?

No capital gains tax on your personal residence. Income from rent is taxed. As is any capital gain.

25th January 2013, 09:36 PM	#1
Puppycow Penultimate Amazing Join Date: Jan 2003 Posts: 21,743	Canadian housing bubble? Quote: The distinction between higher prices and bubbly prices isn't as subjective as it might sound. Like any other financial asset, there should be a fairly steady relationship between the price of housing and the stream of income -- rent -- it produces. Should be. The chart below, from The Economist, looks at the price-to-rent ratios across different countries, and measures how under-or-overvalued housing is, with negative numbers corresponding to the former and positive ones to the latter. The Biggest Housing Bubble in the World Is in ... Canada? I don't know whether there's a bubble or not, but what the chart tells me is that it makes more sense to rent in Canada than to buy. Conversely in Japan it makes more sense to buy than to rent.
	__________________ A fool thinks himself to be wise, but a wise man knows himself to be a fool. William Shakespeare

25th January 2013, 11:44 PM	#2
Caper Philosopher Join Date: Jun 2007 Posts: 5,489	I have been saying it for a while. I live in Halifax. We just bought our house for 207k.... and a little over 2 years later they are saying it is worth ~230k. There's no way. It's still a city full of low paying jobs.... our whole subdivision was told not to list any properties below 200k.... which is a bit of a joke. My brother in law just sold his home he bought for 113k ten years ago for 230k this year... I don't even think the economy is better. Anyway.... I agree with the report...... I'm sure we are in a bubble.... but it probably varies from province to province.
Caper Philosopher Join Date: Jun 2007 Posts: 5,489

26th January 2013, 01:10 AM	#3
Kaosium Philosopher Join Date: Oct 2010 Posts: 6,605	Originally Posted by Caper I have been saying it for a while. I live in Halifax. We just bought our house for 207k.... and a little over 2 years later they are saying it is worth ~230k. There's no way. It's still a city full of low paying jobs.... our whole subdivision was told not to list any properties below 200k.... which is a bit of a joke. My brother in law just sold his home he bought for 113k ten years ago for 230k this year... I don't even think the economy is better. Anyway.... I agree with the report...... I'm sure we are in a bubble.... but it probably varies from province to province. Yeah, it does kinda look that way using that metric, doesn't it? One thing that occurred to me: is there some sort of reason, perhaps taxation, law or subsidy, that houses might be more valuable or rents especially low?
Kaosium Philosopher Join Date: Oct 2010 Posts: 6,605	__________________ "Honi soit qui mal y pense."

26th January 2013, 10:23 AM	#5
Gord_in_Toronto Penultimate Amazing Join Date: Jul 2006 Posts: 18,651	Originally Posted by Kaosium Yeah, it does kinda look that way using that metric, doesn't it? One thing that occurred to me: is there some sort of reason, perhaps taxation, law or subsidy, that houses might be more valuable or rents especially low? There are a couple of reasons for the anomaly in the Canadian housing market. One is that mortgage rates are currently very low (from under 3% for short term up to around 6% for a ten-year term) and that profits on residences are not subject to any income tax. Both owners (according to current polling and trends) and the Federal Government (and Bank of Canada) are concerned about what would happen if interest rates were to suddenly jump and are taking steps to mitigate this eventuality.
	__________________ "Reality is what's left when you cease to believe." Philip K. Dick

26th January 2013, 05:45 PM	#6
Puppycow Penultimate Amazing Join Date: Jan 2003 Posts: 21,743	Originally Posted by Gord_in_Toronto There are a couple of reasons for the anomaly in the Canadian housing market. One is that mortgage rates are currently very low (from under 3% for short term up to around 6% for a ten-year term) and that profits on residences are not subject to any income tax. Both owners (according to current polling and trends) and the Federal Government (and Bank of Canada) are concerned about what would happen if interest rates were to suddenly jump and are taking steps to mitigate this eventuality. Well the same is also true in Japan, which is at the opposite end of the scale. My mortgage rate is fixed to 1.9% for 10 years (there were some fees at signing so practically it's somewhat higher than that, but still really low). By profits, I assume you mean capital gains if you resell your house for more than you bought it? Or does that include income from rental properties?
	__________________ A fool thinks himself to be wise, but a wise man knows himself to be a fool. William Shakespeare

26th January 2013, 01:19 AM	#4
psionl0 Skeptical about skeptics Join Date: Sep 2010 Location: 31°57'S 115°57'E Posts: 9,837	Quote: 1) Rich Chinese buyers tend to make for overheated markets. Some of the priciest housing markets in the world have one thing in common, besides low-interest rates (which prevail most everywhere): Chinese expats. Vancouver, Hong Kong, Singapore, and Sydney are among the most popular destinations for wealthy Chinese looking to hedge their bets, and this exit-strategy buying has helped push prices in these locales into the stratosphere. It's not so much a bubble as land being sold to the Chinese and thus pushing the price out of reach of the locals.

26th January 2013, 07:16 PM	#7
Gord_in_Toronto Penultimate Amazing Join Date: Jul 2006 Posts: 18,651	Originally Posted by Puppycow Well the same is also true in Japan, which is at the opposite end of the scale. My mortgage rate is fixed to 1.9% for 10 years (there were some fees at signing so practically it's somewhat higher than that, but still really low). By profits, I assume you mean capital gains if you resell your house for more than you bought it? Or does that include income from rental properties? No capital gains tax on your personal residence. Income from rent is taxed. As is any capital gain.
	__________________ "Reality is what's left when you cease to believe." Philip K. Dick