Real estate in Calgary - another bubble?

[Enoch Root]

Originally Posted by Weitz

Correct me if I’m wrong, but don’t most people have to qualify at higher rates anyway? So most people are unaffected in the amount they can borrow even with the change.

What? Even if you were approved for a higher amount, you will still be affected by the higher rate.

And the conversation was about whether higher rates would affect prices, and the answer they absolutely will (though, again, supply constraints are also currently affecting prices in the opposite direction)

[Enoch Root]

Originally Posted by Fuzz

How slowly? Is a quarter point per quarter to fast?

It's a combination of speed, total amount, and relative position (where were we to start?)

Right now, rates are so low that a quarter point each quarter, for the next year, should be very doable without adverse effects on demand. But do a quarter point each quarter for 3 years and you have a problem. Or, if rates were already a percent higher than they are, a quarter point 4 times would be more painful.

But yeah, based on where we currently are, that pace should be fine, for a while.

[blankall]

Rates will affect prices, but not as much as people think. Rates affect monthly amount owing. A major factor driving prices is large down payments and lack of supply. We'll continue to see people throw down $200-500k down payments. The people throwing those down payments down aren't overly concerned if their monthly mortgage payment is $2,500 or $3,500. Additionally, a lot of the interest increases are already built into the stress tests.

[Dan02]

Originally Posted by Regorium

I'm always frustrated that it seems like Calgary real estate seeing increases is the line in the sand for the BoC to act.

We haven't had a run up in a decade, and even in 2017 when we were starting to see a sign of a recovery, immediately we were hit by 6 rate hikes to cool the TO/Van markets.

I don't know what the solution is, but I wish there was some way to cool those markets without affecting places that might still need the stimulus.

Edit: Whoops - just went back a page and this sentiment was already expressed. Sorry.

Ideally we should be aiming for the increase in the average home value to be matching inflation. We shouldn't be looking for stock market like gains in housing values.

Each successive generation should have the same opportunity to own their own home as the previous one.

[Enoch Root]

Originally Posted by blankall

Rates will affect prices, but not as much as people think. Rates affect monthly amount owing. A major factor driving prices is large down payments and lack of supply. We'll continue to see people throw down $200-500k down payments. The people throwing those down payments down aren't overly concerned if their monthly mortgage payment is $2,500 or $3,500. Additionally, a lot of the interest increases are already built into the stress tests.

I don't entirely agree with this.

People save to have the downpayment money - once they have it, they have it.

What matters - to most people - is monthly expenses/cash flow. Raising their mtge from $2,500 to $3,500 per month is a big deal to most people.

[blankall]

Originally Posted by Enoch Root

I don't entirely agree with this.

People save to have the downpayment money - once they have it, they have it.

What matters - to most people - is monthly expenses/cash flow. Raising their mtge from $2,500 to $3,500 per month is a big deal to most people.

This is true when the real estate levels are in line with the market. When you have things like foreign investors, generational wealth transfers, etc... the prices fall out of line with the actual market. The bidding wars then become based on who can/will put together the most capital up front. Detached housing is not being proportionally bought, even in Calgary, in relation to people's incomes. It's largely people inheriting large amounts of cash from their parents and people coming in from already more expensive markets that are driving the current boom.

It's not middle class families who are scrimping together down payments. These are the types of people who are affected the most by interest rates. These are also the types of people that "cooling" the market is supposed to help, but a massive negative affect of increasing interest rates is that these people get driven out of the market.

[Enoch Root]

Originally Posted by Dan02

Ideally we should be aiming for the increase in the average home value to be matching inflation. We shouldn't be looking for stock market like gains in housing values.

Each successive generation should have the same opportunity to own their own home as the previous one.

And over time, that is generally what happens - all else equal (ignoring the scarcity issue)

However, all else has not been equal. If interest rates (and thus, mtge rates) stayed roughly constant over time, home prices would likely rise at a rate close to inflation. But interest rates have been declining for 40 years. And lower rates make housing more affordable, allowing prices to rise faster.

And the scarcity issue is another factor, in large cities. In a growing metropolitan area, location matters, and prices will rise due to the increased demand to be close to central areas. Location and scarcity will affect prices beyond normal inflation rates.

[Enoch Root]

Originally Posted by blankall

This is true when the real estate levels are in line with the market. When you have things like foreign investors, generational wealth transfers, etc... the prices fall out of line with the actual market. The bidding wars then become based on who can/will put together the most capital up front. Detached housing is not being proportionally bought, even in Calgary, in relation to people's incomes. It's largely people inheriting large amounts of cash from their parents and people coming in from already more expensive markets that are driving the current boom.

It's not middle class families who are scrimping together down payments. These are the types of people who are affected the most by interest rates. These are also the types of people that "cooling" the market is supposed to help, but a massive negative affect of increasing interest rates is that these people get driven out of the market.

Okay, you are referring to a specific subset of the market (and largely in Vancouver and Toronto), for which what you say is true.

For normal home buyers (i.e. most people), monthly costs matter a great deal.

[Fighting Banana Slug]

Originally Posted by Enoch Root

Okay, you are referring to a specific subset of the market (and largely in Vancouver and Toronto), for which what you say is true.

For normal home buyers (i.e. most people), monthly costs matter a great deal.

I think that is right. So I guess I am interesting in seeing whether an increase in mortgage rates, which should (eventually) lead to lower prices is actually better/more affordable than the current low rates/high price environment. We have been really spoiled with low rates, which I think has encouraged home ownership and an increase in rates will discourage. Sure the down payment might be lower, but it is the monthly carrying cost which I think is the real issue for those looking to enter the market.

[Enoch Root]

It would take several rate hikes, and a period of time, before it could cause housing prices to actually drop. I would just like to see sanity return to the market.

[blankall]

Originally Posted by Enoch Root

Okay, you are referring to a specific subset of the market (and largely in Vancouver and Toronto), for which what you say is true.

For normal home buyers (i.e. most people), monthly costs matter a great deal.

It's a large subset of the market, and the subset specifically responsible for driving up prices. And it's also happening in Calgary.

[Calgary14]

I'm not sure how much a rate increase will impact housing. From what I've seen and heard a decent portion of the buyers are from out of province and are cash buyers. I just saw a house sell near mine last week for above list for all cash. The realtor explained it's hard for locals to compete with someone from Toronto/Van who will pay $800K cash with no conditions

[Mazrim]

Originally Posted by Mazrim

In a somewhat pleasant surprise, after a big wave of houses that went up for sale at the start of the month sold, the rest of the month saw plenty of properties that didn't get into crazy bidding wars. They still sold extremely quickly (and probably with no conditions on the offers), but at least it wasn't for way over asking price. I expect that won't last once spring hits, but I can always hope.

I don't know if this is the same thing in other price ranges but I figured I'd share what I saw.

Well, that didn't last long...

After a short lull, we're back to seeing $50,000 over asking being the minimum. At least lots of them are still selling with conditions, but it's hard to keep up with the big money from out of town.

[Yoho]

https://twitter.com/user/status/1504916875297402880

[malcolmk14]

A house a few doors down from us went up for sale on Friday, in the $770k range, had an Open House Saturday with a steady stream of people, and by Tuesday was off the market pending sale.

[Winsor_Pilates]

Originally Posted by Yoho

https://twitter.com/user/status/1504916875297402880

I do have sympathy for the struggle that is buying real estate... but the people in these articles always raise my spidy senses.

Was the Ross family of 4 not buying in 2-3 years ago for any good reason?
Did Mr Ross pass opportunities to get into the house market with even a 1 bed condo and have some skin in the game?

Was he one of those people telling all their friends who were buying properties how the bubbles is going to burst and laughing at them?
And now he's he poster child for these articles and assumes no responsibility for any past decisions?

Maybe he's not but I know a lot of Mr Ross's that would love to complain to newspapers now but were the smartest guys in the room for years when not buying any real estate.

[blankall]

Originally Posted by Winsor_Pilates

I do have sympathy for the struggle that is buying real estate... but the people in these articles always raise my spidy senses.

Was the Ross family of 4 not buying in 2-3 years ago for any good reason?
Did Mr Ross pass opportunities to get into the house market with even a 1 bed condo and have some skin in the game?

Was he one of those people telling all their friends who were buying properties how the bubbles is going to burst and laughing at them?
And now he's he poster child for these articles and assumes no responsibility for any past decisions?

Maybe he's not but I know a lot of Mr Ross's that would love to complain to newspapers now but were the smartest guys in the room for years when not buying any real estate.

To be fair the housing market in many cities has been bonkers for a while. I jumped in just over a year ago, but only because credit was free and I was being pushed by the lady before our child was born. I felt like a complete idiot for taking on that large of a mortgage. I still wonder if I've done the right thing, as that crash could be happening any time.

It's also bizarre that working people can't afford houses in London, Ontario. This isn't central Toronto. The government needs to facilitate more housing construction. This is a national emergency at this point. A city like London is surrounding by nothing, but insufficient construction is happening due to all the red tape. Their city website says the plan is to grow upwards, because they are concerned about preserving farmland. There's nowhere else in player in the province to farm than just outside the city limits of a growing city. How long can they keep up the fake land scarcity issue in Canada? It's absurd.

[CliffFletcher]

Originally Posted by blankall

It's also bizarre that working people can't afford houses in London, Ontario. This isn't central Toronto. The government needs to facilitate more housing construction. This is a national emergency at this point. A city like London is surrounding by nothing, but insufficient construction is happening due to all the red tape. Their city website says the plan is to grow upwards, because they are concerned about preserving farmland. There's nowhere else in player in the province to farm than just outside the city limits of a growing city. How long can they keep up the fake land scarcity issue in Canada? It's absurd.

That part of Ontario has some of the richest soil and most productive farmland in Canada. You can’t just replace its agricultural capacity with new farmland up in the Canadian shield. You can say the same about the Fraser Valley. People first settled to farm in those areas because of the soil and climate. We can’t just turn all that land into suburbs.

The problem is too many people want to live in already highly dense regions of the country, and they want/expect to live in detached homes when they start families. Canada’s rate of population growth is almost twice that of other G7 countries, but that growth is almost all in parts of the country that are becoming as densely populated as the Netherlands or Belgium.

[calculoso]

The problem is that too many are using real estate as an investment and not actually living there or renting it out. They sit there unoccupied. Any new housing gets snapped up right away, and only a fraction will actually have people live in them.

[blankall]

Originally Posted by CliffFletcher

That part of Ontario has some of the richest soil and most productive farmland in Canada. You can’t just replace its agricultural capacity with new farmland up in the Canadian shield. You can say the same about the Fraser Valley. People first settled to farm in those areas because of the soil and climate. We can’t just turn all that land into suburbs.

The problem is too many people want to live in already highly dense regions of the country, and they want/expect to live in detached homes when they start families. Canada’s rate of population growth is almost twice that of other G7 countries, but that growth is almost all in parts of the country that are becoming as densely populated as the Netherlands or Belgium.

The ALR in the Fraser valley is also a joke. You've got a bunch of marijuana farms, low production hobby farms, and multigenerational houses occupying what should be prime housing for young families.

As far as London goes, you're telling me that's nowhere else in Canada, besides the most populated area that's suitable for farming.

Here's an article about unused farm land in northern Ontario:

https://northernontario.ctvnews.ca/m...ming-1.5058222

Here's one about unused farm land in BC:

https://www.timescolonist.com/busine...-shows-4659993

Where are these non highly dense regions people are supposed to go to? Apparently even places like London are off the table. Where exactly are all the young families and immigrant families supposed to move. You're taking about around ten million people. This problem now extends to entire generations of Canadians.