Why worry about home ownership rates?

Some people have expressed concerns about Canadian home ownership rates hitting the highs that were last reached in the US before their market crashed, while others have said they’ll do what they can to increase home ownership rates in Canada.

So why would anyone worry about high ownership rates anyways?

ILoveCharts posted their take in the previous thread, and that comment is reproduced below:

Why do we need to worry about high home ownership rates?

1) Because when too many people own a home, it reduces the mobility of our workforce. Given the spotty/local nature of our economy, it’s important for our economy for people to be able to move within the country to follow the hot spots. When commodities are hot, people need to move to the west and our dollar is higher so manufacturing in the east suffers. When commodities are doing poorly the dollar drops and people need to move east to escape the barren mines, forests and oil fields of the west. Until we see major investment in diversification at the provincial level (likely will never happen,) this cycle will continue. With high home ownership rates, the teeter totter has tipped but people are nailed to the plank and they are stuck.

2) Because there is a practical maximum and a natural median. There will always be people who can’t practically buy (they are students, in poverty, etc.) When you go through a period of above-average buying, you expand the size of the housing industry (construction, realtors, etc.) in a way that is not sustainable in the long run. Once you hit the maximum, it only has one way to go to get back to the median. In the process, a lot of people lose their jobs. Seeing as 70% of people own homes, they start to run into problems with their mortgage. You can try to move the maximum point a little bit with new lending rules.. but you can only play that game for so long. Are we going to bring back the 40 year mortgage? Shocking to hear that we are going to allow $70k tax free out of the RRSP…

3) Because home ownership provides little to no value to society when it’s more expensive than renting. We want Canadians to be saving their money and investing in Canadian companies through Canadian stocks. We want those vast sums of money to deployed in our markets – creating and growing enterprises. Ownership of dirt doesn’t move our country forward.

The price of land is arbitrary. We have the second lowest population density in the world. It’s an incredible sign of weakness that we have allowed ourselves to get into a situation where we each pay so much for little pieces of it. We need to blame ourselves and our governments. We need to blame ourselves for feeling entitled to increases in the value of our property. Businesses with growing cashflows deserve to increase in value. Dirt does not – at least not at this rate. We need to blame the governments for being so willing to satisfy our demand for their short-term gain.

Now we’re hooped. The NDP wants to bring in massive social housing projects, the Conservatives want to use what is basically a nationalized bank (CMHC) to backstop ever-increasing mortgages for an ever increasing portion of the population and the Liberals just want to legalize weed.

I honestly can’t think of a way out of it.

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History
Guest
History

Home house and family… we are at a crossroads of epic proportions

History
Guest
History

“Daiwa commented that the subdued response to Galaxy Macau phase 2’s opening has put to rest the “build and they will come” myth. The broker said the market has underestimated the impact of liquidity constraints, renminbi depreciation, cost inflation and negative operating leverage. It was expected that the industry’s (offshore Gaming) EBITDA in 2015 and 2016 will tumble 40% and 15% respectively.”
Aastocks.com

The Chinese have absconded with the Build and they Come aphorism! Do not panix!

patriotz
Member
Barbara Yaffe: Stephen Harper’s housing affordability plan not suited to Vancouver market A federal Conservative pitch to make home ownership more affordable may be a clever vote-getting strategy, but it won’t do much to address the mayhem in Vancouver’s housing market. It’s not a “pitch to make home ownership more affordable”, but a plan to support even higher prices, as every commentator with any economic sense has pointed out. But Harper’s plan has problems. First, it exclusively touts home ownership. That’s a strategy, not a “problem”, because his goal is to support higher prices. A second problem with Harper’s plan is that it focuses on first-time homebuyers, estimated to comprise only 25 to 35 per cent of all buyers. Again a strategy not a “problem”, because the broad RE market is supported by first time buyers. A third problem with… Read more »
Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

how are your stocks doing? do you think the government should continue it’s policy of easy money which has artificially inflated equity prices? should they role out another quantitative easing program?

patriotz
Member

@5:

RE prices in Canada are artificially elevated relative to stocks because the government guarantees loans to buy RE with 95% leverage while it doesn’t guarantee loans to buy stocks and limits leverage to around 50%.

If you think the BoC’s current interest rate policy puts a floor under stock prices you haven’t been following the market lately.

As I’ve said before, the BoC has no choice but to follow the Fed on interest rates and what I think about it doesn’t matter. I’m not betting my investments on today’s rates continuing indefinitely.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

>RE prices in Canada are artificially elevated relative to stocks

which is why i’m on here gloating about the performance of real estate versus stocks.

>guarantees loans to buy RE with 95% leverage

you must be kicking yourself for not taking advantage of this sooner.

>you haven’t been following the market lately.

i’m on here gloating about real estate versus stocks. it’s pretty obvious i’ve been following the stock market lately.

>As I’ve said before, the BoC has no choice but to follow the Fed on interest rates and what I think about it doesn’t matter. I’m not betting my investments on today’s rates continuing indefinitely.

don’t feel bad patriotz. your stock portfolio will do a lot better in the future. but before that happens it will do a lot worse.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

Speculators, the Vancouver real-estate market and federal election campaign promises

http://www.theprovince.com/Smyth+Speculators+Vancouver+real+estate+market+federal+election+campaign/11297232/story.html

elvince
Guest
elvince

@BBB#4: Fine. Not a single company I own has cut dividend. How’s that CF-negative rental condo doing?

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

@8

i’ve never told anyone to buy a condo and never will.

bnn had an interesting segment on dividend paying stocks. check it out.

http://www.bnn.ca/Video/player.aspx?vid=684088

StupidityCheck
Guest
StupidityCheck

B!B!B!, I see you are as clueless about stocks as you are about real estate investing.

All QE did was flatten the yield curve a little. The stock market is being driven by earnings.

See for yourself:

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1F6b

elvince
Guest
elvince
@BBB: I’m not sure how you think anyone’s portfolio is doing. The data on property rental in Vancouver is pretty obvious to anyone, and most properties are not statistical outlyers regarding Price/Rent or Price/CF. On the other hand, every stock portfolio is kind of a statistical outlyer. I did bet a lot on the US stock market (and a huge chunk of it on large biotech) about a year ago. The exchange rate alone has killed pretty much any RE invesment I could possibly have made in canada, even if you factor in cheaper leverage for RE. Add dividends (which have grown every single year since I’ve been in the stock market) and it’s clear who the winner is. The current downturn in stock prices, if it continues, could possibly present buying opportunity for us in the near future, which… Read more »
Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

i can write paragraph upon paragraph justifying buying real estate over stocks, but i don’t have to. the results speak for themselves.

space889
Guest
space889

You can always get a HELOC like Garth suggested, throw that into stocks / ETFs and get infinite leverage!

btw, checking out rental prices around town, a lot of newer condos would have a gross cap rate of 5% to 7%. So rental investment isn’t as bad as it was a few years ago, given how high rent has increased.

southseacompany
Member
southseacompany

Maclean’s magazine:

“Why the housing bubble is not up for debate:
Don’t expect federal leaders to get serious about the bubble—they have too much to gain from the status quo, writes Jason Kirby”

http://www.macleans.ca/economy/realestateeconomy/why-the-housing-bubble-is-not-up-for-debate/

“Given the decisions regarding the housing market that will have to be made by the next government, the election campaign has been a disappointment. It’s not that voters don’t have any real estate policies to consider; it’s simply that, so far, they’ve been awful.”

“The reality is that whoever wins the next election will be hoping beyond hope that prices continue to rise. Nor is he about to do anything that might jeopardize that ascent. Even a modest slowdown in real estate activity could crimp the ability of the next government to follow through on its promises, be they tax cuts or spending initiatives.”

vangrl
Member
vangrl

#8

I’ve actually had a few dividend hikes in the last few weeks

Keyera (that was a surprise) – 9%
Capital Power – 7.4%
Emera – 19%

but not gonna lie, the market hasn’t been great lately, i’m looking at adding to a few positions soon.

southseacompany
Member
southseacompany

“Fed leaders begin to recognise that September is too soon to hike rates”, The Economist

http://www.economist.com/blogs/freeexchange/2015/08/american-interest-rates

“THE combination of weaker-than-expected CPI inflation and some dovish comments in the minutes of the Federal Reserve’s July meeting have caused the dollar, and yields on Treasury bonds, to fall. The traders are hopefully forecasting that the chance of a September rate rise is receding. The case for tightening monetary policy next month looks increasingly frail.”

Tiger
Guest
Tiger

LOOK AT THIS GUY WHO THINK HE MAKE $100,000 ON FLIP THIS CONDO. WHO SAY CONDO DOESN’T GO UP I SHOULD HAVE BOUGHT IT WHEN I HAD THE CHANCE ?

http://selectonmain.com/officelistings.html/details-37835423 (2014)

http://evaluebc.bcassessment.ca/Property.aspx (2014)

https://www.locatehomes.ca/bc-real-estate-listings/vancouver/mls-V1140040/319-2222-Prince-Edward-Street-Vancouver-V5T4M6?id=261972102 (2015)

Softy
Guest
Softy

“but not gonna lie, the market hasn’t been great lately, i’m looking at adding to a few positions soon.”

Was that intended to be sarcastic? If not, by the same rationale you should also load up on Van RE soon.

vangrl
Member
vangrl

#17

huh? the Real estate market is at an all time high, stocks have pulled back.

Long term dividend stocks, that consistently raise their dividends, get more attractive with a sell-off.

elvince
Guest
elvince

@Softy: the same rationale says to sell Van RE.

realist
Member
realist

@6 Bull! Bull! Bull! “don’t feel bad patriotz. your stock portfolio will do a lot better in the future. but before that happens it will do a lot worse.”

Not necessarily — only if the portfolio is net long. Shorting stocks can be very lucrative. One of the negatives of RE investing is the inability to short, except by proxy; in a downturn, RE investors can hope to hang on, at best.

BTW, gloating creates bad karma…

elvince
Guest
elvince

@BBB: Here’s a clue: if you don’t know why you’re investing in something, you’re not investing, you’re speculating.

Speculating is even more stupid than gambling. At least when gambling you know the odds.

realist
Member
realist

@3 patriotz

Barbara Jaffe: “A third problem with the Conservative plan is that, at least for now, it all but ignores the pachyderm in the living room — foreign buyers.”

Foreign buyers are mostly first-time buyers, and there’s no dispute that first-time buyers are the engine of housing markets. Foreign first-timers often have a few more million as a down-payment, tho’. In some areas of Vancouver, virtually all first-timer buyers are foreign, but that’s another story…

“Harper, just like Christy, wants ever-increasing RE prices and will pull out all the stops to try to get them.” Big 5, Grosvenor & Guinness families all told them to do it!

patriotz
Member

@22:

The banks do not want inflated RE prices. Their high ratio mortgages may be insured, but they know in the event of an RE bust they will take losses on loans to developers and consumers.

Also an RE bust would inevitably result in increased anti-bank sentiment, as it did in the US.

You have read some of the statements the banks have made that prices are too high. Whatever is said publicly represents a lot more apprehension privately.

southseacompany
Member
southseacompany

Same article as in Maclean’s picked up by Canadian Business magazine

“Why Canada’s political leaders won’t talk about the housing bubble”

http://www.canadianbusiness.com/blogs-and-comment/why-canadas-political-leaders-wont-talk-about-the-housing-bubble/

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